Financial Firms

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

FINRA Headlines: SRO Fines Goldman Sachs, Merrill Lynch, and Barclays Capital $1M Each & Makes Dark Pool Data Available

Published on: June 7, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines Merrill Lynch, Goldman, and Barclays Capital $1M Each Over Blue Sheet Data

The Financial Industry Regulatory Authority has issued a censure that fines Goldman Sachs & Co. (GS), Merrill Lynch, Pierce Fenner & Smith Inc., and Barclays Capital Inc. $1 million each. The firms are accused of not submitting accurate and complete data about trades conducted by them and their customers to the SRO and other regulators. This information is known as “blue sheet” data. Firms are legally required to give regulators this information upon request.

Blue sheets give regulators specific information about trades, including the name of a security, the price, the day it was traded, who was involved, and the size of transaction. This information is helpful to identify anomalies in trading and look into possible market manipulations.

Bank of America Could Settle Mortgage Probes for $12B

Published on: June 7, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, Bank of America Corp. (BAC) is in negotiations to settle the mortgage probes by the U.S. Department of Justice and several states for at least $12 billion. The bank has been under investigation over the sale, underwriting and securitization of residential mortgage bonds from prior to the 2008 financial crisis.

At least $5 billion would go to consumer relief as help for homeowners to lower their principals, as well as pay blight removal in certain neighborhoods. Already, BofA has agreed to pay $6 billion to settle with the Federal House Finance Agency related to residential mortgage backed securities that were purchased by Freddie Mac (FMCC) and Fannie Mae (FNMA) between 2005 and 2007. That case also involved allegations made against the bank’s Merrill Lynch and Countrywide Financial Group.

However, government negotiators are pressing BofA to pay billions of dollars more than $12B in this case. If a deal isn’t struck, the US Department of Justice may opt to file a civil lawsuit against the bank.

SEC Sues Wedbush Securities and Dark Pool Operator Liquidnet Over Regulatory Violations

Published on: June 6, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed a civil case against Wedbush Securities Inc. and two of its officials. The regulator claims they violated a rule that mandates that firms have proper risk controls in place before giving customers market access.

According to the SEC order, between 2011 through 2013 Wedbush allowed most of its market access customers to send orders straight to U.S. Trading venues and did not keep up direct and sole control over trading platform settings. Customers used these platforms to transmit orders to the markets.

The Commission contends that Wedbush should have had the mandated pre-trade controls in place. It claims that the firm failed to perform a yearly review of its risk management controls related to market access and did not limit trading access to people that the firm had authorized and pre-approved. As a result, overseas traders who were never approved and may not have been in compliance with U.S. laws ended up having market access.

Second Circuit Overturns Judge’s Decision to Block Citigroup’s $285M Settlement With the SEC

Published on: June 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Second Circuit appeals court said that District Judge Jed Rakoff abused his discretion when he rejected the $285 million mortgage settlement between the SEC and Citigroup (C). The regulator accused Citigroup of selling sections of Class V Funding III, a $1 billion mortgage-bond deal, without revealing that the bank was betting against $500 million of the assets.

Rakoff, a district court judge, said that he partially blocked the settlement because he didn’t agree with a Commission practice in which the party involved gets to resolve a case without denying or admitting to wrongdoing. Last year the SEC reversed its policy that automatically lets companies settle without making a wrongdoing admission. Now, the regulator is compelling admissions in cases that are especially egregious. Also, following Rakoff’s ruling, other judges followed his lead in a number of lawsuits.

This week, however, the appeals court said that the Commission should be granted wide deference when it is deciding whether or not a case should go to trial or settle. The three-judge panel said the deal between the SEC and Citigroup was in the interest of the public.

Bank Fraud Cases: Wells Fargo to Pay $62.5M Settlement Over Class Action Lawsuit & City of Los Angeles, CA Sues JPMorgan Over Discriminatory Lending Practices

Published on: May 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo Settles Securities Lending Case for $62.5M

Wells Fargo & Co. (WFC) will pay $62.5 million to settle a class action securities fraud case. A group of retirement funds claim that the bank committed fraud and breached its fiduciary duty in its securities lending program. Now, a district court judge must preliminarily approve the agreement.

Wells Fargo promoted its securities lending program to large institutional investors, including insurance companies, pension funds, and foundations. The bank would lend the clients’ securities to third-party brokerage firms. For lending the securities, the bank was given cash collateral. It then invested the funds, sharing returns with the clients. The program was marketed as a means for institutional investors to make additional funds to cover the cost of having Wells Fargo maintain their investment portfolios.

Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans

Published on: May 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Otis Wright II says that a lawsuit by the city of Los Angeles, which seeks to hold Wells Fargo & Co. (WFC) liable for foreclosures that occurred when the U.S. housing market collapsed, may proceed. Although Wright did not rule on the merits of the city’s claims, he said that L.A.’s allegations that the bank used “predatory loans” to target minority lenders were legally sufficient at this point.

The California city has filed separate cases against Wells Fargo, Bank of America Corp. (BAC) and Citigroup Inc. (C) accusing the mortgage lenders of engaging in discriminatory practices going as far back as at least 2004. L.A. says that the banks placed minority borrowers in loans that were out of their budget, raising the number of foreclosures in the city’s neighborhoods.

According to the city, local homeowners have lost around $78.8 billion in home value because of foreclosures that occurred between 2008 and 2012. Property tax revenue that was lost because of this was reportedly $481 million. Now, Los Angeles wants to hold the banks liable for the increase in municipal services and the tax revenue that was lost due to the foreclosures.

Stockbroker Fraud: Morgan Stanley Sues Convicted Ex-Broker, Former-Wells Fargo Broker Pleads Guilty, And Ex-John Thomas Financial Broker Evades Customer Complaints

Published on: May 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Files Lawsuit Against Ex-Broker Convicted in Kickback Scam

Morgan Stanley (MS) is suing ex-broker Darin DeMizio for legal fees. DeMizio was convicted over his involvement in a kickback scheme. Now, the financial firm wants him to pay back legal expenses because it says that he purposely defrauded the broker-dealer and hid the fraud while working there.

DeMizio was convicted five years ago for his scheme to pay kickbacks of $1.7 million to his brother and dad. He was sentenced to 38 months behind bars and ordered to pay Morgan Stanley $1.2 million in restitution.