Financial Firms

SEC Grants $83M in Whistleblower Awards in $415M Bank of America Settlement

Published on: March 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has awarded two whistleblowers almost $50M and another over $33M in the largest whistleblower awards that the regulator has issued to date. This ups the total of SEC whistleblower awards granted to $262M to 53 individuals in the last six years.

According to the SEC Office of the Whistleblower Chief Jane Norberg, these latest awards show that whistleblowers can offer information that is “incredibly significant,” making it possible for the regulator to go after serious violations that could have gone “unnoticed. “ Until these latest awards, the largest SEC whistleblower award granted was $30M in 2014.

Whistleblowers who provide quality, unique information involving securities law violations that lead to a successful enforcement action rendering over $1M in monetary sanctions may be eligible to receive an award that is 10-30% of the funds collected.

Massachusetts Investigates Wells Fargo Advisers

Published on: March 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US state of Massachusetts is investigating Wells Fargo Advisors (WFC) over whether the firm engaged in unsuitable recommendations, inappropriate referrals, and other actions related to its sales of certain investment products to customers. The news of the probe comes after Wells Fargo disclosed that it was evaluating whether inappropriate recommendations and referrals were made related to 401(K) rollovers, alternative investments, and the referral of customers from its brokerage unit to its own investment and fiduciary services business.

Secretary of the Commonwealth William Galvin said it would examine Wells Fargo’s own internal probe and wants to make sure that Massachusetts investors who were impacted by “unsuitable recommendations” would be “made whole.” He noted that while moving investors toward wealth management accounts brings “more revenues to firms,” these accounts are “not suitable for all investors.”

As Barrons reports, referring clients to managed accounts tend to earn fee-based advisors significantly more. The article goes on to note that Galvin is looking into the use of managed accounts related to the US Department of Labor’s Fiduciary Rule, which includes best practices standards for the protection of consumers. The Massachusetts regulator recently referred to that same rule when the state became the first one to file such related charges in its case against Scottrade over sales contests. In that case, Galvin accused the broker-dealer of improper sales practices, including contests that offered incentives to agents who targeted retiree clients and prospective retiree clients in particular.

Securities Industry Headlines: Convicted Hedge Fund Manager Martin Shkreli Gets Seven Years, Zohar Investment Funds File for Bankruptcy Protection, and Ex-Morgan Stanley Investment Adviser Named in $34M Securities Arbitration Loss Lands at Pinnacle

Published on: March 13, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Martin Shkreli to Go to Prison for Seven Years

A federal judge has sentenced former hedge fund manager Martin Shkreli to seven years behind bars. Shkreli was found guilty of defrauding investors of his MSMB Capital Management hedge fund while manipulating the stock of his drug company Retrophin.

His defense team had fought for a lower sentence—12 to 18 months. They pointed out that ultimately none of the investors that Shkreli bilked lost money and he didn’t profit from his fraud. Prosecutors countered that, in fact, Shkreli had caused anywhere from $9M to $20M in losses.

A few days before his criminal sentence was issued, Judge Kiyo Matsumoto ordered that about $7.36M of the ex-hedge fund manager’s assets be surrendered, including a rare Wu-Tang Clan album that he purchased for $2M. Shkreli’s legal team plans to appeal the sentence.

Royal Bank of Scotland Settles NY’s RMBS Fraud Case for $500M

Published on: March 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In yet another mortgaged securities-related resettlement, Royal Bank of Scotland (RBS) has agreed to pay $500M to settle New York Attorney General Eric Schneiderman’s case accusing the bank of misrepresentations and deceptive practices related to it sale residential mortgage-backed securities (RMBS). $400M of the payment is consumer relief, while $100M is a fine that will go to the state.

NY’s probe concentrated on 44 mortgage securitizations that RBS issued leading up to the 2008 financial crisis. The NY AG said that during that time, due diligence vendors cautioned the bank that a lot of the loans it was buying were not in compliance with underwriting guidelines. Still, the bank bundled the loans and touted them as secure to investors, many of whom bought the RMBSs.

Schneiderman’s probe found that some of the mortgages backing the bonds at issue had over 100% loan to value ratios, meaning that “they were ‘underwater’.” Now, RBS is admitting that it sold mortgage bonds backed by loans that failed to abide by underwriting guidelines even as the bank maintained that they were, in fact, in compliance.

The bank also acknowledged that it had limited how much diligence it performed on mortgages, resulting in a lot of the loans being securitized even though no due diligence was conducted at all.

Securities News: Wells Fargo’s Wealth Management Division is Reportedly Under Investigation, Merrill Lynch is Accused of Gatekeeping Failures Involving Unregistered Securities Sales, and NYSE Must Pay $14M Over Regulatory Failures

Published on: March 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SEC Reportedly Investigating Wells Fargo Over Possible Inappropriate Investment Sales to Wealth Management Clients

According to news reports, the US Securities and Exchange Commission is investigating Wells Fargo’s (WFC) Wealth Management unit to see whether its clients were inappropriately sold certain in-house investment services even though these were not in their best interests. A source told Bloomberg that the regulator’s role in the probe has not been publicly disclosed.

However, in a regulatory filing, Wells Fargo revealed that it is looking into whether inappropriate recommendations were made related to 401(k) plan rollovers, alternative investments, and brokerage customer referrals to the firm’s “investment and fiduciary-services business.” The bank noted that it was assessing these matters in its wealth management business in the wake of inquiries made by federal agencies.

