Investor Lawyers Blog

JPMorgan Considers $11B Mortgage-Backed Securities Settlement

Published on: September 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Now that US Attorney General Eric Holder has turned down JPMorgan Chase’s (JPM) offer to settle criminal and civil charges related a mortgage-backed securities probe, the financial firm is looking at a settlement of possibly $11 billion. The financial figure has gone up as talks have expanded to include additional cases with more regulators.

The MBS investigations are over residential mortgage-backed securities (RMBS) that JPMorgan, Washington Mutual (WAMUQ), and Bear Stearns (BSC) issued between 2005 and 2007. Authorities have been looking into whether JPMorgan, which the other two firms acquired during the financial crisis, misled investors of the quality of the mortgages that were backing the securities. A lot of these RMBS failed as housing prices dropped. JPMorgan says that Washington Mutual and Bear Stearns issued about 70% of these RMBS.

One possible settlement could include $4 billion in relief to consumers and a $7 billion penalty. However, according to sources familiar with the settlement talks, the two sides have not come close to agreeing on the figure and the amount could change.

Massachusetts AG Investigates JPMorgan’s Debt-Collection Practices

Published on: September 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Attorney General Martha Coakley is looking into JPMorgan Chase & Co.’s (JPM) debt collection practices over how the bank gets payments from borrowers that are delinquent. Coakley’s probe is separate from the one being conducted by a group of 13 states.

According to JPMorgan, the bank stopped suing over credit-card collection two years ago. In May, the state of California filed a credit card debt collection case against the bank for the “unlawful” and “fraudulent” tactics it purportedly employed to go after old debts from 100,000 borrowers. The case is still pending.

JPMorgan has come under fire from regulators about how it collects such debt. Last week, the Office of the Comptroller of the Currency said it had had reached a $60 million settlement deal with the bank over the latter’s use of sworn documents in its lawsuits against borrowers to collect delinquent debt. According to the OCC, JP Morgan and its outside lawyers allegedly submitted documents that were not accurate to court, failed to correctly notarize documents, and made unverified statements about the bank’s accuracy. The regulator told the bank that they must now tell consumers when their debt is sold to a third party, correctly keep up account documents, and make sure that staff and other employees that are party to any litigation get the information that they need. Meantime, the JPMorgan says it will pay $20 million to the Consumer Financial Protection Bureau, which has been probing possible abuses by those in the debt-collection industry and examined JPMorgan’s handling of credit card debt.

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women

Published on: September 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

An Allen, Texas man is sentenced to 40-years behind bars for bilking elderly women out of close to $500,000 in a phone annuity scam. Robert Mangiafico Jr. pleaded guilty to money laundering and theft related in the Texas securities fraud case.

According to prosecutors, Mangiafico persuaded a number of widows to liquidate holdings and securities in brokerage accounts and other assets and he was supposed to use the money to buy annuities for them. Instead, after he had them move the funds to him or to Security Financial Services LLS, which was set up by Thomas Grimshaw of Dallas, the cash went to bank accounts for him and Grimshaw. The two men used the money for personal spending and to scam their investment victims.

Prosecutors say that $655,000 was stolen from four victims, who sustained $458,361 in losses. According to a 2011 indictment, the appropriations were made without the women’s consent because they were of advanced age and their capacity to make rational and informed choices was diminished.

SEC Lifts Ban on General Solicitation

Published on: September 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Beginning today, September 23, the SEC’s ban on general solicitation is no longer in effect. Those raising funds for corporations can now publish equity offerings on websites for crowdfunding, as well as blog and tweet about them. The move comes in the wake of the Jumpstart Our Business Startups Act, which was passed last year.

That said, even with the lifting of the general solicitation ban, raising funds for companies will likely remain a difficult endeavor. Funds can only be raised from investors that are accredited, and now, the latter will have to show proof that they fulfill the wealth criteria for accreditation by having an income greater than $200K during the last two years or a net worth of $1M (the value one’s primary residence is not included.)

Would-be fundraisers will need to provide extensive disclosure of offerings not just to the Commission, but also to the public, and there will be tight restrictions and the risk of penalty of a yearlong fundraising ban for violations. Also, in order to avail of being able to engage in general solicitation, startups will have to file a Form D with the regulator at least 15 days prior to starting to solicit. An amended Form D will have to be turned in within 30 days after the termination of an offering.

FINRA Broker Bonus Plan Would Require Brokers to Disclose Their Recruitment Compensation

Published on: September 22, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority’s Board of Governors has approved a proposal mandating that brokerage firms disclose how much recruitment compensation they were paid to move to another firm. The rule applies to up-front and back-end bonuses, signing bonuses, accelerated payouts, loans, and transition assistance of $100,000 or greater, as well as future payments upon performance criteria.

