Financial Firms

UBS Ordered to Pay Retired Investor $200,000 For Puerto Rico Bond Fund Losses

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

A Financial Industry Regulatory Authority (“FINRA”) panel has ordered UBS Financial Services, Inc. and UBS Financial Services of Puerto Rico (collectively “UBS”) to pay an investor $200,000 for losses she sustained by investing in UBS’s Puerto Rico closed-end bond funds. This is the first known ruling from a FINRA arbitration panel in the hundreds of municipal bond fraud lawsuits filed by investors over the last few years.

The investor, Yolanda Bauza, invested money she obtained in a car accident settlement. In her Puerto Rico bond fraud case, Bauza alleged misrepresentations, securities fraud, and other wrongdoing. In addition to the $200,000 award, the arbitrators denied the firm’s request to remove information about the case from the public records of David Lugo and Carlos Gonzalez, two of the brokers who advised Bauza.

According to Sam Edwards, a partner with Shepherd, Smith, Edwards & Kantas, who is representing a number of Puerto Rico bond fund investors, “We are very pleased that FINRA’s arbitrators recognized what those of us representing the many thousands of investors in Puerto Rico and abroad have known for almost two years: UBS’s Puerto Rico bond funds were highly conflicted, very risky and completely misrepresented to investors. They were suitable for almost no investors. As a result, those who invested in these bond funds, like Ms. Bauza, should be fairly compensated.”

Goldman Sachs Must Pay National Australia Bank $100M in Mortgage Fraud Case

Published on: May 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (“FINRA”) arbitration panel recently ordered Goldman Sachs Inc. (“Goldman”) to pay $80 million in compensatory damages plus millions more in interest to National Australia Bank Ltd. (“NAB”), resulting in an award likely to cost Goldman (GS) more than $100 million. According to the award and NAB’s complaint, Goldman sold NAB several collateralized debt obligations (“CDOs”), including the Hudson Mezzanine Funding 2006-1 Ltd.

In particular, NAB paid $80 million for its stake in Hudson Mezzanine Funding, a Goldman-backed product, shortly before the financial crisis began. The investments failed when the market for CDOs and other asset backed securities fell apart in 2007 and 2008. In 2011, a U.S. senate report disclosed that while pitching Hudson Mezzanine Funding, Goldman did not tell investors such as NAB that it was betting against the assets supporting Hudson and other CDOs. As a result, according to NAB’s attorneys, when the economic crisis ensued, Goldman profited from the Hudson CDO while NAB and other investors lost all of their investment.

In its complaint, NAB contended that the mortgage-related deal posed a substantial conflict of interest between Goldman and its clients, and, therefore, Goldman was required under FINRA rules to disclose the conflict. Goldman argued it had no such disclosure obligation and, in fact, filed a counterclaim against NAB.

Barclays, Citigroup, J.P. Morgan Chase & Royal Bank of Scotland to Settle FX Rigging Allegations

Published on: May 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Wall Street Journal says that U.S. prosecutors are getting ready to announce settlements reached with Barclays PLC ( BCS), Citigroup Inc. (C), Royal Bank of Scotland Group (RBS), and J.P. Morgan Chase & Co. (JPM) over allegations involving foreign currency exchange rate rigging. All four banks are expected to plead guilty to charges of criminal antitrust related to their traders’ alleged collusion in foreign currency markets. The Department of Justice has been investigating whether traders manipulated exchange rates so that their positions would benefit even if this meant financially hurting customers.

Barclays is expected to settle with a number of agencies in the U.S. and Europe for over $1 billion. Also expected to settle is UBS AG (UBS), which was the first bank to cooperate with federal investigators in this probe. The Swiss bank, however, will reportedly be granted immunity from prosecution.

Guilty pleas by the other firms, however, aren’t going to resolve all of the investigations into forex rigging. Other banks are still under scrutiny and settlements from them may be pending.

LPL Financial to Pay $11.7M Fine for Supervisory Failures

Published on: May 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. said that LPL Financial (LPLA) must pay $11.7M in fines and restitution for widespread supervisory failures involving complex products sales. The self-regulatory organization said that from 2007 up to last month, the firm did not properly supervise certain exchange-traded funds, nontraded real estate investment trusts, and variable annuities. It also did not properly deliver over 14 million trade confirmations to customers and failed to properly supervise communications, including advertising, as well as the consolidated reports used by brokers.

According to the Letter of Acceptance, Waiver, and Consent, To grow LPL, its wholly-owned brokerage firm subsidiary, LPL Financial Holdings Inc. employed a strategy that included acquiring financial services firms, consolidating them with the broker-dealer, and bringing in more registered representatives. Unfortunately, said the SRO, the firm failed to dedicate enough resources to allow LPL to fulfill its supervisory duties.

As just one example, LPL did not have a system for either monitoring the duration of time customers held securities in accounts or enforcing concentration limits on complex products. Its system for reviewing trading activities in accounts had numerous deficiencies. Also, LPL did not submit trade confirmations in over 67,000 customer accounts.

