Articles Posted in Financial Firms

Texas Broker-Dealer Pinnacle Partners Financial is Expelled by FINRA Hearing Officer Over Allegedly Fraudulent Sales of Unregistered Securities and Private Placements of Oil and Gas

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

In a default decision, San Antonio broker-dealer Pinnacle Partners Financial, Corp. has been expelled by a FINRA hearing officer for Texas securities fraud. The company’s president Brian Alfaro has also been barred. The financial firm and its head are accused of running a boiler room, engaging in the fraudulent selling of unregistered securities and private placements for gas and oil, and making numerous misrepresentations related to these investments. Alfaro is also accused of taking some of the investors’ money to pay for personal spending and unrelated business costs. The default decision was issued after Alfaro failed to show up at the FINRA panel hearing.

It was a year ago that FINRA issued an indefinite suspension against Alfaro and Pinnacle for not complying with a temporary order to cease and desist from making fraudulent misrepresentations. The two parties, however, allegedly kept making them, in addition to omissions related to the sale and offering of specific oil and gas joint interests.

According to the hearing officer, the Texas securities firm and its president operated the boiler room between August 2008 and March 2011. 10 brokers made cold calls numbering in the thousands to draw in investors for drilling investments involving gas and oil that was controlled or owned by Alfaro. They were able to get over 100 investors to put in more than $10 million.

Allegedly, between January 2009 and March 2011, Alfaro misused some of these monies, which investors thought were going toward well production and drilling, to cover some of his personal spending and other businesses. The misrepresentations and omissions that they are accused of purposely making in numerous private placements about a number of matters, include those involving inflated natural gas prices, cash flow, gross returns, and projected returns for natural gas. For example, they allegedly gave out a document claiming that over $14 million had been distributed to investors when, in fact, that figure was closer to under $1.5 million. Alfaro and Pinnacle also supposedly got rid of unfavorable, key information from well operator reports and gave investors maps that didn’t show undesirable wells that were located close to sites where drilling was supposed to take place.

To make restitution, Pinnacle and Alfaro will have to rescind the contracts of those that invested in the fraudulent offerings. They also must pay back the sales commission to clients who don’t ask for rescission.

FINRA Hearing Officer Expels Pinnacle Partners Financial Corp. and Bars President for Fraud, MarketWatch, April 25, 2012
Texas broker-dealer expelled by FINRA hearing officer, Reuters, April 25, 2012

More Blog Posts:
Texas Securities Fraud: US Supreme Court Turns Down Ex-Enron Corp Chief Executive Jeffrey Skilling’s Appeal to Have His Criminal Conviction Overturned, Stockbroker Fraud Blog, April 18, 2012
Texas Securities Fraud: State Law Class Action in R. Allen Stanford’s Ponzi Scam Not Barred by SLUSA, Stockbroker Fraud Blog, March 20, 2012
Three Oil Service Executives Face SEC Charges in Texas Court For Allegedly Bribing Nigerian Customs Officials, Stockbroker Fraud Blog, March 22, 2012 Continue Reading ›

Commodities/Futures Round Up: CFTC Cracks Down on Perpetrators of Securities Violations and Considers New Swap Market Definitions and Rules

Published on: April 20, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Rep. John Larson (D-Conn.) and Rep. Chris Murphy (D-Conn.) are calling on the Commodities Futures Trading Commission to crack down on excessive energy market speculation. They believe that this type of speculation on oil that is “based on world events” is “abusive” and has been creating difficulties for Americans.

In their released statement, Murphy said that such speculation ups the price of a gallon of gas by 56 cents. The two lawmakers want the futures and option markets regulator to swiftly implement rules that have already been passed to curb excessive speculation.

In other commodities/futures trading news, last month the U.S. District Court for the Eastern District of Texas ordered two men and their company Total Call Group Inc. to pay over $4.8 million for allegedly producing false customer statements and making bogus solicitations related to an off-exchange foreign currency fraud. In CFTC v. Total Call Group Inc., Thomas Patrick Thurmond and Craig Poe will pay $1.62 million and $3.24 million, respectively. Per the agency, between 2006 through late 2008, the two men solicited about $808,000 from at least four clients for trading in foreign currency options.

