Investor Lawyers Blog

UBS Settles Pursuit Partners’ CDO Lawsuit Over Asset-Backed Securities

Published on: September 1, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS AG (UBS) and Connecticut-based hedge fund Pursuit Partners have settled a securities fraud lawsuit accusing the brokerage firm of selling asset-backed securities without disclosing that they were going to be downgraded. The resolution was reached a day before trial was scheduled to start.

Pursuit Partners claims that UBS sold it $40.5M of collateralized debt obligations in 2007. The hedge fund contends that these were the same securities that UBS employees had called “crap” and “vomit” in emails. The securities fraud case was filed in 2008, with Pursuit seeking $100M.

According to the complaint, UBS purportedly failed to disclose to the Connecticut hedge funds that the firm had engaged in private conversations with employees of Moody’s (MCO) in 2007 about how the credit rating agency did not believe the securities should be rated as investment grade. When Moody’s downgraded them three months later the securities became practically worthless. The plaintiff contended that not only did it know the CDOs were about to become toxic securities but also they plotted to get rid of them by selling them to Pursuit.

11th Circuit Revives City of Miami’s Mortgage Fraud Lawsuits Against Wells Fargo, Citigroup, and Bank of America

Published on: August 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The 11th U.S. Circuit Court of Appeals said that a lower court made a mistake when it threw out the city of Miami’s claims accusing Bank of America Corp. (BAC), Wells Fargo & Co. (WFC ), and Citigroup Inc. (C) of engaging in predatory mortgage lending to Hispanic and black borrowers. The Florida city brought its claims under the Fair Housing Act.

Miami claims that the three banks directed non-Caucasian borrowers toward more expensive loans that were frequently not affordable to them even if their credit was good. The city said that because of this “reverse redlining,” there were a lot of foreclosures, a rise in spending to fight blight, and lower property tax collections.

A U.S. district court judge threw out Miami’s mortgage fraud lawsuits last year. Judge William Dimitrouleas claimed that the city did not have the standing to sue and the harm alleged was too remote from the conduct of the banks.

The 11th circuit, however, said that standard was too strict. It believes that the banks could have foreseen that there would be attendant harm from such alleged discriminatory practices.
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SEC Gets Asset Freeze in Alleged $125M Fraud Case Involving Chinese Investors Seeking US Immigration

Published on: August 29, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission said that an asset freeze has been imposed on Lobsang Dargey, who is accused of bilking Chinese investors looking to obtain residency in the United States through the EB-5 Immigrant Investor Pilot Program. The regulator contends that Dargey and his Path America companies raised $125 million for two real estate projects in Washington State while diverting $14 million for other real estate projects and using $3 million for personal spending.

With the EB-5 program, foreign citizens can qualify for residency in the country as long as they invest at least $500,000 in a specific project that preserves or creates at least 10 jobs in the U.S. Dargey and his companies purportedly got 250 Chinese investors to invest money under the program.

The SEC said that Darby told U.S. Citizenship and Immigration Services and the Chinese investors that the funds would go toward a downtown Seattle skyscraper and a residential/commercial development with a farmer’s market in Everett. The regulator also claims that Darby misled investors about their chances of getting permanent residency for their investments. For instance, an investor’s application for residency can be denied if his/her funds are used for a project that materially deviates from the plan that was approved by the USCIS.
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SEC Charges J.P. Morgan Ex-Investment Bank Analyst and Friends with Insider Trading

Published on: August 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging ex- J. P. Morgan Securities, LLC (JPMS) bank analyst Ashish Aggarwal with illegally tipping confidential information about firm clients in impending acquisitions and mergers involving technology companies to his friend Shahriyar Bolandian. Bolandian then purportedly used the information to trade in his own accounts and in the accounts of his sister and father, while also tipping his friend Kevan Sadigh so that he too could insider trade. Together, Bolandian and Sadigh allegedly made over $672,000 in illicit profits. The regulator is also charging them both with insider trading.

