Financial Firms

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.

RBS Securities’ Japan Unit to Pay $50M Criminal Fine Over Libor Manipulation

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

A US judge has ordered Royal Bank of Scotland Group Plc’s (RBS) banking unit in Japan to pay a $50 million fine over its involvement in manipulating LIBOR. RBS Securities Japan Ltd. entered a guilty plea to wire fraud as part of its parent company’s $612 million securities settlements to resolve civil and criminal charges over the rate manipulation.

On December 31, RBS Securities Japan and the US government turned in a joint court filing stating that from at least between 2006 and 2010 some of the bank’s traders tried to move Libor in a manner that would benefit their positions. The attempted manipulation of over a hundred Yen Libor submissions was reportedly involved.

Authorities say that as a result traders profited at counterparties’ expense. The filing noted that investigations uncovered wrongful behavior involving Libor submission for the yen and another currency and that about 20 RBS traders, including four at the RBS unit in Japan were involved.

Deutsche Bank AG Settles Shareholder Lawsuit Over Mortgage Debt

Published on: January 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has settled a securities lawsuit filed by shareholders accusing the financial institution of misrepresenting the degree of risk it could manage related to mortgage debt before the financial crisis of 2008. The deal, of which the terms have not yet been revealed, were disclosed in a filing made by the firm’s lawyers in the U.S. District Court in Manhattan.

Shareholders, including two mutual funds and the Building Trades United Pension Trust Fund of Elm Grove, claim Deutsche Bank misled them about the management of risk and the underwriting on the mortgage debt that it put together and sold. They also contend that the firm was too slow to take write-downs. They believe that this resulted in an 87% decline in the bank’s share price between May 2007 and January 2009.

They also claim that Deutsche Bank maximized its profit at risk to investors, even as it failed to appraise these customers of the risks they were taking on. When the financial markets failed, it was investors that ended up paying the price.

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.