Earlier this month, another company, registered futures commission merchant Rosenthal Collins Group LLC, consented to pay over $2.5 million over CFTC allegations that it did not adequately supervise the way the firm handled an account linked to a multibillion dollar Ponzi scam. The account, held in Money Market Alternative LP’s name, experienced “significant change” between April 2006 and April 2009 in how much money it took in. For instance, the CFTC says that even though the account at inception reported a $300,000 net worth and a $45,000 yearly income, deposits varied from $2 million to $14 million a year. RCG is also accused of failing to look into and report excessive wire activity involving the account. As part of the CFTC securities settlement, the financial firm consented to pay a $1.6 million fine and disgorge $921,260, which is how much RCT made in account fees.

Just three days before, the CFTC announced that its swaps customer clearing documentation rule packaging will expand open access to execution and clearing, enhance transparency, lower cost and risks, and generate competition. The rules will not allow arrangements involving swap dealers, designated clearing organizations, major swap participants, and futures commission merchants that would limit how many counterparties a customer can get into a trade with, impair a client’s ability to access a trade execution on terms reasonable to the best terms that already exist, limit the position size a customer can take with an individual counterparty, and not allow compliance for specified time frames for acceptance of trades into clearing. Also, the CFTC is thinking about adopting definitions for swap dealers, major security-based swap participant eligible contract participant, security-based swap dealer, and major swap participant. These entities were created under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Meantime, MF Global Inc. (MFGLQ.PK) liquidation trustee James Giddens reportedly believes that he can make claims against certain company employees. Possible claims again such persons could include allegations of customer funds segregation requirement violations and breach of fiduciary duty. Although MF Global had told regulators that it was unable to account for customer funds of up to $900 million when it filed for bankruptcy protection, investigators are now saying that this figure is closer to somewhere between $1.2 billion and $1.6 billion.

Commodities Futures Trading Commission

Trustee May Sue MF Officials, NY Times, April 12, 2011
CFTC Orders Rosenthal Collins Group, LLC, a Registered Futures Commission Merchant, to Pay More than $2.5 Million for Supervision and Record-Production Violations, CFTC, April 12, 2012
CFTC v. Total Call Group Inc.

More Blog Posts:
CFTC Says RBC Took Part in Massive Trading Scam to Avail of Tax Benefits, Stockbroker Fraud Blog, April 12, 2012
Texas Man Sued by CFTC Over Alleged Foreign Currency Fraud, Stockbroker Fraud Blog, February 23, 2012
CFTC and SEC May Need to Work Out Key Differences Related to Over-the-Counter Derivatives Rulemaking, Institutional Investor Securities Blog, January 31, 2012 Continue Reading ›

Morgan Stanley to Compensate A Number of Texas Homeowners for Alleged Misconduct by Saxon Mortgage Services

Published on: April 12, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Reserve Board has ordered Morgan Stanley (MS) to retain an independent consultant to evaluate foreclosures initiated by former subsidiary Saxon Mortgage Services in 2009 and 2010. Saxon, which intends to shut down its processing center in Forth Worth, is accused of engaging in a “pattern of misconduct and negligence” related to residential mortgage servicing and foreclosure processing. The order mandates that Morgan Stanley compensate homeowners who were hurt financially because of certain deficiencies, including wrongful foreclosures.

Per the Fed, Saxon initiated at least 6,313 foreclosures against homeowners during the years cited above. Regarding certain actions, Saxon is accused of failing to confirm ownership and other information, not properly notarizing signatures, failing to implement proper controls and oversight, and neglecting to adequately staff and fund its operations to handle the increase in foreclosures.

