Financial Firms

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam

Published on: January 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring J.P. Morgan Securities, LLC (JPM) vice president David Michael Gutman and ex-Meyers Associates LP Christopher John Tyndall from the securities industry for their alleged involvement in an insider trading scheme. According to the self-regulatory organization between March 2006 and October 2007, Gutman, who works in the firm’s conflicts office, improperly shared information with Tyndall that was non-public and material about at least 15 pending corporate merger and acquisition transactions

Tyndall then purportedly used the data to trade before at least six corporate announcements and recommended that customers and friends invest in the stock too. Tyndall and Gutman are longtime friends. The latter found out about the transactions from his job.

The inside information that Gutman provided Tyndall had to do with acquisitions involving Genesis HealthCare Corporation, American Power Conversion Corporation, First Data Corporation, Alliance Data Systems Corporation, SLM Corporation (Sallie Mae), and Cytyc Corporation. By settling, Tyndall and Gutman are not denying or admitting to the securities charges.

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges

Published on: January 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Brian Williamson, a former Oppenheimer & Co. (OPY) portfolio manager, has consented to a securities industry bar and will pay $100,000 as a penalty to the Securities and Exchange Commission. The settlement resolves private equity fund fraud charges accusing him of making misrepresentation about one the value of one fund. In March, Oppenheimer paid over $2.8 million to settle SEC charges related to this matter.

According to the SEC, Williamson allegedly put out information that falsely claimed that the reported value of the largest investment of one of the funds came from the underlying fund’s portfolio manager when actually, Williamson as the manager of the funds, was the one who gave value to the investment. He purportedly marked up the value significantly higher than what the portfolio manager of the underlying fund had estimated. Williamson then gave prospective fund investors marketing collateral that included a misleading internal return rate that failed to subtract the fund’s expenses and fees. The Commission says Williamson made statements that were misleading and false to different parties to conceal the fraud.

The SEC’s order says that Williamson was in willful violation of sections and rules of the Securities Exchange Act of 1934, the Securities Act of 1933, and the Investment Advisers Act of 1940. The industry bar against him will run for at least two years. The ex-Oppenheimer fund manager consented to settle without deny or admitting to the securities charges.

Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit

Published on: January 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Victor Marrero says that Goldman Sachs Group Inc. (GS) must face a proposed class action securities case accusing it of defrauding customers that purchased specific collateralized debt obligations at the beginning of the financial crisis. The lead plaintiff, Dodona I LLC, contends that the firm created two Hudson CDOs that were backed by residential mortgage backed-securities even though Goldman knew that subprime mortgages were doing badly.

The hedge fund claims that Goldman tried to offset its prime risk, even betting that subprime mortgages and the securities constructed around them would lose value—essentially making the CDOs to lower its own subprime exposure and simultaneously shorting them at cost to investors. Dodona purchased $4 million of Hudson CDOs.

Meantime, Goldman said that the proposed class action case should be dropped and that instead, Hudson CDO claims should be made independently. The bank said that the current case has too many conflicts and differences. Judge Marrero, however, disagreed with the bank.

Detroit, MI Can’t Pay $165M to UBS & Bank of America For Swaps Deal, Rules Judge

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

A bankruptcy judge says is refusing to grant the city of Detroit, MI permission to pay $165 million to Bank of America (BA) and UBS AG (UBS) to end an interest-rate swaps deal that taxpayers have been paying $202 million for since 2009. U.S. Bankruptcy Judge Steven Rhodes says the payment, in addition to a fee of over $4 million, is too costly for the beleaguered city.

Rhodes said he doesn’t believe it is in the city’s best interests to make this deal. Detroit filed the biggest municipal bankruptcy in US history due to its $18 billion debt. Prior to seeking bankruptcy protection, the city had arrived at a deal to terminate the swaps contract that it had signed with Bank of America unit Merrill Lynch (MER), UBS, and SBS Financial Products Co. for $230 million.

According to their 2009 deal, the banks are entitled to seek control of Detroit’s casino taxes, which the city pledged as cash to UBS and Bank of America. Now, Detroit may have to submit an emergency motion asking the court to protect the cash so that the banks don’t take the funds.

Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M

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

Credit Suisse Group AG (ADR) is currently in talks with the US Department of Justice to settle allegations that the Swiss bank helped American citizens evade taxes. Credit Suisse is one of a dozen Swiss banks under criminal investigation for allegedly helping US citizens use the bank secrecy laws of Switzerland to hide their assets so they wouldn’t have to pay taxes on them.

The financial institution is no longer taking private-banking clients from the US as authorities in this country continue to crack down on offshore tax cheats. Other Swiss banks under investigation include HSBC Holdings (HSBC) PLC and Julius Baer Group AG (JBAXY).

Because of the scrutiny, these banks cannot take part in a new US DOJ program that lets Swiss banking institutions disclose undeclared US assets in exchange for the possibility of huge fines but also the guarantee of no prosecution. Penalty is 20% of the maximum aggregate dollar value of non-disclosed US accounts still held on 8/1/08. This amount would go up to 30% for secret accounts established after that time but before February 2009. The penalty is 50% for secret accounts set up after this date.

RCS Capital Corp to Buy Brokerage Firm J.P. Turner for $27 Million & Cetera Financial for $1.15B

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

Nicholas Schorsch, the executive chairman of RSC Capital Corp.’s (RCAP) board of directors, has just announced that the brokerage firm is going to buy independent broker-dealer J.P. Turner for $27 million. The news comes one day after RSC announced it was buying brokerage firm Cetera Financial Group for $1.15 billion from Lightyear Capital LLC.

