Financial Firms

Ex-Rabobank Traders on Trial for Libor Rigging in the US

Published on: October 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

In New York City, the first criminal trial in the US involving traders accused of rigging the London interbank offered rate is underway. Anthony Conti and Anthony Allen, both former Rabobank traders, are accused of conspiring to turn in fraudulent rate reports for Libor to help others make money off the trades.

According to prosecutor Carol Sipperly, from ’06 to ’11 the two men gave Rabobank and themselves “unfair advantage” with their actions. Sipperly cited messages, emails, and testimony from three other ex-Rabobank traders who pleaded guilty to similar criminal charges.

Defense attorneys for Allen and Conti contended that the rate submissions were presented in good faith and that it was the traders who already pleaded guilty who had engaged in wrongdoing. Allen’s lawyer argued that his client never got compensation for the profits made by the other traders.

Libor rates are established daily in London based on submissions made by 16 banks. The four lowest and highest rates are eliminated with the remaining eight averaged. The benchmark that results represents the rates that banks can borrow from each other for specific periods. However, numerous banks, including Barclays (BARC), JPMorgan Chase (JPM) Rabobank, and Citigroup (c) have had to pay billions of dollars to regulators to settle charges of Libor rigging.

UBS To Pay $19.5M Over Notes Tied to Currency Index

Published on: October 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS AG (UBS) has agreed to pay $19.5 million to resolve SEC charges accusing the firm of making misleading or false statements and omissions in offering materials for structured notes connected to a proprietary strategy for foreign exchange trading. The firm is accused of falsely stating to investors in the United States the structured notes linked to the V10 Currency Index with Volatility Cap were dependent upon a systematic and transparent strategy for currency trading that employed market prices to calculate the financial instruments that were underlying the index. The SEC said that UBS made undisclosed hedging trades, which lowered the index price by as much as 5%. The firm is settling without denying or admitting to the regulator’s findings.

About 1900 US investors purchased approximately $19M of structured notes connected to the index from December ’09 to November ’10. The SEC contends UBS did not have an effective procedure, policy, or process for making sure that the individuals mainly responsible for the offering documents for the notes in the US knew that UBS employees in Switzerland were taking part in practices that could hurt the price inputs for calculating the V10 Index. The firm also purportedly did not disclose that it took unwarranted markups on hedging trades, hedged trades with non-systemic spreads, and traded prior to certain hedging transactions.
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FINRA Fines Voya Financial, J.P. Turner, Cetera, and Other Firms For Not Discounting Big REIT Sales

Published on: October 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has fined six independent brokerage firms for not giving clients the proper discounts on big sales of business development companies and real estate investment trusts. According to InvestmentNews, the self-regulatory organization has been scrutinizing whether financial firms are giving the appropriate discounts, also known as breakpoint discounts to clients.

When the sale of certain nontraded real estate investment trusts is anywhere from over $500K up to $1 million, a discount is usually available. This means that the REIT’s price, which is typically at $10/share with the broker getting a 70 cent commission, can go down to $9.90/share and a commission of 60 cents.

FINRA said that J.P. Turner, Voya Financial Inc. (VOYA), Transamerica Financial Advisors Inc., Investacorp., National Planning Corp., and Cetera Investment Services did not identify and put into effect volume discounts for certain eligible purchase of BDCs and non-traded REITs. Because of this, said the SRO, customers paid sales charges that were too high. Now, all six firms will have to pay restitution to the clients that were affected.

UBS Puerto Rico to Pay $18.5M to Settle FINRA Sanctions Over Supervisory Failures Related to Closed-End Fund Sales

Published on: September 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) is fining UBS Financial Services Incorporated of Puerto Rico (UBS PR) $7.5 million for supervisory failures involving its transactions in UBS sponsored Puerto Rican closed-end funds (CEF). The brokerage firm also must pay $11 million in client restitution for losses related to those shares.

