Financial Firms

DOJ Investigating UBS Over Losses Related To Firm’s V10 Enhanced FX Carry Strategy

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

UBS Group AG (UBS) is under scrutiny over losses related to its V10 Enhanced FX Carry Strategy. The complex financial product was sold to fund managers, businesses, and individual investors and touted as a high-yielding foreign-exchange investment that employed computer algorithms to reduce risks during volatile times.

Unfortunately, according to Bloomberg, in 2010 during the start of the debt crisis, the index to which the notes were tied lost 26% over two years. Now, sources tell Bloomberg, the U.S. Department of Justice is looking at whether traders shortchanged investors by charging them too much for executing the currency trades for the strategy.

The V10 Enhanced FX Carry Strategy created sales commissions while offering an opportunity to profit from these sales and purchases of underlying currencies. Investors bought notes tied to the V10 index, which is calculated by ranking currencies from the Group of 10 nations daily according to one-month interest rates. UBS would then bet on the three highest-yielding currencies advancing and the three lowest declining. During a rise in volatility over a predetermined level, positions would be switched. Now, investigators with the DOJ are looking at instant messages, talking to traders, and examining documents issued to customers to figure out whether UBS represented how much profit it was taking on the trades.

New Details Accusing HSBC of Aiding Tax Evaders Emerge

Published on: February 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

New information regarding HSBC Holdings PLC’s (HSBC) history of aiding tax evaders has been released by ex-employee Hervé Falciani to a number of media outlet, as well as the International Consortium of Investigative Journalists. The data alleges that the bank kept secret accounts for a number of wealthy, celebrity, and/or unsavory individuals, including “dictators and arms dealers,” as well as clients that are on U.S. sanctions lists. HSBC also purportedly would advise clients on how to get around paying taxes in their home countries.

Falciani, an HSBC computer analyst who calls himself a whistleblower, has provided what the BBC is calling the largest data leak in the history of banking. He started sending information out in 2008, copying files onto personal storage devices. The information was sent to French Finance Minister Christine Lagarde, who now runs the International Monetary Fund. She notified other governments.

Falciani claims that in 2006,he notified his superiors at HSBC that there were flaws in data storage that could hurt client confidentiality. He said that no one paid attention. Bank officials, however, counter that Falciani issued no such warnings.

SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations

Published on: February 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Commissioners Luis Aguilar and Kara Stein, both Democrats, say that they were among those that voted to grant Oppenheimer & Co. (OPY) special benefits even after the brokerage firm committed rules violations. It was just last month that the broker-dealer consented to pay a $20 million penalty while admitting to failures and resolving charges related to its failure to detect money laundering.

In that case, also settle with the Financial Crimes Enforcement Network, the firm did not properly identify and report suspicious penny stock trades, even though numerous Oppenheimer customers reportedly were involved in such activities. The broker-dealer admitted that it failed to establish a suitable anti-money laundering program and did not perform proper due diligence on a foreign correspondent account.

Yet, the regulator overturned the automatic disqualification that should have come with the violation. That happened when SEC Chairman Mary Jo White and the other two members (both Republicans) outvoted the Democratic member. Now, Oppenheimer is allowed to continue selling hedge funds to rich individuals. As part of the condition for the leniency, the broker-dealer will retain a law firm and consultant to make sure that its procedures and policies fall in compliance.

Bank of America Used Subsidiary to Finance Trades, Helped Hedge Funds, Others, Avoid Taxes

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

According to The Wall Street Journal, internal documents show that Bank of America Corp. (BAC) used its Bank of America National Association, a subsidiary backed by the U.S. government, to finance controversial trades that allowed certain clients to get around paying taxes. A bank spokesperson said that the practice, which involved transactions by its investment banking arm in Europe, was phased out last year.

However, as far back as at least 2011 senior Bank of America investment bank officials in England purportedly began pressing at staff to avail of the lower funding costs of the U.S. unit, which doesn’t pay as much as business units for borrowing money. The purpose was to bring in more hedge fund clients, including those involved in dividend arbitrage tax trades. With that strategy, sophisticated investors are able to avoid or lower their withholding taxes on stock dividends.

There have been questions as to whether using an entity that holds federally insured deposits to pay for high-risk investment banking trades is appropriate. One employee even filed a whistleblower submission to the SEC about the banking subsidiary’s involvement.

U.S. Department of Justice Wants Citigroup, Barclays, JPMorgan Chase, and Royal Bank of Scotland to Plead Guilty to Criminal Charges In Currency Antitrust Investigation

Published on: February 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, the Justice Department is going to try to make four big banks plead guilty to criminal anti-trust charges related to its traders’ alleged collusion in foreign-currency markets. The financial institutions are Citigroup Inc. (C), Barclays PLC (BARC), Royal Bank of Scotland (RBS), and J.P. Morgan Chase & CO. (JPM). Meantime, separate criminal fraud cases are being pursued against the individuals whose involvements are suspected.

The DOJ’s probe is examining whether bank employees manipulated foreign-currency exchange rates to their benefit, and in certain cases, hurting customers. In a separate investigation, New York’s Department of Financial Services is looking at whether some of the biggest banks used computer programs to manipulate foreign exchange rates. The department installed monitors at Deutsche Bank AG (DB) and Barclays in 2014 and has sent subpoenas to Goldman Sachs (GS), Société Générale, and BNP Paribas about the way they use these types of programs. The subpoenas were sent not because there was necessarily evidence of wrongdoing but because the banks are actively involved in these markets.

