Financial Firms

Barclays to Pay $3.75M FINRA Fine for E-mail Retention and Record Preservation Violations

Published on: December 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority said it is fining Barclays Capital Inc. (ADR) $3.75 million for systemic failures that prevented it from making sure certain instant messages, emails, and electronic records are preserved in the way they are required be for at least a decade. The financial institution is settling without denying or admitting to the findings. It has, however, agreed to an entry of the SRO’s findings.

According to FINRA, between 2002 and 2012, Barclays did not preserve a lot of records and electronic books in WORM format, per regulator mandate. This included trade confirmations, trade information, order and trade ticket data, blotters, accounting records, and other records. WORM (Write-Once, Read-Many) Format is the non-erasable, non-rewriteable format that business-related electronic records are supposed to be kept in-per FINRA rules and federal securities laws. The Securities and Exchange Commission says that this format and the preservation of records are essential in protecting investors and ensuring that compliance with securities laws is taking place.

In regards to Barclays over this matter, FINRA says that the issues were widespread and affected all of the firm’s business. It said that because of this, Barclays couldn’t determine whether all of its e-books and records were kept in an a manner that was unalterable. Also, Barclays is accused of not properly keeping certain attachments to Bloomberg emails and not properly keeping about 3.3 million Bloomberg instant messages. Also, Barclays purportedly did not set up and maintain a proper system and written procedures so it could comply with FINRA, SEC, and NASD regulations and rules involving the requirements noted in the violations.

Bank of America’s Countrywide to Pay $17.3M RMBS Settlement to Massachusetts

Published on: December 30, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to Massachusetts Attorney General Martha Coakley, Countrywide Securities Corp. (CFC) will pay $17 million to settle residential mortgage backed securities claims. The settlement includes $6 million to be paid to the Commonwealth and $11.3 million to investors with the Pension Reserves Investment Management Board. Countrywide is a Bank of America (BAC) unit.

Coakley’s office was the first in the US to start probing and pursuing Wall Street securitization firms for their involvement in the subprime mortgage crisis. Other RMBS settlements Massachusetts has reached include: $34M from JPMorgan Chase & Co. (JPM), $36M from Barclays Bank (ADR), $52 million from Royal Bank of Scotland (RBS), $102 million from Morgan Stanley (MS), and $60 million from Goldman Sachs. (GS).

Meantime, a federal judge is expected to rule soon on how much Bank of America will pay in a securities fraud verdict related to the faulty mortgages that Countrywide sold investors. A jury had found the bank and ex-Countrywide executive Rebecca Mairone liable for defrauding Freddie Mac and Fannie Mae via the sale of loans through that banking unit. The US government wants Bank of America to pay $863.6 million in damages. Mairone denies any wrongdoing.

FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors

Published on: December 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A Wells Fargo & Co. (WFC) brokerage unit must buy back almost $94 million in auction rate securities from the family who said their adviser misrepresented the investments. The claimants are the relatives of deceased newsstand magnate Robert B. Cohen, who founded the chain Hudson News. Cohen died in 2012.

His family contends that Wells Fargo Advisors and one of its advisors made misleading and fraudulent statements about municipal auction-securities. They are alleging breach of fiduciary duty, negligence, and fraud in their municipal auction-rate securities fraud claim.

Now, the firm must buy back at face value the municipal ARS it helped Cohen, his family, and affiliated business purchase. The transactions started beginning March 2008.

Wells Fargo Reaches $591 Million Mortgage Deal with Fannie Mae

Published on: December 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo & Co. (WFC) has arrived at a $591 million mortgage settlement with Fannie Mae (FNMA). The arrangement resolves claims that the banking institution sold faulty mortgages to the government run-home loan financier and covers loans that Wells Fargo originated more than four years ago.

Fannie Mae and Freddie Mac (FMCC) were taken over by the US government five years ago as they stood poised to fail due to faulty loans they bought from Wells Fargo and other banks. The two mortgage companies had bundled the mortgages with securities.

