Financial Firms

Investor Want Wells Fargo Advisers to Pay $100K in Damages Over F-Squared Investment Losses

Published on: June 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A client of Wells Fargo Advisors (WFC) is looking to recover at least $100,000 in damages for losses he sustained from investing with F-Squared Investments Inc. The arbitration case comes six months after F-Squared consented to pay $35 million to resolve Securities and Exchange Commission charges accusing the asset manager of making false claims about its flagship investment product’s performance. The 68-year-old widower’s claim will test whether investors can pursue broker-dealers for selling F-Squared products.

The claimant, a moderately conservative investor who was looking for moderately conservative growth for his retirement account assets, began working with a Wells Fargo financial adviser in 2011. The brokerage firm made F-Squared managed-accounts available to advisors in 2013.

According to InvestmentNews, The investor’s advisor put about $900K of the client’s money-most of his savings, says his attorney-in products managed by two ETF strategists. Over 50% of the money went into F-Squared’s AlphaSector Allocator Select. Meantime, the investor said it paid Wells Fargo about $19,000 in fees for recommending the products. He believes that the firm had a conflict when it recommended investments because they came with such high commissions. Also, the fees erased potential capital gains for the claimant.
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US Government Places Restrictions on Wells Fargo, JP Morgan Chase, and Other Banks for Not Complying with Orders Related to Foreclosure Abuses

Published on: June 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Office Comptroller of the Currency has placed restrictions on the mortgage-servicing operations of J.P. Morgan Chase & Co (JPM), Wells Fargo & Co. (WFC), HSBC Holdings PLC (HSBC), Everbank Financial Corp. (EVER), U.S. Bancorp (USB), and Santander Holdings USA Inc. for their failure to totally comply with enforcement orders related to home foreclosure abuses. The OCC said that the banks did not satisfy all the requirements in consent orders that were issued in 2011 over foreclosure processing errors.

Under agreements reached with regulators, most of the biggest mortgage services in the country have consented to pay billions of dollars and fix their controls and systems to resolve claims that they robo-signed, improperly handled loan papers, or fraudulently endorsed affidavits used in foreclosures following the 2008 financial crisis. The banks are accused of improperly putting into motion hundreds of thousands of home foreclosures without assessing each case individually.

The enforcement orders led to scrutiny into US banks’ foreclosure files to assess how many borrowers should be compensated. However, in 2013, the Federal Reserve and the OCC stopped the probe without concluding its investigation.

FINRA Pursues Broker For Allegedly Trying to Bilk Elderly Investor with Alzheimer’s of $1.8M

Published on: June 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. has filed an elder financial fraud case against broker John Waszolek, who worked for UBS Wealth Management (UBS) at the time of the allegations. According to the self-regulatory organization, in 2009, Waszkolek took advantage of an 81-year-old client when he had her appoint him as a beneficiary of her trust even though she lacked the “testamentary capacity” to make such decisions and would not have been able to protect herself from exploitation. Testamentary capacity refers to a person’s mental and legal ability to make or modify a will.

The elderly widow lived by herself and had been a client of Waszolek since 1982. However, contends FINRA, it wasn’t until 2008 as her health worsened that the broker allegedly began to go above and beyond his professional obligation to her. He was the one that purportedly took her to see the doctor, who diagnosed her with Alzheimer’s. The regulator also says that he met with an estate planning lawyer so that he could be appointed as his client’s agent and given power of attorney. He wanted her trust modified so that he would be named the residual beneficiary.

When the estate planning lawyer refused because the elderly women lacked testamentary capacity, Waszolek purportedly suggested that his client see another lawyer. The amendment made to her trust would cause some $1.3 million that was supposed to be divided among four charities to go to the broker instead. That figure would eventually go up to $1.8 million.
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Renowned Money Manager Who Was Fired from Merrill Lynch is Named in Several Investor Fraud Cases

Published on: June 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Thomas J. Buck, the money manager who was let go from Merrill Lynch (MER) earlier this year, is the subject of several investor complaints alleging misrepresentation, unauthorized trading, and other wrongdoing. The cases could impact his new position at RBC Wealth Management.

The Financial Industry Regulatory Authority says there have been five complaints against the high-profile broker, who was fired from Merrill Lynch after more than three decades with the broker-dealer. The firm cited “loss of confidence” and a number of compliance lapses as reasons for the termination.

One investor is claiming losses caused by allegedly excessive trading and unsuitable investment recommendations. The investor is asking for $125K in damages. Four other claims are still pending.

DOJ Prepares Mortgage Fraud Cases Against More Banks

Published on: June 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to the Wall Street Journal, the U.S. Department of Justice and state officials are readying more mortgage fraud cases against up to nine banks, with resolutions against Morgan Stanley (MS) and Goldman Sachs Group (GS) possibly finalized as early as later this month. Most negotiations are reportedly in the earlier stages and could go on for months.

The cases are over residential mortgage-backed securities that fell in value during the economic crisis. Individual securities cases are expected rather than a collective agreement. Other banks that are expected to settle include Credit Suisse Group AG (CS), Barclays PLC (BARC), HSBC Holdings PLC, Deutsche Bank AG (DB), UBS AG (UBS), Royal Bank of Scotland Group PLC (RBS), and Wells Fargo & Co. (WFC).Settlements could range in size from a few hundred million dollars to up to $3 billion depending on the extent of misconduct allegedly involved.

