Investor Lawyers Blog

UBS Must Pay Investor $1M for Puerto Rico Bond Fund Portfolio

Published on: May 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Panel (“FINRA”) has ordered UBS Financial Services Inc. of Puerto Rico and UBS Wealth Management (collectively “UBS”) to pay a client from Puerto Rico $1 million to repurchase the Puerto Rico portfolio of proprietary bond funds sold to him and many other Puerto Rico investors. According to the Panel’s decision, Mr. Burgos Rosado, a senior investor at age 66, lost $737,000 in the beleaguered closed-end funds.

He had opened his account with UBS in 2011 and invested the money he made from running a bodega for years. After Puerto Rico municipal bonds failed in 2013, the original $1.1 million he invested had fallen in value to less than $4,000. Just in September of that year, when news that the bond funds were failing en masse, Burgos Rosado reportedly approached UBS because his balance had dropped some $200,000. He was encourage to stay with his portfolio.

The FINRA panel noted that while investors typically assume their account’s risks after they’ve been given sufficient notice of the risks, the arbitrators did not think this applied in the case of Burgos Rosado, who does not speak fluent English and was clearly relying on the recommendation of his UBS advisor. Even after Burgos Rosado asked for documents in Spanish, the brokerage-firm reportedly issued his monthly statements and other information in English.

UBS, J.P. Morgan, Citigroup, RBS, and Barclays to Pay $5.6B in Penalties Over Fx, Libor Investigations

Published on: May 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Five global banks have consented to pay $5.6B in penalties to resolve claims related to a U.S. probe into whether traders at these institutions manipulated foreign-currency rates for their benefit. J.P. Morgan Chase & Co. (JPM), Royal Bank of Scotland (RBS), UBS AG (UBS), Citigroup Inc. (C), and Barclays PLC (BARC) will also plead guilty to criminal charges that they conspired to rig prices of U.S. dollars and euros.

According to officials involved with the Department of Justice investigation, which went on for 19 months, traders withheld offers or bids to avoid getting the rates going in directions that would hurt the open positions of other traders, with whom they were colluding. These traders, who were from the different banks, formed what they dubbed as “The Cartel.” They would meet in online chatrooms and communicate via coded language to coordinate efforts to manipulate rates. Hand signals also were reportedly used during calls with clients. Aside from the $5.6B in peanltlies, the firms are paying another $1.6 billion in fines to the U.S. Federal Reserve.

Citibank is paying the biggest criminal fine of $925M plus a $342M penalty to the Fed. The bank was allegedly involved in currency manipulation from the end of 2007 through the beginning of 2013. Meantime, J.P. Morgan will pay the DOJ $550M and the Fed $342M.

Morgan Stanley to Pay $2M for Violations Involving Short Sales and Short Interest Reporting

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

The Financial Industry Regulatory Authority is fining Morgan Stanley & Co. LLC (MS) $2M for violations involving short sale and short interest reporting rules. The violations purportedly took place over six years. The financial firm is also accused of not putting into place a supervisory system designed in a reasonable enough manner that it could identify and prevent such violations.

Financial firms are supposed to report to the SRO on a regular basis their total short positions involving equity securities in proprietary firm and customer accounts. However, according to the self-regulatory organization, Morgan Stanley did not accurately and completely report such positions in certain securities that involved billions of shares. FINRA also said that the firm’s supervisory system was deficient.

Meantime, under U.S. Securities and Exchange Commission’s Regulation SHO for regulating short sales, firms are supposed to aggregate their positions in a security to determine whether they are short or long. Through an aggregation unit, Regulation SHO lets firms track positions in a security separate from other positions at the firm and via certain trading desks or operations.

U.S. Supreme Court Rules on 401K Lawsuit, Gives Investors More Protections

Published on: May 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The nation’s highest court has just made it easier for workers to sue their 401k plans for charging excessive fees for investments. The case is Tibble v. Edison International, and the U.S. Supreme Court ruled unanimously for the ex-workers of Edison International.

The plaintiffs contended that the plan fiduciaries’ decision to choose six retail-class mutual funds (out of the forty selected for the retirement plan) was based on the higher fees that these funds charged, compared to institutional class funds that were also allegedly available to investors. Under the Employee Retirement Income Security Act (ERISA), retirement plans that are sponsored by an employer have a fiduciary obligation to choose investments that are appropriate and remove any that cease to meet the criteria set up in the investment policy statement.

Five years ago, the U.S. District Court for the Central District of California awarded the plaintiffs a $370,732 judgment over damages involving the high fees in three of the retail share class funds at issue. The claims against the other three funds are the ones that went to the 9th U.S. Circuit Court of Appeals and now the Supreme Court.

Nomura & Royal Bank of Scotland Must Pay $806M in Mortgage-Backed Securities Case

Published on: May 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Nomura Holdings (NMR) and Royal Bank of Scotland group Plc (RBS) must pay $806 million in the mortgage-backed securities lawsuit filed against them by the Federal Housing Finance Agency. $779.4 million will go to mortgage lender Freddie Mac (FMCC) while $26.6 million will go to Fannie Mae (FNMA).

Judge Denise L. Cote of the Federal District Court in Manhattan was the one who found the two banks liable for making false statements when selling the securities to the two lending giants. The banks will also take back the mortgage bonds that are the basis of this lawsuit. As of the end of March, these bonds were worth up to $479 million.

