Financial Firms

Goldman Sachs Execution & Clearing Ordered to Pay $800K FINRA Fine for Not Preventing Trade-Throughs in its Dark Pool

Published on: July 1, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Goldman Sachs Execution & Clearing, L.P. (GS) $800,000. The self-regulatory organization says that for almost three years the firm did not have written procedures and policies that were reasonably designed enough to keep trade-throughs of protected quotations in National Market System stocks from taking place through its SIGMA-X dark pool. As a result, over an 11-day period in 2011, almost 400,000 trades were carried out at SIGMA-X through a quotation that was protected with a price that was lower than the NBBO.

Trading centers are supposed to either direct orders to trading centers with the best price quotes or trade at the prices that are the best quotes. The SRO says that the firm did not know this was happening in part because latencies in market information at Goldman’s dark pool were not detected soon enough.

Goldman Sachs has already given back $1.67M to customers who were disadvantaged. By settling, the firm is not denying or admitting to the FINRA charges. However, it agreed to the entry of the SRO’s findings.

NY Sues Barclays Over Alleged High Speed Trading Favors in Dark Pool

Published on: June 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

New York Attorney General Eric Schneiderman has filed a securities fraud lawsuit against Barclays (BARC) Plc. accusing the British bank of lying about giving preference to high-frequency traders. The state contends that Barclays took part in fraudulent activity related to a dark pool. The British-based bank has 20 days to respond to the securities fraud charges.

Financial Industry Regulatory Authority data says that for the first week of June 2014, LX was the number two biggest alternative trading system in the United States. According to the high frequency trading case, LX, which is Barclays’ dark pool, favors computer-driven firms that can weave their way through the market at super fast speeds yet downplays how much these high-frequency traders use the venue.

Schneiderman says that the bank falsely depicted the way it routes the orders of clients and claimed to protect them from high-speed firms, when really the dark pool was run to the advantage of these traders. He claims that Barclays even specifically sought to bring in high-speed traders to LX, giving them preferential treatment over others by providing them with details about the way the dark pool is run.

FINRA Arbitration Panel Orders Stifel Nicolaus to Pay $2.7M to Ex-Head Trader

Published on: June 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Arbitration Panel says that Stifel Financial Corp. (SF), the brokerage unit of Stifel Nicolaus, must pay $2.7 million to, Sean Horrigan. Stifel’s ex-head trader claims that the brokerage firm defamed him and withheld his bonus without just cause. Now, the panel is holding the broker-dealer liable.

Horrigan was fired from Stifel in 2012. According to his lawyer, his termination happened several weeks after he overheard a phone call in which a manager insulted his wife to a salesperson. Horrigan’s wife was also employed at Stifel at the time. After the incident, he reacted emotionally. It was after trading hours. The firm then demoted him before letting him go just weeks prior to giving him his bonus for 2011.

Stifel contended that Horrigan was not entitled to get that money because on the day that the bonuses were issued he no longer worked for the firm. His attorney, however, says that unless an industry professional signs a contract mandating that an employee has to be employed on bonus payout day, he/she is still entitled to that money.

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales

Published on: June 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Authorities in the United States are reportedly investigating UBS AG (UBSN) for its actions in Puerto Rico. The criminal fraud investigation comes in the wake of allegations that an ex-UBS broker in Puerto Rico told clients to improperly borrow money to purchase local mutual funds that later sank.

The investigation is centered around non-purpose loans that came from UBS Bank USA of Utah. The former UBS broker, Jose Ramirez, organized the loans for clients. The bank has since let him go.

Under internal guidelines, such loans are not allowed to be used for the purchase of securities since those very securities will be the collateral for the loans. Now, however, investors are saying that Ramirez was utilizing these loans to purchase more shares in the bond funds for them. Some are even saying that he gave them paperwork that made it appear as if customers were borrowing from the UBS bank in Puerto Rico and not the one in Utah. More than 100 investors may have been affected.

Bank of America Must Face SEC and Department of Justice RMBS Fraud Lawsuits, Seeks Meeting with US Attorney General

Published on: June 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In North Carolina, U.S. District Judge Max O. Cogburn Jr. said that Bank of America Corp. (BAC) would have to face government two residential mortgage-backed securities lawsuits. The Securities and Exchange Commission and the Department of Justice contend that the bank misled investors about the quality of loans tied to $850 million in RMBS.

Bank of America wanted the cases dismissed. It argued that the investors, both financial institutions, never sued the bank.

