Wachovia

Barclays Resolves RMBS Lawsuits for $325M

Published on: October 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Barclays (BARC) will pay $325M to resolve two civil cases related to residential mortgage-backed securities sales that took place during the housing boom. The plaintiff of both securities lawsuits is the National Credit Union Administration, which regulates federal credit unions.

A number of credit unions under NCUA’s purview failed after they invested in mortgage-backed securities. The union believes that the banks that underwrote the securities misled buyers.

RMBS are investments that pool the returns and risks of personal mortgages. The quality of these securities came into question several years ago when homeowners began to default on the mortgages backing them. NCUA believes that it is its statutory duty to obtain recoveries for credit unions while making sure that customers are protected.

By settling, Barclays is not admitting fault. According to The New York Times, the bank sponsored and underwrote approximately $35M in mortgage securitizations in the US and sold $19.4B in loans that were originated and sold to third parties by affiliates of an entity that it had acquired. Upon completion of this settlement, NCUA will dismiss pending litigation against Barclays in district court in Kansas and New York.

Wells Fargo and Wachovia Sued by LBBW Luxemburg Over Alleged $1.5B Securities Fraud

Published on: October 6, 2012 | by Shepherd Smith Edwards & Kantas, LLP

LBBW Luxemburg SA has filed a securities fraud lawsuit against Wells Fargo & Co. (WFC) and its unit Wachovia Corp. over an alleged $1.5 billion securities fraud scam. The case involves transaction in 2006 involving Wells Fargo selling what they allegedly touted as securities with high ratings to LBBW and other customers. LBBW, a Landesbank Baden-Wurttemberg subsidiary, bought $40 million of these residential mortgage-backed securities.

Now, the European bank is contending that the underlying mortgages were riskier than represented and not worth their buying price. Within a year, the securities had defaulted. LBBW is alleging common law fraud, breach of contract, constructive fraud, negligent misrepresentation, and breach of fiduciary duty.

Per the plaintiff’s attorneys, the alleged financial fraud was discovered after the SEC investigated a $5.5 million investment that the Zuni Indian Tribe’s employee pension fund made. The Securities and Exchange Commission had accused Wachovia of selling overpriced equity in Grant Avenue II, a collateralized debt obligation, to the tribe and another investor. The Commission contended that after marking down some of the equity to 52.7 cents on the dollar, Wachovia charged 90 cents and 95 cents on the dollar. The bank was also accused of misleading investors in Longshore 3, another CDO, by saying that assets had been acquired from affiliates at prices that were fair market when, actually, claims the regulator, 40 securities had been moved at prices that were above market and Wachovia moved assets at prices that were stale so it wouldn’t have to report the losses.

The SEC said that while it did not consider Wachovia to have acted improperly in the way it structured the CDOs, the bank violated investment protection rules by using stale prices, even as buyers were being told the prices were fair market value, and charging excessive markups in secret. The Commission found that the Zuni Indians and other investors suffered financial losses as a result. Last year, Wachovia agreed to pay $11 million to settle charges accusing it of violating federal securities laws in its sale of MBS leading up to the collapse of the housing market.

European Bank LBBW Sues Wells Fargo Over Alleged $1.5 Billion Securities Fraud, The Sacramento Bee, October 1, 2012

German bank sues Wells Fargo alleging $1.5 billion securities fraud, San Francisco Business Times, October 2, 2012

Wells Fargo Settles Case Originating At Wachovia, The New York Times, April 5, 2012

More Blog Posts:
Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches, Institutional Investor Securities Blog, September 25, 2012

REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank

Published on: December 8, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo & Co. has agreed to settle for $148 million the civil claims and criminal charges accusing Wachovia Bank of taking part in a bid-rigging scam with other financial firms and overcharging local and state governments on their investments. The settlement resolves allegations that for eight years, Wachovia rigged at least 58 transactions involving proceeds from over $9 billion of municipal bonds. By agreeing to settle, Wells Fargo, which acquired Wachovia three years ago, is not denying or admitting to these allegations.

In its allegations against Wachovia, the SEC said the financial firm earned ill-gotten gains in the millions of dollars by using tips provided about rival bids, turning in bogus bids to give competitors an advantage, and working with some of them to rig auctions so it would benefit. The Justice Department said Wachovia’s illegal behavior corrupted the bidding system for investment contracts while preventing municipalities from getting to avail of a competitive process. However, because the financial firm admitted to the illegal conduct, cooperated with the investigation, took action to deal with anti-competitive behavior, the federal government decided not to prosecute.

