Investor Lawyers Blog

SEC Reaches $12.7M RMBS Fraud Settlement in Case Involving Ginnie Mae

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

The U.S. Securities and Exchange Commission said that First Mortgage Corporation (FMC) and six of its executives will pay $12.7M to resolve charges accusing them of running a RMBS fraud scam to bilk investors. The Government National Mortgage Association, also known as Ginnie Mae, guaranteed the residential mortgage-backed securities. The mortgage lending company is the one that issued the Ginnie Mae RMBS and the securities were backed by loans that FMC had originated.

According to the regulator, from 3/11 to 3/15, FMC’s top executives withdrew performing loans from Ginnie Mae residential mortgage-backed securities by making false claims that they were delinquent so that it could sell them into newly issued RMBS and make a profit. The mortgage company’s improper and deceptive use of a Ginnie Mae rule giving issuers the choice to rebuy loans that had been delinquent for at least three months caused the prospectuses of the original RMBS to become misleading and false.

The SEC also claims that FMC purposely held back on depositing the checks of borrowers who were late on their loans by making false claims to Ginnie Mae and investors that these loans had stayed delinquent when they were, in fact, current. In its complaint, the regulator said that FMC’s top management approved these actions.

T. Rowe Price to Pay Fund Shareholders, Clients About $194M Over Dell Buyout Voting Mistake

Published on: June 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Mutual fund company T-Rowe Price Group Inc. (TROW) will pay $194M to clients because of a proxy-voting mistake it made in 2013 during the management buyout of Dell Inc. The payments will be made to a number of institutional client accounts, two trusts, four U.S. mutual funds, and one fund located overseas.

Among the funds to benefit the most are the:

· T. Rowe Price Equity Income Fund (PRFDX)

· T. Rowe Price Science & Technology Fund (PRSCX), which is expected to be affected the most because it has a greater number of Dell shares as a percentage of all its assets.

· T. Rowe Price Institutional Large-Cap Value Fund (TILCX)

Shareholders will not get cash as part of this payout. Instead, they will see the results in the performance bump of the impacted portfolios.

Citibank Settles Libor, Euroyen Tibor, and YenLibor Rigging Allegations With $425M Fine

Published on: June 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Citibank (C) is the first U.S. bank to settle allegations of benchmark interest rate manipulation. To resolve the Commodities Futures Trading Commission claims that it manipulated the London Interbank Offered Rates (LIBOR), Citibank will pay $250M. It will pay $175M to resolve Euroyen Tibor and Yen Libor rigging claims. Also settling charges within this case are Citibank Japan Ltd (CJL) and Citigroup Global Markets Japan Inc. (CGMJ).

The CFTC claims that between ’07 and ‘12 Citigroup had specific traders input false information so their trading positions would benefit. It also claims that the bank’s affiliates issued false reports related to dollar Libor rates and ISDAFIX benchmark rates during the financial crisis so that its reputation would be protected.

Citigroup Global Markets Japan is charged with trying to rig Euroyen TIBOR and Yen LIBOR. Citibank Japan Ltd. is accused of engaging in false reporting related to the Euroyen TIBOR so that derivatives trading positions priced according to Euroyen TIBOR and Yen LIBOR would purportedly benefit.

Libor, along with the Tokyo Interbank Offered Rate (Tibor), is what banks use to establish the cost of borrowing from one another. Libor is also used to set the rates on mortgages, credit cards, derivatives, and other financial products.

SEC & Fraud Cases: Ponzi Scam Targeting Middle Class Investors is Stopped, NY-Based Forex Trader is Accused of Bilking Ex-Classmates, Family, and Friends, and NC Investment Adviser is Sued Over $11.5M Real Estate-Related Scheme

Published on: June 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Stops Ponzi Scam Involving Pre-IPO Stocks and Middle Class Investors
The U.S. Securities and Exchange Commission is charging Jaswant Gill and Javier Rios with fraud. The regulator claims that the two men and their investment firm, JSG Capital Investments, targeted middle-class investors through a Ponzi scam in which they touted purportedly huge returns through pro-IPO stock in renowned companies such as Airbnb, Alibaba, and Uber.

Gill and Rios are accused of pocketing at least $2.8M in investor money for their own lavish spending instead of investing the money in the pre-IPO shares. Funds of new investors were used to pay “returns” to earlier investors.

Gill allegedly touted fake credentials. He, Rios, and their firm are not registered with the Commission or with a state regulator.

The SEC said that in total the two investment advisers raised $10M through their company and related entities. They are said to have promised these retail investors access to investment opportunities that were typically only available to “one-percenters.” They also guaranteed yearly returns as high as 60%.

The U.S. Attorney’s Office for the Northern District of California has filed a parallel criminal case against Rios and Gill.

Trader Accused of Bilking Friends and Family of Millions of Dollars
The SEC is suing Haena Park for allegedly defrauding friends, her ex-Harvard classmates, family members, and other individuals of millions of dollars. Park is accused of using investor funds and making misrepresentations about her investment history, as well about the profits the investments were supposed to have made.

Since 2012, Park has raised at least $14M from over 30 investors, sustaining $16M in trading losses in the process.

Madoff Investors Eligible For $4B Payout & Stanford Fraud Victims Settle With Law Firm for $35M

Published on: June 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

At least 25,280 claimants who were the victims of Bernard Madoff’s Ponzi scheme can expect to receive payouts for almost $4B in losses they sustained from the fraud. For these investors, they’ve been waiting to get at least some of their money back for nearly eight years.

It was in December 2008 that Madoff’s $64.8B Ponzi scam was discovered. It turns out that the 78-year-old money manager was an equal opportunity fraudster, bilking retail investors, wealthy investors, institutional investors, celebrities, and others alike.

