Financial Firms

UBS & Citi Do Have to Arbitrate Auction-Rate Securities Case Filed by Health Care Nonprofit Carilion Clinic

Published on: January 31, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to the U.S. Court of Appeals for the Fourth Circuit, a district court was right when it decided not to stop Carilion Clinic’s arbitration proceeding against Citigroup Global Markets (C) and UBS Financial Services (UBS) for an ARS issuance that proved unsuccessful. The financial firms had served the healthcare nonprofit in a number of capacities, including providing underwriting services.

Carilion had retained UBS and Citi in 2005 to raise over $308M so that it could redo its medical facilities. They are accused of recommending that Carilion put out over $72M of bonds in the form of variable demand rate obligations and $234 million in ARS.

When the auction-rate securities market took a huge dive in February 2008, Citi and UBS ended their policy of supporting the market and the auctions started to fail. As a result, result, Carilion allegedly was forced to refinance what it owed to avoid higher interest rates and it sustained losses in the millions of dollars. The nonprofit later began auction-rate securities arbitration proceedings with FINRA against both firms.

US Seeking to File Criminal Charges Against Royal Bank of Scotland Group in Interest-Rate-Rigging Settlement Involving Libor

Published on: January 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Authorities in the United States want to reach a settlement with Royal Bank of Scotland Group (RBS.L) that would require that the British bank plead guilty to criminal charges and pay about $790M in penalties to Britain and America over its alleged involvement in last year’s Libor-rigging scandal. RBS would be the third bank to settle over interest-rate-rigging allegations. UBS AG (UBS) and Barclays PLC (BCS) reached settlements last year that together totaled almost $2 billion. They both admitted to committing wrongdoing.

Prosecutors want an RBS unit where some of the alleged rate-rigging occurred to plead guilty to attempting to manipulate the rates. Currently, reports The Wall Street Journal, RBS executives are balking at making such an admission, especially because it could make exposure to securities lawsuits greater. However, ultimately the decision is up to the US Justice Department.

Meantime, at least a dozen other banks around the world are still under investigation for trying to manipulate Libor and Euribor. Bloomberg reports that it has obtained documents that show that for years traders at numerous banks worked with colleagues tasked with establishing the Libor benchmark to rig the price of money. The traders reportedly knew each other from work or from trips involving interdeal brokers. The manipulation of the Libor is believed to have gone on for years.

US Supreme Court to Hear Appeals of Petitioners Over Stanford Ponzi Lawsuits

Published on: January 25, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Our Texas securities fraud law firm has been bringing you the latest legal news developments in the efforts of defrauded investors to recoup their losses stemming from the $7 billion Stanford Ponzi scam. While the fate of R. Allen Stanford has already been sealed-he is serving 110 years in prison, which is essentially the rest of his life-for many of his victims how and when all of them will recover their losses still remains a big question mark.

On Friday, the US Supreme Court agreed to hear three petitioners’ appeals over the sale of bogus certificates of deposits from Stanford’s Antigua bank. The requests come from insurance brokerage Willis Group Holdings Plc., which has been accused of being involved in the bogus CD sales that Stanford used to defraud his clients, and two law firms that used to represent Stanford himself. They want the court to determine whether or not under the Securities Litigation Uniform Standards Act plaintiffs can assert state-law class action claims against the petitioners.

While a federal judge said in 2011 SLUSA does preempt such state law cases, the U.S. Circuit Court of Appeals for the fifth circuit later went on to revive the securities lawsuits. Now, it will be up to the nation’s highest court to make the final call.

JPMorgan CEO Jamie Dimon Blames Regulators for Problems in the Wake of Economic Crisis

Published on: January 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Speaking at a panel at the World Economic Forum in Davos, Jamie Dimon, the chief executive officer of JPMorgan Chase (JPM), said that one reason many of the issues from the 2008 financial crisis have yet to be fixed is because new regulations have made things more complex. Dimon said that not only is too much being attempted too quickly, but also he believed that regulators have become too overwhelmed by the rules.

Dimon said that rather improving the system, during the last five years there has been a great deal of placing blame and exchanging misinformation. He did, however, praise the Federal Reserve, which he said saved “the system” by coming to the rescue after Lehman Brothers failed.

