Financial Firms

Securities Cases: Bank of America and Deutsche Bank Settle Agency Bond Rigging Litigation for $65.5M & Pension Funds Sue Citigroup, JP Morgan, and Other Big Banks Over Stock Lending Market Rigging Allegations

Published on: August 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court in Manhattan, preliminary settlements have been submitted in which Deutsche Bank (DB) will pay $48.5M and Bank of America (BAC) will pay $17M to resolve investor lawsuits accusing them of manipulating the agency bond market for years. A judge must still approve the settlements.

Despite settling, both banks maintain they did not engage in any wrongdoing. The lead plaintiff investors include the Sheet Metal Workers Pension Plan of Northern California and the Iron Workers Pension Plan of Western Pennsylvania, and KBC Asset Management NV.

According to court papers and as reported by Reuters, Bank of America and Deutsche Bank are two of the 10 banks accused of rigging the $9 trillion agency bond market for supranational, sub-sovereign and agency bonds, also known as SSA bonds. The plaintiffs contend that from 2005 to 2015 the banks shared price information with one another, worked as a “super-desk” together, and allowed traders to coordinate strategies in the name of profit. Meantime, customers had to accept bond prices that were unfair to them.

Massachusetts Regulator Galvin Investigates Whether Exchanges Are Giving Kickbacks to Brokers for Making Institutional Investor Trades

Published on: August 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is probing whether there are brokers who are getting paid kickbacks by exchanges in return for investor trades. The investigation comes in the wake of an op-ed article published in The New York Times last month alleging that there are financial representatives who have been sending orders to specific exchanges for these kickbacks, referred to as “rebates,” even if it means poorer results for their institutional investors.

The op-ed was written by Yale Law Professor Jonathan Macey and Yale University Chief Investment Officer David Swensen. Already, the state regulator has sent inquiry letters to Morgan Stanley & Co. (MS), E*TRADE Securities, Charles Schwab & Co. (SCHW), and Fidelity Brokerage Services LLC.

According to the article, because of these “rebates,” brokers are frequently selecting less favorable trades for their institutional investors clients to use these exchanges. If this is true, then it would be distressing considering that institutional brokers are legally bound to make trades on the exchange that has the terms that are most favorable for a client. Failure to do so could be grounds for a securities case. Meantime, it is supposed to be up to the exchanges, all 12 of them, to compete to provide the best trading opportunities.

$5M Insider Trading Case Leads to Criminal Arrests

Published on: August 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has brought insider trading case charges against seven people who made millions of dollars while insider trading on dozens of upcoming acquisitions and mergers involving 30 corporate deals. The regulator’s complaint contends that Daniel Rivas, who used to be a bank IT employee, misused the access he had to a computer system by tipping four people with information that they then used to trade. Some of the those whom Rivas tipped allegedly also tipped other people, who tipped others, too.

InvestmentNews identified the bank that Rivas worked for at the time of the misconduct as Bank of America (BAC). (Bank of America Merrill Lynch later fired Rivas, who was then hired by RBC Capital Markets. In the wake of the insider trading allegations against him, Rivas was suspended by RBC.)

Rivas often tipped James Moodhe, who is the father of his girlfriend, using handwritten notes. Moodhe made approximately $2M from trading on the tips and shared the information with financial adviser Michael Siva, whom InvestmentNews identifies as a former Morgan Stanley (MS) broker.

Securities News: Citigroup Settles Libor Lawsuit for $130M, Apollo Global is Sued for Fraud, and Ex-MSD Capital Analyst is Sentenced After Insider Trading

Published on: August 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup to Pay Plaintiffs Suing Over Libor Rigging

Citigroup Inc. (C) will resolve a private US antitrust lawsuit alleging Libor manipulation by paying plaintiffs $130M. The litigation was brought by “over-the-counter” investors who engaged in direct transactions with banks that belonged to the panel that determines London Interbank Offered Rate.

As part of the proposed preliminary settlement, the bank will pay the money to a fund for future class members. It also will cooperate with the lawsuits brought against other banks also accused of involvement in Libor rigging. Despite settling the case, however, Citigroup is not admitting or denying any wrongdoing.

Securities News: Deutsche Bank, Citigroup, JPMorgan, and Interactive Brokers Are Fined for Market Access Violations & Halliburton Settles FCPA Charges for $29.2M

Published on: July 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Four Firms Are Ordered to Pay $4.75M for Market Access Rule Violations

The Financial Industry Regulatory Authority, CBOE Holdings company Bats, the New York Stock Exchange, NASDAQ, and their affiliated Exchanges have fined four financial firms $4.75M collectively for violating the Securities Exchange Act of 1934’s Rule 15c3-5, which is also known as the Market Access Rule. The fines are: $2.5M for Deutsche Bank (DB), $800K for J.P. Morgan (JPM), $1M for Citigroup (C), and $450K for Interactive Brokers (IBKR).

The firms have given market access to quite a number clients that engage in millions of trades daily. However, according to FINRA, Bats, NASDAQ, and NYSE, when doing so, they purportedly did not comply with at least one of the Market Access Rule’s provisions when they did not put in place certain risk management controls and procedures so that orders that were “erroneous or duplicative,” or went beyond certain kinds of thresholds, could be detected or prevented. The firms are also accused of not having systems in place for properly supervising customer trading so that “potentially volatile and manipulative activity” could be avoided.

