Financial Firms

Fed Orders Goldman Sachs to Pay $36M Fine Over Confidential Documents Leak

Published on: August 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group Inc. (GS) will pay $36.3M to settle allegations accusing ex-employees of obtaining access to confidential documents from the Federal Reserve. The Fed contends that Joseph Jiampietro, while working as a Goldman Sachs managing director, obtained the unauthorized supervisory data belonging to bank regulators and utilized the information for his work at the financial firm.

The Fed said that ex-Goldman Sachs banker Rohit Bansal was the one who shared the confidential documents with Jiampietro. Bansal had gotten the documents from his friend Jason Gross, a New York Fed employee that he used to work with at the regulatory agency. The confidential data involved a bank that was a client of Goldman Sachs. Last year, Bansal pleaded guilty to a misdemeanor charge involving the Fed documents, while Gross pleaded guilty to giving Bansal the information.

The Fed believes that Jiampietro used the confidential information to make pitches to potential and current clients. A lawyer for Jiampietro, who had previously worked for UBS Group Ag (UBS) and JPMorgan Chase & Co. (JPM), maintains that the allegations against his client are “demonstrably false.”

Financial Firm News: Deutsche Bank Ordered to Face Part of Subprime Mortgage Fraud Lawsuit & Morgan Stanley & Bank of America Must Contend with MBS Case

Published on: August 1, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A U. S. district court judge said that Deutsche Bank AG (DB) must face part of a mortgage fraud case accusing the German bank of bilking investors who purchased over $5.4M of preferred securities. The plaintiffs, led by two individuals and Belmont Holdings Corp., claim that Deutsche Bank hid its exposure to the subprime mortgage market.

Judge Doborah Batts turned down the bank’s bid to throw out claims related to about $2.55B of securities sold in 11/07 and 2/08. She did, however, dismiss claims involving $2.9B of securities sold in 5/07, 7/07, and 5/08. Investors claim that Deutsche Bank should have notified them in offering documents that it had significant exposure to subprime markets via collateralized debt obligations and residential mortgage-backed securities. They believe that early notification could have prevented them from purchasing the preferred securities before their values dropped, resulting in billions of dollars of losses.

Securities News: Citigroup to Pay $7M Over Incomplete Blue Sheet Data, Cetera Fined $75K for Client Record Issue, and Raymond James Settles EB-5 Program Violations for $1.45M

Published on: July 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James to Pay Vermont Almost $1.5M in Immigrant Visa Case
The Securities Division of the Vermont Department of Financial Regulation said that Raymond James & Associates (RJF) must pay $1.45M in penalties because one of its registered representaitves allowed investor money to be misused in a$350M development fraud involving the EB-5 program. The program lets rich foreign investors obtain permanent residency if they invest a certain amount in projects that help establish jobs for U.S. citizens.

Earlier, a Securities and Exchange Commission-appointed receiver sued Raymond James, which received wire transfers involving the scam beginning in 2008. The money was from investors who thought they were investing in a Vermont ski resort. One of the fraudsters, Ariel Quiro, is accused of borrowing against the Raymond James accounts and using nearly $2.5M of investors’ money to cover margin interest loans to the firm. Last month, Raymond James arrived at a $5.95M settlement with the Vermont Department of Financial Regulation over violations involving the ski resort. $4.5M of the money was for paying back investors.

Regarding this $1.45M fine, Vermont regulators said that it was a Raymond James representative who set up the brokerage and margin accounts involved in the alleged scam. The financial representative also failed to procure the proper documentation showing that Quiros was entitled to act for certain limited partnerships and let him authorize the transfer of $13M in limited partnership money to buy the ski resort even though written instructions directed otherwise.

Citigroup Admits Wrongdoing Over Blue Sheet Data
According to the SEC, for 15 years, Citigroup Global (C) markets provided the regulator with incomplete blue sheet data regarding trades that it executed. The coding error involved software that the firm used from 5/99 to 4/14 for processing the Commissions’ requests for the information, including data about trade times, prices, volume traded, and information identifying customers. As a result, Citigroup left out nearly 27,000 securities transactions in responses to over 2,300 blue sheet requests.

