Pension Funds

Pension Fund Lawsuit Against Volkswagen is Allowed to Proceed

Published on: January 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Charles Breyer says that Volkswagen AG (VW) and ex-CEO Martin Winterkorn must face an investor lawsuit related to its diesel emissions cheating scandal. Breyer turned down VW brand chief Herbert Diess’s request that the proposed securities fraud cases be dismissed from a California court. The company is still under criminal investigation by the US Justice Department.

The plaintiffs are primarily municipal pension funds that invested in Vokswagen via American Depositary Receipts. An ADR is a type of equity ownership in a non-US company that represents the company’s foreign shares that are kept on deposit by a bank in the home country of that company.

Volkswagen believes that the investor complaints at issue should be heard in Germany. Judge Breyer, however, ruled that since the US is invested in protecting investors from this country against securities fraud, the complaints should proceed in the US. Investors believe that the German automaker and its executives misled the public when it assured them that its diesel vehicles fulfilled all emission standards while downplaying the liabilities that would result because the company was not, in fact, complying with these standards.

Ex-NY Pension Fund Portfolio Manager and Broker are Criminally Charged in Alleged $2B Pay-to-Play Scam

Published on: December 26, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Federal Prosecutors in Manhattan have filed criminal charges against Navnoor Kang, a former investment manager at the New York State Common Retirement Fund, and broker Deborah Kelley. The two of them are accused of directing over $2B in business to two broker-dealers in return for bribes, including money, expensive jewelry, cocaine, Paul McCartney concert tickets, prostitutes, and other lavish expenses. This is the latest “pay-to-play” scam involving the state’s pension fund, which is the third largest in the US.

Kang, who previously served as managing director at Sterne Agee Group Inc., allegedly accepted over $100K in bribes for purportedly leveraging his role as director of fixed income for the pension fund to send up to $2.5B in state business to Kelley and another broker, Gregg Schonhorn of FTN Financial Securities Corp. As a result of Kang sending this business their way, Kelley and Schonhorn made millions of dollars in commissions.

Schonhorn has already pleaded guilty to his involvement in the pay-to-play scam. According to prosecutors, in 2014, Schonhorn’s firm did $1.5M in business with the NY pension fund. By 2016, that figure was at over $2.3B. Kelly’s broker-dealer, meantime, went from having no business with the New York pension fund in 2014 to $179M in business this year.

Securities News: Ex-Fannie Mae CEO Settles Mortgage Fraud Case, WL Ross to Pay Back $11.8M to its Funds, SEC Chastises Bank of America For Not Explaining COO’s $15.5M Compensation, and Pension Returns Drop

Published on: August 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Former Fannie Mae CEO Settles SEC Charges for $100K
Daniel Mudd has agreed to pay $100K to settle Securities and Exchange Commission charges accusing the ex-Fannie Mae CEO of misleading investors about the degree to which the mortgage company was exposed to subprime loans leading up to the 2008 economic crisis. The regulator had filed its civil case against Mudd and two other Fannie Mae executives in 2011. The latter two settled with the Commission last year.

Mudd maintains he did nothing wrong.

WL Ross Resolves Fee-Allocation Disclosure Charges
WL Ross & Co. will reimburse specific WL Ross funds about $11.8M to resolve SEC charges related to its fee allocation practices and disclosures. The firm will also pay a $2.3M civil penalty.

According to the SEC, WL Ross was given transaction fees by portfolio companies. This lowered the management fees that funds had to pay the firm. The regulator points to WL Ross’s limited partnership agreements that were unclear regarding fee offsets when multiple funds and other co-investors share ownership.

Securities Fraud News: Union Pension Funds Settle Class Action Case for $64M, Deadline for Implementing Volcker Rule is Extended, and Ex-Panther Energy Trader Goes to Prison For Spoofing

Published on: July 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

$64M Pension Fund Fraud Settlement Reached Against Dana Holding Corp. Executives
Plaintiffs in the shareholder class action case brought against Michael Burns and Robert Richter have reached a $64M out-of-court settlement with the two ex-Dana Holding Corp. executives. The union pension funds include lead plaintiffs SEIU Pension Plans Master Trust, Plumbers & Pipefitters National Pension Fund, and the West Virginia Laborers Pension Trust Fund.

They accused Bornes and Richter, the company’s ex-CEO and CFO, respectively, of purposely misleading investors about Dana Holding’s financial woes in the months prior to its filing for bankruptcy in 2006. Although the securities fraud case was initially dismissed by a district court on the grounds that the plaintiffs failed to show that the two men and Dana knew they were engaging in wrongdoing, the 6th U.S. Circuit Court of Appeals in Cincinnati reversed that decision, saying evidence showed otherwise.

Federal Reserve Gives Banks More Time to Meet Volcker Rule Requirements
The U.S. Federal Reserve has extended the deadline for banks to rid themselves of ownership in certain legacy investments and cut ties with funds that are barred under the Volcker Rule. The rule, part of the Dodd-Frank Act, aims to stop banks with government-backed deposits from betting on Wall Street for their benefit. It doesn’t allow insured banks and their subsidiaries to own or be affiliated in any way with a private equity fund or hedge fund or take part in proprietary trading. Lenders are not allowed to trade using their own capital and are restricted from investing in funds.

JPMorgan to Pay $150M to Pension Funds Over London Whale-Related Losses

Published on: May 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A U.S. district court judge has approved a settlement reached at the end of last year between JPMorgan Chase & Co. (JPM) and pension funds related to trades made by Bruno Iksil, who earned the nickname “London Whale” because of his huge market-moving positions in credit derivatives. In their class action securities case, the plaintiffs accused the firm of using its chief investment office in London as a secret hedge fund and hiding up to $6.2M in losses.

