Articles Posted in Financial Firms

US Supreme Court Considers Hearing Stanford Ponzi Lawsuits

Published on: October 3, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Supreme Court’s justices are looking to the Obama administration for advice about an appeal made to a ruling allowing the victims of R. Allen Stanford’s $7 billion Ponzi fraud can pursue law firms, insurance brokers, and outside parties for damages. The defendants, third party firms, want the court to stop the securities lawsuits, which are based on Texas and Louisiana law. If the court were to hear the appeals, it would put to test the Securities Litigation Uniform Standards Act, which was enacted so that if a class action lawsuit comes from a misrepresentation issued “in connection” with a covered security’s sale or purchase, investors cannot go to state courts to get around federal limits placed on such claims. The appeals is asking how close that connection has to be for a state lawsuit to be barred.

Investors have been trying to get back the money they lost in Stanford’s Ponzi fraud, which involved the sale of CDs from his Antigua bank. Numerous securities lawsuits have been filed, and at Shepherd Smith Edwards and Kantas, LTD, LLP, our Texas securities fraud lawyers represent victims of the Stanford Ponzi scam and other financial schemes.

Our Texas securities fraud law firm also continues to provide updates on the different Stanford-related securities litigation on our blog sites:

Why Were Two Former Morgan Stanley Smith Barney Brokers Not Named As Defendants in Securities Lawsuit by State Regulators Over $6M Now Missing From Wisconsin Funeral Trust?

Published on: September 27, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Wisconsin regulators are suing Wisconsin Funeral Directors Association Inc. and Fiduciary Partners Inc. for allegedly improperly investing the money from a $48 million Wisconsin Funeral Trust. With a possible long-term deficit of $21 million, close to $6 million in investor money has already been lost. However, our stockbroker fraud law firm wants to know why two former Morgan Stanley Smith Barney brokers-brothers Michael Hull and Patrick Hull-are not defendants in this case. The two brothers managed the trust until earlier this month, when a circuit court judge assigned a receiver to take charge of liquidating the fund. They now run bluepoint Investment Council, LLC.

The trust is funded by about 10,500 prepaid contracts. According to state Department of Justice officials, customers who bought prepaid funeral policy plans because they were under the impression that their money would be placed in CDs, government bonds, and low risk investments and that they would get a guaranteed, modest return rate. Instead, the trust ended up losing millions in risky investments. (The Department of Financial Institutions is now ordering a securities enforcement action after it concluded that the funds, which were in the trust, were invested in a manner that violated state law.) Fiduciary Partners Trust, the trust’s trustee, has said that it was never involved in how the trust’s investments were managed or marketed and that this was the job of the Wisconsin Funeral Directors Association and the investment management firms.

“The information which has been reported leaves us with more questions than answers as to Morgan Stanley and its former brokers,” said stockbroker fraud lawyer William Shepherd. “In any event, any claims against the firm and/or brokers would likely be excluded from court action by the trust because of a mandatory FINRA arbitration agreement.”

Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches

Published on: September 25, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Lehman Brothers subsidiary Lehman Brothers Australia has been found liable for collateralized debt obligation losses sustained by 72 councils, churches, and charities during the global economic crisis. The class action securities lawsuit was led by three Australian counsels—Wingecarribee, Parkes and Swan City. A fixed settlement amount, however, has not yet been reached. The parties will have to meet to figure out the damages, and their submissions will then be presented to the Federal Court later this year. (Because the defendant, previously known as Grange Securities, is in liquidation, it cannot make any payments right now). The three lead plaintiffs had sought up to $209M (US dollars), which is how much they say was lost from the CDOs.

The majority of the CDOs that caused the investors losses had been purchased from Grange Securities before Lehman Brothers Australia acquired the firm in 2007, which is the year when the bond world started to fall apart as the global economic crisis began to unfold. The plaintiffs are claiming alleged breach of fiduciary duty, misconduct, and negligence for how the defendant marketed the synthetic derivative investments.

Federal Court Justice Steven Rares, who issued the ruling, said the CDOs were presented as if they were liquid like cash and safe investments even though they were, in fact, a risky, “sophisticated bet.” He said the plaintiffs were told that they would get their money back if they held on to the CDO’s until maturity and that high credit ratings placed the securities in the same arena as the AAA-rated Australian government’s debts. They also presented the investments that it recommended or made for the plaintiffs as suitable for investors that had conservative goals.