Ameriprise Financial Advises Clients to Sell OppenheimerFunds Muni Bond Funds with Puerto Rico Debt

Published on: July 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, in the wake of Puerto Rico’s default on July 1 of $911 million of bond payments it owes creditors—including $779 million of general obligation bonds—Ameriprise Financial Inc. (AMP) is recommending that clients sell their OppenheimerFunds (OPY) municipal bond funds that are holding any of the island’s debt. In a report this week, Ameriprise senior research analyst Jeffrey Lindell said that with the acceleration of Puerto Rico bond defaults—as the island tries to lower its $70 billion debt via bondholder losses—mutual funds holding these bonds could end up having to “cut dividend rates.” He also wrote that as Puerto Rico bonds respond to “speculation and news,” the mutual funds’ net asset value could turn “volatile.”

In its recent article, Bloomberg provided data from Morningstar Inc., which reports that as of the end of March, Oppenheimer held $3.5 billion of Puerto Rico securities in 19 funds, which is more than anyone else. Now, Ameriprise wants clients to look at investment options that are not as risky as the funds holding Puerto Rico municipal bonds. The firm is suggesting that clients sell investments involving 16 Oppenheimer muni funds. Included in the recommendation to sell are a number of state specific municipal bond funds, including the:

· Oppenheimer Rochester Virginia Municipal (ORVAX)
· Oppenheimer Rochester Pennsylvania Municipal (OVPAX)
· Oppenheimer Rochester Maryland Municipal (ORMDX)
· Oppenheimer Rochester North Carolina Municipal (OPNCX) and
· Oppenheimer Rochester Arizona Municipal (ORAZX)

Several days after the July 1 default, credit rating agency Standard & Poor’s (SP) reduced the U.S. territory’s credit rating to “default” status. The default was not the first time Puerto Rico was unable to cover debt payments that were due—although it was the first default involving Puerto Rico’s general obligation debt, which was supposed to have a constitutional guarantee.

It was in May that NY City Council Speaker Melissa Mark-Viverito asked the SEC to investigate whether OppenheimerFunds played a part in causing Puerto Rico’s financial crisis to worsen. Mark-Viverito believes that banks, hedge funds, and other investors who bought into Puerto Rico utility debt and general obligation bonds contributed to the territory’s debt woes.

HSBC Executives Are Charged with FX Rigging

Published on: July 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

US prosecutors have arrested HBSC (HSBC) executive Mark Johnson for his alleged involvement in a front-running scam. Johnson is the global head of foreign exchange cash trading at HSBC Bank, which is a HSBC Holdings subsidiary. Also facing criminal charges is Stuart Scott, who is the former head of HSBC foreign exchange cash trading for Europe, Africa, and the Middle East. He was let go in 2014. Johnson and Scott are the first individuals to face criminal charges in the forex rigging probe.

According to the criminal complaint, which charges the two men with conspiracy to commit wire fraud, in 2011 Scott and Johnson inappropriately used information that the bank’s client gave them about a planned sale of one of the client’s subsidiaries. The client had retained HSBC to execute the foreign exchange transaction, which necessitated changing about $3.5B in sale proceeds into British Pound Sterling.

HSBC was supposed to keep the details of this pending transaction confidential. However, Scott and Johnson allegedly misused this information, buying Pound Sterling for the bank’s proprietary accounts, which they held until the transaction went through. This caused the transaction to take place in a way intended to compel the Pound Sterling’s price to jump up.

Ex-Prudential Financial and MetLife Broker is Barred over Deceptive MetLife Variable Anuuity Sales

Published on: July 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA has banned Winston Wade Turner from the securities industry. The former Prudential (PRU) and MetLife (MET) broker is accused of engaging in deceptive variable annuities sales. Turner was fired from Pruco Securities, a Prudential subsidiary, in 2015. The cause of his firing was deceptive sales practices.

Now, FINRA has barred him for a number of causes, including giving false information to clients about variable annuity sales, the fraudulent misrepresentation and omission of key facts to customers about the sales, providing false information in VA-related documents, and not giving testimony to the self-regulatory organization during its probe into this matter.

According to the SRO, Turner fraudulently misrepresented and omitted material facts about VA sales and concealed that he had persuaded a lot of customers to give up existing variable annuities or other investments so that they would buy the newer VAs that he was selling. He is accused of persuading at least 12 clients to trade their existing investments for this purpose, costing them over $150K in surrender charges.

Four Former Barclays Traders Get Prison Terms for Libor Rigging

Published on: July 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Four ex-Barclays (BCS) bankers who were convicted for conspiring to manipulate global benchmark interest rates have been sentenced to time behind bars for their crimes. The defendants and their prison terms are: Jay Merchant, for six-and-a-half years; Jonathan Mathew for four years; Peter Johnson for four years, and Alex Pabon for two years and nine months.