As we mentioned in a recent blog post, JPMorgan has just agreed to pay $99.5 million to settle its portion of a currency rigging case. In that litigation, institutional investors are accusing 12 banks of rigging prices in the foreign exchange market. By settling the financial instruction is not denying or admitting to wrongdoing.

John Carris Investments Expelled by FINRA

Published on: February 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A FINRA panel has expelled John Carris Investments LLC, along with Chief Executive Officer George Carris from the securities industry. Bot are accused of suitability violations and fraud.

According to the panel, Carris and JCI were reckless when selling shares of stock and promissory notes. They purportedly left out material facts and used misleading statements. Both have been barred for manipulating Fibrocell’s stock price via the unfunded purchases of big stock blocks and engaging in trading that was pre-arranged through matched limit orders.

The FINRA panel said that JCI and Carris acted fraudulently when they did not reveal the poor financial state of parent company Invictus Capital yet sold the latter’s stock and notes. Material facts were purportedly left out of offering documents. Rather than shutting down operations when it ran out of net capital compliance, JCI kept selling Bridge Offering notes to investors and using money from the sales to remedy its net cap deficiency, all the while not telling customers that was were the money went. Offering sales were also used by Carris to cover his personal spending.

UBS Financial Puerto Rico’s Chairman Told Brokers to Sell More Bond Funds in 2011

Published on: February 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Reuters is reporting that in 2011, before the prices of UBS Financial Services Inc. of Puerto Rico’s (UBS) proprietary bond funds dropped, the firm’s chairman, Miguel Ferrer, told brokers to either start selling more UBS Puerto Rico bond funds or find a new job. He spoke after the brokerage firm’s representatives began to express reservations about selling the bond funds to their customers because of, among other issues, the high risks that were involved.

According to Reuters, sources in the know said that when UBS asked their brokers about their reluctance to sell the funds, they gave Mr. Ferrer and UBS nearly two dozen reasons, including concerns with low liquidity, excessive leverage, instability, oversupply, and because of the concentration of Puerto Rican government debt, which UBS had underwritten.

UBS has come under fire not just for pushing its own funds to clients for whom they were not appropriate, but also for improperly directing some of them to borrow money from another UBS unit to purchase more fund shares. The Federal Bureau of Investigation, along with the Securities and Exchange Commission, are reportedly looking into the allegations.

J.P. Morgan Under Scrutiny Over China Hirings

Published on: February 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, U.S. prosecutors and regulators are probing the Asian hiring practices of J.P. Morgan (JPM) and a number of other banks. The probe focuses on the Foreign Corrupt Practices Act, which is a U.S. law that prohibits giving anything of value to foreign government officials in order to gain a business edge.

Hiring employees in order to garner something in return is one area of scrutiny. The WSJ cited the hiring of the son of Chinese commerce minister Gao Hucheng even though he didn’t do well on job interviews, accidentally sent a sexually explicit email to a human resources employee, and exhibited other traits that purportedly made him a liability. Yet, during job cuts, the bank didn’t let him go and would have given him another position. Hucheng reportedly said that he would “go extra miles” for J.P. Morgan if his son wasn’t laid off.

Although China’s commerce ministry isn’t a client of the firm it has influence over business and is entitled to rule on mergers among multinationals that engage in business in that country. However, both father and son have not been accused of wrongdoing.

JPMorgan Sued by Indiana Church

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

The Christ Church Cathedral of Indianapolis is suing JPMorgan (JPM) for securities fraud. The church contends that the financial firm purposely mismanaged its money over the last ten years, causing $13 million in losses. Eli Lilly, the founder of pharmaceutical giant of the same name, gifted a large trust fund to the Episcopal congregation. Mr. Lilly appointed three local banks as trustees but JPMorgan became involved after it acquired two of the banks in 2004.

Court filings claim that once JPMorgan came on board the church’s portfolio of stocks and bonds were replaced by the firm’s own funds, including alternative investments, which involve higher fees paid to the firm. Over eight years the firm’s management fees went up from $35K to $177K, while it reaped in additional fees for selling proprietary products. By the close of 2009, the church was invested in over 50 investment funds— 75% of those were in the firm’s own products.

In 2004, when the firm took over the church’s trust fund, the congregation had $34.6 million. By the end of 2013 it had $31.6 million. Because of this, the congregation has been unable to do all of its charitable works. The church believes that its investment strategy should have let it take money from its endowment to fund its aid work without losing any money. The Christ Church Cathedral of Indianapolis wants JPMorgan to pay back the $13 million losses, which includes lost profits.

UBS Under Scrutiny in New Tax Evasion Probe

Published on: February 4, 2015 | by Shepherd Smith Edwards & Kantas, LLP

U.S. prosecutors have opened a new investigation into whether UBS AG (UBS) helped Americans avoid paying taxes via investments that were banned in the country. The government is looking at whether the Swiss bank used bearer securities, which may be used as if they were cash. These securities were phased out of the financial system in the U.S. more than thirty years ago because they can be used in money laundering and tax evasion.

According to the Wall Street Journal, not only are prosecutors in the U.S. attorney’s office in Brooklyn looking at evidence of whether bank employees played a role in allowing securities fraud and tax evasion to happen, but also they are seeking proof that there may have been a criminal cover up internally. A whistleblower is involved in this latest probe.

In 2009, UBS paid $780 million to resolve a tax evasion investigation by the Department of Justice. The Swiss bank admitted that it encouraged this type of conduct. As part of the settlement it disclosed the identities of 250 American banking clients. It settled another U.S. lawsuit in which it revealed the names of 4,450 U.S clients with UBS accounts.