Morgan Stanley had bought Saxon for $706 million during the housing bubble. Earlier this month, the financial firm completed its sale of the mortgage lender to Ocwen Financial of Florida. In the wake of the sale, Morgan Stanley is no longer involved in mortgage servicing. However, should the financial firm reenter this market while the Consent Order is still in effect, it will have to execute better risk-management, corporate governance, compliance, servicing, borrower communication, and foreclosure practices similar in quality to what mortgage servicers who had to abide by enforcement actions in 2011 had to implement.

Stockbroker Fraud Roundup: SEC Issues Alert for Broker-Dealers and Investors Over Municipal Bonds, Man Who Posed As Investment Adviser Pleads Guilty to Securities Fraud, and Citigroup Settles FINRA Claims of Excessive Markups/Markdowns

Published on: April 10, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The SEC’s Office of Compliance Inspections and Examinations has put out an alert reminding broker-dealers about what their supervisory and due diligence duties are when it comes to underwriting municipal securities offerings. According to the examination staff, there are financial firms that are not maintaining enough written evidence to show that they are in compliance with their responsibilities as they related to supervision and due diligence. OCIE Director Carlo di Florio stressed how sufficient due diligence when determining the operational and financial condition of municipalities and states before selling their securities, is key to investor protection.

The SEC has also issued an Investor Bulletin to provide individual investors with key information about municipal bonds. Its Office of Investor Education and Advocacy wants to make sure investors know that the risks involved include:

Call risk: the possibility that an issuer will have to pay back a bond before it matures, which can occur if interest rates drop.

Credit risk: The chance that financial problems may result for the bond issuer, making it challenging or impossible to pay back principal and interest in full.

Interest rate risk: Should US interest rates go up, investors with a low fixed-rate municipal bond who try to sell the bond prior to maturity might lose money.

Inflation risk: Inflation can lower buying power, which can prove harmful for investors that are getting a fixed income rate.

Liquidity risk: In the event that an investor is unable to find an active market for the municipal bond, this could stop them from selling or buying when they want to or getting a certain bond price.

As a municipal bond buyer, an investor is lending money to the bond issuer (usually a state, city, county, or other government entity) in return for the promise of regular interest payments and the return of principal. The maturity date of a municipal bond, which is when the bond issuer would pay back the principal, might be years-especially for long-term bonds. Short-term bonds have a maturity date of one to three years.

In other stockbroker fraud news, Citigroup Inc. (C) subsidiary Citi International Financial Services LLC has agreed to pay almost $1.25 million in restitution and fines to settle claims by FINRA that it charged excessive markups and markdowns on corporate and agency bond transactions between July 2007 and September 2010. The SRO says that the markdowns and markups ranged from 2.73% to over 10% and were too much if you factor in the market’s condition during that time period, how much it actually cost to complete the transactions, and the services that the clients were actually provided. FINRA also claims Citi International failed to exercise “reasonable diligence” to ensure that clients were billed the most favorable price possible. To settle the SRO’s claims, Citi International will pay about $648,000 in restitution, plus interest, and a $600,000 fine.

Also, a man falsely claiming to be an investment advisor has pleaded guilty to securities fraud. Telson Okhio, president of the purported financial firm Ohio Group Holdings Inc., has pleaded guilty to wire fraud over a financial scam that defrauded one Hawaiian investor of about $1 million.

Okhio solicited $5 million from the investor while claiming that the money would be invested in the foreign currency exchange market using a $100 million trading platform. He said the investment was risk-free and would earn 200% during the first month. Okhio is accused of immediately taking $1 million of the investor’s money and placing the funds in his personal account. He faces up to 20 years behind bars.

