Investor Lawyers Blog

Foreign Corrupt Practices Act Violation Allegations: VimpelCom, Qualcomm, and PTC Inc. Settle with Regulators

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

VimpelCom Resolves FCPA Violations for $795M
The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and regulators in the Netherlands have arrived at a global settlement with VimpelCom Ltd. to resolve Foreign Corrupt Practices Act violations. The telecommunications provider purportedly committed the offenses in order win business in Uzbekistan.

According to the regulator, the company offered bribes to an Uzbek government official who was the relative of Uzbekistan’s President, just as VimpelCom entered that nation’s telecommunications market. VimpelCom needed government-issued licenses, channels, frequencies, and mobile blocks. At least $114M in bribes were funneled through an entity with ties to the official who was bribed, while about $500K was hidden under the guise of “charitable donations” that were also affiliated to the same official.

As a result of the alleged FCPA violations, said the SEC, the telecommunications company earned massive revenues in Uzbekistan. As part of the settlement, VimpelCom will pay $167.5M to the SEC, $130.1M to the DOJ, and $397.5M to Dutch regulators.

PTC Inc. is Accused of Bribing Chinese Officials to Win Business
PTC Inc. and its two Chinese subsidiaries (PTC-China) have consented to collectively pay $28M to resolve civil and criminal actions accusing them of violating the Foreign Corrupt Practices Act. According to the regulator, the two subsidiaries provided improper payments and non-business related travel to Chinese government officials to garner business. The SEC order, which institutes a settled administrative proceeding against the Massachusetts-based technology company, states that the two subsidiaries spent almost $1.5M on improper travel, entertainment, and gifts for the Chinese government officials who worked for state-owned entities that were customers of PTC. This purportedly made the company about $11.8M in profits from sales contracts with these entities.

Fidelity Suspends MetLife Annuity Sales and Commonwealth Stops Selling L Share Variable Annuities

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

Fidelity Investments has decided to suspend sales of annuities from MetLife while the life insurance company considers a possible spinoff, sale, or public offering of a retail unit that offers retirement products. According to InvestmentNews, MetLife, which is the biggest life insurer in the US, has said that the move is under consideration because of expected, more stringent capital rules now that it has been designated a “non-bank systematically important financial institution.” Some in the industry have said that this could cause the insurer to lose distributors.

The possible sale or break up would likely include General American Life Insurance Co, MetLife Insurance Co., Metropolitan Tower Life Insurance Co., and a number of subsidiaries with reinsured risks that MetLife Insurance Co. underwrites. A retail unit break off would result in businesses that are still regulated, but not as regulated as retail products.

MetLife also is reportedly in discussion with MassMutual over the possible sale of its U.S. adviser unit, the MetLife Premier Client Group.

The U.S. Department of Labor’s proposed fiduciary rule is pushing for tighter rules for retirement product sales. This is compelling some insurance company to reassess whether to continue running their own brokerage firm operations. In February, American International Group Inc. announced that it was selling its AIG Adviser Group to Canadian pension manager PSB Investments and private equity firm Light Year Capital. Under the proposed rule, investment advisor standards for giving advice related to retirement accounts would be raised.
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Securities News: UBS To Pay $33M to NCUA For Mortgage-Backed Securities, CFTC, FCA May File More Civil Charges Against Banks for Libor Rigging, Moody’s Waits for end of DOJ’s Subprime Mortgage Probe

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

UBS to Pay $33M to NCUA Related to MBS Sold to Credit Unions
UBS AG (UBS) will pay $33 million to resolve a lawsuit filed by the National Credit Union Administration accusing the bank of selling toxic mortgage-backed securities to credit unions. The case revolves around MBS that were underwritten and sold by UBS. The securities were purchased by Members United Corporate Federal Credit Union and Southwest Corporate Federal Credit Union for almost $432.4M from ’06 to ’07.

NCUA alleged that offering documents for the securities sold included untrue statements claiming that the loans were originated in a manner that abided by underwriting guidelines when, in fact, the loans’ originators had “systematically abandoned” said guidelines. The false statements made the securities riskier than what was represented to the credit unions. Eventually, the MBS failed, resulting in substantial losses.

To date, NUCA has recovered almost $2.46B from banks over MBS sales that occurred prior to the 2008 financial crisis.

US, UK Regulators May Pursue More Banks Over Libor
According to the The Wall Street Journal, the US Commodity Futures Trading Commission and the UK Financial Conduct Authority are working on pressing the last civil charges against a number of banks for alleged rigging of the London interbank offered rate. LIBOR is the benchmark that underpins interest rates on trillions of dollars of financial contracts around the globe.

