Financial Firms

Financial Firms Securities News: Bear Stearns Can Bid for $160M Insurance Coverage, Deloitte Pays NY $10M, Fraud Sentences Against Two Ex-Brokers Are Affirmed

Published on: June 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Bear Stearns Allowed $160M Insurance Settlement Coverage Bid

The New York Court of Appeals said that JP Morgan Chase & Co’s (JPM), Bear Stearns & Co. (BSC) can go ahead with its attempt to obtain insurance coverage for the $160 million it disgorged in an SEC case over alleged wrongdoing involving mutual fund practices. Justice Victoria Graffeo says the evidence presented is not a decisive repudiation of Bear Stearn’s claim that the payment amount was largely determined by the profits of others and therefore the case cannot be dismissed at this time.

The SEC accused Bear Stearns of helping certain clients, mostly big hedge funds, take part in deceptive market timing and late trading, which let them reap profits of hundreds of millions of dollars at cost to mutual fund shareholders. The financial firm settled by consenting to pay $160 million in disgorgement and $90 million in civil penalties.

Cayman Islands LLC Must Replead CLO Securities Case Against Deutsche Bank

Published on: June 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York says that Arco Capital Corp. a Cayman Islands LLC, has 20 days to replead its $37M collateralized loan obligation against Deutsche Bank AG (DB) that accuses the latter of alleged misconduct related to a 2006 CLO. According to Judge Robert Sweet, even though Arco Capital did an adequate job of alleging a domestic transaction within the Supreme Court’s decision in Morrison v. National Australia Bank, its claims are time-barred, per the two-year post-discovery deadline and five-year statute of repose.

Deutsche Bank had offered investors the chance to obtain debt securities linked to portfolio of merging markets investments and derivative transactions it originated. CRAFT EM CLO, which is a Cayman Islands company created by the bank, effected the transaction and gained synthetic exposure via credit default transactions. For interest payment on the notes, investors consented to risk the principal due on them according to the reference portfolio. However, if a reference obligation, which had to satisfy certain eligibly requirements, defaulted in a way that the CDS agreements government, Deutsche Bank would receive payment that would directly lower the principal due on the notes when maturity was reached.

Arco maintains that the assets that experienced credit events did not meet the criteria. It noted that Deutsche Bank wasn’t supposed to use the transaction as a repository for lending assets that were distressed, toxic, or “poorly underwritten.”

Securities Lending Trial Against Wells Fargo & Co. is Underway

Published on: June 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

It will be up to 11 jurors to determine if Wells Fargo & Co. (WFC) is guilty of grossly mismanaging a securities lending program and lying about the degree of risk involved or whether the economic crisis was actually at fault. The program was marketed to institutional clients, including pension funds. According to investors, the bank committed fraud by taking huge risks with what they were under the impression was a conservative program. Nearly 15% of the portfolio’s by 2007’s fall season had defaulted or was distressed. (Citigroup (C) has since bought most of Wells Fargo’s Clearland securities lending business.)

The plaintiffs contend that rather than investing money in higher grade market instruments and other safe investments, which is what they thought was being done), managers bet on structured investment vehicles and other high-risk financial instruments. Cheyne Finance, one SIV involving subprime mortgages that the bank invested in, was placed in receivership. The securities case, filed in 2011, focuses on cash collateral investments primarily made by Wells Fargo between 2005 and 2008.

Wells Fargo denies the allegations. Contrary to the attorneys for the investors, the bank’s lawyers are arguing that the securities lending business’s investments were conservative and safe and that it’s track record was pretty solid until the economic crisis. Even then, contend the attorneys, the losses suffered were not a big portion of the program. Also, claims Wells Fargo, the securities lending program was overseen at a level that was “extraordinarily high” and the investors’ best interests were primary. The banks’ legal team noted that investors were given written warnings that losses were likely.

LPL Securities Names Ex-SEC Official As Its New General Counsel

Published on: June 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

LPL Securities has hired the Securities and Exchange Commission Division of Enforcement’s ex-acting deputy director David Bergers as LPL Financial Holdings Inc.’s (LPLA) general counsel and managing director for government and legal relations. Following news of the appointment, LPL CEO and Chairman Mark Casady was quick to point out that the firm didn’t choose Bergers because it recently has been in trouble with regulators. That said, Casady did acknowledge that Bergers’ 13 years of SEC experience was one reason he became the top contender for the post. Because of SEC rules, Bergers is not allowed to appear before the Commission as an LPL representative until June 2014.

A source close to our securities fraud law firm says that there are at least seven complaints against Bergers at the moment, with the majority of them involving large seven-figure. Before working at the SEC, Bergers served as assistant general counsel and vice president for Tucker Anthony Inc., a regional brokerage firm.

In regards to LPL’s recent trouble’s with regulators, there was the $7.5 million that the Financial Industry Regulatory Authority ordered the financial firm to pay over nearly three dozen key e-mail system failures (including retention issues) that occurred between 2007 and 2013 involving 28 million business emails and thousands of independent contractor representatives. The SRO accused LPL of inadequate supervision, failure to capture emails and respond to regulator requests, and making misstatements during the SRO’s investigation. In addition to the fine, LPL has to establish a $1.5 million fund for customer compensation.

