Financial Firms

Credit Suisse to Pay $2.6B, Pleads Guilty to DOJ Charges Over U.S. Tax Evasion

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

Credit Suisse (C) will pay $2.6 billion to the federal government and financial regulators in New York after pleading guilty to charges that it illegally helped thousands of American clients avoid paying taxes to the Internal Revenue Service. The U.S. Department of Justice said that for decades through 2009 the Swiss bank ran an illegal cross-border banking business.

This is the first time in years that a financial institution has pleaded guilty to a crime. Among the accusations was that Credit Suisse knew and agreed to help thousands of Americans set up accounts and help them hide their income and assets. Attorney General Eric Holder claims that the bank even got rid of account records, hid transactions, and failed to perform even the most basic steps to make sure clients were in compliance with US tax laws.

The DOJ contends that even after the 2008 US crackdown on Swiss accounts that compelled UBS AG (UBS) and Credit Suisse to become stricter about what services they offer American customers, the latter kept getting in the way of investigators looking into tax evasion allegations. Some Credit Suisse managers even purportedly helped clients transfer their assets to other offshore banks so their assets could stay concealed. Key documents to the DOJ’s probe were either lost or destroyed. Eight ex-Credit Suisse employees have been criminally charged with aiding in the tax evasion.

Goldman Sachs Under Investigation Over Hiring Practices, High-Frequency Trading

Published on: May 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs (GS) Group Inc. said it is under scrutiny in probes related to high-frequency trading and whether its hiring practices comply US antibribery laws. This is the first time the firm has publicly disclosed both investigations. The information was made available via Goldman’s quarterly filing with the SEC.

In the bank hiring practices investigation, Credit Suisse Group Ag (CS), Morgan Stanley (MS), UBS AG (UBS), and Citigroup (C) are also under scrutiny. The Securities and Exchange Commission wants to know whether the banks or their staff hired the relatives of well-connected officials in Asia, which could be a violation of the antibribery laws-in particular, the Foreign Corrupt Practices Act, which prevents companies from giving foreign officials items of value in exchange for business. Although it isn’t illegal to hire government officials’ relatives in Asia, hires cannot just be made for the purpose of earning new business.

As for the high-speed trading probe, the US Justice Department, the SEC, New York Attorney General Eric Schneiderman, and the Federal Bureau of Investigation are assessing trades that engage in fast algorithmic trading. Schneiderman wants to know if firms involved in high-speed trading have secret deals with trading venues, such as dark pools and stock exchanges, that lets them trade before other investors.

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales

Published on: May 6, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Smith Barney LLC (MS) will pay a $5 million fine for supervisory failures involving its advisors soliciting shares in 83 IPOs to retail investors. The Financial Industry Regulatory Authority says that the firm lacked the proper training and procedures to make sure that salespersons knew the difference between “conditional offers” and “indications of interest.”

By settling, Morgan Stanley is not denying or admitting to the supervisory failures securities charges. It is, however, consenting to the entry of findings by FINRA.

FINRA believes these issues are related to Morgan Stanley’s acquisition of Smith Barney from Citigroup (C) a couple of years ago. In addition to inheriting more high net worth clients, the SRO contends that Morgan Stanley ended up with financial advisers who might not have gotten the needed training.

Bank of America Ordered to Hold Off Giving Back Money To Shareholders After Incorrectly Reporting $4B in Capital

Published on: May 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Reserve says that for now Bank of America (BAC) has to suspend its plans to give money back to shareholders because it did not correctly report capital ratios on recent stress tests. The mistake was a result of an “incorrect adjustment” connected to bad debts that the bank took on during the Merrill Lynch acquisition several years ago. This blunder caused Bank of America to report $4 billion more capital on its books than what actually exists.

The bank got $60 billion in structured notes as part of the Merrill deal. Because it did not lower its capital to factor in the losses related to the notes, the amount of capital was erroneously boosted.

Before the error became known, the Fed granted permission for the bank to up its quarterly dividend for the first time since the economic crisis. It also said BofA could repurchase $4 billion of stock. Now, BofA will have to develop a new capital plan.

Fidelity Investment, BlackRock, Other Asset Managers Take Issue with Plans to Expand Too Big to Fail Rules

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

According to InvestmentNews, some of the largest asset managers in the world are complaining that draft proposals for identifying financial institutions besides insurers and banks that may be too big to fail would employ an erroneous analysis of the investment industry. Fidelity Investment, Pacific Investment Management Co.(PIMCO), BlackRock Inc. (BLK), and others wrote written responses to a consultation made by international standard setters. Pimco, whose response was published on the International Organization of Securities Commission’s web site, called the blue print “fundamentally flawed,” saying that it failed to accurately show the risks involving the asset management industry or investment funds.

The proposals regarding too-big-to fail come after efforts by global regulators in the Financial Stability Board to rank insurers and banks according to their potential to trigger a worldwide financial meltdown. Under the plans published earlier this year by Iosco and FSB, investment funds with assets greater than $100 billion could be given the too big to fail label. The proposals are also suggesting possibly making asset managers that oversee with big funds subject to additional rules.

However, BlackRock, in its consultation response, is arguing that a fund’s size isn’t a sign of systemic risk and many of the biggest funds are not likely to pose issues of systemic risk. It also contends that concentrating on asset managers is the ‘wrong approach” seeing as they are “dramatically less susceptible” to getting into financial distress than other financial institutions. BlackRock is one of the firms that believes that international standard setters should instead put their attention on figuring out which activities could prove systematically essential rather than trying to label certain funds and asset managers as too big to fail.