Investor Bulletin: Municipal Bonds, SEC.gov
Individual Posing as Investment Advisor Pleads Guilty to Wire Fraud Charges, FBI, March 16, 2012

FINRA Fines Citi International Financial $600,000 and Orders Restitution of $648,000 for Excessive Markups and Markdowns, FINRA, March 19, 2012

More Blog Posts:
Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

CFTC Says RBC Took Part in Massive Trading Scam to Avail of Tax Benefits, Stockbroker Fraud Blog, April 4, 2012
Wirehouses Struggle to Retain Their Share of the High-Net-Worth-Market, Institutional Investor Securities Blog, April 6, 2012 Continue Reading ›

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities

Published on: April 10, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has decided that investors can sue Bank of New York Mellon (BK) over its role as trustee in Countrywide Financial Corp.’s mortgage-backed securities that they say cost billions of dollars in damages. While Judge William Pauley threw out some of the clams filed in the securities fraud lawsuit submitted by the pension funds, he said that the remaining ones could proceed. The complaint was filed by the Benefit Fund of the City of Chicago, the Retirement Board of the Policemen’s Annuity, and the City of Grand Rapids General Retirement System. The retirement board and Chicago’s benefit fund hold certificates that 25 New York trusts and one Delaware trust had issued, and BNY Mellon is the indentured trustee for both. Pooling and servicing agreements govern how money is allocated to certificate holders.

In Retirement Board of Policemen’s Annuity and Benefit Fund of City of Chicago v. Bank of New York Mellon, the plaintiffs are accusing BNYM of ignoring its responsibility as the investors’ trustee. They believe that the bank neglected to review the loan files for mortgages that were backing the securities to make sure that there were no defective or missing documents. The bank also allegedly did not act for investors to ensure that loans having “irregularities” were taken from the mortgage pools. As a result, bondholders sustained massive losses and were forced to experience a great deal of uncertainty about investors’ ownership interest in the mortgage loans. The plaintiffs are saying that it was BNYM’s job to perfect the assignment of mortgages to the trusts, certify that documentation was correct, review loan files, and make sure that the trust’s master servicer executed its duties and remedied or bought back defective loans. Countrywide Home Loans Inc. had originally been master servicer until it merged with Bank of America (BAC).

The district court, in granting its motion, limited the lawsuit to the trusts in which the pension fund had interests. It also held that the fund only claimed “injury in fact” in regards to the trusts in which it held certificates. The court found that the certificates from New York are debt securities and not equity and are covered under the Trust Indenture Act. The plaintiffs not only did an adequate job of pleading that Bank of America and Countrywide were in breach of the PSAs, but also they adequately pleaded that defaults of the PSAs were enough to trigger BNYM’s responsibilities under Sections 315(b) and (c). The court, however, threw out the claims that BNYM violated Section 315(a) by not performing certain duties under the PSAs and certain other agreements.

BNYM says it will defend itself against the claims that remain.

Bank of NY Mellon must face lawsuit on Countrywide, Reuters, April 3, 2012

Judge Rejects Bank Of NY Mellon Motion To Dismiss Countrywide Suit, Fox, April 3, 2012

More Blog Posts:
District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2012

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011

Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans

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

A Financial Industry Arbitration panel has ordered Merrill Lynch (BAC) to pay over $10 million to two brokers who claim the financial firm wrongly denied their deferred compensation plans to vest. Per the FINRA arbitration panel, senior management at Merrill purposely engaged in a scam that was “systematic and systemic” to prevent its former brokers, Tamara Smolchek and Meri Ramazio, from getting numerous benefits, including the ones that they were entitled to under the financial firm’s deferred-compensation programs, so that it wouldn’t be liable after the acquisition. The panel accused Merrill of taking part in “delay tactics” and “discovery abuses.”

Some 3,000 brokers left Merrill after Bank of America Corp. (BAC) acquired it in 2008. A lot of these former employees are now claiming that they were improperly denied compensation.

Smolchek and Ramazio alleged a number claims related to their deferred compensation plans’ disposition. Causes of action against Merrill included breach of duty of good faith and fair dealing, breach of contract, breach of fiduciary duty, unjust enrichment, constructive trust, conversion, defamation, unfair competition, tortious interference with advantageous business relations, violating FINRA Rule 2010, fraud, and negligence.

Broker employment contracts usually mandate that an employee stay with a financial firm for several years before they are entitled to vest the money they are earning in their tax-deferred accounts. However, several of Merrill’s deferred compensation programs allow brokers that have left the firm for “good reason” to have their money vest.

