Investor Lawyers Blog

SEC and DOJ Sue Bank of America Over Alleged $850M RMBS Fraud

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

Bank of America (BAC) and two subsidiaries are now facing SEC charges for allegedly bilking investors in an residential mortgage-backed securities offering that led to close to $70M in losses and about $50 million in anticipated losses in the future. The US Department of Justice also has filed its securities lawsuit over the same allegations.

In its securities lawsuit, submitted in U.S. District Court for the Western District of North Carolina, the Securities and Exchange Commission contends that the bank, Bank of America Mortgage Securities (BOAMS) and Banc of America Securities LLC, which is now known as Merrill Lynch, Pierce, Fenner & Smith, conducted the RMBS offering, referred to as the the BOAMS 2008-A and valued at $855 million, in 2008. The securities was sold and offered as “prime securitization suitable for the majority of conservative RMBS investors.

However, according to the regulator, Bank of America misled investors about the risks and the mortgages’ underwriting quality while misrepresenting that the mortgage loans backing the RMBS were underwritten in a manner that conformed with the bank’s guidelines. In truth, claims the SEC, the loans included income statements that were not supported, appraisals that were not eligible, owner occupancy-related misrepresentations, and evidence that mortgage fraud was involved. Also, says the regulator, the ratio for original-combined-loan-to-value and debt-to-income was not calculated properly on a regular basis and, even though materially inaccurate, it was provided to the public.

Two Investors’ Securities Fraud Lawsuit Against SEC Over Stanford Ponzi Scam is Dismissed

Published on: August 16, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A federal judge has dismissed the securities fraud lawsuit filed by two investors against the Securities and Exchange Commission for failing to report that Allen Stanford was running a $7.2 billion Ponzi scam. According to U.S. District Judge Robert Scola, a Federal Tort Claims Act exemption that does not allow claims from deceit or misrepresentation shields the SEC from such a claim.

The plaintiffs are George Glantz and Carlos Zelaya. They contend that they collectively lost $1.6 million because of Stanford and they wanted class action securities status for investors that the latter bilked.

They argued that following four exams between 1997 and 2004 the regulator considered Stanford’s business a fraud yet did not notify the Securities Investor Protection Corp., which provides compensation to those victimized by brokerages that fail. The SEC did not sue Stanford until 2009. While Scola previously had allowed this securities fraud case against the Commission to move forward, finding that the regulator breached its duty to report Stanford’s wrongdoing, now, he says that the FTCA exemption does not give him jurisdiction over this.

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit

Published on: August 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In U.S. District Court for the Northern District of Illinois, Danish pension funds (and their investment manager) Unipension Fondsmaeglerselskab, MP Pension-Pensionskassen for Magistre & Psykologer, Arkitekternes Pensionskasse, and Pensionskassen for Jordbrugsakademikere & Dyrlaeger are suing 12 banks accusing them of conspiring to take charge of access and pricing in the credit derivatives markets. They are claiming antitrust violations while contending that the defendants acted unreasonably to hold back competitors in the credit default swaps market.

The funds believe that the harm suffered by investors as a result was “tens of billions of dollars” worth. They want monetary damages and injunctive relief.

According to the Danish pension funds’ credit default swaps case, the defendants inflated profits by taking control of intellectual property rights in the CDS market, blocking would-be exchanges’ entry, and limiting client access to credit-default-swaps prices, and

Professional Athletes, Celebrities Often Targeted for Securities Fraud

Published on: August 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Shepherd Smith Kantas & Edwards law firm has represented many athletes and other celebrities who lost millions because of improper handling of their investments. While overspending and poor investing are two common causes for these losses, the rich and famous also make easy targets for securities fraud, which is when our securities law firm steps in.

One reason for this is that many professional athletes and other people that have become famous are not prepared or well informed about how to manage their new wealth. This can make them easy prey for irresponsible or purposely negligent financial advisers.

“We listen to complaints daily about the mishandling of investors accounts,” said Shepherd Smith Edwards and Kantas founder and securities fraud lawyer William Shepherd. “Yet, it is surprising even to me that financial firms and advisors would engage in financial wrongdoing that harms high-profile investors. Many ‘financial sociopaths’ have zero thought about others and, apparently, little concern for their own negative notoriety.”

Mortgage REITs See a Slump

Published on: August 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Real estate investment trusts that purchase mortgage debt has taken a dive after an employment report that was better than forecasted spurred speculation that the Federal Reserve will begin to make its asset purchases smaller in size. According to data, the United States added 195,000 jobs in June, even though a median forecast in a Bloomberg News survey predicted only 165,000 new jobs. Meantime, mortgage securities backed by the government experienced their largest quarterly losses in 19 years during the three months leading up to the end of June. Certain mortgage REITs even had to use money that was borrowed to amplify possible returns.

Financial firms that purchase mortgage bonds and loans have been contending with speculation that the Fed will lower its $85 billion of monthly debt purchasing as the economy begins to look like it is improving. Unfortunately, a lot of mortgage REITs did not see the recent sharp rise in interest rates. These higher rates decrease the likelihood that homeowners will refinance their mortgage rates. To reflect the upped risk of holding high duration bonds in the long-term, the securities have dropped in value. That many of the REITs did not foresee the interest rates job could be an indictor that they were unprepared and have been complacent.