Judge Cogburn, however, found that the SEC’s lawsuit properly laid out that the bank lied about the mortgages’ projected health in its RMBS fraud case. With the DOJ’s case, he gave the department 30 days to revise its securities lawsuit. He found that the Justice Department did not properly state its argument, which was that bank documents included false statements while leaving out key facts.

DOJ Investigates Foreign-Exchange Industry Over Sales Markups

Published on: June 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg News, the U.S. Department of Justice is expanding its probe of the foreign-exchange industry by talking to the salespersons at the biggest banks in the world. They want to know about current sales practices, including how much customers are charged to exchange currency.

Over a dozen ex- and current traders and salespersons that were interviewed said that it is common to charge a hard markup, which factors in a slight margin for the services of a salesperson. Clients who don’t make currency deals too often or just in small quantities often don’t pay much attention to the rate they receive. Now, the DOJ wants to know if banks are committing fraud when they don’t properly disclose this practice to customers.

The Justice Department is just one of over a dozen authorities in the world that are probing the currency Now, banks are also conducting their own investigations in an attempt to negotiate for leniency just in case any disciplinary actions result.

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations

Published on: June 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) must pay banking regulators in Connecticut $5 million over allegations that the broker-dealer did not properly oversee the communications of its brokers. According to The Connecticut Department of banking, there were a number of issues with the firm’s supervisory procedures. The firm is settling without denying or admitting to the securities allegations.

The state regulators say that Morgan Stanley, which has wealth management branch offices in Connecticut, gave them information about their supervisory procedures that either was “obsolete” or nonexistent. Connecticut Securities Division director Eric Wilder also said that the firm had not updated its written supervisory procedures or compliance manuals for a number of years.

Morgan Stanley is accused of depending on an unqualified third-party provider in India to review all email communications. According to Connecticut regulators, the brokerage firm neglected to make sure that whoever was overseeing the India provider had the proper license and was following the Financial Industry Regulatory Authority’s most current procedures. (Wilder said that the minimum criteria that someone in that country needed to fulfill the compliance function was the ability to speak English-Morgan Stanley has specifically denied this allegation.)

FINRA Orders Merrill Lynch to Repay $89M in Restitution, $8M Fine for Excessive Mutual Fund Fees for Charities, Retirement Accounts

Published on: June 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says Bank of America (BAC) Merrill Lynch failed to waive mutual fund sales charges for a number of retirement accounts and charities. Now the wirehouse must pay as restitution $89 million and a fine of $8 million. The firm settled without denying or admitting to the findings.

The majority of mutual funds with the firm’s retail platform are supposed waive specific fees for charities and retirement plans that qualify for this consideration. However, Merrill Lynch neglected to ensure that its advisers were correctly implementing these waivers. This impacted 41,000 accounts.

The SRO says that from about ’06 – ’11, firm advisers put tens of thousands of accounts into certain funds, including Class A mutual fund shares, and promised to waive specific sales charges for charities and retirement accounts. It then did not act to ensure that all of the fees were actually waived.

Broker Headlines: Former Wells Fargo Broker Must Pay Back Firm $1.2M, Morgan Stanley CEO Wants to Lower Broker Compensation, & Representatives Oppose Best Interest Rules

Published on: June 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wells Fargo Advisors Broker Must Pay Back Firm $1.2M

A Financial Industry Regulatory Authority panel says that Philip DuAmarel, a former Wells Fargo Advisor (WFC), must pay his former employer back almost $1.3 million. The panel denied his claim that the firm oversold its corporate stock plan services during his recruitment. They told him to pay back the unvested part of an upfront loan he received when he became part of Wells Fargo.

DuAmarel worked for the firm for less than three years when he left in 2010 for Bank of America (BAC) Merrill Lynch. He contended that when the firm was recruiting him he was misled about Wells Fargo’s ability to serve corporate stock plans and also regarding how much he could make for helping executives with their company’s stock trades. DuMarel’s attorney said that the broker left when it became obvious he wouldn’t be able to work with clients they way he did when he was at Citigroup (C) Global Market’s Smith Barney.

JPMorgan Investment Management’s Shareholders Claim The Firm Charged Excessive Mutual Fund Fees

Published on: June 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In the US Southern District of Ohio, Eastern Division, JP Morgan (JPM) Investment Management shareholders are claiming that the firm charged them excessive fees in three of its funds:

• JP Morgan Core Bond Fund

• JP Morgan Short Duration Bond Fund