Involved in investigating Wachovia were the SEC, attorneys general in more than two dozen states, and the US Justice Department. The federal agencies have been looking at how a number of Wall Street firms and local-government advisers worked together to rig competitive auctions in order to charge excessive fees to public agencies that bought the investments.

More than dozen banks have been named as alleged co-conspirators. Other financial firms that have settled similar claims over muni bond bid-rigging are Bank of America, Corp., UBS AG, and JPMorgan Chase & Co. With this latest settlement, the banks will have paid $673 million to settle the municipal bond-related allegations.

The charges against the financial firms involve investment contracts purchased by cities and state with proceeds from the municipal-bond market. At competitive auctions organized by financial advisers, these contracts should have gone to banks offering the highest return.

According to investigators, what instead ended up happening is that some of these advisers would direct business to a certain bidder in exchange for kickbacks. Meantime, other banks would purposely make bids they knew wouldn’t win to cover up the alleged conspiracy. Because governments usually have to invest bond proceeds in the short term until it is time to spend the cash on public projects, the bogus bidding practices adversely impacted what municipalities ended up paying for reinvestment products. The bid-rigging cost the US Treasury and other governments money.

Wells Fargo Pays $148 Million to Settle Wachovia Muni Bid-Rigging Charges, Bloomberg, December 8, 2011

Wells Settles Wachovia Bid-Rig Case, Wall Street Journal, December 9, 2011

More Blog Posts:
Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

Former US Treasury Secretary Henry Paulson Told Hedge Funds About Fannie Mae and Freddie Mac Bailouts in Advance, Institutional Investor Securities Blog, November 30, 2011

$75K FINRA Arbitration Award Against Wells Fargo Advisors LLC For Defaming an Ex-Employee in Form U-5 is Confirmed by District Court, Stockbroker Fraud Blog, November 30, 2011

Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M

Published on: April 7, 2011 | by Shepherd Smith Edwards & Kantas, LLP

For a payment of $11.2 million, Wells Fargo & Co. will settle US Securities and Exchange Commission allegations that Wachovia Capital Markets LLC misled investors and improperly sold two collateralized debt obligations in 2007 and 2006. Wachovia was bought by Wells Fargo in 2008.

Wells Fargo Securities now manages Wachovia. By agreeing to settle, the investment bank is not admitting to or denying the findings.

According to the SEC, Wachovia Capital Markets LLC, now called Wells Fargo Securities, violated securities law anti-fraud provisions when it sold the complex mortgage-backed securities to investors despite the red flags indicating that there was trouble brewing with the US housing market.

The SEC says that Wachovia charged excessive markups in the sale of part of a $1.5 billion CDO called Grand Avenue II. Unable to sell the CDOs $5.5 million equity portion in October 2006, it kept the shares on the trading desk while dropping their value to 52.7 cents on the dollar. Wachovia later sold the shares for 90 and 95 cents on the dollar to an individual investor and the Zuni Indian tribe. Both did not know that they had purchased the shares at a price that was 70% above their accounting value. The transaction went into default in 2008.

The SEC claims that in 2007, Wachovia Capital Markets misrepresented to investors in Longshore 3, a $1.3 billion CDO, that assets had been acquired from Wachovia affiliates on an “arms’-length basis” when actually, 40 residential mortgage-backed securities were transferred at $4.6 million over market prices. The SEC contends that Wachovia was trying to avoid sustaining losses by transferring the assets at “stale” prices.

Related Web Resources:

Wells Fargo-Wachovia settles CDO claim with SEC for $11 million, Housing Wire, April 5, 2011

CDO News, New York Times

Mortgage-Backed Securities, SEC.gov

More Blog Posts:

Houston Man Indicted in Alleged $17M Texas Securities Fraud, Stockbroker Fraud Blog, December 23, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

SEC Charges Two Ex-Wachovia Brokers Over Alleged $8 Million Elder Financial Fraud

Published on: December 20, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Two former Wachovia Securities LLC brokers, Eddie W. Sawyers and William K. Harrison, have been charged by the Securities and Exchange Commission with six counts of securities fraud. The two men, who previously operated Harrison/Sawyers Financial Services, are accused of defrauding at least 42 elderly investors of their retirement savings, which resulted in some $8 million in financial losses. The SEC is seeking a permanent injunction against the two men and their representatives from further violations of securities regulations, as well as the repayment of the funds (with interest) and civil penalties.