With this deal, Wells Fargo will pay $541 million in cash to Fannie Mae while the rest will be taken care of in credits from previous buy backs.

It was just a couple of months ago that Wells Fargo settled its disputes over faulty loans it sold to Freddie Mac with an $869 million mortgage buyback deal. According to Compass Point Research and Trading LLC, between 2005 and 2008, Wells Fargo sold $345 billion of mortgages to Freddie Mac. Compass says the bank sold another $126 billion to Freddie in 2009.

Also settling with Freddie Mac today is Flagstar Bank (FBC) for $10.8M over loans it sold to the mortgage company between 2000 and 2008. That agreement comes following Flagstar and Fannie Mae settling mortgage claims for $93 million over loans the former sold to the latter between January 2000 and December 31, 2008.

Fannie Mae and Freddie Mac have been trying to get banks to repurchase these trouble loans for some time now. In light of this latest settlement with Wells Fargo, Fannie Mae has reached settlements of about $6.5 billion over loan buy backs, including a $3.6 billion deal with Bank of America Corp. (BAC) and Countrywide Financial Corp. and $968 million with Citigroup (C). Earlier this month, Deutsche Bank (DB) consented to pay $1.9 billion to the Federal Housing Finance Agency over claims that it misled Freddie and Fannie about the mortgage backed securities that the latter two purchased from the bank. https://www.securities-fraud-attorneys.com/lawyer-attorney-1835405

Wells Fargo agrees to $541 million loan settlement, Reuters, December 30, 2013

Wells Fargo in $869 Million Settlement With Freddie Mac, Bloomberg News, October 1, 2013

More Blog Posts:
FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors, Stockbroker Fraud Blog, December 29, 2013

Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales

Published on: December 27, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred ex-LPL Financial (LPLA) representative Gary Chakman over securities industry rule violations related to the sale of non-traded real estate investment trusts. Chackman was registered with the brokerage firm from 2001 until 2012. LPL then ended his registration with the firm for purportedly violating its procedures and policies related to alternative investment sales.

According to the SRO, Chackman “recommended and effected” transactions that were unsuitable in several LPL customer accounts. He did this by overconcentrating clients’ assets in illiquid securities, including REITs. Chackman is also accused of falsifying LPL documents to avoid firm supervision and making the broker-dealer’s records and books inaccurate because he turned in purchase forms misrepresenting clients’ liquid net worth.

FINRA’s settlement letter says that when Chackman submitted falsified documents, this allowed him to increase how much of customers’ accounts could be concentrated in REITs and other investments even though these amounts went over LPL’s allowed allocation limits. The alleged overconcentration took place between January 2009 and February 2012.

Deutsche Bank to Pay $1.9B to FHFA Over Mortgage-Backed Securities Sold to Freddie Mac and Fannie Mae

Published on: December 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) will pay the Federal Housing Finance Agency $1.9 billion to settle securities claims that it misled Freddie Mac and Fannie Mae about the quality of loans bundled with mortgage-backed securities. Of the settlement, Fannie will get $300 million and Freddie will get $1.6 billion. However, this MBS settlement does not resolve a separate lawsuit filed by the two government-sponsored enterprises against Deutsche Bank and other firms over losses from the alleged manipulation interest rate.

FHFA claims that prior to the financial crisis, a number of financial institutions misled the two mortgage companies about borrowers’ creditworthiness. It wants to get back the $196 million Freddie and Fannie paid to buy what were supposed to be private label MBS.

The regulator says that losses sustained by Freddie and Fannie were from MBS that came from financial institutions selling flawed securities due to home loans in the bonds being more high risk than what the banks said they were. Although Freddie and Fannie didn’t make the loans directly they bought the mortgages from banks and sold them as securities to investors and provided guarantees. When the housing market exploded the two of them bought securities that were privately issued as investments. They also became two of the biggest bond investors. Unfortunately, when the economic crisis eventually hit in 2008, Freddie and Fannie suffered huge mortgage losses. The US Treasury had to lend them over $150 billion just so they could keep running.

Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates

Published on: December 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) has announced that as part of a collective settlement, it will pay $992,329,000 to settle investigations involving interbank offered rates, including probes into the trading of Euro interest rate derivatives and interest rate derivatives for the Yen.

Also paying fines as part of the collective settlement are Royal Bank of Scotland Group Plc (RBS) which will pay $535,173,000 and Society General SA (SLE), which will pay $610,454,000, and three others. In total, the financial firms will pay a record $2.3 billion.

The fines are for manipulating the Euribor and the Yen London interbank offered rate. EU Competition Commissioner Joaquin Almunia said that regulators would continue to look into other cases linked to currency trading and Libor. Also related to these probes, Citigroup (C) has been fined $95,811,100, while JPMorgan (JPM) is paying $108M. Because of Citigroup’s cooperation into this matter, it avoided paying an additional $74.6 million. The two firms reportedly admitted that they were part of the Yen Libor financial derivatives cartel.

FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities

Published on: December 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase (JPM) is suing the Federal Deposit Insurance Corp. for over $1 billion dollars related to the bank’s purchase of Washington Mutual (WMIH). The financial firm said that the FDIC did not honor its duties per the purchase agreement.

When Washington Mutual suffered the biggest bank failure in our nation’s history during the financial crisis in 2008, FDIC became its receiver and brokered the sale of assets. JPMorgan, which made the purchase for $1.9 billion, says that the FDIC promised to protect or indemnify the bank from liabilities. Regulators had encouraged the firm to buy Washington Mutual hoping this would help bring back stability to the banking system.

Since then, however, contends JPMorgan, the FDIC has refused to acknowledge mortgage-backed securities claims by investors and the government against the firm. The bank says that the cases should have been made against the receivership instead. (In its lawsuit, JPMorgan says there are enough assets in the receivership to cover a settlement with mortgage companies Freddie Mac (FMCC) and Fannie Mae (FNMA) and other claims, such as a slip and fall personal injury case involving a Washington Mutual branch.) Meantime, the FDIC maintains that JPMorgan is the one who should be accountable for any liabilities from its acquisition of Washington Mutual.

New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales

Published on: December 20, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The New Jersey Attorney General John Hoffman is suing a Credit Suisse Group AG (CS) for securities fraud. The state’s regulator contends that the bank misrepresented the risks on over $10B in home loan-backed securities.

According to the mortgage-backed securities lawsuit, Credit Suisse is accused of failing to disclose that loan originators it employed had records of delinquencies and defaults and that some had even been suspended from working with the bank. The state’s attorney general claims that even though Credit Suisse’s traders were unwilling to hold the securities on the books of the bank, the latter was selling them to customers. Also, alleges the complaint, the despite receiving tens of millions of dollars in reimbursement from loan originators for the faulty loans, Credit Suisse did not give the money to the trusts that owned the loans.

A representative for Credit Suisse says the mortgage securities case is meritless. The bank is facing a similar lawsuit filed against it by New York’s attorney general.

The Volcker Rule May Already Be Affecting Financial Markets & The Economy

Published on: December 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, it’s just been a week since regulators approved the Volcker Rule and already investors and financial institutions are looking for new ways to finance municipal bond investments. The Volcker rule limits how much risk federally insured depository institutions can take, prohibiting proprietary trading, setting up obstacles for banks that take part in market timing, and tightening up on compensation agreements that used to serve as incentive for high-risk trading.

Now, says Forbes, Wall Street and its firms are undoubtedly trying to figure out how to get around the rule via loopholes, exemptions, new ways of interpreting the rule, etc. (One reason for this may be that how much executives are paid is dependent upon the amount they make from speculative trading.) The publication says that banks are worried that the Volcker Rule could cost them billions of dollars.

For example, with tender-option bond transactions, hedge funds, banks, and others employ short-terming borrowings to pay for long-term muni bonds. The intention is to make money off of the difference in interest they pay lenders and what they make on the bonds. While tender-option bonds make up just a small section of the $3.7 trillion muni debt market, it includes debt that has been popular with Eaton Vance (EV), Oppenheimer Funds, and others.