Financial Firms

Citigroup Will Pay $730M in Bond Lawsuit Alleging It Misled Debt Investors

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

Pending court approval, Citigroup Inc. (C) will $730 million to resolve claims that it misled debt investors regarding its financial state during the economic crisis. The plaintiffs had purchased Citi preferred stock and bonds from 5/06 through 11/8. They are accusing Citigroup of misleading the buyers of 48 issues of its corporate bonds. Included among the plaintiffs of this bond lawsuit are the City of Philadelphia Board of Pensions and Retirement, the Louisiana Sheriffs’ Pension and Relief Fund, and the Minneapolis Firefighters’ Relief Association.

The bonds’ declined as the US mortgage market collapsed and the losses grew. According to Bloomberg.com, at one point, Citigroup’s $4 billion of 10-year notes declined to 79.7 cents on the dollar. It went on to lose over $29 billion in ‘08 and ’09.

Struggling from losses involving subprime mortgages, Citigroup ended up having to take a $45 million bailout in 2008, which it has since repaid. However, it is one of the Wall Street firms still coping with the aftermath of the financial crisis. Just last year, Citi consented to pay $590 million over a securities case filed by investors of stock contending that they too had been misled.

Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification

Published on: March 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The plaintiffs who are suing the US Government over losses they claim they sustained during its bailout of American International Group (AIG) have been granted class certification. Seeking $55 million, they are contending that the government behaved unconstitutionally when it rescued the company in 2008 during the economic crisis.

In their securities case, investment firm Starr International Co. is claiming that the federal government violated the Fifth Amendment via two transactions that resulted in the delivery of $182 billion in loans backed by US taxpayers and other financial facilities to the beleaguered insurance giant. Starr once was the largest shareholder of AIG, possessing a 12% stake. Judge Thomas C. Wheeler of the U.S. Court of Federal Claims certified two classes related to the two transactions.

One class is comprised of AIG shareholders from September 22, 2008, when a credit agreement granting the government a 79.9% stake in AIG went into effect. The second class is made up of shareholders from the beginning of June 30, 2009 that were not given the chance to vote on a reverse stock split that the government allegedly initiated. The plaintiffs say that both actions were an illegal taking that violated the US Constitution.

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund

Published on: March 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Oppenheimer Alternative Investment Management and Oppenheimer Asset Management, which are two Oppenheimer & Co. investment advisers, with misleading customers about the valuation policies and performance of a private equity fund under their management. To settle the allegations, Oppenheimer will pay over $2.8M. It has also resolved the related action that was filed by Massachusetts Attorney General Martha Coakley.

According to the SEC, from 10/09 to 6/10, the two Oppenheimer investment advisers put out marketing collaterals and quarterly reports that were misleading and claimed that Oppenheimer Global Resource Private Equity Fund I L.P.’s holdings in private equity funds had values that were determined according to the estimated values of the underlying manager. In truth, contends the regulator, Oppenheimer’s portfolio manager actually valued the largest investment of the fund, Cartesian Investors-A LLC, at a markup that was considerable to the underlying manager’s estimated value. This discrepancy made it appear as if the fund’s performance was much better, per its internal rate of return. For example, at the conclusion of the quarter ending on June 30, 2009, the markup of the investment upped the internal return rate from 3.8% to 38.3%

Among the alleged misrepresentations made by ex-OAM employees to potential investors were:

US Courts & Securities Roundup: Arbitration Award in Citi’s Favor is Approved & Investors’ Claims Against An Oppenheimer Private Equity Fund Are Dismissed

Published on: March 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

District Court Approves Citigroup’s Arbitration Award in Securities Case Against the Abu Dhabi Investment Authority

A judge held that a tribunal did not behave in manifest disregard of the law and that its refusal to provide two documents that the Abu Dhabi Investment Authority had asked for did not make the proceedings “fundamentally unfair.” The court confirmed an award issued in Citigroup Inc.’s (C) favor, which found that the ADIA did not succeed in showing that the arbitration panel’s New York choice of law decision and evidentiary rulings warranted that the award be vacated.

The securities case is Abu Dhabi Investment Authority v. Citigroup Inc.

Ameriprise Fined $750,000 for Inadequate Supervision of Wire Transfer Requests

Published on: March 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has fined Ameriprise Financial Services Inc. and American Enterprise Investment Services Inc. $750,000 for failing to properly supervise wire-transfer requests and customer fund transmissions to third parties. Also, the SRO has barred Jennifer Guelinas, an ex-Ameriprise broker, for allegedly forging the signatures of two clients on wire-transfer requests and moving about $790,000 to her bank accounts. Ameriprise is an American Financial Inc. (AMP) unit.

FINRA said that Ameriprise had gone on to pay full restitution to its clients and that it was the latter’s affiliate clearing firm, American Enterprise Investment Services, that failed to put in supervisory systems for monitoring funds when they were transferred from client accounts to third parties. The SRO contends, however, that it was Ameriprise that did not detect that Guelinas wrongful actions even though there were a number of red flags. For example, she turned in three requests to send funds from a client’s account to bank account that appeared to belong to her. Amerirpise went ahead and put through the forged requests and moved the funds without asking questions. A third wire-transfer request by Guelinas also went through, says FINRA, but this time Ameriprise caught the wrongdoing before she could get to the money.

Amerirpise says that the since these incidents, which occurred several years ago, the financial firm has improved its related procedures, policies, and technology. By settling, Ameriprise and American Enterprise Investment Services are not admitting to or denying the securities allegations.

