Investor Lawyers Blog

US Banks May Need $644B in Collateral Under Revised Swaps Rules

Published on: September 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The revised rules for non-cleared swaps could require banks to have $644 billion in collateral to offset risks involved in swaps trading among themselves. The Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Federal Reserve adopted a proposal for collateral requirements for swaps traded between firms, manufacturers, banks, and others this week. However, the Securities and Exchange Commission and the Commodity Futures Trading Commission still have to vote on the regulations.

The proposal seeks to lower risk and improve transparency by mandating that swaps be guaranteed at central clearinghouses and are traded on platforms. It also looks to limit the effect on global liquidity and smaller companies, as well as free end-users from requirements.

Ever since the 2008 economic crisis, when unregulated trades played a part in the financial meltdown, regulators have wanted to enhance oversight of the global swaps market. Under the proposed rules, banks would need to finance collateral and hold custody accounts that might not be as profitable as other uses they could engage in instead.

Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest

Published on: September 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Robare Group Ltd., an investment advisory firm headquartered in Houston, Texas, with securities fraud. The regulator’s enforcement division says that the firm and co-owners Jack L. Jones Jr. and Mark L. Robare made mutual fund recommendations to clients even though they had a conflict.

According to the SEC, Robare and a broker-dealer purportedly had an undisclosed compensation agreement. The brokerage firm paid Robare Group compensation-a portion of each dollar that every client invested in certain mutual funds-for recommending the investments

The deal gave Robare, Jones, and the firm incentive for favoring these funds over other investments. The firm is accused of making about $440K in compensation over eight years from the agreement.

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B

Published on: September 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Halliburton Co. (HAL) has consented to pay $1.1 billion to settle most of the lawsuits related to the massive 2010 oil spill in the Gulf of Mexico. A court must still approve the deal, which covers claims for punitive damages that were filed by the commercial fishing industry and others impacted by the spill.

BP P.c (BP) Spill victims accused Halliburton, which is based in Houston, Texas, of defective cementing on the Macondo well prior to the spill. Halliburton blamed BP Plc., which was operating the rig. This is Halliburton’s most significant payout related to the spill to date.

The oil spill occurred when there was an explosion on the Deepwater Horizon drilling rig. Eleven workers died and millions of oil barrels poured out into the gulf. Hundreds of lawsuits against Halliburton, BP, and Transocean Ltd, (RIG) which owned the rig ,soon followed.

Bond Insurer Says Detroit Pension Debt Lawsuit is Fraudulent

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

Financial Guaranty Insurance Company is challenging the city of Detroit, Michigan’s efforts to invalidated $1.45 billion in borrowings that were supposed to resolve unfunded pension liabilities. Instead, they have been named as one of the reasons that the city went into Chapter 9 bankruptcy. The bond insurer is asking a bankruptcy judge to turn down the adversary complaint brought by Detroit to nullify debt that is pension-related.

The city maintains that the debt was issued by its former administration’s mayor and violated state law. It contends that the debts, which were viewed as contract payments, were really concealed borrowings that improperly went beyond the municipal debt limits of the Home Rule City Act.

FGIC says that this stance is a switch for the city, which for years insisted that the obligations were valid. The bond insurer wants damages from Detroit and says the city deceived it so that FGIC agreed to guarantee the transactions.

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors

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

Blake B. Richards, an ex-LPL Financial (LPLA) broker, must pay close to $2 million in penalties and disgorgement over allegations that he defrauded clients of close to $1.7 million. According to the case, submitted in the U.S. District Court of the Northern District of Georgia, Richards told at least seven clients to write checks to entities under his control. The clients thought that the money would be invested in variable annuities, fixed-income investments, or equities. Instead, contends the U.S. Securities and Exchange Commission, the funds were used to pay for his personal spending.

According to the SEC, most of the investors’ money came from life insurance proceeds or retirement savings. Two of the investors involved were widowed and at least two others were elderly customers.

Per the regulator’s complaint, Richards won one investor’s trust by delivering pain meds to her husband during a snowstorm. The spouse was suffering from terminal pancreatic cancer at the time.

J.P. Morgan Targeted in Possible Cyber Attack

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

J.P. Morgan Chase & Co. (JPM) and up to four other banks were the victims of a possible cyber attack. According to the media, the financial institution is working with law enforcement authorities to figure out what happened.

Reuters reports that sources say the firm began its own probe after malicious software was found in its network, which indicates there had likely been a cyber attack. The Federal Bureau of Investigation is looking to see whether Russian hackers may have been involved. A possible motive for them could be retaliation for sanctions against Russia because of its role in the Ukraine military conflict. It is not unusual for Russian organized crime to target big financial institutions. Also looking into the matter is the U.S. Secret Service.