According to the SEC Complaint, Aggarwal misappropriated confidential information about two deals in which J.P. Morgan had served as an adviser. After notifying Bolandian, the latter and Sadigh purchased the same call options in two companies: PLX Technology and ExactTarget. The two men allegedly traded prior to the public announcement of PLX Technology Inc.’s intended acquisition by Integrated Device Technology Inc. in 2012 and ExactTarget’s acquisition by Salesforce.com and PLX Technology in 2013.
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Shareholders Can Sue Barclays Over Libor Rigging, Rules Judge

Published on: August 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A U.S. Judge says that the shareholder lawsuit suing Barclays PLC (BCS) for inflating its stock price by manipulating the London Interbank Offered Rate can proceed. According to lead plaintiffs, the St. Clair Shores Police & Fire Retirement System in Michigan and the Carpenters Pension Trust Fund of St. Louis, Barclays and several of its ex-officers purposely misrepresented and understated how much it costs to borrow funds by submitting false information about LIBOR during the period running from August 2007 to January 2009. The rigging of LIBOR by Barclays was disclosed in a 2012 settlement with global regulators in which the financial institution agreed to pay a $450 million fine.

LIBOR is the benchmark used by financial institutions to establish interest rates for lending purposes on different kinds of financial transactions. It is also used to set interest rates in trillions of dollars of investments and loans. The benchmark is calculated for ten currencies. Member banks turn in a figure according to an estimate of what rate they would be charged for borrowing money from other banks.

The shareholder plaintiffs claim that during a conference call in 2008, ex-Barclays president Robert Diamond made a misguided statement about LIBOR when he said that the bank was not paying rates that were higher in any currency. They also believe that Barclays misrepresented its financial health during the period at issue while artificially inflating its share price.

Beware of UBS Puerto Rico Sending Out Settlement Offers

Published on: August 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

UBS Puerto Rico clients have reported over the last few days the receipt of unsolicited settlement offers from UBS Puerto Rico for losses in customer accounts. The letters, which appear to be dated August 20, 2015 and are from Roberto Fortuno, Managing Director of the UBS San Juan Complex, offer small amounts for losses. The letters appear to be a part of last year’s UBS settlement with the Puerto Rico Office of the Commissioner of Financial Institutions, whereby UBS Puerto Rico was ordered to pay some customers for losses in UBS’s proprietary closed-end bond funds. As a part of that settlement, UBS Puerto Rico was ordered to identify similar customers and also offer to pay them as well.

While an unsolicited offer from UBS may seem like good news, we at Shepherd, Smith, Edwards & Kantas caution any customers who receive such a letter to consult an attorney before signing anything. The letters indicate that an agreement to take the money will require customers to come to UBS’s offices in San Juan or Ponce and sign a release. Such releases are typically very broad and may result in customers losing rights that have nothing to do with the losses in the closed-end funds. Moreover, our experience with UBS in these cases is that UBS’s opinion of losses is very different than most clients. As a result, anyone who receives such a letter should contact counsel to make sure they have representation. According to the letters our firm has reviewed, the offers are only open for 30 days, so time is of the essence.

The attorneys at Shepherd, Smith, Edwards & Kantas have over 100 years of combined experience in securities law and the securities business. We represent clients all over the globe in investment losses. In particular, our Puerto Rico team has been working with dozens of clients for almost two years in these cases. If you receive a letter from UBS or have lost money in Puerto Rico investments with UBS, Banco Popular, Santander or any other firm on the island, please call us for a no cost, no obligation consultation about your rights.

FDIC Sues Bank of NY Mellon, Citigroup, and US Bancorp for soured RMBSs Purchased by Guaranty Bank

Published on: August 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Deposit Insurance Corp. is suing Bank of New York Mellon Corp. (BK), Citigroup (C), and US Bancorp (USB) for residential mortgage-backed securities that were purchased by the former Guaranty Bank.

