Investor Lawyers Blog

Government Probe of Height Securities Into Possible Insider Trading Expands to Hedge Funds

Published on: September 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is looking into whether anyone from the government illegally leaked to Wall Street traders that there was going to be a change in health-care policy. In 2013, The Wall Street Journal reported that just before the government announced news that was favorable to companies in regards to Medicare payments, health-insurance stocks rose. Investigators want to know whether insider trading was involved.

The stock rise, linked to the announcement that the Centers for Medicare and Medicaid Services would reverse its direction on intended funding cuts for private insurance plans, may have been spurred by an email sent by a Height Securities, a Washington-based policy research firm. The alert appears to have been partially based on information that an ex-congressional health-care aide, who is now lobbyist, gave to the firm.

Sources tell The WSJ that the SEC now possesses evidence of over 20 phone calls, instant messages, and emails between investors and Height Securities analysts from the time the email alert was issued to when the market closed. The exchanges involved the hedge funds Citadel LLC, Visium Asset Management LLC, Viking Global Investors LP, and Point72 Asset Management LP, which was previously called SAC Capital Advisors.

CFTC Notifies Justice Department of Criminal Rate Rigging, Looks at Possible Swaps Loophole

Published on: September 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodities Trading Commission has notified the Department of Justice that there is evidence of criminal conduct related to the alleged manipulation of ISDAfix. The regulator had sent subpoenas to the biggest banks in the world in 2012 to find out if the benchmark, used to establish rates for trillions of dollars of financial products and track prices on interest-rate swaps, was rigged. The CFTC, however, can only file civil charges.

Benchmarks are integral to global finance. They help lenders determine what to charge borrowers and pension funds to figure out future obligations, among other uses. Regulators have been investigating claims that banks and brokers seeking to profit helped manipulate certain benchmarks, while investors lost out in the process.

Last week, the Alaska Electrical Pension Fund sued thirteen banks, including UBS (UBS), Citigroup (C), and Bank of America (BAC), and brokerage firm ICAP Plc (IAP) claiming they worked together to rig ISDAfix. UK securities regulators are also looking into the claims.

Mortgage Transfers to Nonbanks Get Closer Regulator Scrutiny

Published on: September 7, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In the last two years, millions of borrowers with mortgages have been moved from banks to nonbanks. This can result in problems for home loan borrowers.

A reason for this is that a lot of banks are getting rid of their mortgage servicing rights. 14 of the leading bank servicers, including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Bank of America (BAC) have sold off over $1 trillion of these rights in the last two years. The primary buyers are nonbank servicers, which now handle one in every seven mortgages.

The Consumer Financial Protection Bureau, which is engaged in the oversight of nonbanks, enacted regulations earlier this year that extended rules for banks to nonbank servicers that collect mortgage payments and deal with foreclosures and modifications. Last month, the bureau also put out guidance on new regulations that specifies the way loan transfers to nonbanks should be dealt with, including a provision mandating that buyers and sellers conduct meetings in at timely manner to talk about the continuity of service before a mortgage is handed off. Sales contracts also must stipulate that mortgage documents need to be given to the new servicer. However, a recently released CFPB statement reported that some nonbank services are billing customers incorrectly, not honoring approved modifications, and losing paperwork.

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million

Published on: September 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has consented to pay $12 million to settle two class action employee lawsuits. The plaintiffs contend that the retirement plan provider was self-dealing in the FMR LLC Profit Sharing Plan and making money at their expense by offering employees high-cost fund options and making them pay excessive fees.

Over 50,000 ex- and present employees are eligible to receive from the settlement. Fidelity is accused of providing just its own funds in the retirement plan for its workers, with certain investment options having little (if any) track record, while failing to use an impartial process when choosing the investment options.

As part of the agreement, Fidelity Investments will now give employees a choice of non-Fidelity and Fidelity mutual funds, increase auto-enrollment to 7%, and allow participants of non-Fidelity mutual funds to benefit from revenue sharing, just like the participants of Fidelity mutual funds and collective trusts. The company also will keep offering a default investment alternative, the Fidelity Freedom Funds-Class. The Portfolio Advisory Services at Work program will be provided for free.

SEC Charges Immigration Attorneys with Securities Fraud Involving EB-5 Immigration investor Program

Published on: September 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging a Los Angeles-based immigration lawyer, his wife, and his law firm partner with securities fraud that targeted investors who wanted to gain U.S. residency through the EB-5 Immigration investor program. The program lets immigrants apply for U.S. residency if they invest in a project that helps create jobs for workers in this country.

According to the Commission, Justin, his spouse Rebecca Lee, and Thomas Kent raised close to $11.5 million from more than twenty investors that wanted to join the program. They told investors that they would qualify to join if they invested in an ethanol plant that was going to be constructed in Kansas.

The three of them are accused of taking the money and misappropriating it for other uses. Meantime, the plant was never constructed and no jobs were created. Yet Justin, Rebecca, and Thomas allegedly continued to deceive investors so that they kept believing that the construction project was in the works.

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix

Published on: September 4, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Alaska Electrical Pension Fund is suing several banks for allegedly conspiring to manipulate ISDAfix, which is the benchmark for establishing the rates for interest rate derivatives and other financial instruments in the $710 trillion derivatives market. The pension fund contends that the banks worked together to set the benchmark at artificial levels so that they could manipulate investor payments in the derivative. The Alaska fund says that this impacted financial instruments valued at trillions of dollars.

The defendants are:

• Bank of America Corp. (BAC)

Study Assesses How Much Investment Advisory Firms Would Pay for SEC Exams

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

According to a study released by compliance consultant RIA in a Box, some investment advisory firms could end up paying millions of dollars in users fees each year to finance exams conducted by the Securities and Exchange Commission. The study addresses a bill that would let the regulator charge fees to cover exam costs. The agency has said that it needs more money to hire more RIA examiners.

The proposed measure is intended to help the SEC enhance its yearly examination rate. Right now, the exam rate is just 9% of the about 11,500 investment advisers that are registered with the agency.

Under the bill, the SEC would determine user fees according to how much it would cost to increase the amount and frequency of registered investment advisers. A firm’s assets under management, risks characteristics, and the number and kinds of clients would also be factored.

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.