Per the SEC, between December 2007 and October 2008, Sawyers and Harrison, who are related by marriage, pitched investments with Harrison/Sawyers Financial Services to Wachovia clients. They claimed the investments were “foolproof,” a “sure thing,” and an opportunity to make a 35% without risking their principal investment. This was not, however, the case. One couple, who Sawyers convinced that they should invest $100,000 later discovered that only $16,000 remained in their account.

The SEC claims that the two men solicited unsophisticated clients who were heavily invested in equities and mutual funds and had a conservative investment approach. Sawyers and Harrison also transferred assets to online options-trading accounts under their control.

While some online optionsXpress accounts were set up in clients’ names, others were in accounts under the name of Harrison’s spouse Deana or under both both their names. Clients did not receive statements from the group.

After getting a client’s signature on a blank-trading authorization form, Deanna Harrison would then be appointed the client’s power of attorney and agent for the accounts. In 2008, Sawyers and Harrison allegedly took out $234,000 from three client accounts as compensation for their services.

The SEC says that in a resignation letter to Wachovia, Harrison confessed to misdirecting about $6.6 million from 17 Wachovia clients to trade online. He also admitted that he ran the online trading without getting the authorization of Wachovia or the investors.

Wachovia says that the minute they discovered the alleged securities fraud, it notified its primarily regulator, cooperated with regulators and law enforcement, and took proactive steps to give clients that were impacted full restitution.

Related Web Resources:
Former Wachovia brokers charged with defrauding elderly customers in Surry, losing $8 million, Winston-Salem Journal, December 17, 2010
SEC accuses 2 NC brokers of defrauding clients, Bloomberg/AP, December 16, 2010
Wachovia, Stockbroker Fraud Blog
Institutional Investor Securities Blog
Continue Reading ›

Non-Customers of Wachovia Cannot Bring Stock Loan Related Claim to FINRA, Says Court

Published on: November 21, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Northern District of California has ruled that a married couple and their investment vehicles are not Wachovia “customers” and, therefore, they are not entitled to bring their stock loan related claims against Wachovia Securities Financial Network LLC and financial adviser George Gordon III to Financial Industry Regulatory Authority arbitration. Judge Saundra Brown Armstrong granted Wachovia and Gordon’s request for a preliminary injunction.

Per the statement of claim submitted to FINRA, Gregory and Susan Raifman initiated arbitration as trustees of a family trust, as Gekko Holdings Inc. members, and as the beneficial owners and assignees in interest of Helicon Investments Ltd. The Raifmans accused Wachovia and Gordon of committing securities fraud, breach of fiduciary duties, and violations of the California Securities Act and the rules of both the New York Stock Exchange and National Association of Securities Dealers.

The Raifmans contended that Gekko and Helicon each went into three separate stock loan transactions that Derivium Capital LLC, a third party, had promoted so they could borrow up to 90% of their stock holdings’ value without triggering capital gain on the stock sale. After the three-year loan term ended, the Raifmans were to pay the loan balance and get back or surrender their collateral or renew their loan.

To execute their plan, the Raifmans opened a Wachovia account for the trust in 2003 and transferred nearly $3 million in ValueClick (VLCK) shares into an account owned by a Derivium affiliate. Almost 12 months later, Helicon placed 300,000 ValueClick shares into another Derivium affiliate’s Wachovia account under a 90 percent stock loan agreement. Gekko later deposited 200,000 ValueClick shares in the same account (and also under a 90 percent stock loan agreement).

It wasn’t until 2007 that the Raifmans found out that their Value Click shares had been sold as soon as they were placed in the Derivium affiliates’ accounts. They also had not known that the sales proceeds had been loaned back to them while Wachovia and Derivium kept 10 – 14% of the sales proceeds.

The Raifmans attempted to start the arbitration process in July but Gordon and Wachovia filed their complaint seeking enjoinment against the couple, Helicon, and Gekko. They also requested a stay of the arbitration proceedings. The financial firm and investment adviser contended that they did not have an agreement with the defendants, who were not their customers and therefore not entitled to FINRA arbitration. The district court agreed.

