Investor Lawyers Blog

Bank of America Must Face SEC and Department of Justice RMBS Fraud Lawsuits, Seeks Meeting with US Attorney General

Published on: June 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In North Carolina, U.S. District Judge Max O. Cogburn Jr. said that Bank of America Corp. (BAC) would have to face government two residential mortgage-backed securities lawsuits. The Securities and Exchange Commission and the Department of Justice contend that the bank misled investors about the quality of loans tied to $850 million in RMBS.

Bank of America wanted the cases dismissed. It argued that the investors, both financial institutions, never sued the bank.

Judge Cogburn, however, found that the SEC’s lawsuit properly laid out that the bank lied about the mortgages’ projected health in its RMBS fraud case. With the DOJ’s case, he gave the department 30 days to revise its securities lawsuit. He found that the Justice Department did not properly state its argument, which was that bank documents included false statements while leaving out key facts.

Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors

Published on: June 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The state of Massachusetts has filed a complaint against Cabot Investment Properties and its principals Timothy J. Kroll and Carlton P. Cabot. Secretary of the Commonwealth William F. Galvin is charging the firm with defrauding mostly elderly investors through fraudulent real estate investment sales.

The administrative complaints contends that Massachusetts residents wanting retirement income invested over $5 million in eight tenancy-in-common investments and misappropriated more than $9 million of the investment proceeds. Cabot Investment Properties had bought 18 business centers, malls, and other real estate properties in the US and structured them as securities.

Galvin claims that the respondents committed fraud when offering and selling the securities and made omissions and misrepresentations about their backgrounds and the consequences involved in securitizing the underlying TIC mortgages into commercial mortgage-backed securities. He contends that they misled investors by providing disclosures that downplayed how much liability was involved.

DOJ Investigates Foreign-Exchange Industry Over Sales Markups

Published on: June 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg News, the U.S. Department of Justice is expanding its probe of the foreign-exchange industry by talking to the salespersons at the biggest banks in the world. They want to know about current sales practices, including how much customers are charged to exchange currency.

Over a dozen ex- and current traders and salespersons that were interviewed said that it is common to charge a hard markup, which factors in a slight margin for the services of a salesperson. Clients who don’t make currency deals too often or just in small quantities often don’t pay much attention to the rate they receive. Now, the DOJ wants to know if banks are committing fraud when they don’t properly disclose this practice to customers.

The Justice Department is just one of over a dozen authorities in the world that are probing the currency Now, banks are also conducting their own investigations in an attempt to negotiate for leniency just in case any disciplinary actions result.

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations

Published on: June 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) must pay banking regulators in Connecticut $5 million over allegations that the broker-dealer did not properly oversee the communications of its brokers. According to The Connecticut Department of banking, there were a number of issues with the firm’s supervisory procedures. The firm is settling without denying or admitting to the securities allegations.

The state regulators say that Morgan Stanley, which has wealth management branch offices in Connecticut, gave them information about their supervisory procedures that either was “obsolete” or nonexistent. Connecticut Securities Division director Eric Wilder also said that the firm had not updated its written supervisory procedures or compliance manuals for a number of years.

Morgan Stanley is accused of depending on an unqualified third-party provider in India to review all email communications. According to Connecticut regulators, the brokerage firm neglected to make sure that whoever was overseeing the India provider had the proper license and was following the Financial Industry Regulatory Authority’s most current procedures. (Wilder said that the minimum criteria that someone in that country needed to fulfill the compliance function was the ability to speak English-Morgan Stanley has specifically denied this allegation.)

Retirees Hurt, Brokers Enriched by $300 Billion 401(k) Rollover Boom

Published on: June 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, as 401(k) rollovers continue to boom, it is the brokers who are profiting while the retirees are sustaining losses. Now, these investors are speaking out.

It was in 2012 that former employees moved $321 billion from 401(K) plans to individual retirement accounts-a 60% rise from the last decade. Now, the IRA is holding about $6.5 million in 401(k)-like accounts.

Even though retirees typically can keep their savings in 401(K) plans, financial firm reps. do reach out to try and persuade them to move their funds to IRAs instead. Internet ads, cold calls, cash incentives, and storefront signs are used to draw retirees in, including the promise of wider investment choices compared to their current plans. In one example of an incentive promised, E*Trade (ETFC) Financial Corp. and Bank of America Corp.’s (BAC) Merrill Lynch offer anyone who rolls over a 401 (K) plan into an IRA up to $600. (However, this can result in additional expenses down the road.)