Ex-Bank of America CFO to Pay $7.5M to Settle with NY Over Merrill Lynch Acquisition Allegations

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

Joe Price, the ex-chief finance officer of Bank of America Corp. (BAC) has consented to pay $7.5 million to settle allegations by the state of New York that the bank and its ex-executives misled investors over losses that were happening at Merrill Lynch even as shareholders were getting ready to approve its acquisition by the bank.

Bank of America’s decision to purchase Merrill as Lehman Brothers Holdings Inc. was collapsing was initially seen by many as a positive. However, after the deal was made public and Merrill’s problems soon became known, speculation over how much information was kept from those approving the deal mounted.

The state contended that Bank of America misled shareholders about Merrill’s losses to get the $18.5 billion deal approved. They then got the federal government to contribute bailout money from the Troubled Asset Relief Program to complete the sale. The bank has since become the subject of regulatory investigations and securities lawsuits over their actions. It even consented to pay $2.43 billion in 2012 to resolve a class action securities fraud case filed by investors over the Merrill acquisition. Settlements in total have to date surpassed $50 billion.

Charles Schwab’s Barring of Customers from Joining Class Actions Violated FINRA Rules, Says Board of Governors

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

In a victory for the Financial Industry Regulatory Authority, its Board of Governors has determined that Charles Schwab & Co. (SCHW) violated the self-regulatory organization’s rules when it added waiver language to agreements that prohibited customers from becoming part of any class action cases against the financial firm. Schwab has agreed to settle these claims with a fine of $500,000. Also, it will tell all its customers that the requirement is no longer in effect.

Schwab made amendments to the customer account agreement of over 6.8 million investors in 2011. The move came after it settled a class action securities case accusing the broker-dealer of misleading thousands of customers about its YieldPlus money market fund. (The fund sustained huge losses during the 2008 economic crisis, and to resolve the claims, Schwab agreed to pay $235 million.)

Included in the amendments were waiver provisions mandating that customers consent that any claims against the firm could only be arbitrated individually. Also, arbitrators would not be able to consolidate consolidated claims for more than one party.

Barclays Must Face Shareholder Lawsuit Over Libor Manipulation

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

The 2nd U.S. Circuit Court of Appeals in New York says that Barclays Plc (BARC) shareholders can go ahead with their securities lawsuit claiming that the British bank caused them to suffer financial losses over manipulation of Libor. The ruling reverses a lower court’s decision.

The London Interbank Offered Rate is used to set interest rates on mortgages, credit cards, and student loans. It is also the average interest rate that banks can use to estimate what they would be charged if they borrowed from other banks. Regulators in Europe and the US have been investigating whether banks manipulated Libor when the 2008 financial crisis was happening.

In 2012, Barclays consented to pay British and American regulators $453 million and admitted that between August 2007 and January 2009 it frequently made Libor submissions that were artificially depressed. (Other big financial institutions that have settled Libor manipulation allegations included UBS AG (UBS), ICAP Plc (IAB), Rabobank, and Royal Bank of Scotland Group (RBS)).

U.S. Wants Bank of America to Pay Over $13B Over Residential Mortgage-Backed Securities

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

Bloomberg is reporting that U.S. prosecutors want Bank of America Corp. (BAC) to settle state and federal investigations into the lender’s sale of home loan-backed bonds leading up to the 2008 financial crisis by paying over $13 billion. The bank is one of at least eight financial institutions that the Department of Justice and state attorneys general are investigating for misleading investors about the quality of the loans that were backing mortgages just as housing prices fell.

A lot of Bank of America’s loans came from its purchase of Countrywide Financial Corp., a subprime lender, and Merrill Lynch & Co., which packaged a lot of the loans into bonds.

If there ends up being no deal, the government could sue the bank.

Barclays Settles Two Libor-Related Securities Cases

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

Barclays (BARC) has just settled two Libor-related securities cases alleging mis-selling related to Libor. In the first lawsuit, filed by Guardian Care Homes over interest swaps worth £70M that were linked to the benchmark interest rate, Barclays has agreed to restructure a loan for the home care operator.

The bank had tried to claim the case lacked merit and that it was the home care operator that owed money. Barclays argued that the swaps, purchased in 2007 and 2008, cost the bank millions of pounds when interest rates plunged in the wake of the economic crisis. In 2012, Barclays was fined $450 million for Libor rigging.

The London interbank offered rate is relied on for measuring how much banks are willing to lend each other money. Among the allegations against the firm was that it tried to manipulate and make false reports about benchmark interest rates to benefit its derivatives trading positions. Barclays settled with regulators in the US and the UK.

In the other Libor mis-selling case, the bank has arrived at a “formal” compromise in the securities case involving property firm Domingos Da Silva Teixeira over more rigging claims and Portuguese construction. The company had filed a 11.1 million euro securities case against the bank.

Also, this week, three ex-ICAP (IAP) brokers appeared in court in London to face charges accusing them of running a securities scam to manipulate the Libor benchmark interest rates. ICAP is the biggest interbroker dealer in the world.

The men allegedly engaged in conspiracy to defraud. Their scam allegedly involved Tom Hayes, an ex-yen derivatves trader. He is charged with multiple counts of conspiracy to commit fraud while he worked for UBS (UBS) in Japan.

To date, 10 banks and ICAP have been ordered to pay$6 billion in fines. The Libor rigging scandal spans multiple continents and led to numerous criminal charges. Traders are accused of fixing Libor for profit.

Barclays settles with Guardian Care Homes in Libor-linked court case, The Guardian, April 7, 2014

Three former ICAP brokers in UK court on Libor fixing charges, Reuters, April 15, 2014

Barclays settles second Libor case in week, Yahoo, April 11, 2014

More Blog Posts:
Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates, Institutional Investor Securities Blog, December 24, 2013

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012