Financial Firms

Goldman Sachs, HSBC Sued For Manipulating Precious Metal Prices

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

A class action securities case is accusing Goldman Sachs Group (GS), HSBC Holdings Plc (HSBC), BASF SE (BAS), and Standard Bank Group Ltd. of manipulating prices for palladium and platinum. According to lead plaintiff Modern Settings LLC, the companies used insider information about sales orders and client purchases to make money from price movements for the precious metals, which are used in jewelry, cars, and other products.

The lawsuit, filed in Manhattan federal court, is the first of its kind in the United States. Similar complaints have been filed in New York accusing banks of rigging gold’s benchmark price.

According to this securities case, the defendants took part in daily conferences to establish the global price benchmarks for palladium and platinum. They said that this impacted derivative products based on the metals, while giving the four companies the ability to make trades in the metals prior to the movements. This purportedly resulted in in “substantial profits” for the banks, while harming those not in the know. Class action members are said to have lost value in tens of thousands of transaction.

HSBC to Pay $12.5M Settlement to SEC Over Charges That It Violated Securities Laws

Published on: November 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging HSBC Private Bank (HSBC) with violating U.S. federal securities laws. According to the regulator, the Swiss private banking arm did not register with the agency before providing clients in this country with cross-border brokerage and investment advisory services.

HSBC Private Bank as agreed to pay $12.5 million to resolve the SEC’s charges. It is also admitting to wrongdoing.

According to the SEC order over the settled administrative proceedings, the private banking arm and its predecessors started providing the services at issue over 10 years ago, growing its clients base to up to 368 U.S. accounts while collecting about $5.7 million in fees. Banking personnel came to this country over three dozen times to solicit clients, offer advice, and fulfill securities transactions. The managers who completed these tasks were not registered to provide these services nor were they affiliated with a registered brokerage firm or investment adviser. These managers also communicated via e-mail and postal mail with clients in the U.S.

FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees

Published on: November 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel said that USCA Capital Advisors LLC must pay over $3.8 million to 19 ExxonMobil retirees whose investments were mismanaged the Houston-based wealth management firm. The self-regulatory organization also says that the Texas investment advisory firm misled the investors about its trading strategy.

It is not uncommon for Houston financial advisers to target ExxonMobil retirees as clients. The oil company has a huge outfit and other operations in the area. According to the investors, USCA was tasked with handling their retirement savings because of promises the investment advisors made to protect, oversee, and grow their accounts.

At a presentation by USCA RIA LLC, which is USCA’s investment advisory arm, advisers told investors about their Total Return model program, which they claimed would up S & P 500 gains while lowering the risks involved in trading equities. Investors said they were told the strategy would hold primarily exchange-traded funds and U.S. stocks in a rising market and turn the money into cash when the markets dropped. Trades were to be stimulated by “objective technical factors.”

SEC Enforcement: Wedbush Settles SEC Probe for $2.4M, High-Frequency Trading Firm Gets $16M Penalty, and the Regulator Suspends Companies Touting Ebola Treatment

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

Wedbush Settles Market Access Violation Case for $2.44M

Wedbush Securities has agreed to settle a market access violations case with the U.S. Securities and Exchange Commission by admitting to wrongdoing and paying $2.44 million. The brokerage firm has also agreed to hire an independent consultant.

According to the SEC order, Wedbush violated the market access rule because it didn’t have the proper risk controls in place before giving customers access to the market. Among the customers that were given this access were thousands of anonymous overseas traders.

RBS Must Pay $88M to UK Regulators

Published on: November 20, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland Group Plc (RBS) will pay an $88 million fine to Britain’s Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority for the 2012 computer system failure that left millions of customers without account access for weeks. Some 6.5 million customers, which is about 10% of the U.K. population, were impacted.

According to FCA enforcement head Tracey McDermott, the technical glitch happened because of RBS Groups’ failure to identify and handle the risks that can occur from IT incidents. The failure, he noted, exposed customers to the risks.

The system failure happened after a third-party contractor installed a software upgrade. Because of the collapse, bank customers, as well as those in its Ulster Bank and NatWest divisions were unable to take out, transfer, or withdraw funds.

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed

Published on: November 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower

Published on: November 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Alayne Fleischmann, the whistleblower who gave the evidence which helped resident in a $13 billion mortgage settlement from JPMorgan Chase(JPM) to the U.S. Department of Justice last year, that amount was not enough. Fleischmann, a lawyer, joined the financial firm as a deal manager in 2006.

She says that not long after she started working there she noticed that about half of the loans in a multimillion-loan pool included overstated incomes. Such loans, she said, were likely at risk for default—a precarious position for both the investors and the securities. Fleischmann said that she notified management about how the bank was re-selling subprime mortgages to customers without letting them know about the risks. She also spoke about how one bank manager wanted to put in place a non-email policy so there would be no paper trail to show that the firm was aware that such activities were happening.

It was the sale of toxic sub-prime loans by JPMorgan and other US banks that incited the US housing market crisis, which eventually spurred the global financial meltdown of 2008. Repackaged loans were sold to pension funds and other institutional investors, with many buyers unaware of the high default risks involved.

Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg

Published on: November 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, sources are telling them that Citigroup (C) and Bank of America (BAC) are selling soured U.S. mortgages to satisfy the demand from investment firms that are raising the prices. For example, say the individuals who asked not to be named, Bank of America recently placed approximately $1 billion of beleaguered debt, including nonperforming loans. Meantime, Citigroup purportedly sold around $1 billion of re-performing and nonperforming mortgages.

Lenders are reportedly selling more defaulted mortgages to avoid the cost of holding the debt. Meantime, private-equity firms and hedge funds are trying to make money off of increasing home values. The number of firms looking to acquire debt that has soured is growing.

According to some critics, that housing regulators and other agencies have recently announced rulings that would decrease credit and lending standard for home mortgages is a sign that the government is making the kinds of errors that led to the 2008 housing crisis. With housing giants Freddie Mac (FMCC) and Fannie Mae (FNMA), handing over the majority of their earning to the Treasury Department, government-sponsored enterprises are now lacking the capital buffer they would need in the event there are losses. If the economy gets into trouble again, it may be up to taxpayers once more to bail these GSEs out. It was the U.S. Treasury that helped save Freddie and Fannie with $180 million as the government seized them, placing both under conservatorship.

Citibank, JPMorgan Among Firms to Pay $4.3B For Currency Rigging Penalties

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

Royal Bank of Scotland Group Plc (RBS), UBS AG (UBS), (HSBC), Bank of America Corp (BAC), HSBC Holdings Plc, JPMorgan Chase & Co. (JPM), and Citigroup Inc. (C) will pay $4.3 billion in penalties to regulators in the United States and Europe for failing to stop traders from attempting to manipulate the foreign exchange market. Further penalties could also result not just for the banks but also for certain individuals in the wake of litigation accusing bank dealers of colluding amongst themselves to rig benchmarks that are used in determining foreign currency.

According to authorities, the dealers exchange confidential data regarding client orders and worked it out so their trades would enhance profits. This information was purportedly exchanged in online chat rooms. Regulators say the misconduct occurred from 2008 through October 2013. The probe has also widened to look into whether traders used confidential information to take bets on unauthorized personal accounts and if clients were charged excessive commissions by sales desks.

The currency rigging probe has led to the firing or suspension of over 30 traders while the number of automated trade transactions have increased. In the U.S. the Federal Reserve, the Justice Department, and New York’s financial regulator continue to investigate banks over foreign exchange trading. Meantime, some lawyers have spoke out about how the settlement doesn’t address client compensation.

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims

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

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.