Sources tell WSJ that the firms under scrutiny include Citigroup (C), J.P. Morgan Chase & Co (JPM)., and HSBC Holdings (HSBC)—although the FCA has already dismissed its probe into J.P. Morgan.

Independent Brokerage Firms that Sold UDF REITs May Be Subject to Arbitration Claims Over Alleged Ponzi Scam

Published on: February 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, a number of independent broker-dealers could find themselves in legal hot waters, should investors decide to pursue them through arbitration for selling UDF real estate investment trusts. United Development Funding is under investigation over allegations that the UDF IV was run for years like a Ponzi scam. UDF IV was initially a nontraded real estate investment trust that later became listed as a publicly traded REIT.

The article goes on to name four firms that sold the UDF REITs or private deals to investors: Financial Services Inc., Berthel Fisher & Co., VSR Financial Services Inc., and Centaurus Financial Inc. Other firms also have sold UDF REITs to investors.

The allegations against UDF first surfaced in December in an anonymous post published on Harvest Exchange, an investor website. Among the accusations: that the UDF umbrella demonstrated traits “emblematic” of a Ponzi scam; new capital was used pay existing investors; and newer UDF companies were giving liquidity to earlier UDF companies to pay earlier investors. Noting that a hedge fund had created a short position in UDF IV shares, the company accused the fund of trying to illegally profit by depressing and manipulating UDV IV’s share price.

Recently, J. Kyle Bass of Hayman Capital also published a website about the allegations. On the site, Bass acknowledged that Hayman maintains a short position in UDV IV common stock.
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Raymond James Must Pay Investor $795K

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

In a Financial Industry Regulatory Authority arbitration case, Raymond James Financial Services Inc. (RJF) has been ordered to pay David B. Silipigno $593,540 plus 3 years and 9 months of interest. That’s an award of about $795,000. According to Silipigno’s attorney, the securities arbitration case involved an RIA who may not have not licensed with FINRA but worked out of the Raymond James independent contractor branch office.

The attorney said that such a work configuration may cause problems in that a non-registered adviser could effectively become a defacto employee of a brokerage firm. OnWallStreet.com names the broker involved as Karen Powell, who has been affiliated with Raymond James since 1999.

Silipingo, in his claim, asserted a number of causes of action, including common law fraud, breach of fiduciary duty, beach of contract, suitability, churning, failure to supervise, and violations of Rule 10b-5 of the Securities Exchange Act violation and The Florida Securities Investor Protection Act. Raymond James continues to deny the allegations. The arbitration panel denied the firm’s request to have Powell’s CRD expunged in this matter.
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London Whale Says He is Not Responsible for Over $6.2B in Losses Involving JPMorgan

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

Bruno Iksil, the man dubbed the London Whale, has finally spoken out. Iksil, a former trader for JPMorgan Chase & Co. (JPM), was blamed for up to $6.2B in losses—a massive sum, hence the nickname. Unlike others involved, however, Iksil has been able to avoid prosecution after reaching a deal in which he agreed to help U.S. authorities with their cases and testify against others involved.

In a letter to Bloomberg, Iskil said that managers in the London chief investment office “repeatedly” told him to execute the strategy that led to the losses. He noted that the nickname he was given, “London Whale,” implies that one person was responsible for the trades involved when, he contends, others were involved in the debacle. Iksil said that his responsibility was to execute a strategy that senior management had put forth, approved, supervised, and ordered.

He maintains that he told superiors that there was a risk of huge loss with a trading strategy that they wanted him to execute, in part to lower the unit’s risk-weighted assets. Despite his concerns, said Iksil, his supervisors continued to tell him to continue with the strategy.

The trades involved were credit-swap index tranches. Tranches let investors bet on different levels of risk among a number of companies. If a borrower doesn’t meet its obligation, then the credit swaps must pay the buyer at face value. If t debt is defaulted, then the value the buyer must be paid is less.

JPMorgan Says to Expect Losses on Energy Loans

Published on: February 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase 7 Co. (JPM) reported a double-digit drop in investment banking revenues, along with a $500 increase in provisions set aside for losses expected on energy loans. The latter is a result of declining oil prices, market volatility, regulator pressure, low interest rates, and other issues. Crude oil dropping to about $32/barrel has not helped.

According to Forbes, previously, the bank had set aside $815M to cover lending losses in the energy sector. The firm also has exposures to the extent that JPMorgan has put aside $350M for credit losses related to mining. The bank also is involved in $4.1B of commercial real estate lending in areas that are energy sensitive and a $2.7B business banking book in the gas and oil industry.

