Financial Firms

Morgan Stanley to Pay $8M To Settle Exchange Traded-Fund Investment Charges

Published on: February 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Smith Barney (MS) has consented to pay a penalty of $8M to resolve Securities and Exchange Commission charges accusing the firm of wrongdoing involving single inverse exchange-traded fund investments. Morgan Stanley admitted wrongdoing as part of the settlement.

According to the SEC’s order, Morgan Stanley failed to adequately put into place procedures an policies to make sure that clients comprehended the risks involved in buying inverse ETFs and did not procure signatures from several hundred clients on a client disclosure notice that stated that these ETFs are usually not suitable for investors intending to keep them longer than a trading session unless the securities are part of a hedging or trading strategy.

Morgan Stanley persuaded investors to buy single inverse ETFs in accounts, including retirement accounts. Securities were held-long term. As a result, many of these advisory clients suffered losses.

CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

Published on: February 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

SEC Charges Connecticut RIA with $3.95M Fraud, Ex-Morgan Stanley Financial Adviser with $5M Securities Scam

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

The Securities and Exchange Commission has filed fraud charges against Sentinel Growth Fund Management and its owner Mark J. Varacchi. The regulator is accusing the Connecticut-based investment advisory firm of stealing at least $3.95M from investors. Over $1M was allegedly used to resolve private litigation in which Varacchi was the defendant.

According to the Commission, Sentinel Growth Management Fund and Varacchi misrepresented to investors that their money would go to hedge fund managers to be invested. Instead, the investment advisor firm allegedly commingled investor money and manipulated account balances, activities, and investment returns as part of a securities fraud.

Now, the SEC wants disgorgement and penalties brought against Varacchi and his firm in this investment advisor fraud case.

Benchmark Fixing: Former Deutsche Bank & Barclays Traders Plead Not Guilty to Euribor Rigging and Royal Bank of Scotland Will Pay $85M Penalty to Settle US ISDAFIX Manipulation Allegations

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

In London, six traders have pleaded not guilty to charges accusing them of trying to rig Euribor, which is the Brussels-based equivalent of the London Interbank Offered Rate (Libor). Euribor is key in establishing the rates on financial contracts, loans, and other financial products around the world.

The defendants include former Deutsche Bank (DB) trader Christian Bittar, current Deutsche trader Achim Kraemer, and former Barclays (BARC) traders Philippe Moryoussef, Colin Bermingham, Carlo Palombo, and Sisse Bohart. They are charged with one count of conspiracy to defraud through the making or obtaining of false or misleading Euribor rates in order allegedly enhance trading profits.

The criminal charges are related to a probe by the Serious Fraud Office. Five other traders from Deutsche Bank and Societe Generale were previously charged.

Connecticut Investment Bank Ordered to Pay Elderly Investors $1.25M & New Study Shows Older Investors With Mild Impairment May Be Vulnerable to Fraud

Published on: February 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Source Capital Group Inc. must pay three elderly investors their full investment of $810K plus $147K in interest, as well as $250K in legal fees, in a securities arbitration case accusing one of the investment bank’s brokers of selling them unsuitable investments. William Lashlee and Joyce and Keith McCrea filed their elder financial fraud claim with the Financial Industry Regulatory Authority.

According to the retirees, the broker sold them stock in a health care tech start-up in 2012. Lashlee invested $220K while the McCreas invested $590K. Unfortunately, the start-up, iPractice Group, shuttered its business in 2013.

The claimants claim that Source Capital was negligent in supervising the broker who sold them the securities. Although the broker was assigned to the firm’s Bowling Green, Kentucky branch, the manager there was purportedly never notified that this particular financial representative was under his supervision.

Puerto Rico Defaults on More Debt Payments

Published on: January 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Puerto Rico government has defaulted on more debt payments that were due to bondholders. The U.S. Territory did not meet the February 1, 2017 due date on $312 million in principal plus interest. The default includes Puerto Rico General Obligation bonds that are supposed to be constitutionally protected.

The Puerto Rican Government Development Bank owes $279 million of the defaulted debt. A spokesperson for Puerto Rico’s Aqueduct and Sewer Authority, however, said that the Commonwealth paid $295 million of interest, which was due on some of the debt.

Puerto Rico owes $70 billion of debt and the island has been embroiled in financial troubles for over three years. The territory has struggled to pay back the debt it owes, defaulting more than once on payments that were due. Last weekend, Puerto Rico’s federal oversight board voted to extend the stay placed on litigation against the island for debt payments that have been missed. The stay was supposed to lift on February 15, 2017. Now that date is May 1, 2017.

