Articles Posted in Financial Firms

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee

Published on: June 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A bankruptcy settlement has been reached between JP Morgan Chase & Co. and the trustee of Lehman Brothers. Per the agreement, JP Morgan will pay $106 million in securities and $755 million in cash-that’s $861 million. This will go to the customers of the now defunct Lehman Brothers Holding. The settlement comes after a two-year probe by trustee James Giddens in the Securities Investor Protection Act liquidation proceedings.

Lehman Brothers Holdings Inc., which is Lehman Brothers Inc.’s parent company, filed for bankruptcy in 2008. JP Morgan served as its clearing bank. Some 125,000 customers have filed claims worth about $180 billion total, of which about $130 billion are resolved. The claims that are left include those involving Lehman Brothers Holdings, Lehman Brothers International, and a number of hedge funds. JP Morgan and Lehman Brothers Holdings are still involved in two multibillion-dollar lawsuits.

Per court papers, the majority of the trustee’s claims against JP Morgan come from securities that the bank held but failed to liquidate following the collapse of Lehman brothers. While JP Morgan did not agree with all of the trustee’s findings, they consented to turning over the majority of the funds to resolve the dispute.

Lehman Brothers Holdings claims that JP Morgan Chase abused its role as a clearing house firm when it forced the former to surrender $8.6 billion in cash collateral. Lehman believes that if it could have held on to the funds, it wouldn’t have needed to file for bankruptcy and that even if it still had to shut down, it could have done so in a more orderly fashion.

Judge Clears $861 Million J.P. Morgan-Lehman Settlement, Wall Street Journal, June 23, 2011
JP Morgan to Pay Lehman Brokerage $861 Million in Bankruptcy Court Settlement, FNN, June 23, 2011
Securities Investor Protection Act , US Courts

More Blog Posts:
UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investors Securities Blog, April 12, 2011
UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011
Lehman Brothers Lawsuit Claims Its Bankruptcy Was In Part Due to JP Morgan Chase’s Seizure of $8.6 Billion in Cash Reserves, Stockbroker Fraud Blog, June 14, 2011 Continue Reading ›

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case

Published on: June 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, a unit of Bank of America Corp. (BAC) is now the defendant of a class action securities fraud lawsuit filed on behalf of at least 1,800 investors. A federal judge certified the class status, which involves all investors in mortgage-backed securities that were sold beginning February 2006 through September 2007.

The named plaintiffs of the MBS lawsuit are the Connecticut Carpenters Annuity Fund, the Wyoming state treasurer, Mississippi Public Employees’ Retirement System, the Connecticut Carpenters Pension Fund, and the Los Angeles County Employees Retirement Association. The investors are accusing Merrill of misleading them in the offering documents for $16.5 billion of certificates.

While including yourself as a class action plaintiff may seem like an easy way to recoup your losses, Shepherd Smith Edwards & Kantas LTD LLP founder and stockbroker fraud attorney William Shepherd says, “On average, victims with securities class action claims usually get back a net recovery of about 8% of their losses.” Such claims often face numerous obstacles. Also, only federal securities claims can be brought in class action cases, and these can be challenging to prove. “Some securities class action complaints end up settled but with the terms favoring the defendants and with large fees going to the investors’/victims’ attorneys,” notes Shepherd. Many consider the investor class the losers when such a case is concluded. ** It is important, however, to note that our securities fraud law firm has no information at this time to suggest that this is going to be the result in this matter.

One alternative you should explore is filing your own, individual claim. While many securities class action cases have very short “opt out” dates, if you “opt out” of the class in a timely manner, you can file an individual case ( claims under state law are often easier to prove). Our securities fraud law firm has represented many investors who have done both.

Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, June 20, 2011

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Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business, Stockbroker Fraud Blog, May 18, 2011
Number of Securities Class Action Settlements Reached in 2010 Hit Lowest Level in a Decade, Says Report, Stockbroker Fraud Blog, March 31, 2011
Class Action Plaintiffs Dispute Bank of America’s $137M Settlement with State Attorney Generals Over Municipal Derivatives, Institutional Investor Securities Blog, December 31, 2010 Continue Reading ›

Bank of America Cop. (BAC)’s Merrill Lynch a Defendant of Class-Action Mortgage-Backed Securities Lawsuit Against at Least 1,800 Investors

Published on: June 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Jed S. Rakoff has ruled that Merrill Lynch must face a class action securities fraud lawsuit over mortgage-backed securities. The class of at least 1,800 investors consists of the buyers of 31 tranches of MBS in 18 different offerings that were sold between February 2006 and September 2007. Merrill Lynch is a unit of Bank of America Corp. (BAC).

The investors, who filed their litigation in 2008, are accusing Merrill of misleading them in the offering documents for certificate valued at $16.5 billion and of falsely claiming that the underlying mortgages were in compliance with underwriting guidelines. Plaintiffs include the Los Angeles County Employees Retirement Association, the Mississippi Public Employees’ Retirement System, the Wyoming state treasurer, the Connecticut Carpenters Annuity Fund, and the Connecticut Carpenters Pension Fund. The class action certification lets the investors put their claims together into one lawsuit rather than having to individually push their cases through.

Meantime, Bloomberg.com is reporting that in a separate securities fraud lawsuit, also against Bank of America, U.S. District Judge William Pauley in Manhattan consolidated three cases accusing the investment bank of hiding the risks involved in mortgage-backed securities and of not using appropriate controls in processing foreclosures. The lead plaintiff in this case is Pennsylvania Public School Employees’ Retirement System.

Securities Class Actions
“The average net recovery for victims in securities class action claims is about 8% of their losses because such claims face many problems,” says Shepherd Smith Edwards and Kantas founder and securities fraud attorney William Shepherd. “For example, only federal securities fraud claims can be made in such cases, which are often difficult to prove. However, investors who “opt out” of the class in a timely manner can file their own individual claims, including under state law claims often easier to prove. Our stockbroker fraud lawyers has represented many investors who have opted-out of securities class actions.”

Shepherd continues, “Unfortunately, many securities class action claims are filed with very short “opt out” dates and some of these cases are later settled on terms that arguably favor the defendants while large payments end up going to the lawyers representing the investor/ victims in the class. Many believe the true losers in such cases are the members of the investor class who suffered the losses. [We have no information at this time to suggest such a result in this matter.] ”

Related Web Resources:
Merrill Must Face Class Action Over Mortgage Securities, Bloomberg, January 20, 2011

More Blog Posts:
National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

Dow Corning Corp.’s $165M Securities Fraud Lawsuit Against Merrill Lynch & Co. Can Proceed, Says District Court Judge, Stockbroker Fraud Blog, April 7, 2011

National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions

Published on: June 23, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, the National Credit Union Administration Board filed two securities fraud lawsuits accusing a number of financial institutions of misrepresenting the risks involved in the mortgage-securities that they sold to investors. The federal credit union is seeking a combined $800 million.

JP Morgan Securities LLC, Novastar Mortgage Funding Corp, and RBS Securities Inc. are just a few of the defendants, who are accused of committing securities fraud against five wholesale credit unions. Both mortgage-backed securities lawsuits claim that large investment banks sold securities to institutional investors that held subprime loans as Triple-A rated investments. The financial firms allegedly omitted material facts, including that the securities were larded with loans issued to borrowers at high risk of default. The defendants are accused of getting the wholesale credit unions to purchase over $3 billion in mortgage-backed securities that, according to The Wall Street Journal, were “destined to perform poorly.” Subsequently, the credit unions became 5 of the over 40 in the US that have failed since 2009. It has since been up to the approximately 7,000 remaining credit unions to take on some of the loans, while charging higher interest rates to stay in operation. Meantime, the failures of the credit unions have forced NCUA to take on about $50 billion in battered bonds that are currently valued at a fraction of their original value.