While Merchant, Mathew, and Pabon were convicted of their crimes, Johnson, a former senior dollar Libor submitter and the ex-head of dollar cash trading, pleaded guilty in the case against him in 2014. They all were charged with conspiracy to defraud involving Libor rigging to benefit their banks and one another as they defrauded others.

The judge who presided over the former Barclays traders’ case accused them of abusing their position, committing the offenses more than once over a significant period of time, and compromising the banking industry. All of the men will serve half their prison terms before being released on license.

The manipulation of Libor, the London interbank offered rate, and other benchmark interest rates led to a global probe that has resulted in hefty fines for the firms whose brokers colluded together to rig rates. In 2012, Barclays admitted that it let its derivatives traders rig Libor rates. The bank paid $450M to authorities in the US and Europe to settle charges. Collectively, the banks accused in the Libor manipulation scandal have paid billions of dollars in penalties. There have been at least 13 convictions.

Goldman Sachs Settles CDO Fraud Lawsuit Brought by Basis Yield Alpha Fund

Published on: July 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group Inc. (GS) and Basis Capital’s Basis Yield Alpha Fund have reached an agreement to settle the $1B collateralized debt obligation fraud lawsuit brought by the Australian hedge fund against the bank several years ago. The Basis Yield Alpha Fund accused Goldman Sachs of making false statements related to its marketing of the Timberwolf, a mortgage-linked investment, and the Point Pleasant collateralized debt obligation (CDO). (The Timberwolf investment was named in the 2011 U.S. Senate report that found that Goldman misled clients about mortgage-backed securities.)

The Australian hedge fund, in its complaint, claimed that Goldman falsely claimed that the market for CDO investments had become stable even though it knew that was not the case. These particular securities dropped in value within weeks of purchase by the fund.

The Basis Yield Alpha Fund is convinced that Goldman sold the securities to rid itself of the toxic subprime mortgages while making money by shorting the securities. The fund sought repayment of over $67M it claims was lost by investing in the collateralized debt obligations, as well as $1B in punitive damages. Goldman, which argued that the fund’s losses were caused by the demise of the housing market and not because of any alleged misrepresentations, claimed that the Australian hedge fund filed its CDO fraud lawsuit to try to get the bank to pay these losses.

Financial Representative News: Ex-LPL Financial Broker Gets Suspension and Fine & Former Ex-GL Capital Partners CEO is Sentenced to Prison

Published on: June 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-LPL Financial Supervisor Settles with FINRA

Peter Neuberg, a former LPL Financial (LPLA) supervisor and broker, will pay a $15K fine and serve a six-month suspension to settle claims accusing him of not reasonably supervising a registered representative. According to an enforcement document signed by the Financial Industry Regulatory Authority, Neuberg stopped looking at paperwork that the representative prepared. This made it possible for the broker to modify documents about customer accounts and reuse signatures from forms that had been completed. Neuberg is settling without admitting or denying FINRA’s findings.

The purported supervisory failures would have taken place from September ’11 to June ’12. The broker, whom Neuberg supervised, falsified documents to expedite transactions to accommodate certain customers. Neuberg is accused of not properly training the broker.

Ex-GL Capital Partners CEO Gets Nine Years in Prison

In other news, Daniel Thibeault, the former CEO of GL Capital Partners, is sentenced to nine years behind bars for misappropriating at least $15M. He must pay $15.3M in restitution for the criminal charges. He also is contending with civil charges brought by the Securities and Exchange Commission.

Raymond James Sued Over $350M Development Fraud, Settles with Vermont for $5.95M

Published on: June 30, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A receiver appointed by the U.S. Securities and Exchange Commission has filed a lawsuit against Raymond James Financial Inc. (RJF) over its alleged involvement in a $350M development fraud. The case stems from a complaint that the regulator filed earlier this year against William Stenger and Ariel Quiros. Along with their companies, the two of them are accused of making omissions and false statements when raising funds from foreign investors to supposedly build a biomedical research facility and ski resort facilities.

Raymond James and its employees are not defendants in that lawsuit. However, the firm is mentioned in the complaint to have received wire transfers starting in 2008 from a Vermont bank. The money went to brokerage accounts at Raymond James and they were in Quiros’s name. The funds were from investors and intended for the Peak resort in Vermont.

Quiros went on to borrow against the money in his Raymond James accounts that included high interest margin loans. He purportedly used investor money to pay almost $2.5M in margin interest loans to Raymond James.