Three Ex-Traders Who Worked for Barclays, JPMorgan, and Citigroup Plead Not Guilty to Forex Rigging Charges While BNP Paribas is Fined $246M

Published on: July 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the US, former London traders Rohan Ramchandani, Chris Ashton, and Richard Usher have pleaded not guilty to criminal charges accusing them of conspiring to manipulate prices in the foreign exchange market. Ashton previously worked at Barclays (BARC) as the bank’s global head of spot currency trading. Ramchandani used to be Citigroup’s (C) G-10 spot currency trading head. Usher served a similar role at JPMorgan & Chase (JPM).

Prosecutors are accusing them of conspiring with other traders in a Forex rigging scheme to share sensitive client information through an electronic chat room referred to as the “Cartel,” as well as via phone, in order to quash competitors.

The criminal charges are related to a global probe into currency market rigging. To date, seven banks have paid approximately $10B fines over this type of manipulation, including Citigroup, Barclays (BARC), JPMorgan, and Royal Bank of Scotland (RBS).

Royal Bank of Scotland Settles FHFA’s MBS Securities Probe For $5.5B

Published on: July 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

This week, Royal Bank of Scotland Group PLC (RBS) has agreed to pay the Federal Housing Finance Agency $5.5B to resolve the latter’s investigation into the UK government-controlled bank’s sale of toxic mortgage-backed securities to mortgage giants Freddie Mac and Fannie Mae leading up to the 2008 financial crisis. RBS has come under fire for the way it packaged and sold subprime mortgages. The violations allegedly involved private-label residential mortgage-backed securities (PLS) trusts that were purchased between 2005 and 2007.

RBS will pay Freddie Mac about $4.5B and approximately $975M to Fannie Mae to resolve this RMBS fraud case. However, the bank is eligible for a $754M reimbursement according to certain indemnification agreements.

RBS had previously reached, for $1.1B, separate settlements over similar MBS fraud claims that the US National Credit Union Administration had brought in Kansas and California. It remains under investigation by the US Department of Justice and several US agencies who are conducting their own mortgage-backed securities fraud probes.

Judge Rules That Aequitas Investors’ Securities Fraud Lawsuit Against TD Ameritrade and Others May Proceed

Published on: July 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In Oregon, a district court judge has refused to dismiss a proposed class action lawsuit accusing TD Ameritrade (AMTD), Integrity Bank & Trust, Deloitte & Touche LLP, Eisner Amper LP, and law firms Tonkon Torp and Sidley Austin of playing a part in the alleged securities fraud committed by Aequitas Management LLC, which is now defunct.

Over 1500 investors entrusted over $350M to Aequitas. They each invested amounts ranging from about $60K to over $1M in Aequitas funds, including the Aequitas Income Opportunity Fund II LLC that they now claim was a Ponzi scam.

Last year, in its civil securities case, the US Securities and Exchange Commission accused the Oregon-based investment group and three of its executives of concealing the firm’s financial woes while still raising millions of dollars. Investors thought they were backing investments involving transportation, education, and healthcare when their funds were allegedly being used to save Aequitas. Meantime, newer investors’ funds were also used to pay earlier investors in a Ponzi-like scam.
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SEC Investigates Morgan Stanley and Barclays Bankers Over Puerto Rico Bond Sales

Published on: July 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Barclays (BARC) and Morgan Stanley (MS) were underwriters when the island sold $3.5 billion of bonds in 2014. According to Bloomberg, brokerage firm records submitted to the Financial Industry Regulatory Authority (“FINRA”) indicate that the U.S. Securities & Exchange Commission’s (“SEC”) staff is recommending that the SEC file an enforcement case against Barclays bankers James Henn and Luis Alfaro. The two men are under investigation for allegedly violating fair dealing in selling Puerto Rico bonds. They are also under investigation for alleged violations of securities rules and municipal bond rules as they pertain to misrepresentation, deception and fraud related to the securities.

Additionally, Bloomberg reports the SEC’s staff wants to issue a sanction against Morgan Stanley Managing Director Charles Visconsi and his ex-colleague Jorge Irizarry over disclosures that Puerto Rico made in documents that were sent to investors. The staff is interested in whether the broker-dealer adequately examined representations that were made by the island’s government. Visconsi and Irizarry reportedly have not been accused of any intentional misconduct.

In other Puerto Rico bond fraud news, the Puerto Rico Electric Power Authority (“PREPA”) has joined the island in filing bankruptcy protection. PREPA is currently overburdened with $9 billion of debt.

CFTC Cases: Non-Prosecutorial Deals Reached With Ex-Citigroup Traders Over Spoofing Allegations, NY-Based Firm is Barred From Commodity Interest Trading, and Regulator Alleges Fraud Involving Forex Trading of a Pooled Investment

Published on: June 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former Citigroup Global Markets Traders Accused of Spoofing Arrive at Non-Prosecution Deals
The US Commodity Futures Trading Commission has reached non-prosecution agreements with three ex-Citigroup Global Markets Inc.(C) traders. Daniel Liao, Jeremy Lao, and Shlomo Salant admitted to engaging in spoofing in US treasury futures markets while working for the firm. The three of them also provided information about misconduct that was committed by others.

According to the non-prosecution deals, each trader submitted big orders on the opposite of orders that were smaller with the intention of cancelling the bigger orders. They engaged in spoofing to fill their smaller orders at prices they preferred.

The agreements with the ex-Citigroup traders comes nearly six months after the bank settled with the CFTC allegations over spoofing and supervisory-related deficiencies. A number of unlawful incidents at Citigroup were identified in the non-prosecutorial deals.