Financial Firms

Financial Firm News: NH Regulator Fines Merrill Lynch $400K for Telemarketing Compliance Shortfalls, Court Orders Vasquez Global Investments to Pay More Than $1.3M for Commodity Pool Fraud, and FINRA Sanctions Monex Securities Inc.

Published on: December 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

New Hampshire Says Merrill Lynch Must Pay $400,000 For Not Complying with Telemarketing Rules

Bank of America (BAC) Merrill Lynch has consented to pay $400,000 to resolve claims made by the New Hampshire Bureau of Securities Regulation accusing the firm of improperly soliciting business when it called people who were on do-not-call lists and were not clients. As part of the deal, Merrill Lynch will improve its telemarketing procedures and policies. A spokesperson for the brokerage firm says it has already enhanced internal controls to avoid making inappropriate calls moving forward.

According to the regulator, not only did the broker-dealer fail to fully comprehend how to comply with the state’s rules for telemarketing but also the firm did not reasonably supervise its agents’ telemarketing activities in New Hampshire.

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG

Published on: December 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A New York State Supreme Court justice says that Credit Suisse Group AG (CSGN) must face a $10 billion securities lawsuit accusing the bank of mortgage-backed securities fraud. Justice Marcy Friedman refused to dismiss the case, saying that a trial will take place. She said that the state has shown that the Swiss financial institution may have engaged in misconduct.

New York sued Credit Suisse in 2012, accusing it of misrepresenting the risks involved in investing in mortgage-backed securities. The bank tried to claim that the state missed the three-year deadline it had for filing such a claim. NY, however, countered that it had six years to pursue its claim.

The state’s Attorney General, Eric Schneiderman, has been going after banks while helping beleaguered homeowners and trying to keep the number of foreclosures from going up. His office has used the Martin Act, which is the NY’s anti-fraud statute to make its cases. Under that law, it is illegal for sellers to make false promises about the securities they are selling. Schneiderman contends that Credit Suisse told investors that the mortgage securities were safe even though the bank knew that the residential loans backing them had “pervasive flaws.”

FINRA Orders Wells Fargo Units to Pay $1.5M For Anti-Money Laundering-Related Lapses

Published on: December 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering Wells Fargo Advisors Financial Network (WFAFN) and Wells Fargo Advisors (WFA) to collectively pay $1.5M for anti-money laundering (AML) failures. According to the self-regulatory organization, the two brokerage firms did not comply with a main component of the anti-money laundering compliance program when it did not require some 220,000 new customer accounts to go through an identity verification process. The failures purportedly occurred from 2003 to 2012.

The anti-money laundering compliance program mandates that brokerage firms set up and keep up a written Customer Identification Program that lets them confirm the identity of every customer setting up an account. The broker-dealer should use the CIP to get and verify a minimum amount of identifying data before opening a new customer account. The firms must also keep records of the verification process and let customers know that data is being gathered to confirm their identities.

FINRA said that the firms had a CIP system but it was deficient because of the electronic systems involved. Of the 220,000 new accounts that never had to undergo customer identify verification, some 120,000 of them were closed by the time the problem was identified.

Ex-Edward Jones Financial Adviser is Criminally Charged with Bilking Disabled Woman of Over $160K

Published on: December 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Jason Cox, a former Edward Jones financial adviser, is criminally charged with allegedly defrauding a disabled woman. Robert C. Yeamans, who is the woman’s now deceased father, had tasked Cox with managing her account. The woman, who is in her fifties, is developmentally disabled.

According to a federal complaint, Cox took at least $160,000 from the investment account set up for her. He allegedly structured transactions by taking out small amounts during a short time period so he wouldn’t have to fulfill bank reporting requirements for bigger sums.

When worried banking officials asked the woman about the money, she told them she put it in a business that Cox owned but did not know what kind of enterprise it was. The bank closed her account.

WGF Investments, Deutsche Bank Securities, Royal Bank of Canada Subject to Fines for Securities Violations and Misconduct

Published on: December 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines WGF Investments $700,000 for Supervisory Failures

The Financial Industry Regulatory Authority is fining WGF Investments $700,000 for failing to commit the attention, time, and resources to certain duties related to supervising registered representatives. WGF is a midsize independent brokerage firm.

According to the self-regulatory organization, from 3/07-1/14, WGF did not supervise private securities transactions of one representative and failed to keep up an adequate supervisory system to make sure that the customer transactions taking place were suitable. The broker-dealer also is accused of not properly supervising one representative’s alternative investment sales.