According to the Wall Street Journal, the hackers appear to have gotten in through the personal computer of employee and penetrated the bank’s inner systems. Gigabytes of customer and employee data may have been targeted. Authorities are trying to determine whether any data that might have been stolen has been used to move funds.

SEC Subjects Credit Rating Agencies, Asset-Backed Securities Issuers to Tighter Rules

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

The SEC has approved rules granting the agency more control over credit rating agencies and obligates asset-backed securities issuers to reveal additional information about underlying loans. S.E.C. Chairwoman Mary Jo White says that the reforms will give investors crucial protections while making the securities market stronger.

The rules target the activities, products, and practices that were key factors in the 2008 financial crisis. They would apply to more than $600 billion of the asset-backed securities market, over which the SEC presides. The rules, however, won’t apply to bonds guaranteed by Fannie Mae (FNMA) and Freddie Mac (FMCC). Both entities are exempt from SEC rules.)Also, the new disclosure requirements won’t apply to private placements that are only sold to sophisticated investors.

Leading up to the economic crisis, Wall Street had packaged mortgages into investments that were given high ratings even though they didn’t necessary contain the highest quality subprime loans. Investors sustained huge losses when the securities plunged in value.

MF Global Wants to Pay $925M to Creditors

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

Now that it has repaid the majority of its customers, MF Global Inc. wants the U.S. Bankruptcy Court in Manhattan to let it pay $295 million to its creditors. Most of the funds would go toward unsecured creditors, who would get a first distribution of approximately 20%. Holders of priority claims, as well as administrative and secured claims that were resolved, would get all of the money owed to them.

Giddens is also seeking to set up a reserve fund of over $400 for unresolved claims while placing a cap on how much each claim would get. MF Global has paid back the majority of its customers. Most of them got everything owed to them.

The brokerage firm and parent company MF Global Holdings Ltd. went into crisis when investors left after finding out that Jon S. Corzine, the CEO at the time and formerly a Goldman Sachs (GS) chairman and ex-governor of New Jersey, made big bets on European sovereign debt. Their departure created an approximately $1.6 billion shortfall in the accounts of customers that should have been kept separate from the firm’s money pool. The shortfall has since been recovered.

Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations

Published on: August 27, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that Citigroup Global Markets Inc. (C) will pay a fine of $1.85 million for not providing best execution in about 22,000 customer transactions of non-convertible preferred securities, as well as for supervisory deficiencies that went on for over three years. Affected customers are to get over $638,000 plus interest.

A firm and its registered persons have to exercise reasonable diligence to make sure that the sale/buying price the customer pays is the most favorable one under market conditions at that time. FINRA says that instead a Citigroup trading desk used a pricing methodology for the securities that failed to properly factor in the securities’ National Best Bid and Offer. Because of this, contends the self-regulatory organization, over 14,800 customer transactions were priced inferior to the NBBO. The SRO also claims that because Citigroup’s BondsDirect system for order execution used a faulty pricing logic, over 7,200 customers transactions were priced at less than NBBO.

FINRA says that Citigroup’s written supervisory procedures and supervisory system related to best execution in these securities were lacking. It claims that the firm did not review customer transactions for the securities at issue, which were either executed manually by the trading desk or on BondsDirect. Such an assessment could have ensured compliance with Citigroup’s best execution duties. (FINRA noted that it had sent the firm inquiry letters about the reviews.)

Goldman to Buy Back $3.15B in RMBS to Resolve FHFA Claims

Published on: August 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs Group Inc. (GS) will pay $3.15 billion to buy back residential mortgage-backed securities related to bonds that were sold to Freddie Mac and Fannie Mae. The repurchase represents an approximately $1. 2billion premium and makes the mortgage companies whole on the securities. The RMBS case was brought by the Federal Housing Finance Agency.

It was in 2011 that FHFA sued 18 firms to get back taxpayer money from when the U.S. took control of Freddie and Fannie after the economy tanked in 2008. Goldman is the fifteenth bank to settle.

The firm will pay Fannie May $1 billion and $2.15 billion to Freddie Mac for the securities. The two had purchased $11.1 billion from Goldman Sachs. A few of the other banks that have settled with the FHFA include Morgan Stanley (MS), JPMorgan Chase (JPM), and Bank of America Corp. (BAC). The agency’s remaining RMBS fraud cases still pending are those against RBS Securities Inc. (RBS), HSBC North America Holdings Inc., (HSBC), and Nomura Holding America Inc. (NMR).