Bloomberg notes that it was in 2015 that JPMorgan Chase & Co. (JPM) consented to pay $267M over allegations that its customers were not told that it had profited by placing their funds in certain hedge funds and mutual funds that charged particular fees.

Retirement Accounts : Ameriprise Settles SEC Allegations That It Overcharged for Mutual Funds & Fidelity Undergoes Customer Exodus from Flagship Funds

Published on: March 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Ameriprise Financial Services (AMP). The regulator is accusing the brokerage firm and investment adviser of recommending to retail retirement account customers that they purchase mutual fund shares that charged higher fees. Ameriprise purportedly failed to employ sales charge waivers when applicable.

The Commission’s order contends that the broker-dealer neglected to determine when certain retirement account customers qualified for mutual fund share classes that were not as costly.

Instead, the firm would recommend and sell the more costly mutual fund shares even when the less pricey options were available. Ameriprise is accused of not letting these customers know that the firm would make more from the costly mutual fund shares even as their overall investment returns were harmed.

The SEC said that about 1,971 customer accounts paid nearly $1.8M in up-front sales fees that were not warranted, costlier ongoing fees, “contingent deferred sales charges,” and other expenses because of the way that Ameriprise handled the recommendation and sale of mutual funds to retirement account clients.

The firm is cooperating with the regulator and has paid back customers that were affected with interest. Retirement account customers eligible for the less expensive mutual fund share classes have been moved to those classes free of charge.

Ex-Wells Fargo Broker Barred for Alleged $180K Elder Financial Fraud

Published on: February 26, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred Jeffrey Palish, an ex-Wells Fargo (WFC) broker in the wake of allegations of senior investor fraud. The regulator is accusing him of stealing over $180K from an elderly client with no plans or means of paying her back.

Palish was let go by the firm last year after an internal probe found that he had made misstatements about these transactions. He was arrested last week in New Jersey and charged with theft by deception involving over $75K.

According to prosecutors, Palish may have stolen at least $600K from elderly clients and failed to pay back a $100K loan from two clients. NorthJersey.com reports that Palish took clients’ money by selling their stock holdings and putting the funds from those sales into a bank account in which he deposited checks from clients. He also is accused of making more than three dozen unauthorized wire transfers of about $300K in total to pay his credit card bills.

Deutsche Bank Settles Libor Manipulation Lawsuit for $240M

Published on: February 25, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In a preliminary settled reach in a private US antitrust lawsuit, Deutsche Bank AG (DB) will pay $240M to settle allegations that it conspired with other banks to rig the London interbank offered rate (Libor) benchmark. The plaintiffs in the Libor manipulation lawsuit are “over-the-counter” investors that engaged directly in transactions with banks belonging to the panel tasked with determining the key benchmark.

Banks use Libor to establish rates on mortgage, credit card, student loan, and other transactions, as well as to figure out how much it would cost to borrow from one another. Libor is expected to be phased out before 2022.

Despite settling, the German lender denied any wrongdoing. The settlement must still be approved by a court before it is final.

Securities Cases: Massachusetts Accuses Scottrade of Running Sales Contests and Targeting Retirees, Wife of Investment Adviser Must Pay $500K in Fraud Case, and Hedge Fund Manager and His Firms Are Ordered to Pay Almost $30M for Diverting Investor Money

Published on: February 21, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Scottrade is Accused of Improper Sales Practices Involving Retirement Accounts

Massachusetts Secretary of the Commonwealth William Galvin has filed a complaint against Scottrade accusing the brokerage firm of engaging in improper sales practices that it knew violated the US Department of Labor’s fiduciary rule regarding impartial conduct standards. Under the rule, advisors and their firms are obligated to act in a fiduciary capacity when making investment recommendations, as well as act in their clients’ best interests.

In his complaint, Galvin is contending that Scottrade employed a culture that includes “aggressive sales patterns,” and that the firm and its agents failed to abide by its duty to Massachusetts retirees between 12/2015 and 6/2016 when it ran a number of national call nights that included the incentive of raffle tickets for those who cold called customers. Scottrade also conducted quarterly sales contests offering at least $490K in prizes. This included the “Q3 Win and Retain Sales Contest “that offered $285K and paid out $2500/agent to the top 25 branches according to percentage increase in new net assets brought in.

CFTC to Pay $30M to Whistleblower in $367M Asset Management Case Against JPMorgan

Published on: February 20, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission will pay $30M to one whistleblower who provided information that brought about the $367M asset management settlement in a case against JPMorgan Chase & Co. (JPM). Federal regulators alleged that the bank didn’t tell wealth management clients about conflicts of interests that may have affected how the financial institution managed their money between 2008 and 2013. The two JPMorgan units involved were its nationally chartered bank and its securities subsidy.

JPMorgan, which is the biggest bank in the US according to assets, neglected to tell customers that it made money when it placed their money in hedge funds and mutual funds that earned the firm fees. Both high net worth customers and retail mutual fund customers were purportedly affected.

The bank was also accused of not telling investors that it’s wealth business preferenced its own proprietary products over others’ products when deciding where to invest clients ‘funds. JPMorgan was accused of violating its fiduciary duty when it failed to notify customers that more costly share classes of proprietary mutual funds were chosen for them. Although JPMorgan acknowledged its failure to properly disclose the information, the bank maintained that such omissions were not done on purpose, and it has since remedied the matter.