Financial Firms

Securities News: $5.95B RMBS Lawsuit Against Moody’s is Reinstated, Barclays Traders Remain on Trial, And Former Bank CEO Enters Guilty Plea to Fraud Charges

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

1st Circuit Reinstates Lawsuit Against Moody’s
The First Circuit Court of Appeals has reinstated the $5.9 billion residential mortgage-backed securities fraud case brought by the Federal Home Loan Bank of Boston against Moody’s Investor’s Service, Inc. and Moody’s Corp. The bank claims that the credit rating agency knowingly issued false ratings on certain RMBSs that it had purchased.

A district court judge in Massachusetts had dismissed the lawsuit citing lack of personal jurisdiction. The judge also held that the court could not move the lawsuit to a different court where jurisdiction would be proper because cases dismissed for lack of jurisdiction could only be transferred if the dismissal was for lack of subject matter jurisdiction, not personal jurisdiction.

Now the First Circuit has vacated that ruling and found that transferring a case that has dismissed for lack of personal jurisdiction is also allowed. It is moving the RMBS case to the district court, which will decide whether to move the case to New York.

Former Barclays Trader Pleaded Guilty to Libor Rigging
According to prosecutors in the U.K., ex-Barclays Plc. (BARC) trader Peter Johnson pleaded guilty to conspiracy to manipulate the London interbank offered rated in 2014. The government announced the guilty plea this week after lifting a court order that had prevented the plea from being reported until now. The disclosure comes as the criminal trial against five of Johnson’s former Barclays co-workers into related allegations is underway.

The defendants on trial are Jay Merchant, Stylianos Contogoulas, Alex Pabon, Ryan Reich, and Jonathan Matthew. They have pleaded not guilty to the charge of conspiracy to commit fraud. The U.K.’s serious fraud office claims that the men acted dishonestly when they turned in or asked others to submit rates for Libor.

JPMorgan to Pay $150M to Pension Funds Over London Whale-Related Losses

Published on: May 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A U.S. district court judge has approved a settlement reached at the end of last year between JPMorgan Chase & Co. (JPM) and pension funds related to trades made by Bruno Iksil, who earned the nickname “London Whale” because of his huge market-moving positions in credit derivatives. In their class action securities case, the plaintiffs accused the firm of using its chief investment office in London as a secret hedge fund and hiding up to $6.2M in losses.

Even though the office was supposed to be primarily for managing risk, the plaintiffs believe that it was making high-risk trades for profit, including trading in complex credit derivatives. Depositors’ money was purportedly used in secret for making certain trades. Shareholders claim that JPMorgan knew about the increased risks it was taking and hiding them.

JPMorgan has not admitted to wrongdoing by settling this deal. However, it was also fined over $1B by regulators in the U.K. and the U.S. for management deficiencies related to the London Whale scandal.

Ex-Deutsche Bank Broker Found Guilty for Insider Trading Related to Operation Tabernula Probe

Published on: May 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Martyn Dodgson, a former Deutsche Bank AG (DB) broker and managing director, and Andrew Hind, an accountant, were convicted of insider trading in London. The Financial Conduct Authority said that that Dodgson and another broker gave insider information about certain business deals to Hind, who then passed on the information to two other traders. They allegedly made $10.7M from trading half a dozen stocks in what is being called the largest insider trading case in the U.K.

The probe into the insider trading allegations, known as Operation Tabernula, has been going on for nine years. Already, three other convictions have been rendered related to the investigation. According to prosecutors, those involved employed conventional techniques and modern technology to conceal their trades. For example, they would meet at Indian restaurants where they’d hand over money in envelopes. They also purportedly used pay-as-you-go phones and encrypted memory sticks.

After investigators planted a bug in the office of day trader Benjamin Anderson, a conversation was recorded involving Iraj Parvizi, another day trader, in which Dodgson was described. Anderson and Parvizi, who were both acquitted of criminal charges, claimed that they had no reason to believe that the tips they were receiving was insider information.