When a borrower defaults on a loan payment, the value of the mortgage-backed security suffers. The NCUA’s complaint says that as a result, the credit ratings assigned too many mortgage-backed securities that the credit union purchased collapsed in short order. The NCUA plans to file more securities fraud complaints. Goldman Sachs will likely be among the new defendants.

Feds Sue Bankers Over Fall in Bonds, The Wall Street Journal, June 21, 2011

National Credit Union Administration Board sues big banks for $800M, Biz Journals, June 20, 2011

National Credit Union Administration

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MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

“Skin in the Game” Mortgage Rule Announced by Federal Regulators, Institutional Investor Securities Blog, April 16, 2011

Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business, Stockbroker Fraud Blog, May 18, 2011

Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Theflyonthewall.com Inc. in Appeals Court

Published on: June 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Second Circuit has reversed a lower court’s ruling and decided that under New York law, Theflyonthewall.com Inc., an online financial news service, may not be held liable for disseminating the equity research recommendations found in reports of plaintiffs Barclays Capital Inc., Morgan Stanley & Co. Inc., and Merrill Lynch Pierce Fenner & Smith Inc. The appeals court’s Judge Robert D. Sack concluded that federal copyright law preempts the ‘Hot News’ misappropriation claim.

The financial firms’ reports contain research about public companies, their securities and business prospects, and their respective industries. The reports summarize these findings, which often include recommendations about holding, selling, and buying the subjects’ securities. The firms give clients and prospective ones these reports before the US securities markets open daily as an “informational advantage.”

The plaintiffs accused Fly, which has managed to get a hold of these recommendations and issue them before the brokerage firms had given them to the public or before the exchanges that the securities are traded have opened, of copyright infringement. Concurring with the plaintiffs, a lower court then barred the news service from both infringing on the copyrighted aspects of the brokerage firms’ research reports and publishing their recommendations until after the New York Stock Exchange opened.

Now, however, the appeals court is saying that “a firm’s ability to make news… does not give rise to a right for it to control who breaks the news and how.” The court reversed and remanded the earlier claim and told the district court to dismiss the brokerage firms’ misappropriation claim under New York law.

Related Web Resources:
Theflyonthewall.com Inc.

Read the district court’s opinion (PDF)

Brokerages Lose in Appeals Court On N.Y. ‘Hot News’ Misappropriation Claim, BNA Securities Law Daily, June 20, 2011

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Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court, Stockbroker Fraud Blog, January 17, 2010 Continue Reading ›

Federal Law Preempts Claims that Morgan Stanley Smith Barney LLC’s Insider Trading Detection Policies are Unlawful Under California Statutes, Says District Court

Published on: June 20, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to the U.S. District Court for the Central District of California, federal law preempts would-be class claims accusing Morgan Stanley Smith Barney LLC of having insider trading detection and deterrent policies that are illegal under California labor and unfair competition statutes. The court says that “conflict preemption” precludes the claims and that letting the plaintiffs move forward with them would create an obstacle to Congress’ objectives in enacting federal securities laws.

Per the court, Morgan Stanley set up employee trading policies to prevent and monitor insider trading. Under the ETPs, employees who had certain kinds of brokerage accounts had to either keep them in-house or disclose and get approval for the accounts to be housed at another firm. However, in 2008, because of possible “state law implications” regarding its policy, Morgan Stanley put into practice granting California employees that asked for an exeption approval as long as they gave the financial firm duplicate brokerage account confirmations and statements.

The plaintiffs of this lawsuit, who are all ex-Morgan Stanley employees, contended that under California labor statute, the firm’s policy was unlawful. Morgan Stanley’s lawyer responded by arguing that federal law preempts the plaintiffs’ claims.

The plaintiffs intend to bring their case to the U.S. Court of Appeals for the Ninth Circuit. Their lead lawyer has said that the brokerage firm’s plan forced the securities traders to pay “huge fees for their own advice.”