City of Los Angeles, CA Sues Wells Fargo for Fraud

Published on: May 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The city of Los Angeles has filed a civil complaint against Wells Fargo Bank (WFC). The lawsuit accuses the bank of encouraging employees to take part in conduct that was illegal and fraudulent, including setting up unauthorized accounts for customers, charging them unwarranted fees, and ruining their credit.

The city is looking to get a court order stopping the alleged wrongdoing. It wants penalties for every violation, as well as restitution for customers that were hurt. The case is applicable to residents of Los Angeles County and perhaps even customers outside that area.

According to the complaint, employees purportedly misused the confidential data of customers and neglected to close unauthorized accounts when the latter complained. Certain employees even allegedly raided customer accounts for money to set up additional accounts. When unwarranted fees went unpaid, the bank purportedly put customers into collections because of unauthorized withdrawals and damaging data on their credit cards because of these unwarranted fees.

RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales

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

The Financial Industry Regulatory Authority is ordering RBC Capital Markets to pay restitution to customers for supervisory failures that allowed for the sale of reverse convertibles that were unsuitable for them. The firm must pay them about $434,000 plus a $1 million fine.

According to the self-regulatory organization, RBC Capital Markets lacked supervisory systems that were reasonably designed to identify transactions that warranted review when the reverse convertibles were sold to customers. This purported inadequacy is s a violation of FINRA’s rules and suitability guidelines.

Although RBC had guidelines for selling reverse convertibles, specific criteria were established regarding annual income, investment goals, liquid net worth, and investment experience. Because of this, the firm was unable to detect the sale of 364 reverse convertible transactions by 99 of its registered representatives. The transactions involved 218 accounts and they were not suitable for the account holders. The customers lost at least $1.1 million.

SEC Investigates Bank of America Merrill Lynch

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

According to The Wall Street Journal, the U.S. Securities and Exchange Commission is investigating Bank of America Corp. (BAC) and its Merrill Lynch unit to find out if the lender broke rules established to protect customers accounts. According to sources in the know, over a three-year period, Merrill Lynch used different kinds of big, complex trades and loans to save on funding expenses and free up billions of dollars in money and securities for trading that it otherwise would have needed to keep off-limits.

Bank of America put a halt to the trades in 2012 in the wake of internal dialogue over possible risks involved. The trades involved strategies that existed when the bank purchased Merrill Lynch in 2009.

Now, the SEC wants to know if the strategies violated the protection rules and if regulators were misled about the bank’s actions. It also is trying to determine if retail brokerage funds were placed at risk for the purpose of making more money.

Morgan Stanley Sued by Home Shopping Founder’s Widow for $170M

Published on: April 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Lynnda L. Speer, the widow of Home Shopping Network co-founder Roy M. Speer, is suing Morgan Stanley Wealth Management (MS), a branch manager, and an adviser for over $170 million. Mrs. Speer contends that the firm and adviser Ami Forte took part in excessive trading, abused their fiduciary duty, and were involved in unauthorized use of discretion.

Now, she is seeking $78 million for Florida Statute violations, up to $66 million in portfolio damages, and up to $44 million for disgorgement and excess commission damages. Also named in the complaint submitted to the Financial Industry Regulatory Authority is Morgan Stanley branch manager Terry McCoy.

Reuters reports that Speer’s case accuses Morgan Stanley of not properly supervising its brokers and failing to act in the best interests of Mr. Speer. When Speer died in 2012 at the age of 80 his estimated worth was approximately $775 million.

Deutsche Bank to Pay $2.5B for Rate Rigging

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

Financial firm Deutsche Bank (DB) will pay a $2.5 billion fine to regulators in the United States and Britain for its involvement in rate rigging. The German lender also will fire seven of its employees.

This is the largest penalty to date against a financial institution over allegations of benchmark manipulation. As part of the deal, Deutsche Bank’s subsidiary in London has pleaded guilty to criminal wire fraud charges. Meantime, the parent group has arrived at a deferred prosecution deal to resolve U.S. wire fraud and antitrust charges.

The large fine is reflective of the banks’ big market share for financial instruments tied to interest rates on mortgages, credit cards, student loans, and credit cards that the benchmarks help set.

Former JPMorgan Chase Investment Adviser Faces Criminal and Civil Charges for Allegedly Stealing $20M from Clients

Published on: April 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Michael Oppenheim, an ex-JPMorgan Chase (JPM) investment adviser, was arrested this week and charged with bilking clients of at least $20 million. Oppenheim worked for the firm from 2002 until March of this year.

Authorities claim that starting as early as 2011, Oppenheim convinced clients to allow him to take money out of their accounts to invest in low-risk municipal bonds. Instead, he allegedly used the funds to get cashier’s checks that he put into brokerage accounts that he controlled. He also used the money to trade options and stocks in different companies.

Because his options trading activities were generally unprofitable, most of his investments lead to losses. By last year he’d lost some $13.5 million. Oppenheim was also purportedly using client money to pay for a home loan and cover bills. He is accused of concealing his embezzelment by using fraudulent client statements and transferring funds among his clients.