Financial Firm Roundup: Citigroup Settles $3.5B MBS Lawsuit with FHFA, JPMorgan Unit Fined $4.64M, Court Won’t Dismiss USB Whistleblower’s Action, & Ex-Goldman Sachs Executive to Pay $100K Over Pay-To-Play Scam

Published on: June 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup (C) Settle $3.5B securities lawsuit Over MBS Sold to Freddie Mac, Fannie Mae

Citigroup has settled the $3.5 billion mortgage-backed securities filed with the Federal Housing Finance Agency. The MBS were sold to Freddie Mac and Fannie Mae and both sustained resulting losses. This is the second of 18 securities fraud cases involving FHFA suing banks last year over more than $200B in MBS losses by Fannie and Freddie. The lawsuit is FHFA v. Citigroup.

J.P. Morgan International Bank Ltd. Slapped with $4.64M Fine by UK Regulator

Securities Criminal Roundup: Mail Fraud Charges Against Investment Company Owner, Ex-Bank of the Commonwealth Execs Convicted, Broker’s Elder Financial Fraud Sentence is Affirmed, and Ex-Fund President Goes to Prison for Ponzi Scam

Published on: June 7, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Flatiron Systems LLC Owner Pleads Guilty to Mail Fraud

In United States v. Howard, investment company owner David Eugene Howard has pleaded guilty to mail fraud charges. He is accused of engaging in a financial scam that obtained about $1.8 million from investors.

Prosecutors say that Howard, who owns Flatiron Systems, used operating agreements, letters, and account statements to make false representations that his company used a proprietary system named “Pathfinder” to trade pooled equity accounts. The Securities and Exchange Commission has submitted an enforcement action against Howard.

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement

Published on: June 5, 2013 | by Shepherd Smith Edwards & Kantas, LLP

American International Group (AIG) and Maiden Lane II dismissing lawsuit against the Federal Reserve Bank of New York regarding the $182.3 billion financial bailout that the insurer received during the 2008 economic crisis. In dispute was whether AIG still had the right to pursue a lawsuit over residential mortgage-backed securities losses and if the company had moved $18 billion of litigation claims to Maiden Lane, which is a New York Fed-created entity.

An AIG spokesperson said that in the wake of a recent ruling by a district judge in California that the company did not assign $7.3 billion of the claims to Maiden Lane, both are dropping their action without prejudice. This means that AIG can now pursue Bank of America (BAC) for these claims, which is what the insurer wants to do.

Bank of America had said that AIG could not sue it over the allegedly fraudulent MBS because the latter transferred that right when the New York Fed bought the instruments in question 2008. However, according to Judge Mariana R. Pfaelzer, even if the New York Fed meant for Maiden Lane II to have these claims, that intention was not made clear.

FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales

Published on: June 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. says that Merrill Lynch, Pierce, Fenner & Smith Incorporated (MER) and Wells Fargo Advisors LLC must pay $5.1 million for losses sustained by customers who bought floating-rate bank loan funds.

According to the SRO, brokers at Banc of America and Merrill recommended the purchase of floating-rate bank loan funds to customers who didn’t have investment goals, risks tolerance, or financial conditions that were consistent with the features and risks of these kinds of mutual funds. Instead, these were customers whose risk tolerance levels were conservative and wanted to preserve principal. FINRA says that the sale recommendations were made even though there wasn’t reason to believe that floating-rate bank loan funds would be suitable for these investors.

In regards to the allegations against Wells Fargo, FINRA, in its acceptance, waiver and consent letter, said that brokers there warned about the funds but that the firm failed to act on their worries. The SRO says that the brokers had even confused the funds with bank certificates of deposit and other less risky investments.

Morgan Stanley Unveils Trade Flow Insights Product to Give Brokers Better Sales Data

Published on: May 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) has a new trade tool to help brokers better understand who is buying and selling what financial products. Trade Flow Insights was recently rolled out to over 16,000 financial advisers.

The tool provides information on leading sales and purchases that have been executed, in addition to asset allocation. Advisers can even filter data to determine which products were the most popular in the last week or month. Client age, asset class, and household assets are just some of the filter categories.

Not only will Trade Flow Insights let representatives know what products are most in demand, but also it will inform them of which financial instruments their coworkers are most successful with. Some brokers are saying that having this type of insight is beneficial, helping them become aware of current trends while causing them to probe more deeply into the investment options out there before making a buy for an investor.

SEC Charges Ex-LPL Financial Adviser With Defrauding Investors of $2M

Published on: May 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Blake Richards, a former LPL Financial LLC adviser, is now facing Securities and Exchange Commission charges for allegedly defrauding investors and misappropriating about $2 million from at least seven customers. Most of the funds that were misappropriated were life insurance proceeds from dead spouses and retirement funds. Last week, the regulator filed an emergency action asking a judge for a temporary restraining order, which was granted. Now, Richard’s assets have been frozen.

Per the SEC, Richards told investors to write checks to BMO Investments and Blake Richards Investments, which he controlled. They expected that he would put their money in variable annuities, fixed income assets, and common stock. Instead, contends the agency, none of these investments were ever executed and Richards allegedly took the money and used it for his personal spending.

The Commission is accusing Richards of violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The SEC is also alleging Investment Advisers Act of 1940 and the Advisers Act violations.