Miscellaneous

U.S. Supreme Court Rules on 401K Lawsuit, Gives Investors More Protections

Published on: May 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The nation’s highest court has just made it easier for workers to sue their 401k plans for charging excessive fees for investments. The case is Tibble v. Edison International, and the U.S. Supreme Court ruled unanimously for the ex-workers of Edison International.

The plaintiffs contended that the plan fiduciaries’ decision to choose six retail-class mutual funds (out of the forty selected for the retirement plan) was based on the higher fees that these funds charged, compared to institutional class funds that were also allegedly available to investors. Under the Employee Retirement Income Security Act (ERISA), retirement plans that are sponsored by an employer have a fiduciary obligation to choose investments that are appropriate and remove any that cease to meet the criteria set up in the investment policy statement.

Five years ago, the U.S. District Court for the Central District of California awarded the plaintiffs a $370,732 judgment over damages involving the high fees in three of the retail share class funds at issue. The claims against the other three funds are the ones that went to the 9th U.S. Circuit Court of Appeals and now the Supreme Court.

US Prosecutors May Revoke Currency Rigging Settlements

Published on: March 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, U.S. prosecutors are thinking about revoking settlements in currency manipulation settlements that were agreed upon years ago and going after banks for manipulating interest rates. The Department of Justice is looking at whether banks violated the earlier deals that resolved those investigations, which stipulated that they would not break the law. If the government finds that banks did in fact commit crimes after the earlier settlements were reached it would be able to revoke those deals.

It has been a common practice for the DOJ to offer deferred prosecution and non-prosecution settlements in probes involving a number of matters, including market manipulation and violations of sanctions. Banks admit responsibility while cooperating with the investigation.

To rescind such a deal would be unprecedented. Among the banks that have settled probes over London interbank offered rate, also known as Libor, are Royal Bank of Scotland Group Plc (RBS), Barclays Plc (BARC), and UBS Group AG (UBS).

Judge Temporarily Blocks Meredith Whitney Fund From Making Investor Payouts in the Wake of BlueCrest Capital Opportunities Lawsuit

Published on: February 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

New York State Supreme Court Justice Jeffrey K. Oing says that he is temporarily stopping Meredith Whitney’s American Revival Fund from making investor payouts until there is a hearing about the securities lawsuit filed against the fund by BlueCrest Capital Opportunities Ltd. The plaintiff, a BlueCrest Capital Management affiliates, contends that Whitney’s fund did not honor its request to give back its now $46 million investment.

BlueCrest Capital Management, owned by billionaire Michael Platt, is Whitney’s largest investor. Now, its affiliate wants its stake back in the American Revival Fund. BlueCrest Capital Opportunities Ltd. filed its lawsuit in Bermuda at the end of last year. It was Platt who helped Whitney start her firm, Kenbelle Capital.

According to data gathered by Bloomerg.com, 2014 saw institutional investors getting involved in hedge funds and the largest players, with the funds on average returning approximately 2% over the first 11 months. Whitney’s fund, however, was down for most of that time. Her CFO and co-founder left and BlueCrest sought to get out not long after investing. BlueCrest maintains that a Kenbelle executive accepted the redemption request at first but no payment was made at the expected date.

Gray Financial Group Sues the SEC for Using Administrative Law Judges

Published on: February 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Gray Financial Group Inc. is suing the Securities Exchange Commission over the agency’s use of its own administrative law judges instead of federal ones when trying enforcement cases. The lawsuit contends that the regulator’s administrative proceedings are a violation of the U.S. Constitution because the SEC judges are distanced from presidential supervision by at least two layers of tenure protection. The investment firm wants to block the Commission’s administrative action against it.

The regulator is probing whether the firm violated Georgia law when it invested in alternative investment for public pension funds in 2012. The plaintiff’s complaint said that the SEC sent out a Wells notice in 2014 noting that it found that Gray Financial did violate specific federal securities laws. It also said that even though there was no proof of related investment losses, the agency had started a confidential probe into the company.

The investment firm said that even though no formal charges were ever made, the nature of the probe was made public, which, it claims, compelled certain clients to terminate their business relationships with Gray Financial. This led to a decline in firm revenue.

EU Fines ICAP $17M for Helping Traders Manipulate Yen Libor

Published on: February 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The European Commission says that ICAP Plc has been ordered to pay a $17.2 million fine for helping traders manipulate benchmark interest rates linked to the Japanese yen. The word’s largest broker of transactions between banks is accused of spreading misleading data to lenders that set the yen Libor’s interbank lending rate, as well as helping traders communicate so they could collude with one another.

According to the Commission, the information was disguised as “predictions or expectations” but was actually geared toward influencing panel banks that were not involved in the infringements to turn in rates aligned with intended manipulations. The EU said ICAP facilitated six yen Libor cartels between ’07-’10 and attempted to get lenders to send rates that were similar to the panel. The broker also allegedly used other contacts to facilitate communication between an RBS trader and one from Citigroup (C). ICAP said it would appeal the fine and claims that the EU has shown no evidence that the broker engaged in violations of laws related to competition.

