Investor Lawyers Blog

SEC Signs Off On FINRA Rule Restricting Expungement Of Customer Complaints

Published on: July 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission (“SEC”) has approved a Financial Industry Regulatory Authority (“FINRA”) rule that could make it tougher for brokers to expunge customer complaints from their records in settled arbitration cases. Rule 2081 bars brokers from making settlements with customers contingent upon the customer’s consent to not oppose the expungement of the dispute from the public record of the broker.

A record of arbitration complaints filed against brokers is kept as a part of the CRD system. The CRD system contains data about registered representatives and members, including their registration, employment, and personal histories. It also includes disclosure information pertaining to civil judiciary, disciplinary, and regulatory actions, criminal matters, and data about customer disputes and complaints.

The public can access this data through FINRA’s BrokerCheck website. Brokers can have a customer dispute erased from the CRD system and BrokerCheck only through a court order that confirms there has been an arbitration award that recommends such relief.

Bank of America’s Countrywide Must Pay $1.3B for Faulty Mortgage Loans

Published on: July 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Jed Rakoff in Manhattan is ordering Countrywide, a Bank of America (BAC) unit, to pay $1.3 billion in penalties for faulty mortgage loans that it sold to Freddie Mac (FMCC) and Fannie Mae (FNMA) leading up to the 2008 financial meltdown. This was the first mortgage fraud lawsuit that the federal government brought to go to trial.

The penalty is much less than the $2.1 billion maximum that the government had asked for. The government’s mortgage lawsuit against Countrywide originated from a whistleblower case brought against Bank of America by Edward O’Donnell, an ex-Countrywide executive.

Rakoff determined that Freddie and Fannie paid close to $3 billion for High Speed Swim Lane loans. This, after a jury determined last year Countrywide and Rebecca Mairone, one of its ex-executives, were liable for selling thousands of defective loans to the government-sponsored enterprises. Mairone’s penalty is $1 million.

SEC News: Ex-Harbinger COO Settles Hedge Fund Fraud Case and Regulator Files More Charges in “Solar Farm” Scam and Football-Like Boiler Room Case

Published on: July 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Ex- Harbinger Capital Partners LLC COO Admits Wrongdoing in Hedge Fund Case

Peter A. Jenson, the former chief operating officer at Harbinger Capital Partners LLC, has agreed to pay $200,000 and admit to wrongdoing in the U.S. Securities and Exchange Commission’s case accusing him of assisting in hedge fund fraud. The scam involved his former firm and its owner Philip A. Falcone and sought to misappropriate millions of dollars so Falcone could pay his taxes.

The SEC charged Jenson, Falcone, and Harbinger in 2012. As part of his settlement, Jenson is acknowledging that he knew about the violations committed by Harbinger and Falcone. He said that he helped Falcone take part in a related party loan by failing to make sure the lender, Harbinger Capital Partners Special Situations Fund, had its own counsel, the loan was consistent with the fiduciary duties that Falcone owed the Special Situations Fund, and that Falcone paid an interest rate on the loan that was “above market.”

Deutsche Bank, UBS Are Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays

Published on: July 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) and UBS AG (UBS) have disclosed that they are cooperating with regulators investigating dark pool trading venues and high frequency trading venues. Currently a number of banks are under investigation.

UBS says that among those probing its dark pool operation, which is consider the largest in the U.S. according to trade volume, are the Financial Industry Regulatory Authority, the U.S. Securities and Exchange Commission, and New York Attorney General Eric Schneiderman. The bank says it is one of many defendants named in related class action lawsuits over dark pool trading.

Meantime, Deutsche Bank also says that it too has gotten requests from certain regulators for data about high frequency trading. The bank’s dark pool is known as the SuperX European Broker Crossing System. Deutsche Bank is a defendant in a class action case claiming that high frequency trading may have violated U.S. securities laws.

Lloyds Banking Group to Pay $370M Fine Over Libor Manipulation

Published on: July 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission, the U.S. Department of Justice, and U.K.’s Financial Conduct Authority are ordering Lloyds Banking Group PLC (LLOY) to pay $370 million in fines for trying to rig benchmark interest rates, including the rate that influenced how much the bank paid to be able to get emergency taxpayer funding during the financial crisis.

The regulators content that Lloyds attempted to manipulate the rates to enhance its financial position. Its HBOS unit is accused of attempting to lowball Libor submissions to make it seem as if it was in solid financial health when Lloyds was acquiring it.

Lloyds also purportedly tried to rig the U.S. dollar Libor rate, conspired with Rabobank NV to affect the Japanese yen Libor rate, and manipulated the BBA Repo Rate. The benchmark, which is now defunct, played a part in assessing fees that banks paid to the Bank of England to get U.K. government bonds in exchange for illiquid mortgage-backed securities. Lloyds says it repaid $13.6 million to the bank for what it didn’t pay to the “Special Liquidity Scheme,” which is the name of the taxpayer-backed facility.

Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS

Published on: July 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

LavaFlow Inc., a Citigroup (C) business unit, has consented to pay $ 5million to resolve U.S. Securities and Exchange Commission charges that it did not protect subscribers’ confidential trading data in its alternative trading system. LavaFlow consented to the SEC order without denying or admitting to the allegations.

Per the order, which institutes a settled administrative proceeding, LavaFlow, which runs an electronic communications network ATS, let an affiliate that runs a smart order router application to access and utilize confidential data related to non-displayed orders belonging to subscribers. The order router was not within ECN’s operations and LavaFlow lacked the proper procedures and safeguards to protect this confidential information.

Even though LavaFlow only let the affiliate use the confidential data for ECN subscribers that were also order router customers, the firm did not get subscribers’ consented for their confidential data to be used like this. LavaFlow also failed to disclose this use to the SEC.

JPMorgan Expands Disclosures for Private-Banking Clients

Published on: July 28, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, J.P. Morgan Chase (JPM) is now articulating more clearly the difference between outside products and its own offerings to private-banking clients, as well as letting them know how much of their monies have gone to each. These more detailed explanations come, say the newspaper’s sources, in the wake of recent questioning by regulators on whether the firm was pushing its own products over others.

The Office of the Comptroller of the Currency and the U.S. Securities Exchange Commission has been monitoring whether brokers are selling the products that are right for a client or directing a customer to the ones that would make a broker-dealer the most money.

Individuals that belong to J.P. Morgan’s private-banking division have at least $10 million in investible assets, reports The Wall Street Journal. The firm has been criticized before for favoring its own funds. It even paid $384 million to American Century Investments in an arbitration case a few years ago for promoting J.P. Morgan funds over the latter’s funds.

Lloyds Could Pay Over $500M To Settle LIBOR Rigging Allegations

Published on: July 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to the Financial Times, Lloyds Banking Group (LYG) is expected to soon announce that it has agreed to pay up to $509M to settle London Interbank Offered Rate rigging allegations. The settlement would include moneys to be paid to UK’s Financial Conduct Authority and The U.S.’s Commodity Futures Trading Commission and Department of Justice.

The British bank is just one of a number of financial institutions accused of manipulating major interest rate benchmarks. Lloyds belonged to the panel that turned in rates to yen-Libor and was a member of dollar-Libor, euro-denominated Libor, and sterling Libor panels.

Several authorities around the world have been probing numerous entities over allegations that traders colluded to gather to benefit their own trading books while their employers benefited from giving off an inflated impression of their actual financial health. Other banks that have settled include UBS (UBS), Barclays (BARC), Royal Bank of Scotland (RBS), ICAP, RP Martin, and Rabobank.

Investors Pursue UBS’s Puerto Rico Brokerage Over Closed-End Bond Funds

Published on: July 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is reporting that roughly 400 claims have already been filed against UBS Financial Services Inc. of Puerto Rico (UBS) and other brokerage firms over the fallout of municipal bonds and bond funds related to the Commonwealth of Puerto Rico. As the U.S. territory’s bonds continue to drop in price, more investors are likely to file cases.

According to Securities Attorney Sam Edwards, one of the partners at Shepherd, Smith, Edwards & Kantas currently representing dozens of investors who lost money in these investments, “”The recent drop in Puerto Rico bond prices have resulted in Puerto Rico bonds, and the bond funds holding Puerto Rico bonds, to give back most, if not all, of the gains of the last nine months. Bond prices have largely returned to the lows suffered in the Fall of 2013.” Mr. Edwards continues, “This is likely to result in new groups of clients coming forward as the rally in Puerto Rico debt appears to have been short-lived.”

Investors, many of them locals, took huge financial losses when two dozen Puerto Rico bond funds sponsored by UBS and Popular Securities, Inc. (Banco Popular) declined in value last year. Many of the investors are retirees and other senior investors that have now lost their life savings. However, they are not the only ones impacted.

Morgan Stanley to Pay $275M to Settle SEC RMBS Fraud Charges

Published on: July 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) has consented to resolve Securities and Exchange Commission residential mortgage-backed securities charges by paying $275 million. The regulator had accused the firm of misrepresenting the delinquency status of mortgage loans behind two subprime RMBS during the peak of the financial crisis.

According to the SEC, not only did the firm understate how many delinquent loans were underwriting the securitizations, but also it failed to inform investors of the full scope of the facts that they needed to make informed choices. As a result, investors were defrauded.

The securitizations at issue were collateralized by mortgage loans that had an aggregate principal value balance greater than $2.5 billion. The offerings were the: