Financial Firms

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

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

UBS Settles Unregistered Assistant Allegations for $4.5M

UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.

NY AG’s ARS Lawsuit Against Charles Schwab & Co. is Revived by Appeals Court

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

A New York Appellate Division’s panel has unanimously agreed to revive the state attorney general’s auction-rate securities lawsuit against Charles Schwab and Co. (SCHW). The 2009 securities case accuses the financial firm of committing fraud in its sale and marketing of the financial instruments. The decision reverses a state judge’s ruling to throw out the complaint.

According to the NY ARS lawsuit, the broker-dealer’s brokers made false representations that the securities were safe and liquid. In a 4-0 decision, the appeals panel said that the state had given enough evidence to merit a trial on two claims submitted per its Martin Act, a 1921 law that gives the attorney general of New York the ability to prosecute fraud without proof of intent. Under the law fraud is defined as acts that involve misleading or fooling the public.

Per the panel’s ruling, the claims are revived only as it pertains Schwab’s alleged misconduct before 9/5/07, which is when the first ARS sold by Schwab failed. The state wants the company to repurchase securities from customers and pay civil penalties and restitution.

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages

Published on: August 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In the State Supreme Court in Manhattan, Justice Melvin Schweitzer found JPMorgan Chase (JPM) liable for breach of contract when it put high-risk subprime mortgages in an account held by investor Leonard Blavatnik. Now, the financial firm must pay the Russsian-American billionaire more than $50 million in damages–$42.5 million for the breach and 5% interest from beginning May 2008. However, JPMorgan was not found liable for negligence.

Blavatnik, who Forbes magazine says is the 44th wealthiest person in the world, filed his securities fraud case against JPMorgan in 2009. He contended that the investment bank lost over $100 million on about a $1 billion investment made by CMMF L.L.C., which is a fund that Access Industries, his company, created. He says JPMorgan promised him that the money would be invested conservatively but instead breached a 20% mortgage-backed securities limit when it misclassified securities that were backed by a subprime loans pool—ABS home-equity loans—as asset-backed instead of as MBSs.

Access, Blavatnik’s company, claims that the bank kept holding the securities even though it knew that they were not right for the portfolio. In May 2008, CMMF shut down the account.

Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims

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

Britain’s largest banks expected to set aside hundreds of millions of dollars to compensate customers that were the alleged victims of mis-selling. As of the end of July, the Big Four Banks reportedly had budgeted at least $20.2 billion (the figure was converted from pounds) to pay back clients that were mis-sold insurance policies. Lloyds Banking Group (LLOY) and Barclays (BCS) are among the institutions needing to pay such provisions.

According to the Financial Conduct Authority, in April and May both, banks across Britain paid just over $642.6 million in compensation. This is a significant jump from February, when they paid $625.7 million and in March when the amount as $573.75 million U.S. dollars.

Borrowers bought payment protection insurance (PPI) policies, which were supposed to guarantee that they could pay back loans if they were no longer able to work or became unemployed. That said, the policies were purportedly sold to customers that either would not have been able to avail of the coverage because they were either on benefits or self-employed or people that didn’t want to be covered.

FINRA Enhances Its Arbitrator Vetting Policy

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

The Financial Industry Regulatory Authority is refining its new policy for looking into its arbitrators. The move is seen as even more essential in the wake of a court’s decision to dismiss an arbitration ruling that was decided on in part by someone who was indicted during a case against financial firm Goldman Sachs (GS).

Among the steps to be implemented is the use of Google to run searches on arbitrators right before they are appointed to a FINRA arbitration case. The SRO is also preparing to run annual background checks on its 6,500 arbitrators even after being checked when they applied for the arbitrator position.

The industry-funded watchdog’s actions are coming into effect at the same time as lawmakers are upping the pressure to put a stop to broker-dealers making investors arbitrate disputes-an agreement they consent to when they agree to work with the brokerage firm. This causes customers to forfeit their right to go to court over the disagreement. Meantime, consumer groups have been pressing the SEC to place restrictions on the arbitration agreement practice, and a new bill introduced by US Rep. Keith Ellison (D-MN) would modify the Dodd-Frank Wall Street Reform and Consumer Protection Act so that these mandatory agreements are banned.

Financial Firms In The Spotlight: Raymond James Gives RIA’s Access to Alternative Investments, Citigroup’s $730M Bondholder Settlement is Approved, JPMorgan Deals with China-Related Hirings Inquiry, & Merrill Lynch’s Future as an Entity is Uncertain

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

Affiliated RIAs of Raymond James to Get Access to Firm’s Alternative Investments

The Raymond James Alternative Investment Group will give its affiliated registered investment advisers access to hedge funds, private real estate, managed futures, private equity, and alternative mutual funds beginning next month. The move is part of Raymond James’ (RJF) attempt to strengthen its RIA platform.

