Investor Lawyers Blog

Barclays Must Face Shareholder Lawsuit Over Libor Manipulation

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

The 2nd U.S. Circuit Court of Appeals in New York says that Barclays Plc (BARC) shareholders can go ahead with their securities lawsuit claiming that the British bank caused them to suffer financial losses over manipulation of Libor. The ruling reverses a lower court’s decision.

The London Interbank Offered Rate is used to set interest rates on mortgages, credit cards, and student loans. It is also the average interest rate that banks can use to estimate what they would be charged if they borrowed from other banks. Regulators in Europe and the US have been investigating whether banks manipulated Libor when the 2008 financial crisis was happening.

In 2012, Barclays consented to pay British and American regulators $453 million and admitted that between August 2007 and January 2009 it frequently made Libor submissions that were artificially depressed. (Other big financial institutions that have settled Libor manipulation allegations included UBS AG (UBS), ICAP Plc (IAB), Rabobank, and Royal Bank of Scotland Group (RBS)).

Ex-Sentinel CEO is Convicted of $500M Fraud

Published on: April 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Eric Bloom, the CEO of Sentinel Management Group, Inc., the now bankrupt hedge fund, has been convicted of bilking over 70 customers of more than $500 million prior to the firm’s collapse. According to the U.S. Department of Justice, Bloom misappropriated securities that belonged to customers when he used the financial instruments as collateral to get a loan for Sentinel from Bank of New York Mellon Corp. (BK). The loan was partially used to buy risky illiquid securities for a trading portfolio to benefit Bloom, other Sentinel officers, corporations controlled by his family, and his relatives.

Also, says the DOJ, even though Bloom knew that Sentinel was at risk of defaulting on the loan from the bank, he caused the hedge fund to take over $100 million from customers while hiding its true financial state. A federal jury returned guilty verdicts against him on one count of investment adviser fraud and 18 counts of wire fraud.

The guilty verdict comes six months after Charles K. Mosley, Sentinel’s former head trader, pleaded guilty to two counts of investment adviser fraud related to the charges filed against Bloom. Mosely admitted to covering up their actions. In his plea agreement, he said that customers were sent statements according to interest income rates that he and Bloom had calculated rather than the performance of investment portfolios.

U.S. Wants Bank of America to Pay Over $13B Over Residential Mortgage-Backed Securities

Published on: April 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg is reporting that U.S. prosecutors want Bank of America Corp. (BAC) to settle state and federal investigations into the lender’s sale of home loan-backed bonds leading up to the 2008 financial crisis by paying over $13 billion. The bank is one of at least eight financial institutions that the Department of Justice and state attorneys general are investigating for misleading investors about the quality of the loans that were backing mortgages just as housing prices fell.

A lot of Bank of America’s loans came from its purchase of Countrywide Financial Corp., a subprime lender, and Merrill Lynch & Co., which packaged a lot of the loans into bonds.

If there ends up being no deal, the government could sue the bank.

Texas Man Gets 25 years in Prison for $11M Ponzi Scam

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

After a federal jury convicted Gary Lynn McDuff of conspiring to defraud investors, a U.S. District Court for the Eastern District of Texas judge sentenced the 58-year-old to 25 years behind bar for the $11 million investment scam. McDuff’s co-conspirators, Robert Reese and Gary Lancaster, had both pleaded guilty-Reese has since died. They too received prison terms.

The three men lied to investors when they told them their funds would be invested in top rated bonds that carried low risk. Instead, the fraudsters laundered investor money.

They solicited investments from customers throughout the U.S. while working at Lancorp Investment Fund. The indictment says that McDuff claimed that Lancaster was a registered adviser and the fund was properly registered.

Institutional Investors Sue BP for Securities Fraud

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

A number of pension funds in the US are suing BP (BP) for fraud. The institutional investors, including funds for public workers in Texas, Louisiana, and Maryland, and Bank of America’s (BAC) private pension plan, claim, that the corporation bilked them when it made misstatements about the Deepwater Horizon oil spill in 2010. Also bringing securities fraud causes against the oil company, just within the statute of limitations, are a number of foreign institutions.

The oil spill claimed the lives of 11 people. It is considered the worst offshore spill in US history. According to Reuters, BP is now the defendant in numerous securities fraud cases filed by at least 20 institutional investors contending that their investment managers were influenced by misrepresentations the company made when they deciding whether to purchase BP shares. The securities lawsuits claim that BP violated British securities and fraud laws when misrepresenting it safety record and the extent of the oil spill.

It was in 2010, when the Supreme Court issued its decision in Morrison v. National Australia Bank that foreign-based companies in general obtained immunity from securities fraud claims. In that lawsuit, the nation’s highest court held that American securities laws couldn’t be applied beyond the borders of the United States. Trial courts took this to mean that companies found on foreign exchanges cannot be sued for fraud under the Exchange Act of 1934—save for claims made by investors that traded in American Depository Shares.

The Brokerage Industry Responds to FINRA’s Broker Compensation Proposal

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

A number brokerage firms, including Morgan Stanley Wealth Management, LPL Financial (LPLA), and Stifel Nicolaus (SF) have responded to the Securities and Exchange Commission’s request for comments about FINRA-proposed rule about broker compensation. Proposed rule 2243 would require greater disclosure about the financial incentives that is offered to representatives who change jobs. The information would need to be conveyed to the self-regulatory agency.

Under Rule 2243, clients who go with a broker to a new firm would have to be apprised of any recruiting compensation the representative gets if the amount is $100,000 or greater. This would include bonuses at the front and back ends, signing bonuses, transition assistance, and accelerated payouts. The disclosure would be applicable for one year after the representative begins association or employment with the new broker-dealer.

The rule also would apply if the brokerage firm expects total compensation paid during the representative’s first year of association to result in a $100,000 or 25% increase in compensation from the year prior. Firms also would have to notify FINRA about such a rise in compensation. (The SRO wants to use the data to look for signs of potentially related sales abuses.)

SEC Charges Total Wealth Management With Securities Fraud, Receiving Undisclosed Kickbacks

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

The Securities and Exchange Commission has filed a financial fraud case against Total Wealth Management Inc., an investment advisory firm based in Southern California. The regulator is accusing the firm of getting undisclosed kickbacks over investments recommended to clients. It is also alleging breach of fiduciary duty.

According to the SEC’s complaint, Total Wealth placed about 75% of 481 client accounts into Altus Funds, which is a family of proprietary funds. The investment advisory firm has a revenue-sharing deal that allows them to get kickbacks. The regulator says this was a conflict of interest because customers did not know about the agreement.

The Wall Street Journal reports that according to the SEC, Altus invested 92% of all its investments-$32 million-in funds that had revenue sharing deals with Total Wealth. The agency says that clients likely wouldn’t have put their money with Total Wealth if they had known that the majority of the Altus funds were paying the firm.

SEC Files Securities Charges Against Massachusetts Company Over Pyramid Scam that Primarily Targeted Immigrants

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

The US Securities and Exchange Commission has filed fraud charges against TelexFree Inc. and TelexFree LLC over an alleged Pyramid scam that targeted immigrants-those from Brazil and the Dominican Republic, in particular. The agency sought and was able to obtain an asset freeze, securing millions of dollars.

Also facing charges are a number of TelexFree officers and promoters and several other entities as relief defendants. The Investors involved are located in Massachusetts and 20 other US states.

According to the SEC, the two entities made it appear as if they were operating a multilevel marketing company that sold phone service using VoIP technology when in fact this was a Pyramid scheme. The defendants sold securities as “memberships” along with the promise of 200% or greater yearly returns to people who promoted TelexFree via ad placements and participated in new member recruitment. $300 million was raised.

Barclays Settles Two Libor-Related Securities Cases

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

Barclays (BARC) has just settled two Libor-related securities cases alleging mis-selling related to Libor. In the first lawsuit, filed by Guardian Care Homes over interest swaps worth £70M that were linked to the benchmark interest rate, Barclays has agreed to restructure a loan for the home care operator.

The bank had tried to claim the case lacked merit and that it was the home care operator that owed money. Barclays argued that the swaps, purchased in 2007 and 2008, cost the bank millions of pounds when interest rates plunged in the wake of the economic crisis. In 2012, Barclays was fined $450 million for Libor rigging.

The London interbank offered rate is relied on for measuring how much banks are willing to lend each other money. Among the allegations against the firm was that it tried to manipulate and make false reports about benchmark interest rates to benefit its derivatives trading positions. Barclays settled with regulators in the US and the UK.

In the other Libor mis-selling case, the bank has arrived at a “formal” compromise in the securities case involving property firm Domingos Da Silva Teixeira over more rigging claims and Portuguese construction. The company had filed a 11.1 million euro securities case against the bank.

Also, this week, three ex-ICAP (IAP) brokers appeared in court in London to face charges accusing them of running a securities scam to manipulate the Libor benchmark interest rates. ICAP is the biggest interbroker dealer in the world.

The men allegedly engaged in conspiracy to defraud. Their scam allegedly involved Tom Hayes, an ex-yen derivatves trader. He is charged with multiple counts of conspiracy to commit fraud while he worked for UBS (UBS) in Japan.

To date, 10 banks and ICAP have been ordered to pay$6 billion in fines. The Libor rigging scandal spans multiple continents and led to numerous criminal charges. Traders are accused of fixing Libor for profit.

Barclays settles with Guardian Care Homes in Libor-linked court case, The Guardian, April 7, 2014

Three former ICAP brokers in UK court on Libor fixing charges, Reuters, April 15, 2014

Barclays settles second Libor case in week, Yahoo, April 11, 2014

More Blog Posts:
Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates, Institutional Investor Securities Blog, December 24, 2013

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

SEC Takes a Closer Look at Municipal Bonds

Published on: April 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is finally beginning to scrutinize municipal bond issuers. Recent efforts include the opening of investigations into whether certain municipalities misled investors about their financial well-being before they made their bonds available to them.

The SEC’s municipal-bond enforcement unit is searching for occurrences involving “tension” involving “disclosures and the subsequent announcements” by municipal issuers of financial problems. The regulator is a telling underwriter and issuers that they will be subject the less harsh penalties if they choose to self-report violations rather than waiting for an enforcement action.

The $3.7 trillion muni bond industry is essential for not just local governments but also for investors. Retail investors, especially senior investors, have long looked to muni bonds for tax-free income.