The FINRA panel expressed shock that after the departure of 3,000 Merrill advisers following the Bank of America acquisition, the firm did not approve a single claim for vesting that cited a “good reason” under the deferred compensation programs. Per Merrill’s own analysis, had it approved the vesting requests, the financial firm might have paid anywhere from the hundreds of millions to billions of dollars in possible liability.

Per the compensation ruling, Merrill has to pay Ramazio $875,000 and Smolchek $4.3 million in compensatory damages for unpaid deferred compensation, unpaid wages, lost wages, lost book, lost reputation, and value of business. The FINRA panel also awarded $1.5 million in punitive damages to Ramazo and $3.5 million to Smolchek.

The same day that the decision was issued, Merrill filed an appeal. The financial firm wants the ruling overturned, claiming that it never received a fair hearing and that panel chairwoman Bonnie Pearce was biased. Merrill contends that Pearce did not disclose that her husband is a plaintiff’s lawyer who sued the financial firm for customers and brokers in at least five lawsuits. Merrill is accusing Pearce of “overt hostility.”

Merrill Lynch Loses $10 Million Compensation Ruling, The Wall Street Journal, April 4, 2012

Merrill Lynch Savaged by FINRA Arbitrators in Historic Employee Dispute, Forbes, April 4, 2012

More Blog Posts:
Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 30, 2011

Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011

Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 26, 2012

CFTC Says RBC Took Part in Massive Trading Scam to Avail of Tax Benefits

Published on: April 4, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Commodities Futures Trading Commission has filed a lawsuit accusing Royal Bank of Canada of taking part in hundreds of millions of dollars worth of illegal futures trades to earn tax benefits linked to equities. In its complaint, the CFTC claims the Toronto-based lender made misleading and false statements about “wash trades” between 2007 and 2010, which allowed affiliates to trade between themselves in a manner that undermined competition and price discovery on the OneChicago LLC exchange. This electronic-futures trading exchange is partly owned by CME Group Inc.

The alleged scam is said to have involved RBC officials working with two subsidiaries on the selling and buying of futures contracts that give the right to sell the stock later on at certain prices. CFTC said that this removes the risk of RBC sustaining any losses on the investments, while locking in the tax breaks.

Also, according to the CFTC, RBC designed certain instruments related to the transactions that were traded on OneChicago. The transactions, which involved narrow-based indexes and single-stock futures, were used to hedge the risks involved in holding the equities. CFTC says that the Canadian bank tried to cover up the scam and even provided misleading and false statements when CME started asking questions.

RBC contends that CFTC’s allegations against it are “absurd” and the lawsuit “meritless.” The bank also claims that the trades in question were completely documented and reviewed, as well as monitored by the exchanges and CFTC.

CFTC Enforcement director David Meister said that the securities action shows that the regulator will not balk at bringing charges against those that illegally exploits the futures market for profit. The CFTC has been under pressure to get tougher on its oversight of the futures industry in the wake of MF Global Holdings Ltd.’s failure last year. The demise of that securities firm resulted in an approximately $1.6 billion shortfall in client funds. Measured by the futures contracts’ national dollar amount, this case against RBC is the biggest wash-sale lawsuit the CFTC has ever brought.

Meantime, RBC says that the CFTC’s allegations against it are “absurd” and the lawsuit “meritless.” The bank has issued a statement claiming that the trades in question were completely documented and reviewed, as well as monitored by the exchanges and CFTC.

The US regulator is seeking injunctions against additional violations and monetary penalties of three times the monetary gain for each violation or $130,000/per violation from 10/04 to 10/08 and $140,000/violation after that period.