Authorities are looking into how bankers and derivatives traders worked together to make sure benchmarks were to their benefit, which could have affected over $300 trillion of financial products, loans, and contracts tied to the rate. While RP Martin Holdings Ltd., JPMorgan Chase & Co. (JPM), Deutsche Bank (DB), UBS AG (UBS), Royal Bank of Scotland Group Plc (RBS), and Citigroup already paid penalties to settle the EU’s case against them, ICAP refused. It has, however, paid $88 million of fines to United Kingdom and United States regulators to settle charges related to its contacts with traders at UBS.

U.S. Department of Labor’s Fiduciary Rule for Retirement Advisers Hits Another Snag

Published on: February 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Just as the Department of Labor appeared poised to push out its proposal to impose a fiduciary standard on retirement advisers, financial industry members have once more stepped forward to try to implement certain changes.

Last month, financial industry trade groups met with White House aide Valerie Jarrett to express their worries. The groups are concerned that certain restrictions will limit how much compensation brokers that sell investments for IRAs would be able to get for their services. They believe that this will stop representatives from dealing with investors who have middle-range incomes.

Meantime, the DOL contends that the proposed rules are needed to protect retirees and workers from getting advice that may be tainted by conflicts of interest. For example, a broker might be tempted to sell a retirement investment product that comes with a high-fee, which could hurt a client’s savings.

MetLife Sues Regulators Over Systemic-Risk Designation

Published on: January 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

MetLife Inc. (MET) has filed a lawsuit seeking to overturn a U.S. finding that forces the insurer to be subject tougher oversight under the Dodd-Frank Act. This case is the first challenge of its kind by a non-bank financial firm. MetLife, which was given the systematically important financial institutions (SIFI) designation by the U.S. Financial Stability Oversight Council (FSOC), is opposing the label, which earmarks it as “too big to fail.”

In a statement, MetLife said that the label is “premature,” and that it doesn’t consider itself an SIFI. Companies given the SIFI label are subject to tougher oversight by the Federal Reserve, including stricter leverage, capital, and liquidity requirements. Other non-banks that have been designated SIFIs include:

• American International Group (AIG)

MF Global Holdings Ordered to Pay $100M Settlement to CFTC

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

The U.S. Commodity Futures Trading Commission is fining MF Global Holdings Ltd. $100 million to settle allegations that the firm participated in wrongdoing that led to its own demise. In addition to the fine, the futures brokerage is responsible for giving back $1.212 billion in client funds that its MF Global Inc. was told to return last year. The company was also told to pay a $100 million penalty.

The consent order, which has just been entered by the U.S. District Court for the Southern District of New York’s Judge Victor Marrero, stems from a CFTC amended complaint charging MF Global Holdings and other defendants with unlawfully using customer money. As part of the settlement, the firm has admitted to the allegations related to its liability, which are related to its agents’ acts and omissions that were named in the complaint and order.

The CFTC said that MF Global Holdings, which ran the operations of MF Global Inc., was accountable for the latter’s unlawful use of segregated customer funds during the final week of October 2011. The Complaint accused MF Global Holdings of being responsible for its unit’s failure to notify the agency right away when it became aware of (or should have known) about the deficiencies that were arising in customer accounts, submission of false statements that did not show these deficiencies in reports to the CFTC, and its use of customer money for investments not allowed in securities that were very liquid or not readily marketable.

Bank of Tokyo Mitsubishi Ordered By NY Regulators to Pay Another $315M in Penalties Over Transactions Involving Sanctioned Nations

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

The New York Department of Financial Services says that Bank of Tokyo Mitsubishi UFJ must pay another $315 in penalties for misleading Benjamin M. Lawsky, the state’s Superintended of Financial Services, about transactions involving Iran, Myanmar, and Sudan. All three nations are subject to U.S. economic sanctions. The Japanese bank also agreed to take disciplinary action against three employees that allegedly took part in diluting a report submitted to Lawsky about the transactions.

One employee, who was a manager in the bank’s anti-money laundering compliance office, stepped down. The other two, who work in the compliance department, have been barred from conducting business with any financial institutions. As part of the settlement, Bank of Tokyo admitted to misleading the regulator.

Lawsky’s office fined the bank $250 million in a settlement last year over allegations that it had routed $100 billion of payments via 28,000 transactions involving the three countries through its New York office. The year before, Bank of Tokyo arrived at a separate agreement with the U.S. Department of Treasury for $8.6 million over allegedly 97 transfers valued at $5.9 million.

Fed to Charge U.S. Banks with More Stringent Capital Surcharge

Published on: September 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Reserve intends to impose a capital surge on the largest U.S. banks to lower the risks that come with certain financial firms that are still “too big to fail.” The requirement will require these institutions to maintain bigger cushions against possible losses.

Fed Governor Daniel Tarullo gave testimony about this planned surcharge in front of a Senate Banking Committee hearing earlier this month. The Fed also reportedly intends to penalize banks that depend too much on volatile types of short-term funding.

Ever since the 2008 economic crisis, banks have increased their capital and must abide by new rules. The Wall Street Journal reports that according to Federal Financial Analytics’ examination of six U.S. banks, between 2007 and 2013 these firms upped their capital by $29.07 billion.