The nearly $4B in payouts is being overseen by Richard Breeden of the Madoff Victim Fund and is separate from the payouts issued by Irving Picard, who is the trustee in charge of compensating former customers of Bernard L. Madoff Investment Securities LLC.

With the Madoff Victim Fund, claims include those brought by “indirect” investors whose accounts were at the hedge funds and other entities known as “feeder funds.” These funds would send investors’ money to Madoff. Thousands of victims that lost $17.5B have been seeking to avail of this fund.

Securities Cases: Stephens Inc. to Pay $900K Fine, FINRA Bans Ex-Wells Fargo Broker, And Former State Street Executive is Accused of Charging Hidden Fees

Published on: June 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Files Fraud Charges Against Former State Street Executive
The U.S. Securities and Exchange Commission is filing fraud charges against ex-State Street Corp. (STT) executive Ross McClellan. According to the regulator, McLellan was one of a number of people who purposely charged hidden markups on certain transactions to customers, making the bank $20M in extra revenue.

Addressing the charges, McLellan’s lawyer claims that his client did not commit any securities law violations and that all banks charge client markups on bond transactions to make money. The attorney also noted that it was State Street and not the bank that profited from the charges.

The U.S. Department of Justice has charged McLellan with securities fraud, conspiracy, and wire fraud.

Ex-Wells Fargo Broker to Be Barred
Christopher John Pierce, a former Wells Fargo & Co. (WFC) broker, will be barred from working with any FINRA-registered firm and associating with any member of the self-regulatory organization. Pierce agreed to the bar after he was accused of stealing money from the accounts of banking customers.

Female Executive Accuses Bank of America of Misleading Trading Clients, Including Citigroup and Blackstone

Published on: June 1, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Megan Messina is suing Bank of America (BAC). She is a managing director at the bank’s structured credit products division. In her lawsuit, Messina claims that the bank tried to get rid of her when she questioned the way some clients were treated and complained about the sexism she allegedly experienced. She also contends that clients such as Citigroup (C) and Blackstone Group LP (BX) were misled by her employer.

According to Bloomberg, in her complaint, Messina provides examples of alleged misconduct at the bank, including coworkers front-running trades made by clients, such as Citigroup, while keeping information from other clients, such as Blackstone. Messina claims that Bank of America apologized to client Anchorage Capital Group after the bank purposely provided the firm with false information. Bank of America also purportedly apologized to Pimco for “doctoring” trading records.

Proposed Rule Would Let Consumers Sue Banks

Published on: June 1, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A new rule proposed by the Consumer Financial Protection Bureau would let consumers sue banks over a variety of financial products, including bank accounts, private student loans, money-transfer services, installment loans, payday loans, prepaid cards, and credit cards, and certain types of loans. The proposed rule would also prohibit arbitration clauses in consumer financial contracts, again giving more power to consumers.

The CFPB wants to prevent financial companies from employing mandatory arbitration clauses so as to inhibit class action securities cases involving significant quantities of plaintiffs. However, they would still be allowed to obligate consumers to resolve individual disagreements in arbitration. Companies that decide to include arbitration clauses in their contracts would have to notify the CFBP about the specifics of cases, including any awards and claims.

The CFPB said that according to a study it conducted in 2015, arbitration clauses were found in “hundreds of millions of consumer contracts” used by credit card users, private student loan lenders, banks taking insured deposits, as well as in prepaid card agreements and payday loan contracts in certain states.

Ex-Dean Foods Board Member, Pro Golfer Phil Mickelson, and Professional Sports Gambler Are Named in Insider Trading Case

Published on: May 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed civil charges against professional sports gambler William Walters. He is accused of making $40M from an illegal stock tip given to him by former Dean Foods Company board member Thomas C. Davis. The regulator said that Davis, who owed Walters money, gave him insider information about the company prior to market-moving events.

Professional golfer Phil Mickelson, who is a relief defendant in the case, allegedly traded in Dean Foods securities based on Walter’s recommendation. Mickelson then purportedly took the nearly $1M he made from the trading to help repay the gambling debt he owed to Walters. As a relief defendant, Mickelson is not being charged with insider trading or accused of wrongdoing. He will, however, have to pay back the money he made from trading in Dean Foods securities.

As to why Mickelson won’t be prosecuted, The New York Times reports in the article “How to Get Away with Insider Trading,” this is because of U.S. insider trading laws, which bars trading on nonpublic information only if the information has been used or obtained wrongly. This allows parties involved later on in the “chain of information” to benefit from such rules.

Walters and Davis, however, are charged in this case. The SEC’s complaint said that the illegal trading took place over five years.

Texas Appeals Courts Upholds $2.1M Mortgage-Backed Securities Ruling Against Morgan Keegan

Published on: May 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Texas Court of Appeals for the Fifth District has upheld a $2.1M judgment for a client of Houston Securities Fraud Attorney Sam Edwards of Shepherd Smith Edwards & Kantas. The ruling ordered Morgan Keegan to pay $2.1M for not telling investors about the actual risks involved in a mortgage-backed securities stake.

It was in October 2014 that a Dallas state court judge determined that the wealth management and capital markets firm had violated the Texas Securities Act by not accurately representing the risks involved in securities in which Purdue Avenue Investors LP and its principals Dana and Robert Howard had invested. These were MBS purchased by bond funds that Morgan Keegan underwrote and Morgan Asset Management managed. The purportedly undisclosed risk was that the funds were heavily involved in lower than investment grade structured finance.

The Howards invested more than $2M in the RMK Strategic Income Fund and the RMK Advantage Income Fund. The funds would go on to lose more than $2B.