The Business Recorder reports that the firm’s portfolio for oil and gas is $43 billion. Its latest projections are a departure from last month, when JPMorgan told investors that it expected to make incremental increases to loss reserves related to energy-related loans.

UBS Group Must Pay Investor $1.45M For Puerto Rico Bonds

Published on: February 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Pursuant to a recent arbitration ruling, UBS Group AG (UBS) must pay $1.45 million to Christel Marie Bengoa Lopez for losses she sustained in Puerto Rico closed-end bond funds. According to her arbitration claim, filed with the Financial Industry Regulatory Authority (“FINRA”), Bengoa Lopez invested a $5 million gift from her father after he sold his business.

Her broker at UBS purportedly touted the Puerto Rico closed-end bond funds as conservative, safe investments. She claims that he recommended that she use a credit line issued by UBS that would utilize her investments as collateral to purchase an apartment. However, when the closed-end bond funds became worth less than the balance of the loan, the brokerage firm insisted that it be paid back in full.

Commenting on the arbitrator’s ruling, UBS noted that it disagreed with the case outcome.

Unfortunately, numerous investors have lost substantial amounts of money from investing in Puerto Rico funds, many of which were sold by UBS. These funds were concentrated in the U.S. territory’s debt. When some funds lost half or more for their value in 2013, investors realized that the Puerto Rico investments were not as safe as represented. In fact, some investors lost everything.

Brokers from UBS, Banco Santander (SAN), Banco Popular, and other brokerage firms on the island are accused of steering investors toward Puerto Rico closed-end bond funds and individual Puerto Rico bonds even though Puerto Rico debt was not the best investment match for investors in terms of the latter’s goals and the degree of risk their portfolios could handle. Since 2013, Puerto Rico has been struggling to pay back $70 billion in debt-held not just by hedge funds and other institutional creditors but also by middle class Puerto Ricans, who hold about 30%, reports CNN, and other average Americans, who hold about 15%.
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FINRA Says Investors Should Consider the Risks Before Investing in SBLOCs

Published on: February 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority and the Securities and Exchange Commission’s’ Office of Investor Education and Advocacy has issued an investor alert recommending that investors get to know the risks before deciding to invest in securities-backed lines of credit, also known as SBLOCs. Although SBLOCs can be a major revenue for securities firms, there is the chance of increased losses, especially during times of market volatility.

SBLOCs
Securities-backed lines of credit are loans that let an investor borrow money using securities that are kept in an investment account as collateral. An SBLOC allows an investor make interest-only payments each month and loans stay outstanding until they are repaid.

SBLOCs are frequently marketed as a low-cost, easy way to gain access to additional money without having to liquidate securities even as an investor borrows against assets in an investment portfolio. However, they come with certain risks, including unintended tax consequences and the possibility that an investor might have to sell his/her holdings, which could affect long-term investment goals.

SBLOCs are similar to home equity credit lines except that they involve securities as collateral rather than the home. An investor is allowed to repay part or all of the outstanding principal at any time and then borrow again in the future.

An SBLOC is a non-purpose loan. This means that the investor is not allowed to use the proceeds to buy or trade securities. However, money from an SBLOC can be utilized to finance almost anything you want, including home renovations, education expenses, or personal travel.
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The FBI Raids UDF IV Offices in Dallas, Texas

Published on: February 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Bureau of Investigation has raided the Dallas offices of United Development Funding. The publicly traded real estate investment trust recently came under fire amid allegations that it has been run like a Ponzi scam for years.

Since the accusations against UDF IV were published on the Harvest Fund website, the REIT’s stock has dropped 81% in the last two months. News that the FBI went to the UDF headquarters caused the company’s share price to plunge nearly 55% during the raid on Thursday to close at $3.20/share.

UDF IV has denied the allegations that it is a Ponzi scam. Following news of the accusations, It filed a complaint with the U.S. Securities and Exchange Commission alleging that it was the victim of a “short and distort” securities trading scam involving an investor that was building up a short position in a stock. The aim , said UDV, was to illegally manipulate shares. In December, UDF revealed that it has been under investigation in a fact-finding probe by the SEC since 2014.

This month, hedge fund manager Kyle Bass said that he is the one who has been shorting UDF. He accused the nontraded REIT of using new investor funds to pay existing investors and exploiting “Mom and Pop” retail investors. Bass’s Hayman Capital Management LP has been betting against UDF IV shares. He was the one who made the Ponzi scam claims against UDF at the end of last year.
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