Related Web Resources:

Marcia Bloemendaal, et al v. Morgan Stanley Smith Barney, Justia, June 14, 2011

More Blog Posts:
MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011

Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000, Stockbroker Fraud Blog, June 13, 2011

JP Morgan Settles for $153.6M SEC Charges Over Its Marketing of Synthetic Collateralized Debt Obligation

Published on: June 18, 2011 | by Shepherd Smith Edwards & Kantas, LLP

J.P. Morgan Securities LLC (JPM) has consented to pay $153.6 million to settle Securities and Exchange Commission charges that it misled investors in 2007 when it marketed a synthetic collateralized debt obligation that was linked to the US housing market. The financial firm also agreed to a permanent bar from future violations of the 1933 Securities Act and to bettering its business practices related to mortgage securities transactions. By agreeing to settle, JP Morgan is not denying or admitting to the allegations. The settlement, however, should allow investors to get a “full return” on their losses.

The SEC says that the brokerage firm mainly used credit default swaps that referenced other CDO securities tied to the housing market to structure the Squared CDO 2007-1. While the CDO’s marketing collateral said that GSCP, GSC Capital Corp.’s investment advisory arm, chose the deal’s investment portfolio, investors were not notified that hedge fund Magnetar Capital LLC played a key part in choosing the portfolio’s CDOs and or that it would benefit if the CDO assets defaulted.

The Commission also claims that when JP Morgan discovered in early 2007 that it could sustain huge losses because the housing market was in peril, it started marketing the deal to investors outside its regular client base. Less than a year later, the securities had lost the majority, if not all, of their value.

The SEC’s complaint accuses the investment bank of selling approximately $150 million of “mezzanine notes” of the Squared deal to over a dozen institutional investors who consequently lost their investments. Also, when the Squared deal was shut in May 2007, Magnetar’s short position was $600 million while its long position was $8.9 million.

J.P. Morgan to Pay $153.6 Million to Settle SEC Charges of Misleading Investors in CDO Tied to U.S. Housing Market, SEC, June 21, 2011

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National Credit Union Administration Board Files $800M Mortgage-Backed Securities Fraud Lawsuits Against JP Morgan Securities, RBS Securities, and Other Financial Institutions, Institutional Investor Securities Blog, June 23, 2011

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

Credit Suisse Ordered to Pay STMicroelectronics N.V. $404M Over Improper ARS Investment

Published on: June 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In STMicroelectronics N.V. v. Credit Suisse Securities (USA) LLC, 2d Cir., No. 10-3847-cv, 6/2/11, the US U.S. Court of Appeals for the Second Circuit upheld an arbitration panel’s award against Credit Suisse Securities (USA) LLC for $405 million. The financial firm was accused of improperly investing STMicroelectronics N.V. (STM)’s money in high-risk auction-rate securities.

The court says that Credit Suisse offered ST the opportunity to invest in ARS in April 2006 even though the business needed to have cash or its equivalents easily at hand due to the cyclical nature of what it does. Prior to that, ST had invested its funds in safe, liquid securities, including money market deposits.

The court says that the financial firm “explicitly proposed” ARS investments and ST “explicitly accepted” investing only in these securities, which were supported by student loans that were federally guaranteed. Yet within a few days, the court says that Credit Suisse started buying higher yield, higher risk ARS for ST.

By January 2007, none of the ARS were backed by student loans anymore. Yet the financial firm sent an email to ST that concealed the investments “true nature.” All of ST’s ARS failed after the market collapsed and two of the Credit Suisse brokers in charge of the ST account would go on to be convicted of conspiracy and securities fraud charges.

ST later Financial Industry Regulatory Authority arbitration claim against Credit Suisse. The U.S. District Court for Southern District of New York later confirmed the panel’s $406 million.

In its appeal, Credit Suisse attacked the award, claiming that arbitrator John J. Duval Sr. gave inaccurate and incomplete disclosures and was misleading because he suggested that he “worked for ‘both sides,’” when he actually was an expert witness for the claimants. The court rejected that contention. Credit Suisse also accused the arbitrators of “manifestly disregarding” the law when it reached its finding. The court rejected this contention too. The appeals court did, however, find that the district court should have credited the amount of the award funds that ST got from the sale of certain Deutsche Bank securities and, as a result, lowered the amount of interest due.