CFTC Deals Out Royal Pain, Wall Street Journal, April 3, 2012

RBC Sued by US Regulators Over Wash Trades, Bloomberg Businessweek, April 3, 2012

More Blog Posts:
SEC Inquiring About Wisconsin School Districts Failed $200 Million CDO Investments Made Through Stifel Nicolaus and Royal Bank of Canada Subsidiaries, Stockbroker Fraud Blog, June 11, 2010

Texas Man Sued by CFTC Over Alleged Foreign Currency Fraud, Stockbroker Fraud Blog, February 23, 2012

CFTC and SEC May Need to Work Out Key Differences Related to Over-the-Counter Derivatives Rulemaking, Institutional Investor Securities Blog, January 31, 2012 Continue Reading ›

SEC to Investigate Seesawing Credit Suisse TVIX Note

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

The US Securities and Exchange Commission is reviewing the VelocityShares 2x Daily VIX Short Term Exchange Traded Note (TVIX) that collapsed last week, right after it climbing nearly 90% beyond its asset value. The drop came not long after Credit Suisse stopped issuing shares last month. Now, the Switzerland-based investment bank says it will start creating more shares.

Also known as TVIX, the VelocityShares 2x Daily VIX Short Term Exchange Traded Note is an exchanged-traded note that seeks to provide two times the daily return of the VIX volatility index. With the note’s value hitting nearly $700 million up from where it was at approximately $163 million in 2011 and now crashing down, The TVIX has taken investors for quite the ride.

Investor advocates are saying that more should be done to protect retail investors. There is growing concern that with the rising popularity of ETNs, investors and financial advisers are getting into these products without fully understanding them or the risks involved. Financial Industry Regulatory Authority has said that it too will look into the “events and trading activity” that led to the collapse of the TVIX note.

Five Morgan Stanley Smith Barney Managed Future Funds Report $79.1M in Losses in 2011

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

Morgan Stanley (MS) Smith Barney is reporting that five of its managed future funds sustained 9.5% in average losses—that’s $79.1 million—in the wake of client withdrawals last year. Only one of the funds was profitable. The largest fund by assets, Morgan Stanley Smith Barney Spectrum Select LP, faced $55.2 million in redemptions and lost $67.9 million.

Subsidiary Ceres Managed Futures LLC, the funds’ manager, had placed assets with outside trading advisers. In the wake of these losses, Ceres let go two underlying managers: John W. Henry & Co. and Sunrise Capital Partners. Spectrum Currency, which is the fund that they both managed, sustained losses of 9.8% in 2011. That fund is now called Spectrum Currency and Commodity.

Managed-future funds use futures or forwards contracts when betting on the declines or advance in securities, including bonds, commodities, stocks, and currencies. Some funds also invest in securities connected to certain events, such as changes in interest rates or the weather.

It’s been a tough time recently for Morgan Stanley. Last year, the financial firm had to give back approximately $700 million to investors in its flagship global real-estate fund. It also was forced to cut fees (both the fee charged on investments and management fees) to get them to stay. The fund’s size was also cut by $4 billion, resulting in investors getting some of their money back.

Over two-thirds of investors have consented to give Msref VII until June 2013 to invest rather than having billions of dollars returned to them sooner. Morgan Stanley’s earlier fund, which closed in 2007, suffered losses of 62% through March despite a 23% net return during that period’s last 12 months.

Also last December, media sources reported that Zynga stock purchased by Morgan Stanley’s mutual funds for $75 million in the late-stage round dropped in price from $14/share to $9/share, even as the financial firm cashed in two times: on private placement fees (if there were fees) and on fees for the IPO underwriting.

There was also the huge loss sustained by Morgan Stanley in the settlement it reached with bond insurance company MBIA. The two entities had sued one another over insurance sold on mortgage-backed securities. For a $1.1 billion payment by MBIA, Morgan Stanley agreed to give up insurance claims over guarantees on mortgage bonds. However, as a result, the financial firm took a pretax $1.8 billion charge in the fourth quarter of 2011. Morgan Stanley had purchased the insurance against bond defaults.

Meantime, MBIA dismissed its complaint against Morgan Stanley over the quality of the mortgage bonds. The insurer had accused the financial firm of misrepresenting these, which was what the insurance company was supposed to guarantee. (As MBIA’s credit-default swap bets started to falter at the start of the financial crisis, regulators were forced to divide the insurance company into a structured finance unit and a municipal guarantee business.)