Related Web Resources:
Wachovia Securities LLC v. Raifman

Arbitration and Mediation, FINRA Continue Reading ›

UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam

Published on: March 31, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Over two dozen bankers at Wall Street investment firms have been listed as co-conspirators in a bid-rigging scheme to pay lower than market interest rates to the federal and state governments over guaranteed investment contracts. The banks named as co-conspirators include JP Morgan Chase & Co, UBS AG, Lehman Brothers Holdings Inc., Bear Stearns Cos., Bank of America Corp, Societe General, Wachovia Corp (bought by Wells Fargo), former Citigroup Inc. unit Salomon Smith Barney, and two General Electric financial businesses.

The investment banks were named in papers filed by the lawyers of a former CDR Financial Products Inc. employee. The attorneys for the advisory firm say that they “inadvertedly” included the list of bankers and individuals and asked the court to strike the exhibit that contains the list. The firms and individuals on the co-conspirators list are not charged with any wrongdoing. However, over a dozen financial firms are contending with securities fraud complaints filed by municipalities claiming conspiracy was involved.

The government says that CDR, a local-government adviser, ran auctions that were scams. This let banks pay lower interests to the local governments. In October, CDR, and executives David Rubin, Evan Zarefsky, and Zevi Wolmark were indicted. They denied any wrongdoing. This year, three other former DCR employees pleaded guilty.

While the original indictments didn’t identify any investment contract sellers that took part in the alleged conspiracy, Providers A and B were accused of paying kickbacks to CDR after winning investment deals that the firm had brokered. The firms were able to do this by allegedly paying sham fees connected to financial transactions involving other companies.

Per the court documents filed in March, the kickbacks were paid out of fees that came out of transactions entered into with Royal Bank of Canada and UBS. The US Justice Department says the kickbacks ranged from $4,500 to $475,000. Financial Security Assurance Holdings Ltd divisions and GE units created the investment contracts that were involved.

Approximately $400 billion in municipal bonds are issued annually. Schools, cities, and states use money they get from the sale of these bonds to buy guaranteed investment contracts. Localities use the contracts to earn a return on some of the funds until they are needed for certain projects. The IRS, which sometimes makes money on the investments, requires that they are awarded on the basis of competitive bidding to make sure that the government gets a fair return.

Related Web Resources:
JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy, Business Week, March 26, 2010
U.S. Probe Lays Out Bid Fixing, Bond Buyer, March 29, 2010
Read the letter to District Judge Marrero (PDF)
Continue Reading ›

New Judge in Securities Fraud Case Involving Former Brokers Previously Affiliated with Capital Growth Financial, Wachovia Securities, and VSR Financial Services

Published on: December 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A new judge will preside over the case against two former brokers accused of defrauding over 130 Nebraska investors of over $20 million. Gage County District Judge Paul Korslund takes over for Sarpy County District Judge David Arterbur, who recused himself over possible conflicts.

Prosecutors are accusing Brian Schuster and Rebecca Engle, previously affiliated with Wachovia Securities LLC, Capital Growth Financial LLC, and VSR Financial Services Inc., of improperly selling risky investments to former clients when they worked together between 2000 and 2007. The two of them entered not guilty pleas to eight felony counts of securities fraud.

The investments under dispute were sold to investors while Capital Growth employed the two brokers. Investors say they bought securities in American Capital Corp. and Royal Palm. PrimEdge Inc. eventually bought both companies and Schuster became PrimEdge chief executive and president.

Over 200 investors will share a settlement of approximately $900,000 to be paid by the brokers’ ex-employers. Quanta Specialty Lines Insurance Co. will pay for most of it on behalf of Capital Growth. However this recovery is just a small portion of the over $20 million dollars in broker fraud losses that investors are claiming.

The majority of investors that have filed securities fraud lawsuits and arbitration claims were either nearing retirement or already retired when they were defrauded. They had wanted to make stable, low risk, conservative investments and they claim that the former brokers made investments for them in risky ventures without fully explaining what was involved. Engle and Schuster, however, say they shouldn’t be prosecuted for securities fraud because investors acknowledged the risks in writing.