Credit Suisse Ordered to Pay $40M Verdict to Highland Capital

Published on: December 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A jury is ordering Credit Suisse (CS) to pay a $40 million verdict to Highland Capital Management LP. The hedge fund firm, based in Texas, accused the bank of duping it into refinancing a real-estate development that wasn’t solid. According to the ruling, issued in state court in Dallas, Credit Suisse is 65% at fault.

Highland’s Claymore Holdings LLC claimed that the bank knew it was employing a flawed appraisal to garner investments in Lake Las Vegas, which was a massive residential and resort community of over 3,500 acres that filed for bankruptcy six years ago. Credit Suisse said the investment did not go well not because it misled Highland but because of the recession.

The hedge fund company, however, contends that the flawed appraisal used by Credit Suisse inflated the value of collateral behind $540 million in loans to refinance the community in 2007. Highland says that the motivation was the fees made by Credit Suisse to underwrite the transaction.

UBS To Nominate Executive from BlueMountain Hedge Fund That Challenged Puerto Rico Law on Debt Restructuring to Its Board

Published on: December 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

UBS, AG (UBS) says that it intends to nominate BlueMountain Capital Management Executive Jes Staley to its board in May. Staley formerly served as a JPMorgan Chase & Co. (JPM) executive.

In a statement, UBS Chairman Axel Weber said that Staley is perfect for the role due to his professional expertise from working in global banking leadership roles for three decades. However, that may not be the only reason.

Earlier this year, BlueMountain, which is a New York-based hedge fund, joined a legal challenge against a law that would let some of the Commonwealth of Puerto Rico’s agencies restructure their massive debt. UBS Puerto Rico (UBS-PR) is one of the banks accused of inappropriately placing clients’ money into closed-end funds that had high exposure to Puerto Rico municipal bonds.

Whistleblower Earns $57M Payout in Second Lawsuit Against Bank of America

Published on: December 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Edward O’Donnell, an ex-Countrywide Financial executive, will receive $57 million for a second whistleblower lawsuit accusing parent company Bank of America Corp. (BAC) of fraud. In this case, O’Donnell accused a Countrywide unit of bilking Freddie Mac (FMCC) and Fannie Mae (FNMA) through the sale of home loans. Bank of America consented to settle the case for $350 million as part of a wider $17 billion deal to settle mortgage fraud claims.

For filing his whistleblower lawsuit, O’Donnell’s share is 16% of the recovery plus another $1.6 million. His award comes from the part of the settlement that the bank reached with federal prosecutors and the states of Illinois, New York, California, Maryland, Delaware, and Kentucky.

He has yet to collect money from the other case, in which a jury found Bank of America liable for shoddy mortgage sales. That lawsuit revolved around the “hustle,” which was a program that rewarded employees for producing loans even if their quality was poor.

FINRA Orders Merrill Lynch to Pay $2.4M in Fine, Restitution for Hundreds of Securities Transactions That Violated Fair Price Guidelines

Published on: December 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is ordering Bank of America’s (BAC) Merrill Lynch to pay a $1.9M fine for violating fair price guidelines over seven hundred times during a two-year period. The financial firm also must pay restitution of over $540K to customers that were affected.

According to the self-regulatory organization, Merrill’s credit trading desk purchased MLC notes from retail customers at up to 61.5% under the market price. General Motors had issued the notes prior to its bankruptcy. MLC Notes stands for Motors Liquidation Company Senior Notes.

Out of 716 transactions, 510 of them involved notes bought at markdowns that were greater than 10%. The desk would then sell the notes to brokers at market cost.

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation

Published on: December 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is ordering Morgan Stanley (MS) to pay $4 million for violating the market access rule. The rule mandates that brokerage firms implement adequate risk controls before giving customers market access. An SEC probe, however, found that Morgan Stanley, which gives institutional customers direct market access via an electronic trading desk, did not have the necessary controls in place to stop a rogue trader from putting in orders that went over pre-set trading thresholds.

David Miller, who was an institutional sales trader, then purportedly exploited access to the market. Without Morgan Stanley’s knowledge, he committed financial fraud that would later result in the closure of Rochdale Securities, which was the financial firm where he worked. Miller, who has since partially settled the SEC’s case, pleaded guilty to parallel criminal charges. He was sentenced to 30 months behind bars.

Miller misrepresented to Rochdale Securities that a customer had given the authorization to buy Apple stock. While the customer order was for the purchase of 1,625 Apple shares, Miller instead put in numerous orders, buying 1.625 million shares. He intended to share in the profit if the stock made money but if it didn’t he planned to say he made a mistake about the order’s size.