“It’s unbelievable that Mr. Jamie Diamond would be complaining so loudly about regulations,” said Institutional Investment Fraud Lawyer William Shepherd. “Among other gambling woes, his company just took a $6 billion loss on one of his traders bets! Look where deregulation of the financial markets got us 5 years ago! After the 1929 debacle, laws were passed to regulate these markets. One outlawed banks and securities firms being under the same umbrella. In fact, this is how Morgan Stanley (MS) was formed, as a forced spinoff of JP Morgan Bank. Lawmakers had decided that banks insured by FDIC, thus the taxpayers, should not gamble in the securities markets. Unfortunately, that law was repealed, and less than 10 years later our financial system collapsed again. Congress should have simply reinstituted the ban on such combined firms but has instead voted out far less protection. Stop your wining Jamie!

Mom of Baby Born with Cancer Sues Barclays Capital for $10M for Alleged Wrongful Termination

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

According to ABC News, Rachel Walsh, 32, has filed a $10 million lawsuit against Barclays Capital claiming that they fired her because she had to take a long leave of absence and subsequently terminated her child’s health coverage. Walsh’s child was born with cancer.

She is alleging gender discrimination and breach of contract. Because Walsh waived her right to a trial when she signed her employment agreement with the financial firm, the Financial Industry Regulatory Authority will be arbitrating her case.

Walsh was hired by Barclays to fill the position of global finance assistant vice president. (Prior to that she worked at Merrill Lynch (MER) and Ernst and Young.) During her first year with the financial firm, she was given a bonus, a raise, and a good end-of-year review. She also became pregnant but continued to work until three week prior to her delivery date when her doctor ordered her to bed due to pregnancy complications.

Large Financial Firms Roundup: Securities Fraud Suit Against Citigroup is Dismissed by 2nd Circuit, AIG Wants to File MBS-Related Cases Against Banks, & District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case

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

Second Circuit Dismisses Securities Fraud Lawsuit Against Citigroup

The U.S. Court of Appeals for the Second Circuit has affirmed the district court’s decision to throw out the securities fraud lawsuit filed by a real estate developer against Citigroup (C) and its former CEO Vikram Pandit. Sheldon H. Solow had accused both of them of allegedly making omissions and misstatements that highlighted the bank’s liquidity and capitalization while downplaying financial problems. Because of this, he contends, the financial firm’s stock price became artificially inflated and then fell when the truth about the firm’s financial health became known.

The appeals court held that while Solow, in his securities lawsuit, did an adequate job of pleading alleged misstatements and omissions about Citigroup’s liquidity, he did not succeed in showing that the statements caused his financial losses. It also dismissed his control-person claim against Pandit, saying that there was a failure to plead a primary violation by the bank.

Texas Securities: SEC Says District Court is Mistaken In Not Forcing SIPC to Act for Stanford Ponzi Scam Victims

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

Addressing the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission maintains that a lower court was wrong to deny the agency’s bid to compel the Securities Investor Protection Corporation to act on behalf of investors who were victimized by the Allen R. Stanford Ponzi scam. Thousands of investors sustained losses as a result of the scheme. Meantime, Stanford is serving 110 years behind bars for running the $7 billion scheme that involved certificate of deposit sales issued by his Stanford International Bank in Antigua.

“Stanford Securities was a Houston-based firm which sold uninsured CD’s issued by foreign firms to investors all over the world,” said Texas securities fraud attorney William Shepherd. “Its founder was tried for securities fraud in a Federal Court and was sentenced to what will be a lifetime without parole in a federal penitentiary. Little has been gotten back by investors who, unlike the victims of the Ponzi scheme perpetrated by Barnard Madoff, have not been able to recover up to a maximum of $500,000 each from SIPC.”

It was last summer that the U.S. District Court for the District of Columbia noted the preponderance of the evidence standard and found that investors that had bought CD’s from Stanford’s Antigua bank were not, under the meaning of the Securities Investor Protection Act, “customers” of Stanford Group Co., which was Stanford’s brokerage firm in the US. Had that court ruled otherwise, SIPC would have to start liquidation proceedings for the broker-dealer and some 21,000 Stanford CD purchasers could have sought reimbursement through SIPC claims.

