Financial Firms

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.

Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, & Other Firms Ordered by FINRA to Pay $43.5M Over Activities Related to Toys “R” Us IPO

Published on: December 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining 10 firms $43.5 million in total for letting their equity research analysts solicit investment business and offering favorable research coverage related to the the planned Toys “R” Us initial public offering. The firms were fined: $2.5 million for Needham & Co. LLC; $4 million for Wells Fargo Securities, LLC (WFC), Deutsche Bank Securities Inc. (DB), Morgan Stanley & Co., LLC (MS), and Merrill Lynch, Pierce, Fenner & Smith Inc. respectively; and $5 million each for JP Morgan Securities LLC (JPM), Barclays Capital Inc. (BARC), Goldman Sachs & Co. (GS), Citigroup Global Markets Inc. (C), and Credit Suisse Securities USA LLC (CS). FINRA rules state that firms are not allowed to use research analysts or promise favorable research to garner investment banking business.

In 2010, Toys “R” Us and its private equity owners asked the ten firms to compete for involvement in an initial public offering. The self-regulatory organization said that all of the institutions used equity research analysts when soliciting for this role.

The company asked the analysts to create presentations to determine what their views were on certain issues and if they matched up with the perspectives of the firms’ investment bankers. The firms knew that how well their analysts did with this would impact whether or not they would be given the underwriting role in the IPO.

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

Published on: December 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations

According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.

Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination

Published on: December 8, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration panel says that Goldman Sachs Group Inc. (GS) has to pay two brokers $7.6 million because they were wrongfully terminated. Luis Sampedro and Christopher Barra, who are now with UBS (UBS), claim that the Goldman made them forfeit deferred commissions after letting them go.

The two of them were a team at the financial firm until 2007. They filed their arbitration claim in 2010.

The withholding happened after the financial firm modified its compensation plan, requiring that a percentage of the brokers’ commission be retained as restricted stock units to vest. Goldman, however, fired the two men before their stock vested.

Citigroup Global Markets Ordered by FINRA to Pay $15M Fine for Supervisory Failures Involving Equity Research, IPO Roadshows

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

The Financial Industry Regulatory Authority says it is fining Citigroup Global Markets, Inc. (C) $15 million for not adequately overseeing communications between clients and equity researchers and trading staff and sales members, as well as for letting one of its analysts indirectly take part in road shows that marketed IPOs to investors.

According to the self-regulatory organization, from 1/05 to 2/14, Citigroup did not satisfy its supervisory duty related to possible selective dissemination involving non-public research to clients and trading and sales teams. Citigroup had put out about 100 internal warnings about equity research analyst communications during this time. Yet, despite detecting violations related to client communications and selective dissemination, notes FINRA, there were long delays before the firm would discipline analysts. Also, contends the regulator, the disciplinary measures were not severe enough to discourage repeat violations.

The SRO reports that “idea dinners” were held, hosted by the equity research analysts at Citigroup, and attended by certain trading and sales personnel, as well as institutional clients. At the dinners, the analysts would talk about stock picks that were sometimes not in alignment with their published research. Even though Citigroup knew there was the risk of improper communications at these gatherings, the firm did not adequately monitor communications or give analysts proper guidance regarding what was considered permissible communications. In another purported instance, an analyst that worked with a Citigroup affiliate in Taiwan gave out research data about Apple Inc. to certain clients. A Citigroup equity sales employee then selectively disseminated the information to other clients.

Wells Fargo Sued Over Allegedly Biased Lending in Chicago

Published on: November 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Cook County, Illinois is suing Wells Fargo & Co. (WFC) for engaging in purportedly predatory and discriminatory lending practices in the Chicago area. The county said that the U.S. mortgage lending company targeted female, Hispanic, and black borrowers.

Per the mortgage lending lawsuit, for over a decade Wells Fargo discriminated against female and minority borrowers in the area to increase profits. Cook County claims that the bank went after borrowers from the time the loans were created through foreclosure and even during equity stripping, which included unnecessary or inflated fees and rates and refinancing penalties. The county believes its property tax base was eroded, it had to spend money to deal with abandoned properties, and some 26,000 borrowers were impacted. Cook County says damages could be as high as $300 million or greater.

It wants to stop Wells Fargo’s alleged practices and is seeking punitive and compensatory damages. Cook County also notes that certain practices involved the former Wachovia Corp, which Wells Fargo now owns. Meantime, the bank says that the accusations in the mortgage lending lawsuit have no merit.