Investor Lawyers Blog

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential

Published on: July 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In Dallas, Chief Judge Sidney A. Fitzwater of the U.S. District Court for the Northern District of Texas has thrown out the class action lawsuit filed by Verizon Communications (VZ) management retirees looking to stop their ex-employer from selling $8.4 billion of their pensions to Prudential Insurance Company of America (NYSE: PRU) . However, Fitzwater said that the plaintiffs can re-plead their case and they have 30 days to do so from June 24. He dismissed their Texas lawsuit per the federal Employee Retirement Income Security Act’s Section 404 (a) and noted that Verizon choosing to amend its management pension plan was not a fiduciary function.

Per the ruling, Verizon Communications and Prudential went into an agreement together last year involving the former’s pension plan agreeing to buy the latter’s premium group annuity. This would settle about $7.4 billion in liabilities. Also, Verizon would be handing over to Prudential the responsibility of giving pension benefits to approximately 41,000 retired employees. These transferred retirees are no longer part of the plan, while the about 50,000 beneficiaries and participants not included in the transaction are still part of the plan. The federal court in Texas had certified each group as a transferee class and the other as a non-transferee one, respectively.

According to the transferee class, Verizon didn’t reveal in the summary plan description that the annuity transaction might happen, which violates ERISA, breaches the company’s fiduciary duty, and discriminates against class members. Despite observing that choosing an annuity provider is a function that is a fiduciary one, Judge Fitzwater said that amending a plan is not a fiduciary function. He did say, however, that elements of the way Verizon executed the direct of the amendment might be considered fiduciary functions. (It was Fitzwater who earlier this year gave the 41,000 Verizon management retirees class status after he found that there were too many plaintiffs for them to each have their own lawsuit.)

JPMorgan Received Asset Management Conflicts Warning from OCC in 2012

Published on: July 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to a source with direct knowledge about the Office of Comptroller of the Currency’s findings, the agency had already warned JPMorgan Chase (JPM) last year that the investment bank had erred when it directed clients toward its in-house investment products.

OCC examiners found that in late 2011 JPMorgan had not complied with restrictions placed on in-house financial products sales, as well as fulfill its duties to retirement plan investors under ERISA (the Employee Retirement Income Security Act). Following these discoveries, the agencies ordered JPMorgan to pay back fees to customers.

While the issues highlighted by the OCC more than likely won’t pose much of a problem to JPMorgan—typically the US Department Of Labor resolves such violations by ordering restitution and in a confidential manner—the alleged infractions do point to what could become a problem of regulatory tension between federal regulators and JPMorgan, as the former group seeks to put to rest criticism that its poor oversight played a role in allowing the financial crisis of 2008 to happen. Now, since Thomas Curry took over as Comptroller of the Currency, OCC appears to have made it a priority to monitor the growing risks that can arise via routine bank functions, as well as from activities that could lead to “operational risks.”

JPMorgan Chase’s assets under management that are found in its proprietary mutual funds reached $223 billion at the start of 2013, which a significant rise from $96 billion in 2009. All assets under the bank’s purview, including retirement plans, alternate assets, and funds, have been growing for 16 quarters in a row.

Also during 2013’s first quarter, a $31 billion gain allowed JPMorgan’s client assets to hit $2.1 trillion. Unlike other asset managers, the bank conducts securities underwriting, commercial banking, and money management on such a big scale and in such an interlinked fashion that, per guidelines in the OCC’s exam handbook, such actions merit more regulatory examination.

Regulators & ERISA Assets
Because ERISA assets are some of the most legally protected, there is a greater chance that regulators will pay attention to them. That said, Section 406(b) of ERISA obligates retirement fund fiduciaries to always place clients’ interest first.

As OCC doesn’t directly supervise ERISA, its perspective is via supervising banks’ winder duties to make sure operations are performed in a way that decreases operational risks, as well as reputational and legal harm. Although monitoring ERISA compliance has long been part of OCC’s examination wheelhouse, some observers are finding that the agency’s current concentration on both the Act and how banks sell proprietary investment instruments is an add-on previous monitoring practices.

The Securities and Exchange Commission is also looking at JPMorgan and its proprietary products sales. While it is not known at this time whether the agency’s inquiries will result in formal action, a number of ex-JPMorgan Chase financial advisers already have sued or filed arbitration claims accusing the bank of pressuring them to place client assets in in-house products. The financial firm denies the securities’ cases allegations.

Meantime, according to Reuters last year, the Labor Department too has been examining JPMorgan. The DOL is looking at the firm’s purchases for 401(k) plan stable value funds under its management of $1.7 million in mortgage debt that it underwrote before the real estate crisis. Already, investors have filed securities cases alleging wrongdoing that, once again, the bank denies.