The judge noted that although that each of the three councils that were the lead plaintiffs had different complaints, in relation to two councils, the defendant was negligent in the advice and recommendation it offered them. Also, as financial advisor to two of the councils, the financial firm breached its fiduciary duty and took part in deceptive and misleading behavior when it pushed the CDOs as suitable for them.

More Blog Posts:
Stockbroker Securities Roundup: Criminal Convictions Vacated Against Six Charged in Front Running Scam and Citigroup Broker Cleared in $1B CDO Deal SEC Case, Stockbroker Fraud Blog, August 11, 2012

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed, Institutional Investor Securities Blog, September 24, 2011

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLPn, Stockbroker Fraud Blog, September 30, 2008

Merrill Lynch Told to Pay $3.6M to Brazilian Heiress for Brother’s Alleged $389M in Unauthorized Trading

Published on: September 22, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel is ordering Merrill Lynch (MER), a Bank of America Corp. (BAC) unit, to pay $3.6 million to a Brazilian heiress who contends that she lost millions of dollars because of unauthorized trades that her brother made in her account. The securities arbitration case was submitted on behalf of Sophin Investments SA, which was established to manage Camelia Nasser de Kassin’s inheritance from a relative.

Sophin contended that Merrill allowed Camelia’s brother, Ezequiel Nasser, to make unauthorized trades worth $389 million using her accounts at two Merrill Lynch units. He allegedly invested in high risk securities, including naked puts in Lehman Brothers and Bear Stearns (BSC) that created a deficit of at least $8 million.

The plaintiff claimed inadequate supervision, civil fraud, unauthorized trading, and other alleged wrongdoings, and asked for compensatory damages of $21 million for the $9.5 million that had been placed in the accounts, $9.5 million as an investment return, and the rest for commissions that went to Merrill. The financial firm then submitted a counterclaim alleging that their contract together had been breached. It asked the FINRA panel for almost $2.5 million in damages for the deficit in Sophin’s retail account and close to $3 million for the swap account. Merrill also filed claims against Marc Bonnant, who is the lawyer who set up the accounts on Sophin’s behalf, as well as against Ezequiel.

The FINRA panel found both Sophin and Merrill liable. While it told Merrill to pay $6.1 million in compensatory damages to Sophin, the latter was told to pay the financial firm $2.5 million-hence the $3.6 million that Merrill was ultimately ordered to pay Sophin. Also, while the panel acknowledged that Bonnant paid less than adequate attention to his fiduciary duties to Sophin, it said that Merrill exhibited “lapses” in hits own supervising and record keeping.

The claims made against Ezequiel Nasser by Merrill were denied. The arbitration panel said Bonnant, who has been based in Europe, isn’t under its jurisdiction. (Merrill has accused him of authorizing the trades that it had made for Sophin and misrepresenting the client’s investment experience, financial state, and tolerance for risk.)

This case is just one aspect of the bigger dispute between Merrill Lynch and members of the Nasser banking family over alleged trading losses. For example, in 2008, the financial firm sued the Nassers for huge trading losses that result in a $99 million judgment. A New York appeals court upheld that ruling.

Unauthorized Trades
A broker or advisor has to get an investor’s permission to sell or buy securities for an investor. Otherwise, the trade is not authorized. When “trading authorization” is obtained to sell or buy in that client’s account, trades can be made without getting in touch with the client. However, this is a limited power of attorney.

Unfortunately, many investors suffer losses because of unauthorized trades.

Merrill Lynch must pay $3.6 million to Brazilian banking heiress, Merrill Lynch, Reuters, September 12, 2012

Merrill Lynch Ordered to Pay $3.6 Million to Brazilian Heiress, Wall Street Journal, September 12, 2012

Bonnant V. Merrill Lynch (PDF)

More Blog Posts:
Shepherd Smith Edwards and Kantas LLP Pursue Securities Fraud Cases Against Merrill Lynch, Pierce, Fenner, & Smith, Purshe Kaplan Sterling Investments, and First Allied Securities, Inc., Stockbroker Fraud Blog, May 10, 2012

Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers, Stockbroker Fraud Blog, August 27, 2012

Shepherd Smith Edwards and Kantas LLP Pursue Securities Fraud Cases Against Merrill Lynch, Pierce, Fenner, & Smith, Purshe Kaplan Sterling Investments, and First Allied Securities, Inc., Stockbroker Fraud Blog, May 10, 2012 Continue Reading ›

Rodman & Renshaw Exits Brokerage Business

Published on: September 19, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Rodman & Renshaw LLC is getting out of the brokerage business. It turned in its Form BDW – the Uniform Request for Withdrawal of Broker Dealer- to the Financial Industry Regulatory Authority on Friday. Just two days before, on September 12, the brokerage firm, which is a Direct Markets Holdings Subsidiary, told the SRO that it isn’t in compliance anymore with the Securities and Exchange Commission’s Net Capital Rule 15c3-1. Because of this, besides liquidating transactions, the once leading investment bank will no longer be involved in the securities business. Rodman & Renshaw may also sell its assets.