The island’s new governor, Ricardo Rosselló, was also granted an extension for when he has to turn in a fiscal blueprint, mapping out how Puerto Rico plans to restore its fiscal health. He now has until February 28, 2017.

Deutsche Bank Fined $630M Over $10B in Bogus Trades That May Have been Tied to Russian Money Laundering

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

Deutsche Bank AG will pay UK and US regulators $630M in fines to settle allegations that it did not stop approximately $10B in suspect trades that may have involved laundering money out of Russia. The trades at issue were mirror trades between the German lenders offices in New York, London, and Moscow. They took place between ’11 and ’15.

It was during this time that Russian blue chip stocks were purchased in rubles for clients and sold in the same amount of stocks at the equivalent price through Deutsche Bank’s London office soon after. As a result, reports The Guardian, funds were transferred through the bank to accounts abroad, including in Latvia, Estonia, and Cyprus.

Deutsche Bank is accused of not getting information about customers that took part in the mirror trades. As a result, the bank’s DB Moscow executed over 2400 pairs of mirror trades. Sellers were registered in locations offshore. Shares in Russian companies were paid for in rubles, the sellers were paid in dollars.

Securities Fraud Cases: Ex-Jefferies Bond Trader is Convicted Again, RBS Puts Aside $3.92B for Expected Mortgage-Backed Securities Fraud Settlement, and Judge Won’t Overturn Jury’s Findings In Miami Municipal Bond Fraud Case

Published on: January 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Another Jury Finds Ex-Jefferies Group Trader Guilty of RMBS Fraud
A federal jury has convicted Jesse Litvak of one count of securities fraud. The ex-Jefferies Group LLC (JEF) bond trader was tried again on allegations that he bilked customers of $2M when he inflated the prices that he claimed he paid for residential mortgage-backed securities. As a result of his claims, professional investment managers and hedge funds paid too much for bonds.

Another jury had found Litvak guilty of fraud two years ago. However, in 20015, a federal appellate court dismissed parts of the RMBS fraud case against him. The securities fraud charges were retried before a new jury.

During this trial, prosecutors claimed that Litvak’s customers had totally relied on him for bond pricing information. His legal team, however, argued that his customers were sophisticated investors and did what they wanted regardless of his advice.

SEC Cases: Citigroup to Pay $18.3M for Overbilling Clients, Strategic Capital Management is Banned Following $1.3M Cherry Picking Scam, & 10 Investment Advisory Firms Settle Pay-to-Play Violation Charges Involving Pension Fund Fees

Published on: January 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup is Accused of Overcharging At Least 60 Investment Advisory Clients
Citigroup Global Markets (C) will pay $18.3M to resolve Securities and Exchange Commission charges accusing the firm of overbilling clients and misplacing client contracts. According to the regulator’s order, at least 60,000 investment advisory clients were overcharged about $18M in unauthorized fees because Citigroup did not confirm the accuracy of the billing rates in its computer systems compared to the fees noted in client contracts and other documents. The firm also purportedly improperly collected fees even when clients suspended their accounts. The SEC says that the billing mistakes took place over a 15-year period.

The regulator also contends that the investment advisory firm has been unable to locate about 83,000 advisory contracts. Their absence made it impossible for Citigroup to correctly validate whether the fees that clients were billed are the same ones that they negotiated.

The SEC believes that affected clients paid Citigroup about $3.2M in excess fees.

JPMorgan and Schwab Are Sued in 401(K) Lawsuits

Published on: January 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Participants in JPMorgan Chase & Co.’s (JPM) $21B 401(K) plan are suing the bank. The plaintiffs, who have filed a proposed class-action securities case, claim that the firm caused employees to pay excessive fees of millions of dollars.

According to the complaint, JPMorgan and a number of committee and board members were in breach of their fiduciary duties when they purportedly kept proprietary mutual funds that came from affiliate companies and the bank in the retirement plan for several years even though these options were almost identical to less expensive funds that were not only available but also were performing better.

The plaintiffs contend that during the class period at issue—from ’10-’15—about half of the investment choices in the retirement plan consisted of proprietary funds. They are accusing JPMorgan of keeping up business deals that were lucrative for the firm with BlackRock Institutional Trust Co. , which allowed BlackRock to inundate the 401(k) plan with its funds.