Financial Firms

JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit

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

JPMorgan Chase & Co. (JPM) has agreed to settle securities allegations that it defrauded federal agencies by underwriting mortgage loans that were sub-standard. As part of the agreement with the US government, the bank acknowledged that for over 10 years it approved thousands of insured loans that were ineligible for insurance by the Department of Veterans Affairs of the Federal Housing Administration. The Justice Department claims that as a result of JPMorgan’s actions, both the VA and FHA sustained significant losses because loans that were not qualified failed.

The mortgage fraud lawsuit is over the financial firm’s involvement in US programs that let private-sector lenders approve mortgages for government refinancing or insurances. According to prosecutors, JPMorgan violated the rules on a routine basis when it approved loans that did not meet the program’s criteria. One example, noted by Bloomberg.com, is the bank’s decision to underwrite a loan for an Indiana property and approving it for FHA insurance even though the rules don’t allow for reliance on documents that are over 120 days old to verify the assets of the borrower. After just three payments, the borrower defaulted. Because JPMorgan was the note’s holder, the Department of Housing and Urban Development paid a $109,253 insurance claim.

The Justice Department says that as part of the securities settlement the bank has also admitted that it did not let agencies know that its own internal reviews uncovered over 500 defective loans that should not have been turned in for VA and FHA insurance. According to United States attorney in Manhattan Preet Bharara, JPMorgan put “profits ahead of responsibility.”

Bank of America’s $8.5B Mortgage Bond Settlement Gets Court Approval

Published on: January 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A judge has approved an $8.5B mortgage-bond settlement between Bank of America (BAC) and investors. The agreement should settle most of the bank’s liability from when it acquired Countrywide Financial Corp. while the financial crisis was happening and resolves contentions that the loans behind the bonds were not up to par in quality as promised. Included among the 22 investors in the mortgage-bond deal: Pacific Investment Management Co., BlackRock Inc. (BLK), and MetLife Inc. (MET.N). Under the agreement, investors can still go ahead with their loan-modification claims.

The trustee for over 500 residential mortgage-securitization trusts is Bank of New York Mellon Corp. (BK), which had turned in a petition seeking approval for the deal nearly three years ago for investors who had about $174 million of mortgage-backed securities from Countrywide. Now, Judge Barbara Kapnick of the New York State Supreme Court Justice has approved the mortgage-bond deal.

Kapnick believes that the trustee had, for the most part, acted in good faith and reasonably when determining the settlement and whether it was in investors’ best interests. However, she is allowing plaintiffs to continue with their claims related to loan-modification because, she says, Bank of New York Mellon Corp “abused its discretion” on the matter in that even though the trustee purportedly knew about the issue, it didn’t evaluate the possible claims. Also, the judge said that it makes sense for this one-time payment because it was evident that Bank of New York Mellon was worried Countrywide wouldn’t be able to pay a judgment in the future that came close to the $8.5 billion settlement.

$11M Award Against CitiGroup is Vacated by the New York Supreme Court

Published on: January 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The New York Supreme Court has vacated the $11M FINRA arbitration award against Citigroup Global Markets Inc. (C) and one of its employees. The securities case is Citigroup Global Markets Inc. v. Fiorilla.

Judge Charles Ramos vacated the award after determining that the parties had agreed to settle the arbitration case for $800,000 before arbitration. He said that it did not benefit the public interest to honor arbitrations of disputes that were settled before they were arbitrated.

The securities case involves a complaint filed by former legal adviser to the Holy See John Fiorilla. He contended that he turned over approximately $16 million of Royal Bank of Scotland PLC (RBS) stock-an inheritance from his dad-to Smith Barney adviser Robert Loftus. The latter is not a party in this arbitration claim.

Ex-UBS Global Wealth Chief Exposed by Whistleblower Pleads Not Guilty To Tax Fraud Conspiracy

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

Raoul Weil, who previously served as head of UBS (UBS)’s Global Wealth Management division, has pleaded guilty to fraud conspiracy charges related to a US tax investigation probe involving the Swiss bank. Weil, 54, is accused of conspiring to help thousands of American citizens hide $12 billion at the bank.

Until his arrest last year, Weil was listed as a fugitive in the United States. In federal court in Florida, he was allowed a $10.5 million bond. His first court hearing will be in December. He has until February 12 to reverse his plea to guilty. If convicted, however, he could end up in prison for conspiracy to commit tax fraud for up to five years.

Weil was indicted because of information that UBS whistleblower Bradley Birkenfeld provided to the US Department of Justice and the Internal Revenue Service. The latter, also a former UBS banker, has since been awarded $104 million for helping the federal government start an international crackdown on tax evasion that wealthy Americans had been engaging in for decades through Swiss banks.

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam

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

The Financial Industry Regulatory Authority is barring J.P. Morgan Securities, LLC (JPM) vice president David Michael Gutman and ex-Meyers Associates LP Christopher John Tyndall from the securities industry for their alleged involvement in an insider trading scheme. According to the self-regulatory organization between March 2006 and October 2007, Gutman, who works in the firm’s conflicts office, improperly shared information with Tyndall that was non-public and material about at least 15 pending corporate merger and acquisition transactions

Tyndall then purportedly used the data to trade before at least six corporate announcements and recommended that customers and friends invest in the stock too. Tyndall and Gutman are longtime friends. The latter found out about the transactions from his job.