Already, it has added more support services for investment advisers in the areas of marketing, practice marketing, and succession planning. The financial firm also brought in four regional directors for recruiting and existing practices while cutting equity ticket charges and waving certain individual retirement account fees.

Ex-JPMorgan Traders Get Criminal Charges Over the Allegedly Fraudulently Inflating Investments’ Value to Hide Massive Trading Losses

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

Earlier this month our securities law firm reported that the US Department of Justice was planning to bring criminal charges against Julien Grout and Javier Martin-Artajo, two ex-JPMorgan Chase & Co. (JPM) trading specialties. The charges, including conspiracy, wire fraud, falsification of books and records, and falsification of SEC records, now have been filed. The government contends that they conspired to conceal huge trading losses and made false statements to regulators.

According to U.S. Attorney Preet Bharara, the men purposely lied about the “fair value of billions of dollars in assets” on the firm’s books to conceal massive losses that continued to grow each month. He says that the trading losses would eventually total over $6 billion and involved credit default swaps and other synthetic derivative products.

The portfolio had tripled in worth to about $157 billion in net national positions between 2011 and 2012, and JPMorgan made about $2 billion in profits from 2006 through 2012. But when traders began to take large derivative positions, there were big financial losses and the portfolio began to lose money—over $185 million between January and February of 2012 alone.

FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board

Published on: August 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Wants Third Circuit To Look at Vacated Arbitration Award

Goldman Sachs (GS) wants the U.S. Court of Appeals for the Third Circuit to look at a decision by a lower court to vacate a FINRA securities award issued by a panel member that included arbitrator Demetrio Timban, who was indicted on criminal matters and suspended. The securities case is Goldman Sachs & Co. v. Athena Venture Partners LP and involves an investor accusing the firm of making misrepresentations. The U.S. District Court for the Eastern District of Pennsylvania remanded the award, which favored the financial firm.

The district court said FINRA didn’t give the parties three arbitrators who were qualified and said the respondent’s rights were prejudiced. Judge J. Curtis Joyner said that therefore, a “final and definite award” was not issued. Following the scandal involving Timban, FINRA said it now would perform yearly background checks of arbitrators and other reviews before they are given a case.

LPL Financial Places Independent Reps Under Supervision

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

LPL Financial Inc. (LPLA) is no longer allowing independent representatives to supervise themselves and will impose a fee increase on some 2,200 one-person shops. These changes are among the firm’s steps to restructure oversight and compliance. With over 13,000 registered investment advisers and financial representatives, LPL is the biggest independent-contractor brokerage firm.

The reps that opt to have LPL Financial home office supervise them will pay a fee hike of $4,800 in 2015. Reps with one-adviser shops can also choose to have an existing office of supervisory jurisdiction (OSJ) that is qualified to supervise them, which cost them another 5% on production. They would pay 4% – 30% of gross fees and commissions. Those that pay the most would get more service.

These changes come right before the Financial Industry Regulatory Authority will enact its consolidated supervision rule 3110 that will mandate that firms provide an on-site supervisory structure for single-person OSJs that would employ designated senior principals. Generally, industry regulators have been wary of these solo OSJs because of insufficient oversight over the investment product recommendations that representatives make to clients. LPL spokesperson Betsy Weinberger says these modifications are the latest in the broker-dealer’s efforts to enact better compliance oversight and ensure company success and growth.

SEC and DOJ Sue Bank of America Over Alleged $850M RMBS Fraud

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

Bank of America (BAC) and two subsidiaries are now facing SEC charges for allegedly bilking investors in an residential mortgage-backed securities offering that led to close to $70M in losses and about $50 million in anticipated losses in the future. The US Department of Justice also has filed its securities lawsuit over the same allegations.

In its securities lawsuit, submitted in U.S. District Court for the Western District of North Carolina, the Securities and Exchange Commission contends that the bank, Bank of America Mortgage Securities (BOAMS) and Banc of America Securities LLC, which is now known as Merrill Lynch, Pierce, Fenner & Smith, conducted the RMBS offering, referred to as the the BOAMS 2008-A and valued at $855 million, in 2008. The securities was sold and offered as “prime securitization suitable for the majority of conservative RMBS investors.

However, according to the regulator, Bank of America misled investors about the risks and the mortgages’ underwriting quality while misrepresenting that the mortgage loans backing the RMBS were underwritten in a manner that conformed with the bank’s guidelines. In truth, claims the SEC, the loans included income statements that were not supported, appraisals that were not eligible, owner occupancy-related misrepresentations, and evidence that mortgage fraud was involved. Also, says the regulator, the ratio for original-combined-loan-to-value and debt-to-income was not calculated properly on a regular basis and, even though materially inaccurate, it was provided to the public.