While the $100,000 threshold is not going to be relevant for many independent representatives, since the majority of their packages don’t reach this benchmark, this could impact independent brokerage firms with higher forgivable notes of up to 40% and may hurt their recruitment.

Now, it is up to the Securities and Exchange Commission to look at the plan and either give its approval or present the proposal to the public for comment.

FINRA Suspends and Fines GlobaLink Securities Principal

Published on: September 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining GlobaLink Securities Registered Principal Junhua Michael Liao $20,000. According to the SRO’s findings, through Liao, the firm executed an agreement to sell and market a Regulation D offering comprised of promissory notes for a medical receivables financing company. The financial firm then is said to have sold over $1.2 million of the notes to certain customers, resulting in about $56,700 in commissions.

FINRA also said that during the period in question, it was Liao’s job as the compliance officer for the firm to makes sure that GlobaLink Securities set up, kept up, and enforced a supervisory system and written supervisory procedures designed to ensure compliance with regulations and laws and rules that were applicable. The agency said that while the financial firm did keep up written supervisory procedures regarding private placement sales, the WSPs were not sufficient and lacked specific details about how the firm was to perform due diligence, handle transactions, ensure that a Regulation D product was appropriate for investors, and document GlobaLink’s actions and decisions pertaining to the transactions.

FINRA said that because of the deficient WSPs and inadequate supervision, the firm did not perform proper due diligence on the offerings and that this stopped GlobaLink and Liao from finding out that the issuer had previous payment problems on other note offerings, which resulted in the private placement memorandum misrepresenting the past performance of that issuer. Liao consented to the described sanctions as well as to the SRO’s entry of findings. In addition to the fine, he received a one-month suspension from associating with any other FINRA member in any type of principal role.

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations

Published on: September 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase (JPM) has agreed to pay a $920 million fine to resolve securities fraud investigations conducted by the Federal Reserve, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Financial Conduct Authority in London. The probes were related to the multibillion-dollar trading losses the bank is blamed for in last year’s London Whale debacle.

The regulators cited JPMorgan for “deficiencies” related to controls assessments, risk oversight, and internal financial reporting. The bank’s senior management is getting the brunt of the blame for purportedly not citing concerns about the losses to the board. However, no charges have been filed in this case against any executive.

Also, the SEC was able to extract an acknowledgement from JPMorgan that it was in violation of federal securities laws over this matter. This comes in the wake of the regulator’s decision to reverse its policy that previously let banks settle without having to deny or admit to having done anything wrong.

Imperial Petroleum Charged by SEC with Defrauding Investors

Published on: September 18, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Imperial Petroleum and a number of its executives and suppliers with involvement in an alleged renewable fuel production scheme. The complaint names the Indiana-based company, its CEO Jeffrey Wilson, three ex-owners of E-Biofuels, and New Jersey-located companies Cima Green LLC, Caravan Trading LLC, and CIMA Energy Group, as well as their operators.

The SEC is accusing them of presenting themselves to investors as a legitimate biodiesel production business while concealing the illegal activity that was going on, which was the source of 99% of the revenue. Imperial Petroleum bought E-Biofuels as a subsidiary in 2010, and the Commission said that the latter’s owners falsely presented that they were making renewable fuel from raw agricultural products. This let E-Biofuels receive government incentives based on such representations when, actually, contends the regulator, E-Biofuels had middlemen purchase finished biodiesel while making these buys appear on bogus invoices as raw feedstock for producing biodiesel. Imperial Petroleum’s subsidiary later would sell the biodiesel that was bought for up to double what it paid.

The regulator believes that Wilson discovered that E-Biofuels wasn’t making biodiesel from raw matter, he let the fraud continue and Imperial’s yearly revenue rose from $1 million to over $100 million. Meantime, its stock price flew upward as investors were falsely told that E-Biofuels was engaged in environmentally friendly biodiesel production.

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice

Published on: September 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton “Bud” Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

JPMorgan Could Settle “London Whale” Fiasco for $800M

Published on: September 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to a source knowledgeable about negotiations, JPMorgan Chase & Co. (JPM) could pay at $800 million in penalties in the investigations conducted by regulators over the “London Whale” trading scandal. The regulators are the Federal Reserve, the Securities and Exchange Commission, the British Financial Conduct Authority, and the US Office of the Comptroller Currency. The announcement of the settlement is expected shortly.

The trading fiasco involved JPMorgan trading in complex derivatives, which were amassed by a trader who was dubbed the London Whale. Traders are accused of betting on credit derivatives, which let them wager on the supposed health of certain companies. Authorities contend that when the positions began to go bad, the traders valued them in a way that was too positive. The trades would cost the financial firm over $600 billion.

Following the debacle, the bank said that it made changes to internal controls. JPMorgan maintains that it was the one that detected the traders’ questionable activities and notified the authorities.