According to FINRA, a self-regulatory organization for the brokerage industry, for over four years, UBS PR neglected to monitor the combined concentration and leverage levels in customer accounts to make sure transactions were suitable for the respective profiles and objectives of its customers. FINRA said that considering that the firm’s retail customers typically kept high concentration levels in the country’s assets and frequently used these concentrated accounts as cash loan collateral-and in light of the U.S. territory’s volatile economy-UBS should have put into place a system that could reasonably identify and prevent unsuitable transactions.

Instead, the regulator said, UBS PR persuaded certain customers to establish credit lines that were collateralized by their securities accounts. If the value of the account dropped under the required collateral level, the customer would have to deposit more assets or liquidate securities. A credit line that is collateralized by an account that is very concentrated could significantly increase an investor’s risk of loss. When the market dropped in 2013, and a lot of the CEFs lost value, customers were forced to sustain hefty losses to satisfy the calls they received notifying them that their account’s value was now under the required collateral level.
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Credit Suisse to Pay $4.25M Over Blue Sheet Trading Data that Was Deficient

Published on: September 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Credit Suisse Securities (USA) LLC (CS) with submitting deficient blue sheet data to the regulator about customer trades. The financial firm is settling the charges by paying a $4.25 million penalty. It has admitted to violating federal securities laws. Credit Suisse acknowledged that it made at least 593 deficient blue sheet submissions to the Commission while leaving out 553,400 reportable trades that represented 1.3 billion shares between 2012 and 2014.

Blue sheet data refers to the color of the forms this type of information used to be placed on before being mailed from a broker-dealer to the SEC. The agency uses the trades when conducting investigations and doing other work. The process by which the regulator now procures this information is electronic but the “blue sheet” name has stuck.

The deficiencies at the firm were related to a probe in which the SEC was looking at blue sheet data and comparing them to data that came from the National Securities Clearing Corp. Credit Suisse has identified the cause of the deficient blue sheet submissions as human and technological errors. The firm has since put into place a number of changes to make sure its blue sheets are accurate from now on.

LPL to Pay $3.2M Over Nontraded REIT and ETF Sales

Published on: September 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

LPL Financial (LPLA) has agreed to pay 3.2 million fine to settle penalties related to its sale of nontraded real estate investment trusts and leveraged exchange-traded funds. The settlements were reached with the Non-Traded REIT Task Force of the North American Securities Administrators Association and regulators in Massachusetts and Delaware. The firm sold the REITs at issue for six years beginning in 2008.

Under the agreement, LPL will pay $1.425 million in civil penalties for its purported failures to put into place a supervisory system that was adequate enough to handle its nontraded REIT sales and enforce written procedures related illiquid trust sales. The money will be divvied up between the District of Columbia, 48 states, the U.S. Virgin Islands, and Puerto Rico. By settling with NASAA, LPL is not denying or admitting wrongdoing.

Also, the Delaware Attorney General and the Massachusetts Attorney General have arrived at their own settlements with LPL’s Boston arm. The firm consented to pay $1.8 million for putting about 200 clients from Massachusetts in high-risk leveraged ETFs. The broker-dealer and Massachusetts had come to an earlier settlement about nontraded REIT sales two years ago.
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Credit Suisse To Pay Over $80M to Settle Dark Pool Allegations, Says Source

Published on: September 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg.com reports that according to someone familiar with the matter, Credit Suisse Group AG (CS) will pay over $80 million to resolve federal and state authorities’ claims that it failed to fully disclose information to clients about how it ran its dark pool. Over $50 million of the payment is expected to take the forms of fines and disgorgement in a settlement with the SEC, while about $30 million would resolve the allegations made by the New York Attorney General.

Credit Suisse’s dark pool, Crossfinder, is the biggest alternative trading system in the country. The source said that the Swiss bank is accused of misrepresenting certain aspects about the way it runs the platform.