Just last month, FINRA fined Rodman & Renshaw $315,000 for alleged supervisory and information barrier violations involving interactions that took place between its investment banking and research functions. FINRA maintains that because of supervisory deficiencies, at least two incidents occurred involving a research analyst taking part in attempts to solicit investment banking business and an incident involving another research analyst trying to organize a payment from a public company happened. Both individuals have been sanctioned and will serve out suspensions.

According to Investment News, failing to meet regulatory-net-capital levels is often a sign that the end is near for a financial firm-unless it manages to recoup and stay in operation. Since the 2008 economic crisis, a number of brokers-dealers have struggled to keep their reserves up. Unfortunately, hundreds of brokerage firms have been unable to do so, and many of them have had to close down. FINRA says that in the last five year, there has been a 13% drop in the number of broker-dealers. Compare the 4,370 brokerage firms in operation last month to the 5,005 that were in business in 2007.

Class Action MBS Securities Lawsuit Against Goldman Sachs is Reinstated by 2nd Circuit

Published on: September 14, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Second Circuit has reinstated a would-be class action securities lawsuit accusing Goldman Sachs (GS) (in the role of underwriter) and related entities of misstating the risks involving mortgage-backed securities certificates. The revival is based on 7 of 17 challenged offerings, causing the appeals court to conclude that the plaintiff can sue on behalf of investors in mortgaged-back certificates whose lenders originated the mortgages backing the certificates that were bought. The 2nd Circuit said that those investors’ claims and the pension fund’s claims implicate the same concerns.

Per the court, NECA-IBEW Health & Welfare Fund is alleging violations of the Securities Act of 1933’s Sections 15, 12(a)(2), and 11 involving a would-be class of investors who bought certain certificates that were backed by mortgages that Goldman had underwritten and one of its affiliates had issued. The certificates were sold in 17 offerings pursuant to the same shelf registration statement but with 17 separate prospectus supplements that came with specific details about each offering.

In its class action securities lawsuit, the plaintiff alleged that the shelf registration statement had material misrepresentations about both the risks involving the instruments and underwriting standards that are supposed to determine the ability of a borrower to repay. A district court dismissed the lawsuit.

The Second Circuit acknowledged that NECA suffered personal injury from the defendants’ use of allegedly misleading statements in the offering documents linked to the certificates that it bought. However, whether the defendants’ behavior implicates the same concerns as their decision to include similar statements in the Offering Documents associated with other certificates is more difficult to answer.

While the plaintiff’s claims are partially based on general allegations of a deterioration in loan origination practices that is industry wide, the most specific claims link the allegedly abusive conduct to the 17 trusts’ 6 main originators. However, Wells Fargo Bank (WFC) and GreenPoint Mortgage Funding Inc., the only two entities that are the originators of the loans behind the certificates that the fund bought, are not defendants in this securities lawsuit.

That the alleged misrepresentations showed up in separate Offering Documents doesn’t alone bring up fundamentally different concerns because their location doesn’t impact a given buyer’s “assertion that the representation was misleading,” said the court. Because of this, and other reasons, the plaintiff has class standing to assert the claims of the buyers of the Certificates from the 5 other Trusts that have loans that were originated by Wells Fargo, Greenpoint, or both.

The second circuit said that the fund didn’t need to “to plead an out-of-pocket loss” to allege a cognizable diminution in the value of a security that was not liquid under that statute. Finding the “requisite inferences” in favor of the plaintiff, the appeals court said that not only was it “plausible,” but also it was obvious that mortgage-backed securities, such as the Certificates, would experience a drop in value because of ratings downgrades and uncertain cash flows. The fund “plausibly alleged” a distinction between how much it paid for the certificates, their value, and when the class action MBS lawsuit was filed.

NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., Justia (PDF)

Citigroup Inc.’s $590M CDO Putative Class Action Settlement Gets Preliminary Approval from District Court

Published on: September 13, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has given preliminary approval to the putative class action settlement reached between Citigroup Inc. (C) and its shareholders. Citigroup has agreed to pay $590 million over allegations that it misled the plaintiffs about its exposure to tens of billions of dollars collateralized debt obligations that were backed by residential mortgaged-backed securities and instead hid its toxic assets on its books. The plaintiffs contend that they sustained huge losses as a result. A settlement hearing for final approval is scheduled in January 2013.

The preliminary deal reached between the parties is the third largest shareholder class action settlement to be reached related to the 2008 financial crisis. Automated Trading Desk LLC shareholders, led by founder David Whitcomb and ex-ATD executive Jonathan Butler, are spearheading this securities case. (Citigroup had paid $680 million to buy ATD in 2008.) Other plaintiffs include pension funds in Ohio, Colorado, and Illinois.

Per the plaintiff shareholders, who purchased Citigroup shares between February 26, 2007 and April 18, 2008, it was around this time that Citigroup was involved in a “quasi-Ponzi scam” to make it seem as if its assets were doing well. The financial firm allegedly made material misrepresentations about CDO exposure-instead, claiming that it had sold CDOs worth billions of dollars and was no longer contending with their related risks-and failed to let investors know that it had guaranteed the securities (even transferring the guarantees it had established so the risks would be hidden).

The plaintiffs are also accusing Citibank of failing to do write-downs of the instruments in a timely manner during the class period ,even though it was aware that the subprime crash would cause great harm to its CDO holdings, and repackaging securities that no one wanted to buy into new CDOs so its exposure to the securities would be concealed. Also, per the amended complaint, Citigroup allegedly failed to modify its valuations when the CDO indexes revealed a huge drop in the securities values. Instead, the financial firm depended on higher valuations provide by sales it made to itself or from ratings firms.

Although Citibank is settling, it continues to deny the shareholder plaintiffs’ allegations. It claims it reached the agreement to get rid of the “burden and expense” of allowing this litigation to proceed. It also is saying that it is a different company now than what it was at the start of the economic crisis. Meantime, the interim lead plaintiffs have said they agreed to settle because it would be a “significant benefit” especially in light of the risk that the Settlement Class might not get anything if they had lost the CDO securities lawsuit.

Citigroup agrees to $590 million subprime settlement, The Washington Post, August 29, 2012

Citigroup Pays ATD Executives Again in $590 Million Deal, Bloomberg, August 30, 2012

More Blog Posts:

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs, Stockbroker Fraud Blog, May 3, 2012 Continue Reading ›

IRS Pays Whistleblower $104M for Exposing Tax Evasion at UBS AG

Published on: September 13, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In the largest individual federal payout in our nation’s history, the Internal Revenue Service has awarded ex-UBS AG (UBSN) Bradley Birkenfeld $104 million for acting as a whistleblower and exposing wide scale tax evasion involving the Swiss Bank. Birkenfeld, who was released from prison last month after serving 2.5 years in prison for fraud conspiracy related to this matter, is the one who revealed to the IRS how the Swiss bank helped thousands of Americans evade paying their taxes. He reported that in handling $20 billion in undeclared assets annually, UBS made $200 million a year.

The information that he provided led to UBS paying a $780 million fine so that it wouldn’t be prosecuted over the allegations. The Swiss bank also consented to an unprecedented agreement for it to give over the names of thousands of US citizens suspected of tax evasion and admitted that it fostered tax evasion between 2000 and 2007. UBS would eventually hand over information on 4,700 of its accounts.

At least 33,000 Americans have since voluntary disclosed to the IRS that they have offshore accounts. This resulted in over $5 billion.

Ex-MF Global CEO John Corzine Says Bankruptcy Trustee’s Bid to Join Investors’ Class Action Securities Litigation is Hurting His Defense

Published on: September 5, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to Jon Corzine, the ex-CEO of MF Global Holdings Ltd. (MFGLQ), bankruptcy trustee James Giddens’s efforts to be part of some of the investor class action lawsuits against the firm’s former and current executives are negatively impacting his defense. Corzine, who is also Goldman Sachs Group Inc.’s (GS) (GS) former co-chairman, left his position at MF Global last year, mere days after the brokerage giant failed in the wake of losses it sustained on European sovereign debt and its overwhelming inability to account for about $1.6 billion in customer funds. MF Global would go on to file for bankruptcy protection.