Even though the office was supposed to be primarily for managing risk, the plaintiffs believe that it was making high-risk trades for profit, including trading in complex credit derivatives. Depositors’ money was purportedly used in secret for making certain trades. Shareholders claim that JPMorgan knew about the increased risks it was taking and hiding them.

JPMorgan has not admitted to wrongdoing by settling this deal. However, it was also fined over $1B by regulators in the U.K. and the U.S. for management deficiencies related to the London Whale scandal.

Four Credit Suisse Bankers Accused of Unauthorized Trading in Rich Clients’ Accounts, Bank of America Settles Mortgage Case for $190M, and Goldman Sachs to Pay Illinois Pension Fund $272M

Published on: May 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America to Pay Federal Home Loan Bank of Seattle $190M
Bank of America Corp. will pay $190M to resolve mortgage-backed securities fraud charges brought by the Federal Home Loan Bank of Seattle. The SEC filing stated that the settlement was reached last month and that most of it was previously accrued. The lawsuit alleged misstatements and omissions during the issuance of MBSs.

It was just earlier this year that Bank of America’s Merrill Lynch and 10 other banks agreed to pay over $63M to resolve accusations that they misrepresented residential mortgage-backed securities to the Virginia Retirement System and the state of Virginia.

Judge Approves $270M Mortgage-Backed Securities Fraud Settlement Involving Goldman Sachs
A federal judge has approved the proposed settlement between Goldman Sachs (GS) and lead plaintiff NECA-IBEW Health & Welfare Fund, as well as 400 bondholders and another electrical union pension fund. The Illinois pension fund for electrical workers brought the case in 2008, accusing the firm of leaving out key information and making false statements about the mortgages it sold into 17 trusts the year before.

Houston Pension Fund Files Securities Fraud Case Against BofI Holding

Published on: April 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Houston Municipal Employees Pension System is suing Internet banking company BofI Holding Inc. (BOFI). The pension fund claims that the bank engaged in unlawful lending practices and other misconduct to enhance profits.

For example, according to the complaint, BofI Holdings refinanced a loan to a borrower involved in a gang-run gambling ring, did not disclose that it was using off-balance-sheet entities to buy lottery receivables, gave loans to foreigners with suspect or criminal backgrounds, did not have a healthy compliance system, and failed to tell investors that it was the subject of regulatory and government subpoenas and pending federal probes. The Houston pension fund is seeking class action status.

The case was spurred by a whistleblower court case filed by an ex-junior auditor at BofI Holdings. The whistleblower claimed that the Internet banking company issued loans to certain foreign nationals without properly vetting them even though some of them had criminal pasts. BofI denied his contentions and countered with its own lawsuit.

Michigan Pension Plan Sues LPL Financial for $115M

Published on: March 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Charter Township of Clinton Police and Fire Retirement System is suing LPL Financial Holdings Inc. (LPLA) for $115M. In the class action securities case, the plaintiff contends that a stock buyback program cost the firm and its shareholders that amount.

Company shares closed trading at $42.91 on October 29 when LPL announced the $500M program. Less than two months later, its stock began to drop in price. The stock was trading at $25.08/share yesterday morning.

The program was supposed to improve shareholder value. The following month, LPL said it had entered into $700M of new term loans while extending $631M of existing debt to pay for the share repurchase plan. Then, in December, the company said it had arrived at an early completion of the plan.

State Street To Pay $12M To Resolve Pay-to-Play Scam Charges Involving Ohio Pension Funds

Published on: January 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The SEC said that State Street Bank and Trust Company will pay $12M to resolve civil charges accusing the firm of involvement in a pay-to-play scam. The regulator is accusing State Street of trying to gain contracts so it could do business with Ohio pension funds.

Vincent Debaggis, who helmed the public funds group of State Street Corp., is accused of entering into a deal with the deputy treasurer of Ohio. The arrangement allegedly included both illicit payments and political campaign contributions. In return for the money, State Street is accused of obtaining sub-custodian contracts that involved keeping the investment assets of certain Ohio pension funds safe and effecting the securities transaction settlements of the funds.

DeBaggis and State Street have agreed to the SEC’s order without denying or admitting to the regulator’s findings. The $12M that State Street will pay includes an $8M penalty and $4M in prejudgment interest and disgorgement. Meantime, DeBattis will pay over $174K in disgorgement plus prejudgment interest and a $100K penalty.

JPMorgan Chase Resolves “London Whale” Class Action Securities Lawsuit for $150M

Published on: December 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase & Co. (JPM) will pay $150 million to resolve investor claims accusing the firm of concealing up to $6.2 billion in losses caused by the trader Bruno Iksil, who was given the nickname “London Whale.” Pension funds filed a class action securities case accusing the firm of using its investment office in London as a secret hedge fund. According to the plaintiffs, the bank told them that the office was managing risk when what it was actually doing was making trades for profit. Investors were harmed when huge losses resulting from transactions made through the London office caused the bank’s share price to drop.

The pension funds said that they suffered tens of millions of dollars of losses because fund managers were provided with information that was “false and misleading.” They also believe that the bank knowingly concealed the growing risks that were occurring at the London office.

Plaintiffs of this lawsuit include the Ohio Public Employees Retirement System, which says it lost $2.5 million, the Arkansas Teacher Retirement System, the state of Ohio, funds in Arkansas, Swedish pension fund AP7, and other JP Morgan shareholders that purchased stock between 2/24/10—this is when the company submitted to regulators its 2009 earnings report—and 5/21/12. The latter date is when the firm announced that it was stopping a $15 billion share buyback program until it could get a better handle of the losses sustained.