Office of Comptroller of the Currency

More Blog Posts:
California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

UBS, Morgan Stanley, Merrill Lynch, and Other Brokerage Firms Subpoenaed by Massachusetts Securities Regulator in Probe of Complex Investments Sold to Seniors

Published on: July 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

William Galvin, the Massachusetts Secretary of the Commonwealth, is subpoenaing 15 brokerage firms in its probe into complex products that were sold to older investors. Morgan Stanley (MS), LPL Financial (LPLA), Merrill Lynch (MER), UBS AG (UBS), Bank of America Corp. (BAC), Fidelity Investments, Wells Fargo & Co. (WFC), Charles Schwab Corp (SCHW), & TD Ameritrade (AMTD) are among the broker-dealers that received notices from the state. The subpoenas are seeking information about investments that were sold to Massachusetts seniors, as well as data about the firms’ compliance, supervision, and training.

Galvin noted that when such investments are sold to inexperienced investors, this creates potential “accidents waiting to happen.” He is among a number of regulators that have expressed worry about how many complex products are being marketed to unsophisticated investors that want higher returns during this era of low interest rates. These financial instruments tend to be among brokers’ favorites because they garner higher commissions.

Already, Galvin has brought in over $11 million in fines from brokerage firms that sold illiquid real estate investment trusts to investors in Massachusetts. This type of REIT is hard to sell when a customer wants out. Galvin said that it was during that probe his staff discovered there were a lot of brokers, who were not only inadequately supervised, but also they were selling complex financial instruments that went beyond even their comprehension. The Massachusetts’s regulator office will continue to look into REITs, in addition into oil and gas partnerships, structured products, and private placement deals.

Securities Case Over Insuring The $160M in Disgorgement Paid to the SEC Goes Back to Trial Court

Published on: July 6, 2013 | by Shepherd Smith Edwards & Kantas, LLP

New York’s highest court has revived a declaratory judgment action against D & Liability insurers after finding that the Securities and Exchange Commission order mandating that Bear Stearns (BSC) pay $160M in disgorgement failed to establish in a conclusive manner that payment could not be insured. The securities lawsuit is J.P. Morgan Securities, Inc., et al. v. Vigilant Insurance Company, et al.

Claiming that Bear Stearns engaged in market timing mutual fund trades and illegal late trading and for certain clients over a four-year period, the SEC wanted $720M in sanctions from the firm. The financial firm, however, argued that the activities only caused it to make $16.9M in revenues. A settlement was reached ordering Bear Stearns to pay $160M in disgorgement and $90M in penalties, with the firm not having to deny or admit to the Commission’s claims.

A declaratory action followed with a plaintiff in the New York Supreme Court seeking to have D & O insurers pay for $150M of the $160M disgorgement. Citing New York law, the insurers argued that the case should be dismissed, noting that under state law disgorgement is not insurable. A lower court turned down these contentions, denying the motion.

Mandatory Securities Arbitration vs. Court? The Debate Rages Past the Quarter-Century Mark

Published on: July 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Should investors have the option to resolve their securities claims not just in arbitration but also in court? Recently, Senator Al Franken (D-Minn) voiced his opinion that offering investors both options would be fairer. His comment came weeks after SEC Commissioner Luis Aguilar publicly spoke out against mandatory arbitration, noting that letting investors choose between the court system or Financial Industry Regulatory Authority arbitration would give them better protections. Right now, investors have to agree to resolve any disputes that arise with a brokerage firm or investment adviser through arbitration rather than litigation before their working relationship can go forward.

However, as Claimant Investors’ Attorney William Shepherd noted, the debate of whether to go to the court or arbitration is a debate that has going on for some time now: “This dispute began in 1987 when the U.S. Supreme Court first decided that, because arbitration had become ‘fair,’ investors could no longer choose court if an arbitration agreement had been signed.”

Is it fair to let investors choose between having their claims heard in arbitration or by the judicial system? We definitely need a legal process that lets investors get redress efficiently and with the least amount of struggle.

District Judge Not Inclined to Toss $5B Securities Fraud Case Against Standard & Poor’s

Published on: July 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A U.S. district judge in California has put out a tentative decision in the $5B fraud lawsuit against Standard & Poor’s indicating that he will likely reject a motion to dismiss the civil case against the credit rating agency. Judge David Carter said he needs more time to come up with his final ruling, which is expected on July 15, but for now, he is turning down S & P’s request to toss out the case outright.

Federal prosecutors sued S & P contending that the credit rater chose not to alert investors that the housing market was failing in ‘06 and inflated high-risk mortgage investments’ ratings. The Obama Administration said the ratings agency did not act fast enough to put downgrade a large number of subprime-backed securities despite realizing that home prices were dropping and borrowers were finding it hard to pay back loans. Instead, collateralized debt obligations and mortgage-backed securities continued to receive elevated ratings from the top credit rating agencies, allowing banks to sell trillions of these investments.