To acquire J.P. Turner, RSC Capital will pay 70% of the buying price in cash and the remainder in stock. This will add 325 advisers to the RSC’s roster.

RSC’s CEO is William Kahane. He co-founded American Realty Capital, a non-traded real-estate investment trust sponsor, with Schorsch, of which the latter is the head. Schorsch entered the independent brokerage scene last year when he acquired Legend Group, First Allied Securities, Investors Capital Holding, and Summit Brokerage Services.

Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales

Published on: January 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority says that Century Securities Associates, Inc. and Stifel, Nicolaus & Company, Inc. must pay almost $1 million over the sale of inverse and leveraged exchange-traded funds. Stifel Financial Corporation (SF) owns both firms.

According to the SRO, for more than four years Century and Stifel recommended non-traditional ETFs that were not suitable to customers because a number of its representatives did not fully comprehend the products’ features or the risks involved. The instruments were marketed to retail investors with conservative investment goals. A number of customers ended up holding the investments for long periods and they suffered net losses.

The regulator says that Century and Stifel failed to set up proper training for their representatives and lacked the reasonable supervisory systems for the sale of these non-traditional ETFs. Instead, the firms oversaw these investments the way they did traditional ETFs. Also, they did not set up a procedure to deal with the risk for the longer-term holding periods involving these complex investments.

Ex-Goldman Sachs Trader Fabrice Tourre’s Request for New Civil Trial in RMBS Fraud Case is Denied

Published on: January 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The federal district court in Manhattan has turned down former Goldman Sach’s (GS) trader Fabrice Tourre’s request that he get a new civil securities fraud trial after he was found liable on seven counts of federal securities law violations related to his involvement in the firm’s sale of the Abacus 2007-AC1, which is a synthetic collateralized debt obligation that was backed by residential mortgage-backed securities. Goldman has already paid a $550 million fine over the matter.

The district court is saying that his claim that there was no evidence backing a finding that he violated Section 17(a)(20) of the Securities Act by getting property or money via the alleged fraud can’t be supported. The court noted that to prove liability this section of the Act does not make it necessary for the SEC to show that Tourre got a “fraud bonus”—only that he got the property or money through omission or material statement. The court said Tourre could have given evidence to show that the compensation he received from Goldman would have been the same without such a transaction, but since he didn’t put on a case during his trial the jury was free to infer otherwise.

The court noted that there was sufficient evidence backing the jury’s finding that the ex-Goldman Sachs trader’s conduct abetted and aided violations of SEC regulations. Also, the court is rejecting Tourre’s contention that he should get a new trial because he believes that the other court acted inappropriately when it took away from the jury the question of whether the swaps agreements involved were security based swap agreements within the meaning of securities law. This court said that for securities law purposes, the swap agreements were security-based swap agreements, and it granted summary judgment to the SEC on this.

SEC in Action: Finds Nomura Holdings Not Ineligible Issuer Even with Judgment, Will Consider Redrafted Shareholder Proposal Regarding Exelon, & Puts Out Regulation M, Rule 105 Violation Sanctions

Published on: January 8, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission’s Division of Corporation Finance has given relief to Nomura Holdings, Inc. over an entry in the final judgment issued against its subsidiary Instinet, LLC last month. The staff said that Nomura made a good cause showing under 1933 Securities Act Rule 405(2), and now the SEC says it won’t consider the company an ineligible issuer even with the entry of that final judgment.

The SEC opened up an administrative proceeding action against Instinet, accusing it of purposely abetting and aiding and violating sections of the Investment Advisers Act. The claims involved purported soft dollar payments.

J.S. Oliver Capital Management, L.P., an Instinet customer, had asked for the payments for expenses it did not tell clients about. The Commission says that Instinet made the payments per JS Oliver’s request, even though there were red flags indicating that the requests for payment approval were improper. The Nomura subsidiary turned in a settlement offer that led to a cease-and-desist order against the brokerage firm, & the regulator accepted the settlement offer.

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements

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

JPMorgan Chase & Co. (JPM) will pay around $2.6 billion in penalties to settle criminal and civil allegations accusing the bank of failing to warn that Bernard L. Madoff was engaged in a multibillion-dollar Ponzi scam. $2.24 billion will go toward compensating the scheme’s victims-$1.7 billion will be forfeited via the US Department of Justice and $543 million will go to the bankruptcy trustee who is collecting funds for plaintiffs and other Madoff victims. $350 million will settle U.S. Office of the Comptroller of the Currency (OCC) claims.

The penalties are just the latest in the numerous securities settlements that JPMorgan has agreed to pay. The bank recently resolved cases over mortgage bond sales and the “London Whale” trading debacle, among other matters. This latest deal over the Madoff scam would up the total that the firm has paid to resolve government probes to $20 billion in the last year.

Federal prosecutors and the FBI had been trying to determine whether JPMorgan failed to notify regulators about Madoff’s activities even though there were a number of red flags. For example, why did the bank not formally raise worries about Madoff here when it submitted such a complaint in the UK? (The former financial manager kept primary checking accounts at JPMorgan for years.) This, even though US law mandates that banks turn in a SAR (suspicious activity report) when they detect that their might be suspected or definite activities violating federal law.