Related Web Resources:
Judge appointed in fraud cases of ex Neb. Brokers, AP, December 22, 2009 Insurer to Pay Bulk of $900K Settlement in Nebraska Fraud Case, Insurance Journal, July 23, 2009 Continue Reading ›

Wachovia Securities Ordered by Pennsylvania Securities Commission to Repurchase $325 Million in Auction-Rate Securities

Published on: August 20, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Wachovia Securities, LLC and related entities will offer to refund $324.6 million in auction-rate securities from Pennsylvania investors. The Pennsylvania Securities Commission announced the ARS repurchasing agreement on August 11. Wachovia must also pay the commonwealth a $2.52 million assessment for the part the broker-dealer played in the ARS market.

According to Robert Lam, the commission chairperson, Wachovia failed to properly supervise its agents that dealing with investors over the sale of auction-rate securities, as well as engaged in business practices that were “unethical or dishonest.” Commissioner Steven Irwin said Wachovia sold and marketed ARS as liquid investments even though they were long-term investments that were involved in a complicated auction process. The auction-rate securities market failed in 2008.

Right before the ARS market went downhill, over 1,300 Pennsylvania retail investors held ARS that they had purchased from Wachovia. Now, the broker-dealer will repurchase the ARS.

The Pennsylvania commission is investigating other firms over any alleged misconduct committed that caused investors to get stuck with frozen ARS that they had been told were liquid, similar to cash. The commission has made it clear that they will not allow members of the securities industry to take part in dishonest or unethical business practices.

Wachovia sold more than $12.8 billion in ARS to investors throughout the US. Securities regulators in different states have pushed for Wachovia and other brokerage firms, such as Wells Fargo, Citigroup , Bank of America, and UBS to buyback the frozen auction-rate securities that investors were left with after the market dropped. Broker-dealers are accused of misrepresenting ARS to clients and that despite knowing that the market was about to collapse continuing to sell ARS to investors.

Related Web Resources:
Pennsylvania Securities Commission Orders Wachovia to Refund Over $300 Million to More Than 1,300 for Auction Rate Securities, Earth Times, August 11, 2009
Wachovia to Buy Back $325 Million in ARS, Wall Street Journal, August 11, 2009 Continue Reading ›

Wachovia Securities Agrees to $1.4 Million FINRA Fine for Failure to Deliver Prospectuses to Customers

Published on: July 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Wachovia Securities, LLC $1.4 million for its alleged failure to provide customers with product descriptions and prospectuses between July 2003 and December 2004, as well as for related supervisory failures. A probe conducted by the SRO determined that the broker-dealer did not provide the prospectuses to clients in 6,000 of about 22,000 transactions during this time period. These 6,000 transactions’ market value was about $256 million.

Per FINRA rules and by law, broker-dealers are required to give potential clients hard copy prospectuses. The SRO, however, discovered a number of deficiencies related to prospectus delivery by Wachovia Securities related to:

• Collateral mortgage obligations • Exchange-traded funds • Preferred stocks • Secondary purchases of equity non-syndicate initial public offerings • Corporate debt securities • Mutual funds • Equity syndicate initial public offerings • Alternative investment securities • Auction market preferred securities
According to FINRA Enforcement Chief and Executive Vice President Susan L. Merrill, failure to provide the investing public with prospectuses and other offering documents deprives customers of valuable data that they need to make “informed investment decisions.”

Per FINRA, reasons Wachovia Securities did not give prospective customers the required prospectuses included:

• Business units’ failure to report to the proper department that prospectus delivery was required • Coding errors • Failure to supervise and monitor outside vendors under contract to deliver prospectuses • Inadequate supervisory systems, procedures, and polices
When the activity allegedly at issue occurred, Wachovia Securities, LLC was a non-bank affiliate and subsidiary of Wachovia Corporation. This year, the latter merged with Wells Fargo & Co..

By agreeing to settle, Wachovia Securities is not admitting to or denying the allegations. The broker-dealer, however, has agreed to an entry of the SRO’s findings.

Related Web Resources:
FINRA Fines Wachovia Securities $1.4 Million for Prospectus Delivery Failures, Related Supervisory Violations, FINRA, June 25, 2009
Wachovia Fined $1.4 Million By Finra For Not Sending Prospectuses, June 30, 2009 Continue Reading ›