It was in 2014 that former Moore Capital Management LLC trader Julian Rifat pleaded guilty to insider trading in an offshoot probe of this investigation. He admitted to sharing insider information that he received while employed at the firm to associate Graeme Shelley, who then traded to benefit the two of them. Shelley, who was formerly with Novum Securities, also pleaded guilty to insider dealing with Rifat and associate Paul Milsom, who entered his own guilty plea.

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis

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

According to InvestmentNews, New York City Council Speaker Melissa Mark-Viverito is asking the U.S. Securities and Exchange Commission (“SEC”) to conduct a probe into OppenheimerFunds, Inc. (“OPY”) and its impact on Puerto Rico’s financial woes. Speaker Mark-Viverito believes that the asset-management company played a part in making Puerto Rico’s financial crisis worse by investing even more in the island’s debt. She claims that just in the last eight months, OppenheimerFunds has added $500 million to investments it made in Puerto Rican debt.

Right now, the U.S. territory owes over $70 billion in debt, which it is struggling to pay. It recently defaulted on over $370 million of a bond payment that was due this month. Another $2 billion is due in July, including around $700 million in general obligation debt.

To satisfy investor redemptions, OppenheimerFunds has sold its non-Puerto Rico bonds, which would have raised the current allocation of the asset manager’s funds to the Commonwealth. In a letter to the SEC, Mark-Viverito, who was born in Puerto Rico, urged the agency to look into whether Oppenheimer has complied with all regulations and securities laws when handling its Puerto Rican bond investments. She believes banks, hedge funds, and other investors in the territory’s general-obligation bonds and utility debt are to blame for the island’s financial woes.

Four Credit Suisse Bankers Accused of Unauthorized Trading in Rich Clients’ Accounts, Bank of America Settles Mortgage Case for $190M, and Goldman Sachs to Pay Illinois Pension Fund $272M

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

Bank of America to Pay Federal Home Loan Bank of Seattle $190M
Bank of America Corp. will pay $190M to resolve mortgage-backed securities fraud charges brought by the Federal Home Loan Bank of Seattle. The SEC filing stated that the settlement was reached last month and that most of it was previously accrued. The lawsuit alleged misstatements and omissions during the issuance of MBSs.

It was just earlier this year that Bank of America’s Merrill Lynch and 10 other banks agreed to pay over $63M to resolve accusations that they misrepresented residential mortgage-backed securities to the Virginia Retirement System and the state of Virginia.

Judge Approves $270M Mortgage-Backed Securities Fraud Settlement Involving Goldman Sachs
A federal judge has approved the proposed settlement between Goldman Sachs (GS) and lead plaintiff NECA-IBEW Health & Welfare Fund, as well as 400 bondholders and another electrical union pension fund. The Illinois pension fund for electrical workers brought the case in 2008, accusing the firm of leaving out key information and making false statements about the mortgages it sold into 17 trusts the year before.

Deutsche Bank Settles Silver Price Rigging Case

Published on: May 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has settled a private lawsuit accusing the German bank of manipulating silver futures prices. The terms of the payment amount were not disclosed.

It was in 2014 that silver futures trades sued Deutsche Bank (DB), Bank of Nova Scotia (BNS), and HSBC Holdings Plc (HSBC), accusing the firms of unlawfully manipulating the price of metal and its derivatives. They claimed that the banks, which are the largest silver bullion banks in the world, abused their power so they could dictate the price of silver. The banks would hold secret meetings daily and allegedly manipulate the price so they could illegitimately profit during trading. Meantime, other investors utilizing the silver benchmark in billions of dollars of transactions purportedly were harmed.

Deutsche Bank has admitted to manipulating gold and silver prices. It promised to provide any evidence it might have about other banks’ and their involvement, including electronic communications.

Claims have previously brought against financial firms over alleged gold price rigging. In 2014, Barclays Plc (BARC) was fined $43.8M for internal control failures that let a trader rig gold prices.