Mortgage REIT Fraud

SEC Stops Former Marine’s Hedge Fund Fraud That Targeted Military Folk

Published on: August 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has secured an emergency order to stop a hedge fund scam run by ex-marine Clayton A. Cohn and his Market Action Advisors, a hedge fund management firm that is registered in Illinois. The regulator contends that Cohn pretended to be a be a successful trader and purposely targeted current military, other veterans, friends, relatives, and other unsophisticated investors, defrauding them of nearly $1.8 million.

Per the SEC, Cohn lied about his trader track record, the hedge fund’s performance, his intended use of investors’ proceeds, and his own stake in the fund. He invested less than 50% of investors’ funds, while using over $400,000 for personal spending, including a luxury vehicle, a mansion in Hollywood, and expensive visits to fancy nightclubs. To conceal his fraud and keep collecting investor money, Cohn allegedly created bogus hedge fund accounts statements reporting yearly returns greater than 200%.

The Commission filed its Illinois hedge fund fraud lawsuit in federal court in Chicago. The regulator says that Cohn ran Market Action Capital Management, which is a hedge fund, via Market Action Advisors. The regulator is charging him and his firm with federal securities law antifraud provision violations. The SEC wants permanent injunctions, financial penalties, and disgorgement of ill-gotten gains.

AIG Sued by Nuveen Funds For Securities Fraud

Published on: August 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

25 Nuveen Investments Inc. funds have filed a securities fraud lawsuit against American International Group (AIG) accusing the company of federal securities laws and Illinois securities law violations, common law fraud, and unjust enrichment in the months before the 2008 US financial crisis. They want unspecified monetary damages. Also named as defendants are ex-CEO Martin J. Sullivan, ex-CFO Steven Besinger, and Joseph Casano, who was in charge of the AIG Financial Product unit.

Among the funds suing AIG are the Nuveen Large Cap Value Fund, the Nuveen Equity Premium Opportunity Fund, and the Dow 30 Enhanced Premium. The funds purchased AIG securities at prices that were purportedly inflated and dropped when the truth was revealed.

The plaintiffs claim that they lost tens of billions of dollars in part because of materially misleading and false statements that AIG and others allegedly made. They contend that when the housing market started to fail, AIG told analysts that the risks it faced were “modest and remote” and that they didn’t see any potential financial losses tied to the swaps business.

Investors Claim They Lost $300M in Ohio Ponzi Fraud Lawsuit

Published on: August 10, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In Ohio, investors are suing Glen Galemmo for allegedly running a Ponzi scam. The securities fraud lawsuit claims that approximately 100 to 200 investors lost more than $300 million. Galemmo is now named in two complaints related to these claims. His wife, Kristine Galemmo, is also being sued, as are his business partner Edward Blackledge and numerous investment funds, LLC, and companies. Plaintiffs are grouped as the Galemmo Victims Fund I and II.

The Cincinnati money manager ran Galemmo Investment Group, Queen City Investment Fund, and other entities for over a year. However, last month, he sent out a mass email to investors explaining that Queen City Investments, which he owns, was stopping operations. He told them not to come to the building because they would not be let in and that his lawyer had told him to avoid contact with them. He said that their inquiries should go through the IRS.

According to the complaint, Galemmo claimed to have over $20 million in assets under management. When the S & P 500 was declining between ’06 and ’11 he purportedly said that he’d made earning returns of 432% by investing in individual stock.

US Will Likely Arrest Two Ex-JPMorgan Chase Employees Over Trading Losses Related to the London Whale Debacle

Published on: August 10, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The United States Government is expected to announce criminal charges against two ex-JPMorgan Chase & Co. (JPM) employees over allegations that they tried to cover up trading losses last year related to the London Whale fiasco. The ex-employees are Javier Martin-Artajo, the executive who was in charge of supervising the trading strategy, and Julien Grout, a trader that worked under him. Prosecutors also may impose penalties on the investment bank over this matter.

The securities fraud allegations stem from a probe into whether JPMorgan employees at its London offices tried to inflate certain trades’ values on the banks’ books, and charges could be filed over the falsification of documents and the mismarking of books. The criminal probe also has looked at whether the firm’s London traders engaged in the type of market manipulation that let them inflate their own positions’ value.

JPMorgan first revealed the losses at the London office May 2012. The trades were made by Bruno Iksil, dubbed the London Whale because of the vastness of his holdings. The bank would go on to lose over $6.2 billion when the trades failed. Other traders also were purportedly involved. They used derivatives to bet on the health of huge corporations.

Judge Approves Creditor Vote on Jefferson County, Alabama’s Bankruptcy Plan

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

A US judge has paved the path for the creditors of Jefferson County, Alabama to vote on a plan to conclude what is being called the second biggest municipal bankruptcy in US history. Now, the county’s creditors—they are owed $4.2 billion—have until October 7 to vote.

Most of them have already agreed to the negiotiated plan, which would deliver just $1.735 billion to warrant holders of the county’s sewer system that are owed $3.078 billion. A deal has also been reached over non-sewer debt.

It will be up to US Bankruptcy Judge Thomas Bennett to look into a timeline that would wrap up Jefferson County’s bankruptcy. He is the one who approved the vote on the plan. If creditors the plan, it will need to be confirmed during a hearing that would take place in November.