Rather than file his own securities lawsuit, Giddens has decided to work with the lawyers of the firm’s customers. He won’t join them as a plaintiff but he will “assign” his legal claims to their attorneys and fully participate in their cases. Giddens considers it totally “appropriate” for his office to join forces with the plaintiffs’ securities fraud lawsuits, and he believes that this cooperation agreement is the “most efficient, expedited and cost-effective” means of getting back additional assets for MF Global clients and creditors.

Meantime, Corzine and other ex- and current MF Global executives are complaining that this arrangement would give Giddens complete and total authority over the documents and books they would be able to get in their defense and that this unfairly limits them. Per the former executives’ lawyers, restricting the objectors’ rights to obtain discovery deprives them of the chance to a proper defense, violates due process principals, and is not in line with the goals and requirements of the federal rules that preside over civil litigation. (Also opposing Giddens’s cooperation agreement with the plaintiffs and their lawyers is ex-FBI director Louis Freeh, who is tasked with wrapping up MF Global Holdings Ltd.’s affairs. He believes that the deal oversteps Giddens’s authority and that the bankruptcy trustee is moving claims that belong to the holding company’s creditors and not the brokerage’s customers.)

Citigroup to Pay $590M to Settle Shareholder Class Action CDO Lawsuit Over Subprime Mortgage Debt

Published on: August 30, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup (C) has agreed to pay $590 million settle a shareholder class action collateralized debt obligation lawsuit filed by plaintiffs claiming it misled them about the bank’s subprime mortgage debt exposure right before the 2008 economic collapse By settling, Citigroup is not admitting to denying any wrongdoing. A federal judge has approved the proposed agreement.

Plaintiffs of this CDO lawsuit include pension funds in Illinois, Ohio, and Colorado led by ex-employees and directors of Automated Trading Desk. They obtained Citigroup shares when the bank bought the electronic trading firm in July 2007. The shareholders are accusing bank and some of its former senior executives of not disclosing that Citigroup’s CDOs were linked to mortgage securities until the bank took a million dollar write down on them that year. Citigroup would later go on to write down the CDOs by another tens of billions of dollars.

The plaintiffs claim that Citigroup used improper accounting practices so no one would find out that its holdings were losing their value, and instead, used “unsupportable marks” that were inflated so its “scheme” could continue. They say that the bank told them it had sold billions of dollars in collateralized debt obligations but did not tell them it guaranteed the securities against losses. The shareholders claim that to conceal the risks, Citi placed the guarantees in separate accounts.

Prior to the economic collapse of 2008, Citi had underwritten about $70 billion in CDOs. It, along with other Wall Street firms, had been busy participating in the profitable, growing business of packaging loans into complex securities. When the financial crisis happened, the US government had to bail Citigroup out with $45 billion, which the financial firm has since paid back.

This is not the first case Citigroup has settled related to subprime mortgages and the financial crisis. In 2010, Citi paid $75 million to settle SEC charges that it had issued misleading statements to the public about the extent of its subprime exposure, even acknowledging that it had misrepresented the exposure to be at $13 billion or under between July and the middle of October 2007 when it was actually over $50 billion. Citigroup also consented to pay the SEC $285 million to settle allegations that it misled investors when it didn’t reveal that it was assisting in choosing the mortgage securities underpinning a CDO while betting against it.

This week, Citi agreed to pay a different group of investors a $25 million MBS settlement to a securities lawsuit accusing it of underplaying the risks and telling lies about appraisal and underwriting standards on residential loans of two MBS trusts. The plaintiffs, Greater Kansas City Laborers Pension Fund and the ‪City of Ann Arbor Employees’ Retirement System,‬ had sued Citi’s Institutional Clients Group. ‬

This $590 million settlement of Citigroup’s is the largest one reached over CDOs to date and one of the largest related to the economic crisis. According to The Wall Street Journal, the two that outsize this was the $627 million that Wachovia Corp. (WB) agreed to pay over allegations that investors were misled about its mortgage loan portfolio’s quality and the $624 million by Countrywide Financial (CFC) in 2010 to settle claims that it misled investors about its high risk mortgage practices.

Citigroup in $590 million settlement of subprime lawsuit, The New York Times, August 29, 2012

Citi’s $590 million settlement: Where it ranks, August 29, 2012

Citigroup Said To Pay $75 Million To Settle SEC Subprime Case, Bloomberg, July 29, 2010

More Blog Posts:

Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011