Also likely to be involved least some of the RMBS cases are the attorneys general of Illinois, Massachusetts, New York, and other states that also took part in the earlier rounds of RMBS fraud cases against banks.

Merrill Lynch to Settle Short-Selling Case for $11M, Admits to Wrongdoing

Published on: June 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC said that Merrill Lynch (MER) would pay $11 million to resolve allegations of short-selling-related noncompliance. The regulator said that the wirehouse executed short sales in certain securities when the supply for this type of transaction was restricted.

Customers frequently ask brokerage firms to “locate” stock that can be used for short selling. The financial firms generate easy-to-borrow lists made up of the stock they believe is accessible for such locates. However, contends the SEC, from January 2008 through January 2014 Merrill used information that was dated to create these ETB lists.

For example, there were times when certain securities that were placed on the ETB list in the morning were no longer as easily available for borrowing later in the trading day. Yet Merrill’s platforms were set up so that they continued to process short sale orders according to the now-dated list—even as firm personnel appropriately stopped using the list for sourcing locates when certain shares’ availability had become restricted.

Deutsche Bank Ordered to Pay $55M for Misstating Financial Reports During the Economic Crisis

Published on: May 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is ordering Deutsche Bank AG (DB) to pay $55M to resolve charges accusing the firm of misstating financial reports during the peak of economic crisis. The regulator believes that the financial institution did not factor the material risk for possible losses of billions of dollars.

According to the regulator, in its order instituting a resolved administrative proceeding, Deutsche Bank overvalued a derivatives portfolio the bank had used to buy protection against losses involving credit default. Due to the to the Leveraged Super Senior trades’ “leveraged” nature the collateral for the positions was minimal compared to the $98 billion in purchased protections.

This generated a “gap risk” that the protection’s market value could potentially go beyond the available collateral. Also, because the sellers that put down the collateral could choose to unwind the trade instead of putting more collateral down in such a situation, this meant that technically the bank was protected only up to its collateral level and not its credit protection’s full market value.

UBS, J.P. Morgan, Citigroup, RBS, and Barclays to Pay $5.6B in Penalties Over Fx, Libor Investigations

Published on: May 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Five global banks have consented to pay $5.6B in penalties to resolve claims related to a U.S. probe into whether traders at these institutions manipulated foreign-currency rates for their benefit. J.P. Morgan Chase & Co. (JPM), Royal Bank of Scotland (RBS), UBS AG (UBS), Citigroup Inc. (C), and Barclays PLC (BARC) will also plead guilty to criminal charges that they conspired to rig prices of U.S. dollars and euros.

According to officials involved with the Department of Justice investigation, which went on for 19 months, traders withheld offers or bids to avoid getting the rates going in directions that would hurt the open positions of other traders, with whom they were colluding. These traders, who were from the different banks, formed what they dubbed as “The Cartel.” They would meet in online chatrooms and communicate via coded language to coordinate efforts to manipulate rates. Hand signals also were reportedly used during calls with clients. Aside from the $5.6B in peanltlies, the firms are paying another $1.6 billion in fines to the U.S. Federal Reserve.

Citibank is paying the biggest criminal fine of $925M plus a $342M penalty to the Fed. The bank was allegedly involved in currency manipulation from the end of 2007 through the beginning of 2013. Meantime, J.P. Morgan will pay the DOJ $550M and the Fed $342M.

Morgan Stanley to Pay $2M for Violations Involving Short Sales and Short Interest Reporting

Published on: May 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Morgan Stanley & Co. LLC (MS) $2M for violations involving short sale and short interest reporting rules. The violations purportedly took place over six years. The financial firm is also accused of not putting into place a supervisory system designed in a reasonable enough manner that it could identify and prevent such violations.

Financial firms are supposed to report to the SRO on a regular basis their total short positions involving equity securities in proprietary firm and customer accounts. However, according to the self-regulatory organization, Morgan Stanley did not accurately and completely report such positions in certain securities that involved billions of shares. FINRA also said that the firm’s supervisory system was deficient.

Meantime, under U.S. Securities and Exchange Commission’s Regulation SHO for regulating short sales, firms are supposed to aggregate their positions in a security to determine whether they are short or long. Through an aggregation unit, Regulation SHO lets firms track positions in a security separate from other positions at the firm and via certain trading desks or operations.

Nomura & Royal Bank of Scotland Must Pay $806M in Mortgage-Backed Securities Case

Published on: May 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Nomura Holdings (NMR) and Royal Bank of Scotland group Plc (RBS) must pay $806 million in the mortgage-backed securities lawsuit filed against them by the Federal Housing Finance Agency. $779.4 million will go to mortgage lender Freddie Mac (FMCC) while $26.6 million will go to Fannie Mae (FNMA).

Judge Denise L. Cote of the Federal District Court in Manhattan was the one who found the two banks liable for making false statements when selling the securities to the two lending giants. The banks will also take back the mortgage bonds that are the basis of this lawsuit. As of the end of March, these bonds were worth up to $479 million.

It was Nomura that sponsored $2 billion of the securities purchased by Freddie and Fannie. RBS was the underwriter on four of the deals.