It was Nomura that sponsored $2 billion of the securities purchased by Freddie and Fannie. RBS was the underwriter on four of the deals.

Financial Fraud Headlines: “The Financial Coach” to Pay $3.6M in Restitution to Investors, SEC Charges Father and Son with Insider Trading, and Massachusetts Accuses Investment Firm of Elder Financial Fraud

Published on: May 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

“The Financial Coach” Pleads Guilty to Wire Fraud

Bryan C. Binkholder, also known as the “The Financial Coach,” will serve nine years in prison for bilking clients. Binkholder used books, a talk show, and YouTube videos to market his “hard money lending” program.

According to prosecutors, he touted himself as serving real estate developers that wanted to flip houses but he only made limited number of loans. Instead, he used investors’ funds to pay for his personal spending, give his wife a salary, and pay interest to other investors.

FINRA Gets Tough With Its Sanctions Against Brokers For Suitability Violations

Published on: May 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has decided to take tougher actions against brokers who violate suitability standards. The regulator is recommending that the National Adjudicatory Council, which oversees disciplinary proceedings, raise its suggested suspensions for brokers who make unsuitable recommendations from one year to two years. FINRA wants brokers who commit fraud be potentially barred and offending firms face potential expulsion.

FINRA’s revisions to its Sanctions Guidelines are to go into effect right away. They exist to protect investors from brokers who don’t comply with the suitability rule. The rule states that brokers can sell products that are to their benefit as long as these products also are in alignment with helping investors meet their investment goals.

Despite the changes, InvestmentNews reports, there are those who think that FINRA’s proposed sanctions are insufficient and, also, that there may be negative consequences for investors. For example, defendants facing two-year suspensions might opt to fight cases against them rather than settle because of the tougher penalty.

Barclays Also Likely to Be Fined For Libor Settlement Breach

Published on: May 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg says that according to sources familiar with the matter, in addition to the penalty that Barclays Plc (BCS) is expected to pay to resolve the U.S. Justice Department’s case for interest currency benchmark rigging, the bank will also likely have to pay a fine for violating an earlier settlement reached over interest rate rigging.

These sources say that as of a few weeks ago, the fine was at around $60 million, although negotiations are ongoing. If Barclays is fined it would be the second bank to be subject to penalization for such a violation.

The firm had arrived at a non-prosecution deal with the DOJ over allegations that it rigged the London interbank offered rate, even as it agreed in 2012 to pay $452.3 million to the DOJ, the Commodity Futures Trading Commission, and U.K.’s Financial Services Authority. As part of the non-prosecution agreement, Barclays consented not to commit criminal actions.

UBS Ordered to Pay Retired Investor $200,000 For Puerto Rico Bond Fund Losses

Published on: May 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (“FINRA”) panel has ordered UBS Financial Services, Inc. and UBS Financial Services of Puerto Rico (collectively “UBS”) to pay an investor $200,000 for losses she sustained by investing in UBS’s Puerto Rico closed-end bond funds. This is the first known ruling from a FINRA arbitration panel in the hundreds of municipal bond fraud lawsuits filed by investors over the last few years.

The investor, Yolanda Bauza, invested money she obtained in a car accident settlement. In her Puerto Rico bond fraud case, Bauza alleged misrepresentations, securities fraud, and other wrongdoing. In addition to the $200,000 award, the arbitrators denied the firm’s request to remove information about the case from the public records of David Lugo and Carlos Gonzalez, two of the brokers who advised Bauza.

According to Sam Edwards, a partner with Shepherd, Smith, Edwards & Kantas, who is representing a number of Puerto Rico bond fund investors, “We are very pleased that FINRA’s arbitrators recognized what those of us representing the many thousands of investors in Puerto Rico and abroad have known for almost two years: UBS’s Puerto Rico bond funds were highly conflicted, very risky and completely misrepresented to investors. They were suitable for almost no investors. As a result, those who invested in these bond funds, like Ms. Bauza, should be fairly compensated.”

Goldman Sachs Must Pay National Australia Bank $100M in Mortgage Fraud Case

Published on: May 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (“FINRA”) arbitration panel recently ordered Goldman Sachs Inc. (“Goldman”) to pay $80 million in compensatory damages plus millions more in interest to National Australia Bank Ltd. (“NAB”), resulting in an award likely to cost Goldman (GS) more than $100 million. According to the award and NAB’s complaint, Goldman sold NAB several collateralized debt obligations (“CDOs”), including the Hudson Mezzanine Funding 2006-1 Ltd.

In particular, NAB paid $80 million for its stake in Hudson Mezzanine Funding, a Goldman-backed product, shortly before the financial crisis began. The investments failed when the market for CDOs and other asset backed securities fell apart in 2007 and 2008. In 2011, a U.S. senate report disclosed that while pitching Hudson Mezzanine Funding, Goldman did not tell investors such as NAB that it was betting against the assets supporting Hudson and other CDOs. As a result, according to NAB’s attorneys, when the economic crisis ensued, Goldman profited from the Hudson CDO while NAB and other investors lost all of their investment.

In its complaint, NAB contended that the mortgage-related deal posed a substantial conflict of interest between Goldman and its clients, and, therefore, Goldman was required under FINRA rules to disclose the conflict. Goldman argued it had no such disclosure obligation and, in fact, filed a counterclaim against NAB.