The Texas-based bank closed shop in 2009 and the FDIC, which is its receiver, arranged for its deposits to be taken on by BBVA Compass, a U.S. unit of Spanish institution Banco Bilbao Vizcaya Argentaria SA (BBVA.MC). The regulator estimated that the shutdown would cost its deposit insurance fund $3 billion.

The 12 mortgage-backed trusts involved in this RMBS lawsuit were issued by Countrywide Home Loans and Bear Stearns Cos’ (BSC) EMC Mortgage Corp unit. In 2008, JPMorgan Chase & Co. (JPM.N) purchased Bear Stearns while Bank of America Corp. (BAC) purchased Countrywide.

SEC Says Broker-Dealers Need to Do a Better Job of Monitoring High Risk Products

Published on: August 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has put out an alert warning brokerage firms that they need to better monitor the sale of high risk complex investments to retail investors. The regulator said that its analysis of 26,600 transactions of $1.25 billion of structured securities products revealed that there has been quite a number of times when the investments were sold to investors for whom they were not appropriate.

According to InvestmentNews, the Commission examined 10 branch offices of brokerage firms. The assessments took place from January 2011 through the end of 2012. In one firm, they discovered $96 million of structured-product sales that were made to conservative investors. At two other broker-dealers, the SEC discovered high concentrations of structure products in the accounts of older investors. One representative purportedly modified a customer’s investment goals without that person’s consent after a sale went through to make the complex product purchases appear justified.

Brokers are required to abide by suitability standards, which mandate that investment products that are sold meet each client’s risk tolerance and investment goals. The SEC said that in exams that were conducted, there were firms that appeared to have weak suitability controls.

The Commission wants broker-dealers to regard this alert as a wake up call so that they will take a closer look at their compliance programs. The regulator noted that while all the broker-dealers that were scrutinized had written procedures and policies for suitability, the controls were not consistently or properly implemented. In some instances, suitability controls differed among the different branches of a firm.
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Former Merrill Lynch Broker Must Pay $1.4M for Insider Trading

Published on: August 26, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Gary Yin, an ex-Bank of America Merrill Lynch (BAC) broker, must pay $1.4M in restitution for helping a client launder money made from insider trading. Yin admitted to helping former Qualcomm Inc. president Jing Wang conceal hundreds of thousands of dollars made in insider trading in that company and another company.

Yin set up brokerage accounts in the British Virgin Islands using a shell company to hide the scam and helped Wang transfer $525,000 to the shell account. He also transported documents to Wang’s brother in China to allegedly help hide the scheme from the FBI.

Now Yin must forfeit $27,000 in profits he made from trades in Qualcomm stock that were set up in a Merrill broker account in his mother-in-law’s name in the British Virgin Islands. He must also pay a $5,000 fine

Puerto Rico Delays $750M Bond Sale

Published on: August 25, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to The New York Times, Puerto Rico is again delaying a recent proposed bond issuance latest decision to stall the bond sale, this time because of trouble in the global markets. However, said the newspaper, the island’s government also seems to have come to the conclusion it could not borrow the $750 million by issuing the bonds at an interest rate that was affordable.

The delay in the Puerto Rico bond sale comes just two months after Gov. Alejandro Garcia Padilla declared the territory’s debts unpayable. Not only are the territory’s three big public utilities unable to pay off their debt but also they cannot shut down their operations. Earlier this month, the island defaulted on the bulk of a bond payment due on debt belonging to the Public Finance Corporation, which is another one of Puerto Rico’s government agencies.

On Tuesday, Puerto Rico asked the U.S. Supreme Court grant it the use of bankruptcy protection as the Commonwealth attempts to restructure $20 billion in public utility debt. Garcia Padilla and Secretary of Justice Cesar Miranda Rodriguez submitted a petition requesting that the court overturn previous rulings striking down the 2014 Puerto Rico Public Corporation Debt Enforcement and Recovery Act.

The Act granted Puerto Rican utilities and public companies bankruptcy protection not included under U.S. Chapter 9 bankruptcy laws. Meaning, while the territory awaits that decision, the September 1 deadline for Puerto Rico to outline its restructuring plan is just days ahead.
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