In dark pools, demand and supply remain private. Only specifics about executed trades are disclosed. Dark pools comprise one-fifth of trading in the U.S. stock market. Large investors, high frequency traders, and hedge funds are among those that trade on these alternative trading systems. There is concern that some traders are able to exploit and profit, sometimes with the help of dark pool operators. Meantime, ordinary investors may be suffering because of their inability to avail of such benefits.

Bank of America, Deutsche Bank, Citigroup, & Other Big Banks Settle $1.87B Settlement Over Swaps Price-Fixing Case

Published on: September 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

$1.87B securities settlement has been reached with 12 major banks. The case resolves investor claims that the financial firms conspired to rig prices to hold back competition in the credit default market. For now, the resolution is an agreement in principal and the parties have two weeks to work out the details before turning the deal over to U.S. District Judge Denise Cote in Manhattan for preliminary approval.

The defendants in this credit default case are:

· Bank of America Corp. (BAC)

· UBS AG (UBS)

· Goldman Sachs Group Inc., (GS)

· Barclays (BARC)

· Royal Bank of Scotland Group Plc (RBS)

· BNP Paribas SA (BNP)

· Morgan Stanley (MS)

· Citigroup (C)

· JPMorgan Chase (JPM)

· Credit Suisse Group AG (CS)

· Deutsche Bank AG (DB)

· HSBC Holdings Plc (HSBC)

Markit Ltd and the International Swaps and Derivatives Association are also defendants.

CFTC Investigates JP Morgan For Product Steering

Published on: September 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, sources say that the CFTC is probing into whether J.P. Morgan Chase (JPM) engaged in product steering by inappropriately directing private banking clients to its own hedge funds. Its investigation is also scrutinizing Highbridge Capital Management LLC, which is owned by the bank. The CFTC wants to know why a significant chunk of Highbridge’s assets is from J.P. Morgan’s private banking assets and whether this was beneficial to the alternative investment management firm during the economic crisis.

Although banks can sell in-house investments, advisers are only allowed to recommend these investments if they are in the best interests of clients or, at a minimum,suitable for their portfolios and needs.

J.P. Morgan purchased Highbridge in 2009. The firm’s returns were solid for years until the financial crisis, which is when investors sought to take out billions of dollars from its biggest hedge fund. To keep investors from leaving, Highbridge offered incentives, such as lower fees.

J.P. Morgan’s private banking clients still hold significant investments in Highbridge funds. However, a J.P. Morgan spokesman who spoke to The Wall Street Journal said that 95% of hedge fund investments from the financial institution’s private banking clients are in funds that have no connection to Highbridge.

Three Ex-Nomura Traders Face RMBS Fraud Charges

Published on: September 8, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Attorney’s Office for the District of Connecticut and the Securities and Exchange Commission are charging three ex-Nomura Securities International (NMR) traders with mortgage-backed securities fraud. The SEC contends that while at Nomura, Michael Gramins, Ross Shapiro, and Tyler Peters misrepresented the bonds and offers that the firm was provided for the residential mortgage-backed securities, along with the prices at which it bought and sold the securitizations and the spreads earned for intermediating the trades.

The three men are accused of not only lying to customers about the pricing data of the mortgage bonds but also of bilking of them of millions of dollars. The SEC claims that they coached, trained, and instructed junior Nomura traders to also commit this fraud. Their wrongdoing purportedly helped Nomura make millions of dollars in illicit revenue—$5 million from their alleged misconduct and $42 million from the omissions and lies made by those whom they trained.

Meantime, prosecutors have announced criminal charges against the three men. According to the indictment, they oversaw Nomura’s RMBS Desk in New York. Shapiro was a managing director, Gramins was the desk’s executive director, and Peters was a Senior VP whose role was concentrated on bond trading of alt-A loans and prime loans.

The men are accused of conspiracy to defraud Nomura customers by inflating the RMBS bond price that the firm had to pay in order to get customers to pay an even higher price. They also purportedly deflated the price that Nomura could sell an RMBS bond to get customers to sell at lower prices, as well as set up fake third third-party sellers and offers even when Nomura already owned the bonds, which they then pretended they were getting potential buyers.