The inside information that Gutman provided Tyndall had to do with acquisitions involving Genesis HealthCare Corporation, American Power Conversion Corporation, First Data Corporation, Alliance Data Systems Corporation, SLM Corporation (Sallie Mae), and Cytyc Corporation. By settling, Tyndall and Gutman are not denying or admitting to the securities charges.

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges

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

Brian Williamson, a former Oppenheimer & Co. (OPY) portfolio manager, has consented to a securities industry bar and will pay $100,000 as a penalty to the Securities and Exchange Commission. The settlement resolves private equity fund fraud charges accusing him of making misrepresentation about one the value of one fund. In March, Oppenheimer paid over $2.8 million to settle SEC charges related to this matter.

According to the SEC, Williamson allegedly put out information that falsely claimed that the reported value of the largest investment of one of the funds came from the underlying fund’s portfolio manager when actually, Williamson as the manager of the funds, was the one who gave value to the investment. He purportedly marked up the value significantly higher than what the portfolio manager of the underlying fund had estimated. Williamson then gave prospective fund investors marketing collateral that included a misleading internal return rate that failed to subtract the fund’s expenses and fees. The Commission says Williamson made statements that were misleading and false to different parties to conceal the fraud.

The SEC’s order says that Williamson was in willful violation of sections and rules of the Securities Exchange Act of 1934, the Securities Act of 1933, and the Investment Advisers Act of 1940. The industry bar against him will run for at least two years. The ex-Oppenheimer fund manager consented to settle without deny or admitting to the securities charges.

Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit

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

U.S. District Judge Victor Marrero says that Goldman Sachs Group Inc. (GS) must face a proposed class action securities case accusing it of defrauding customers that purchased specific collateralized debt obligations at the beginning of the financial crisis. The lead plaintiff, Dodona I LLC, contends that the firm created two Hudson CDOs that were backed by residential mortgage backed-securities even though Goldman knew that subprime mortgages were doing badly.

The hedge fund claims that Goldman tried to offset its prime risk, even betting that subprime mortgages and the securities constructed around them would lose value—essentially making the CDOs to lower its own subprime exposure and simultaneously shorting them at cost to investors. Dodona purchased $4 million of Hudson CDOs.

Meantime, Goldman said that the proposed class action case should be dropped and that instead, Hudson CDO claims should be made independently. The bank said that the current case has too many conflicts and differences. Judge Marrero, however, disagreed with the bank.

Detroit, MI Can’t Pay $165M to UBS & Bank of America For Swaps Deal, Rules Judge

Published on: January 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A bankruptcy judge says is refusing to grant the city of Detroit, MI permission to pay $165 million to Bank of America (BA) and UBS AG (UBS) to end an interest-rate swaps deal that taxpayers have been paying $202 million for since 2009. U.S. Bankruptcy Judge Steven Rhodes says the payment, in addition to a fee of over $4 million, is too costly for the beleaguered city.

Rhodes said he doesn’t believe it is in the city’s best interests to make this deal. Detroit filed the biggest municipal bankruptcy in US history due to its $18 billion debt. Prior to seeking bankruptcy protection, the city had arrived at a deal to terminate the swaps contract that it had signed with Bank of America unit Merrill Lynch (MER), UBS, and SBS Financial Products Co. for $230 million.

According to their 2009 deal, the banks are entitled to seek control of Detroit’s casino taxes, which the city pledged as cash to UBS and Bank of America. Now, Detroit may have to submit an emergency motion asking the court to protect the cash so that the banks don’t take the funds.

Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M

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

Credit Suisse Group AG (ADR) is currently in talks with the US Department of Justice to settle allegations that the Swiss bank helped American citizens evade taxes. Credit Suisse is one of a dozen Swiss banks under criminal investigation for allegedly helping US citizens use the bank secrecy laws of Switzerland to hide their assets so they wouldn’t have to pay taxes on them.

The financial institution is no longer taking private-banking clients from the US as authorities in this country continue to crack down on offshore tax cheats. Other Swiss banks under investigation include HSBC Holdings (HSBC) PLC and Julius Baer Group AG (JBAXY).

Because of the scrutiny, these banks cannot take part in a new US DOJ program that lets Swiss banking institutions disclose undeclared US assets in exchange for the possibility of huge fines but also the guarantee of no prosecution. Penalty is 20% of the maximum aggregate dollar value of non-disclosed US accounts still held on 8/1/08. This amount would go up to 30% for secret accounts established after that time but before February 2009. The penalty is 50% for secret accounts set up after this date.

RCS Capital Corp to Buy Brokerage Firm J.P. Turner for $27 Million & Cetera Financial for $1.15B

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

Nicholas Schorsch, the executive chairman of RSC Capital Corp.’s (RCAP) board of directors, has just announced that the brokerage firm is going to buy independent broker-dealer J.P. Turner for $27 million. The news comes one day after RSC announced it was buying brokerage firm Cetera Financial Group for $1.15 billion from Lightyear Capital LLC.

To acquire J.P. Turner, RSC Capital will pay 70% of the buying price in cash and the remainder in stock. This will add 325 advisers to the RSC’s roster.

RSC’s CEO is William Kahane. He co-founded American Realty Capital, a non-traded real-estate investment trust sponsor, with Schorsch, of which the latter is the head. Schorsch entered the independent brokerage scene last year when he acquired Legend Group, First Allied Securities, Investors Capital Holding, and Summit Brokerage Services.