New York Fed Bailed Out Bank of America Over Mortgage-Backed Securities Sold to AIG

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

Recently, a secret deal came to light involving the Federal Reserve Bank of New York bailing out Bank of America (BAC) that released the latter from all legal claims involving mortgage-backed securities losses that the former obtained when the government rescued American International Group (AIG) in 2008. Some believe that the bank was allowed to abscond responsibility even as AIG sought to recover $7 billion that was loss on these same MBSs.

According to The New York Times, as part of its settlement with BofA, the New York Fed obtained $43 million in a securities dispute involving two of the mortgage securities. For no compensation, the bank was released from all other legal claims.

The roots of this settlement can be traced back to 2008 when the government intervened to rescue AIG . Part of that aid involved AIG selling mortgage securities to Maiden Lane II, which the New York Fed oversees. At the time, the insurer was losing money from toxic mortgages, many of which came from BofA. AIG obtained $20.8 billion for securities valued at $39.2 billion.

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System

Published on: February 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A district court judge in Minnesota has ordered a $125 million auction-rate securities arbitration case filed by Allina Health System against UBS (UBS) to proceed.

U.S. District Judge Michael Davis found that claimant Allina is indeed a UBS client even though the financial firm had argued that under Financial Industry Regulatory Authority rules ARS issuers are not underwriter customers. The Minnesota non-profit healthcare system had filed its securities claim over ARS it issued in October 2007 that were part of a $475 million bond issuance to finance renovations and remodeling, as well as refinance debt. UBS was its underwriter.

Allina contends that the market collapsed in 2008 because UBS and other financial firms stopped putting in support bids to keep auctions from failing. The healthcare group says that because of this, it had to pay a great deal of money to refinance the securities and make higher bound payments after losing its bond insurance. Allina claims that UBS did not properly represent the ARS market risks, breached its fiduciary duties, and violated state and federal securities laws.

Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge

Published on: February 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A US District judge is ordering Morgan Keegan & Co. to repurchase auction-rate securities and make a payment of $110,500 in an ARS lawsuit filed by the SEC that accuses the financial firm of misleading investors about these investments’ risks. The SEC contends that the $2.2B in securities that the firm sold left clients with frozen funds when the market failed in 2008.

Even after the financial firm started buying back ARS—it has since repurchased $2B in ARS of its own accord—the SEC decided to proceed with its securities case. The Commission contends that even as the ARS market failed, Morgan Keegan told clients that the securities being sold came with “zero risk” and were short-term investments that were liquid.

Now, Judge William Duffey Jr. has found that although Morgan Keegan’s brokers did not act fraudulently, some of them acted negligently when they left out key information and made misrepresentations when selling the securities. This including not apprising investors about the risk of failure, liquidity loss, or that interest rates might vary.

Duffey is the same judge who dismissed this very case in 2011. However, last May, the US Court of Appeals in Atlanta overturned his decision after determining that he wrongly found that verbal comments made to certain customers were not material because of disclosures that could be found on the financial firm’s web site.

Morgan Keegan Trial Judge to Decide SEC Case He Dismissed, Bloomberg.com, November 26, 2012

More Blog Posts:
Morgan Keegan Founder Faces SEC Charges Over Mortgage-Backed Securities Asset Pricing in Mutual Funds, Institutional Investor Securities Blog, December 17, 2012

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker fraud Blog, October 30, 2012

JP Morgan Sued by Dexia in $1.7B MBS Lawsuit

Published on: February 11, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Dexia SA (DEXB) is suing JP Morgan Chase & Co. (JPM ) for over $1.7 billion. In its mortgage-backed securities lawsuit, the Belgian-French bank contends that the loans underlying the securities that the US bank sold it were riskier than what they were represented to be.

JP Morgan and its companies, Washington Mutual (WM) and Bear Stearns Co., are accused of “egregious” fraud for allegedly making and selling mortgage bonds backed by loans that they knew were “exceptionally bad.” Dexia claims it sustained substantial losses.

According to The New York Times, there are a slew of employee interviews and internal e-mails related to this MBS lawsuit that talk about how the three firms disregarded quality controls and problems—perhaps even concealing the latter—in order to make a profit from these mortgages that were packaged into complex securities. They are accused of seeking to avail of the mortgage-backed securities demand during the housing boom even as doubts began to arise about whether or not these investments were good quality. Court filings report that JPMorgan would get mortgages from lenders that didn’t have stellar records, assigning Washington Mutual and American Home Mortgage a “poor” grade on its “internal ‘due diligence scorecard.’” The loans were then swiftly sold off to investors.

Oppenheimer Must Pay $30M to US Airways Group Over ARS Losses

Published on: February 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel says that Oppenheimer & Co. has to pay US Airways Group Inc. (LCCC) $30 million for losses that the latter sustained in auction-rate securities. The securities arbitration case is related to the airline group’s contention that the financial firm and one of its former brokers misrepresented certain ARS that were structured and private placement.

US Airways had initially sought $110M in compensatory damages and $26 million in interest and legal fees. The FINRA panel, however, decided that Oppenheimer and its ex-broker, Victor Woo, owed $30 million—Woo’s part will not be greater than what he made in commissions. Oppenheimer is now thinking about whether to submit a motion to vacate the arbitration panel’s order.

The financial firm is, however, going to go ahead with the arbitration it had filed against Deutsche Bank (DB) to get back the award money and associated costs from this case. Oppenheimer’s claim against Deutsche Bank is linked to the US Airways case but became a separate proceeding in 2010.