More Blog Posts:
Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations, Institutional Investors Securities Blog, February 12, 2011

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

Judge Gives Lower Sentence to Former Credit Suisse Broker Convicted of Auction-Rate Securities Fraud, Stockbroker Fraud Blog, January 30, 2010

MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court

Published on: June 14, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In MBIA Insurance Corp. v. Morgan Stanley, N.Y. Sup.Ct., No. 29951-10, the New York Supreme Court says that insurance company MBIA can sue Morgan Stanley and affiliates Saxon Mortgage Services Inc. and Morgan Stanley Mortgage Capital Holdings LLC for alleged misrepresentations about the risks involved in insuring residential mortgages that were sold to investors as mortgage-backed securities. While Judge Gerald Loehr allowed MBIA to bring a cause of auction for fraud against the broker-dealer and its affiliates, he did dismiss an unjust enrichment claim against Saxon.

MBIA claims that the defendants made their representations in their talks leading up to the agreement that had the insurer saying it would insure over $223 million in residential MBS that investors bought in the transaction. The alleged misstatements were over the characteristics of the mortgage loans (both pooled and individual), the quality of the collateral for the loans, and borrowers’ credit ratings. The action dealt with the securitization of a transaction involving about 5,000 subordinate-lien residential mortgages that were bought, structured, and sold by the defendants. Morgan Stanley is also accused of representing to MBIA that the mortgage loans weren’t subprime loans but were instead alternative documentation loans.

MSMCH had acquired the mortgage loans and then transferred and pooled them to Morgan Stanley Capital Inc., which then transferred them to a trust that had LaSalle Bank National Association serve as a trustee. The trust put out certificates secured by groups of those mortgages, which were sold, and paid a yield to certificate holders connecting the cash flow to the loans.

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Goldman Sachs Group Made Money From Financial Crisis When it Bet Against the Subprime Mortgage Market, Says US Senate Panel, Institutional Investor Securities Blog, April 15, 2011

Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000

Published on: June 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Larry Feinblum, an ex-Morgan Stanley & Co. Inc. (MS) trader, has consented to settle for $150,000 SEC allegations that he hid from risk managers the true extent of risk involved in certain proprietary trading. This move caused the financial firm to suffer about $24.47 million in losses when it unwound the unauthorized positions.

The SEC claims that over a 3-month period in 2009, Feinblum, who was a supervisor on Morgan Stanley’s Equity Financing Products Swaps Desk, and trader Jennifer Kim executed a number of transactions that set up net risk positions that were significantly over limits that “could be exceeded only with supervisory approval.” The two are also accused of submitting swap orders into the firm’s risk management system that they never planned on executing and which they then promptly canceled.

The SEC says that not only did Feinblum and Kim set up their arbitrage trading strategy at positions that exceeded Morgan Stanley’s risk limits, but they also submitted the orders for the purpose of artificially and temporarily lowering the net risk positions in the securities as recorded in the firm’s risk management systems. They also went after a trading strategy that was supposed to create a profit from price discrepancies between foreign markets and US markets.

On December 17, 2009, Feinblum, who had just lost $7 million the day before, admitted that he and Kim had gone beyond the risk limits on repeated occasions and that they hid their misconduct. Morgan Stanley then proceeded to unwind the positions but by then they had already taken the financial hit.

Related Web Resources:
Former Morgan Stanley Trader Barred for Bogus Swaps, Securities Technology Monitor, June 2, 2011
SEC: Morgan Stanley trader’s trick caused millions in losses, The Washington Post, June 2, 2011
SEC Administrative Proceeding

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Morgan Stanley & Co. and TD Ameritrade Inc. to Repurchase Over $338M in Auction Rate Securities from New Jersey Investors, Institutional Investor Securities Blog, May 4, 2011 Continue Reading ›