FINRA Orders Merrill Lynch to Repay $89M in Restitution, $8M Fine for Excessive Mutual Fund Fees for Charities, Retirement Accounts

Published on: June 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says Bank of America (BAC) Merrill Lynch failed to waive mutual fund sales charges for a number of retirement accounts and charities. Now the wirehouse must pay as restitution $89 million and a fine of $8 million. The firm settled without denying or admitting to the findings.

The majority of mutual funds with the firm’s retail platform are supposed waive specific fees for charities and retirement plans that qualify for this consideration. However, Merrill Lynch neglected to ensure that its advisers were correctly implementing these waivers. This impacted 41,000 accounts.

The SRO says that from about ’06 – ’11, firm advisers put tens of thousands of accounts into certain funds, including Class A mutual fund shares, and promised to waive specific sales charges for charities and retirement accounts. It then did not act to ensure that all of the fees were actually waived.

NY Hedge Fund Adviser Faces SEC Charges Over Conflicted Transactions and Whistleblower Retaliation

Published on: June 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Candace King Weir and her hedge fund advisory firm Paradigm Capital Management will pay $2.2M to resolve Securities and Exchange Commission charges accusing the firm of executing prohibited principal transactions and acting against the whistleblower employee who notified the regulator about the conflicted activity. Weir is charged with causing the principal transactions to happen.

The agency contends that Weir facilitated the transactions between her firm and C.L. King & Associates, a brokerage firm that she also own, while trading for the hedge fund PCM Partners L.P. II. This type of transaction presents a conflict of interest between the client and adviser, and the latter is supposed to disclose that they are involved on both sides of the trade. The adviser also needs to get the client’s permission for this.

According to the Commission’s order, Paradigm did not give written disclosure to the hedge fund or obtain its consent. Paradigm’s head trader then reported the trading conduct.

Hedge Fund Fraud News: Ex-Osiris Partners Principals Must Pay $55M, Ex-SAC Manager Gets Prison Sentence for Insider Trading, Lawyer Goes to Prison Over Rothstein Fraud, and Former New Stream Capital Executives Plead Guilty

Published on: June 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

NJ Court Orders Former Osiris Partners LLC Principals To Pay Over $55M

A state court in New Jersey has ordered the ex-principals of Osiris Partners LLC, Ex-CEO Michael J. Spak, ex-Chairman Peter Zuck, and ex-controller Joseph C. Spak to pay more than $55 million in penalties and restitution for hedge fund fraud. Investors were bilked when the men fraudulently inflated the firm’s net asset value and diverted funds for personal spending.

Prosecutors contend that the men overstated the net asset value of the hedge fund so that management fees would be higher and losses could be hidden. Unregistered agents were hired to sell limited partnership interests. By the latter part of 2011, the net asset value of the fund was nearly nil because of the inflated management fees, the misappropriation of the money, investor payments, and trading losses. Dozens of investors were harmed.

Broker Headlines: Former Wells Fargo Broker Must Pay Back Firm $1.2M, Morgan Stanley CEO Wants to Lower Broker Compensation, & Representatives Oppose Best Interest Rules

Published on: June 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wells Fargo Advisors Broker Must Pay Back Firm $1.2M

A Financial Industry Regulatory Authority panel says that Philip DuAmarel, a former Wells Fargo Advisor (WFC), must pay his former employer back almost $1.3 million. The panel denied his claim that the firm oversold its corporate stock plan services during his recruitment. They told him to pay back the unvested part of an upfront loan he received when he became part of Wells Fargo.

DuAmarel worked for the firm for less than three years when he left in 2010 for Bank of America (BAC) Merrill Lynch. He contended that when the firm was recruiting him he was misled about Wells Fargo’s ability to serve corporate stock plans and also regarding how much he could make for helping executives with their company’s stock trades. DuMarel’s attorney said that the broker left when it became obvious he wouldn’t be able to work with clients they way he did when he was at Citigroup (C) Global Market’s Smith Barney.

JPMorgan Investment Management’s Shareholders Claim The Firm Charged Excessive Mutual Fund Fees

Published on: June 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In the US Southern District of Ohio, Eastern Division, JP Morgan (JPM) Investment Management shareholders are claiming that the firm charged them excessive fees in three of its funds:

• JP Morgan Core Bond Fund

• JP Morgan Short Duration Bond Fund