Contending that the credit rater committed fraud by making false claims that its ratings were objective, the US Department of Justice wants S & P to pay $5 billion in penalties, The government believes that between 9/04 and 10/07, S & P delayed updating both its ratings criteria and analytical models, which means the requirements were weaker than what analysts say should have been necessary to ensure their accuracy. During this time, S & P credit rated about $1.2 trillion in structured products related to $2.8 trillion worth of mortgage securities and charged up to $750 per rated deal. The government says that this means that S & P saw the investment banks that put out the securities as its primary customers.

Texas Securities Fraud?: Death of Private Wealth Manager with Invesco Ltd. Reveals that Millions of Dollars May Be Missing

Published on: July 3, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The passing of S. Mark Powell, who runs Invesco Ltd.’s (IVZ) Atlantic Trust Private Wealth Management, has exposed the vulnerabilities of some of the wealthiest members of Texas’s investment community. Powell was found dead in May, and, since then, investors have been stepping forward to say they lent him millions of dollars, some of which seem to have disappeared.

A spokesperson for Invesco issued a statement after Powell’s passing saying that the company now knows about “unusual transactions” that the fund manager seems to have been involved in outside his work with the fund management company, and it has notified the authorities of the possible Texas securities fraud. However, Invesco says that it has no reason to think that its clients’ accounts were impacted.

The Wall Street Journal says that a number of wealthy Texas investors have said that they know of dozens of others like them that had entrusted Powell to invest their money. Powell reportedly offered different kinds of private ventures while offering large guaranteed returns. One downside of investing in such ventures is that they can come with some significant risks. Investors in Dallas, Austin, Houston, and other Texas cities may be affected. Please contact our Texas securities lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP to request your free case evaluation.

Financial Firms in the Headlines: UBS Charges Financial Planning Fees, MF Global Customers Seek to Cap Ex-Leaders’ Legal Defense Expenses, Ex-Thompson REIT CFO is Suspended

Published on: July 2, 2013 | by Shepherd Smith Edwards & Kantas, LLP

UBS Wealth Management Customers Now Paying a Fee for Financial Plans

UBS (UBS) Wealth Management Americas is now charging a fee for the financial plans that advisers are customizing for the firm’s clients. According to the head of the wealth management advisor group head Jason Chandler, this new policy wasn’t implemented to up firm revenues, although it has. Rather, it was set up to increase the level of commitment clients have to their plan, which he say is what happens when they have to pay money for one.

To date this year, the company has made $3 million in financial plan fees, up from $1.4 million from last year. The average fee amount is $4,100. Advisers who design the financial plans are getting 50% of the fee that they charge, while 15% of the fees earned from the plans end up in expense accounts for them.

Sonoma County Files Securities Lawsuit Over Libor Banking Debacle

Published on: July 2, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Sonoma County, CA is suing Citigroup (C), JPMorgan (JPM), Bank of America (BAC), UBS (UBS), Barclays (BCS), and a number of other former and current LIBOR members over the infamous international-rate fixing scandal that it claims caused it to suffer substantial financial losses. The County’s securities lawsuit contends that the defendants made billions of dollars when they understated and overstated borrowing costs and artificially established interest rates.

Sonoma County is one of the latest municipalities in California to sue over what it claims was rate manipulation that led to lower interest payments on investments linked to the London Interbank Offered Rate. Also seeking financial recovery over the LIBOR banking scandal are the Regents of the University of California, San Mateo County, San Diego Association of Governments, East Bay Municipal Utility District, City of Richmond, City of Riverside, San Diego County, and others.

The County of Sonoma is alleging several causes of action, including unjust enrichment, fraud, and antitrust law violations involving transactions that occurred between 2007 and 2010, a timeframe during which Barclays already admitted to engaging in interest manipulation. The county invested $96 million in Libor-type investments in 2007 and $61 million in 2008. Jonathan Kadlec, the Assistant Treasurer at Sonoma County, says that an investigation is ongoing to determine how much of a financial hit was sustained. Kadlec supervises an investment pool that is valued at about $1.5 billion for the county. He said that LIBOR-type investments, which involve floating securities with interests that are index-based, make up a small portion of the pool.

FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches

Published on: June 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Wants Broker-Firms to Provide More Data About Social Media Use

The Financial Industry Regulatory Authority has sent target examination letters to broker dealer members regarding their use of social media. The SRO warned that electronic and written communication may be subject to spot checks and it wants to know how the firms are using social media, what platforms they employ, and the names of the people that post on these sites. FINRA is also interested in each firm’s written supervisory procedures about this type of online communication that were in effect between February 4 and May 4, as well as what steps were taken to make sure that compliance was in effect.

SEC Seeks Comments on Proposed FINRA Arbitration Changes