MetLife Securities Ordered to Pay $25M FINRA Sanction Related to Variable Annuities

Published on: May 5, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority said that MetLife Securities Inc. (MSI) would pay a $20M fine as well as $5M to customers for negligent and material misrepresentations that it purportedly made related to variable annuity replacement applications. According to the self-regulatory organization, these alleged omissions and misrepresentations were on tens of thousands of applications, and they made each replacement variable annuity seem of greater benefit to the customer despite the fact that the variable annuities that were recommended were usually more costly than the ones that the customers already owned. MetLife Securities made at least $152M in gross dealer commissions over six years through its variable annuity replacement business.

Based on a sample of transactions that were randomly examined, FINRA said that from ’09 through ’14, MetLife Securities omitted or misrepresented at least one material fact connected to the guarantees and costs of existing variable annuity contracts in 72% of the 35,500 replacement applications that it approved. Among the alleged misrepresentations:

· Existing variable were costing customers more than the variable annuities they were recommending, when the opposite was true.

· Customers were not told that the variable annuity replacements promised to them would lessen or get rid of key features that their current variable annuity possessed.

· In disclosures, the value of customers’ existing death benefits was understated.

Bank of America, Citigroup, JPMorgan Chase, Credit Suisse, Deutsche Bank, and Other Banks Settle ISDAFix Rigging Case for $324 Million

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

Seven big banks have resolved a U.S. lawsuit accusing them of rigging ISDAFix rates, which is the benchmark for appraising interest rate derivatives, structured debt securities, and commercial real estate mortgages, for $324M. The banks that have reached a settlement are:

· Barclays PLS (BCS) for $30M (In 2015, Barclays paid $115M to U.S. Commodity Futures Trading Commission to resolve charges of ISDAfix rigging.)
· Bank of America Corp. (BAC) for $50M
· Credit Suisse Group AG (CS) for $50M
· Citigroup Inc. (C) for $42M
· JPMorgan Chase & Co. (JPM) for $52M
· Deutsche Bank AG (DB) for $50M
· Royal Bank of Scotland Group plc (RBS) for $50M

The deal must be approved by a Manhattan federal court. The defendants had sought to have the case dismissed, but US District Judge Jesse Furman in Manhattan refused their request. stating that the case raised “plausible allegations” that the defendants were involved in a conspiracy together.

Puerto Rico Misses Most of Its $422M Debt Payment

Published on: May 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Puerto Rico Governor Alejandro García Padilla announced this week that the U.S. territory would not be paying most of the $422 million in debt that was due on Monday. However, it did pay $23 million in interest. As the Puerto Rican government had swapped $33 million of debt for new debt that matured at a later date, the principal it missed on its Government Development Bank-issued bonds was $367 million.

This was a significant development in the stand-off between the Commonwealth and Washington DC, as well as investors in Puerto Rican debt. Moreover, there are much more significant sums due this summer and, if this week’s failure to pay is an indication, investors could be in trouble.

Puerto Rico currently owes more than $70 billion to bond holders. Over $2 billion in bond payments are due this summer, including $805 million in Puerto Rico general obligation bonds. In the wake of this latest default there is growing concern that there will be more defaults in the future.

One significant Puerto Rico bond issuer, the Puerto Rico Government Development Bank (“GDB”), says it has arrived at a tentative deal with a group of hedge funds holding $900 million of the bank’s debt in which the funds would agree to a possible reduction on the dollar of their original securities’ face value. This group of institutional investors, which is being called the “Ad Hoc Group of bondholders,” include Claren Road Asset Management, Avenue Capital Management, Fir Tree Partners, Brigade Capital Management, Solus Alternative Asset Management, and Fore Research Management. The GDB arrived at a similar deal with credit unions that are holding about $33 million in debt. Regardless, according to Bloomberg, analysts at Moody’s Investors Service said that even if creditors agree to a non-payment, it would still be a default.

Mutual funds, bond insurers, hedge funds, and individual investors are among those still holding the Commonwealth’s debt. Many of them got involved with Puerto Rico closed-end bond funds because of the high yields and tax benefits. When the securities plunged in value a few years ago, thousands of investors lost a significant portion of their savings. Retail investors, retirees, and small business owners were hit especially hard.

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

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

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.