Morgan Stanley Settles MBIA Suits, Will Take $1.8B Hit, Forbes, December 13, 2011

Morgan Stanley Brokerage Managed-Futures Funds Lose 9.5%, Bloomberg/Businessweek, March 28, 2012

MBIA and Morgan Stanley Settle Bond Fight, The Wall Street Journal, December 14, 2011

More Blog Posts:
Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Fraud, September 17, 2011

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures, Stockbroker Fraud Blog, September 19, 2011

Ameriprise Financial Sued by Employees Over Allegedly Excessive 401(K) Costs

Published on: March 29, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In a civil case that is still underway, a number of Ameriprise Financial Inc. workers are suing their employer for what they claim was $20 million in excessive costs that resulted because the company put their 401(k) contribution in proprietary funds. The complaint, filed in September in the U.S. District Court in Minnesota last September, has been seeking class action status.

The 401k plan under dispute was launched in 2005 and the class action securities lawsuit is looking to represent everyone that the plan has employed since then. Over 10,000 members may qualify to become part of the class. The group is led by several former and current Ameriprise plan participants.

Also named as defendants in this civil suit are Ameriprise’s 401(k) investment committees and employee benefits administration. According to the plaintiffs, the defendants violated their fiduciary obligation to the retirement plan, which included investments involving mutual funds and target date funds from RiverSource Investment LLC (an Ameriprise subsidiary that is now called Columbia Management Investment Advisers LLC). The plaintiffs say that about $500 million in plan assets went into Ameriprise Trust Co. and RiverSource yearly.

The plaintiffs claim that the investment that their money went into resulted in fees generated for Ameriprise Trust, RiverSource, and its affiliates. The Ameriprise workers say that the plan suffered over $10 million in losses due to excessive fees and expenses. They also believe that RiverSource was behind in their benchmarks, suffered outflows in the billions of dollars in 2006 and 2005, and was given poor ratings by Morningstar Inc.

The plaintiffs believe that defendants selected the more costly funds with the poorer performance stories to create revenue for ATC and RiverSource and that this also benefited Ameriprise. They say that Ameriprise violated its fiduciary duty, under the Employee Retirement Income Security Act of 1974, to the retirement fund.

The plaintiffs are seeking disgorgement of all revenues, restitution, and all the money that was lost. They want the court to make sure the plan’s losses are paid back and participants are placed in the position they would have been in if only the plan had been administered correctly.

401K Plan Lawsuits
There are fiduciaries and owners of businesses that could find themselves in legal hot waters in the wake of the Department of Labor regulations that now require that the hidden, excessive fees in 401(k) plans be disclosed. Unbeknownst to participants, these fees have been reducing retirement plan balances. Also, the government is now pushing for full disclosure of all fees and wants retirement plan offerings to be provided to employees at the lowest costs possible.

There have ben other employees of other companies that have also filed their 401(k) fees class action lawsuits. For example, just last December, Walmart settled a $13.5 million class action complaint with its employees. The lawsuit blamed the company and Bank of America‘s Merrill Lynch unit for passing along expenses and high fees that were unreasonable to some two million workers.

Ameriprise workers sue over company’s own 401(k) funds, Investment News, September 29, 2011

Ameriprise workers seek class-action suit on 401(k), Star Tribune, September 29, 2011

More Blog Posts:
Ameriprise to Sell Securities America Even as it Finalizes Securities Settlement with Investors of Medical Capital Holdings and Provident Royalties Private Placements, Stockbroker Fraud Blog, April 26, 2011

Ameriprise Broker Arrested for Defrauding Investors – Clients Say He Cashed Checks Made Out to Ameriprise, Stockbroker Fraud Blog, July 7, 2007
Bank of America to Pay $335M to Countrywide Financial Corp. Borrowers Over Allegedly Discriminating Lending Practices, Stockbroker Fraud Blog, December 21, 2011 Continue Reading ›