NY AG Says Madoff Trustee Shouldn’t Be Able to Block $410M Settlement with Money Manager Merkin

Published on: January 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

New York Attorney General Eric Schneiderman doesn’t believe that Madoff Trustee Irving Picard should be allowed to block the $410 million securities settlement reached between the state and J. Ezra Merkin, the former GMAC Financial Services chairman who was the money manager of funds that acted as the “feeders” to the Ponzi mastermind. Picard wants the settlement stayed.

Schneiderman had filed a New York securities case against Merckin in 2009 to recover some of the money lost in the multibillion dollar Bernard Madoff Ponzi scam that went on for decades. Picard, however, contends that he is the only one entitled to seek recovery for the victims of the scheme. He also says it is his job to thwart attempts to take assets owned by the bankruptcy estate. He has argued that with the Merckin deal Schneiderman is trying to get around bankruptcy law. As of August 2012, he had raised approximately $9 billion for Madoff’s former clients, who lost about $17 billion of their capital when the Ponzi scam collapsed.

Now, Schneiderman and Bart Schwartz, who is the receiver for Merkins’ funds, are asking a federal district court to stop Picard’s motion seeking injunction to block the settlement. They say that Picard has known for some time that this case was seeking resolution but that he had previously made no attempt to stay their efforts. They pointed out that there are investors depending on this settlement to get their lost funds back.

JPMorgan Chase Ordered to Remedy Risk Management Breakdowns Involving “London Whale” Trades

Published on: January 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Office of the Comptroller of the Currency and The Federal Reserve is ordering JPMorgan Chase (JPM) to fix the breakdown that occurred in its risk management that resulted in the “London Whale” trades. These were outsized credit derivatives bets made by a group of traders in the UK that resulted in over $6 billion in losses for the investment bank. Due to the extremity of the some of the positions, prices in the markets became distorted. The “London Whale” is the nickname of one of the traders involved.

According to the newly issued enforcement actions, the internal controls of the bank did not succeed in spotting and preventing specific trading involving credited derivatives that Chief Investment Office Ina Drew conducted and this led to the losses. The OCC says that per investigations that were conducted, there had been certain deficiencies, such as poor risk management procedures and processes, insufficient governance and oversight for proper material risk protection, inadequate control of trade valuation, models that were not properly developed or implemented, and insufficient internal audit processes. Meantime, the Fed pointed to deficiencies of senior management letting the board of directors know about certain issues.

While JPMorgan Chase doesn’t have to pay a fine, there are steps it is going to have to take to enhance its risk management and improve its anti-money laundering procedures. The OCC says that the financial firm’s controls for anti-money laundering have key deficiencies related to the reporting of suspicious activity, the monitoring of transactions, risk assessment, customer due diligence, independent testing, and the proper placement of adequate internal control systems.

Morgan Stanley & Goldman Sachs Settle Federal Homeowner Foreclosure Complaints for $557 Million

Published on: January 16, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs (GS) and Morgan Stanley (MS) have agreed to collectively pay $557M to settle complaints accusing them of wrongfully foreclosing on homeowners. Under their respective agreements with the Federal Reserve, Morgan Stanley will pay $227M while Goldman will pay $330M.

Approximately 220,000 people who lost their homes due to “robo-signing” and other abuses could receive compensation as a result. Per the agreement with the two investment banks, they will pay $232 million in cash to compensate homeowners. This will conclude the loan files review against the two banks that were ordered in 2011. Cash payments will vary and may go as high as $125,000 to borrowers whose homes foreclosed in 2009 and 2010. $325M will go toward lowering mortgage balances and forgiving outstanding principal on home sales that made less than what borrowers owed on mortgages.

The deals stuck by Morgan Stanley and Goldman Sachs is similarly structured to the $8.5B one reached last week with JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), PNC Financial Services (PNC), MetLife Bank (MET), SunTrust (STI), Sovereign (SOV), Aurora, and US Bank. They are paying 3.8 million homeowners approximately $3.3 billion to conclude the foreclosure review. $5.2 billion is for forgiveness of principal and mortgage modifications. Ally Financial and HSBC are in talks to work out similar settlements. The Fed reports that now, over 4 million borrowers will receive cash compensation.