Investor Lawyers Blog

SEC News Roundup: Commission to Present Money Market Mutual Fund Reform Proposal, Achieves Record Number of Insider Trading Settlements During FY 2012

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

Commission to Present Money Funds Reform Proposal

According to SEC Commissioner Daniel Gallagher, staff members are putting together a money market mutual fund reform proposal that will address the problems that occurred in 2008. Another area that will likely be looked at more closely in the proposal would be the floating the net asset value of the funds. Gallagher, who made his comments at a US Chamber of Commerce, said this was important because there are “serious” related issues involving tax, accounting, and operations that need to be tackled.

Meantime, the Financial Stability Oversight Council is looking at three draft money fund reform recommendations that it wants the SEC to deal with, including floating NAVs, a stable NAV that has a capital buffer with a cap of 1% of a fund’s value in addition to delayed redemptions, and a stable NAV along with a 3% capital buffer that could be lowered if applied along with other measures.

JPMorgan CEO Jamie Dimon Blames Regulators for Problems in the Wake of Economic Crisis

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

Speaking at a panel at the World Economic Forum in Davos, Jamie Dimon, the chief executive officer of JPMorgan Chase (JPM), said that one reason many of the issues from the 2008 financial crisis have yet to be fixed is because new regulations have made things more complex. Dimon said that not only is too much being attempted too quickly, but also he believed that regulators have become too overwhelmed by the rules.

Dimon said that rather improving the system, during the last five years there has been a great deal of placing blame and exchanging misinformation. He did, however, praise the Federal Reserve, which he said saved “the system” by coming to the rescue after Lehman Brothers failed.

“It’s unbelievable that Mr. Jamie Diamond would be complaining so loudly about regulations,” said Institutional Investment Fraud Lawyer William Shepherd. “Among other gambling woes, his company just took a $6 billion loss on one of his traders bets! Look where deregulation of the financial markets got us 5 years ago! After the 1929 debacle, laws were passed to regulate these markets. One outlawed banks and securities firms being under the same umbrella. In fact, this is how Morgan Stanley (MS) was formed, as a forced spinoff of JP Morgan Bank. Lawmakers had decided that banks insured by FDIC, thus the taxpayers, should not gamble in the securities markets. Unfortunately, that law was repealed, and less than 10 years later our financial system collapsed again. Congress should have simply reinstituted the ban on such combined firms but has instead voted out far less protection. Stop your wining Jamie!

FINRA News Roudup: FINRA Unveils Telephone Mediation Pilot and Proposes A More Stringent Definition of Public Arbitrator

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

FINRA Unveils Telephone Mediation Pilot

The Financial Industry Regulatory Authority says it now has a pilot program that allows parties with simplified cases to choose reduced-fee or pro bono phone mediation. Volunteers with arbitration claims involving $50,000 or under are welcome to participate. In cases involving damage claims of $25,000 or under, mediators would work on a pro bono basis. For cases between $25,001 and $50,000, there would be a reduced fee mediation rate of $50/hour. No administrative fees will be charged.

Benefits to this phone mediation pilot include getting rid of in-person mediation preparation and travel costs, as well as more flexibility and convenience. The pilot was launched on January 15.

Mom of Baby Born with Cancer Sues Barclays Capital for $10M for Alleged Wrongful Termination

Published on: January 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to ABC News, Rachel Walsh, 32, has filed a $10 million lawsuit against Barclays Capital claiming that they fired her because she had to take a long leave of absence and subsequently terminated her child’s health coverage. Walsh’s child was born with cancer.

She is alleging gender discrimination and breach of contract. Because Walsh waived her right to a trial when she signed her employment agreement with the financial firm, the Financial Industry Regulatory Authority will be arbitrating her case.

Walsh was hired by Barclays to fill the position of global finance assistant vice president. (Prior to that she worked at Merrill Lynch (MER) and Ernst and Young.) During her first year with the financial firm, she was given a bonus, a raise, and a good end-of-year review. She also became pregnant but continued to work until three week prior to her delivery date when her doctor ordered her to bed due to pregnancy complications.

Large Financial Firms Roundup: Securities Fraud Suit Against Citigroup is Dismissed by 2nd Circuit, AIG Wants to File MBS-Related Cases Against Banks, & District Court Reconsiders Partial Dismiss of Class Action Against Morgan Stanley in Pension Fund Case

Published on: January 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Second Circuit Dismisses Securities Fraud Lawsuit Against Citigroup

The U.S. Court of Appeals for the Second Circuit has affirmed the district court’s decision to throw out the securities fraud lawsuit filed by a real estate developer against Citigroup (C) and its former CEO Vikram Pandit. Sheldon H. Solow had accused both of them of allegedly making omissions and misstatements that highlighted the bank’s liquidity and capitalization while downplaying financial problems. Because of this, he contends, the financial firm’s stock price became artificially inflated and then fell when the truth about the firm’s financial health became known.

The appeals court held that while Solow, in his securities lawsuit, did an adequate job of pleading alleged misstatements and omissions about Citigroup’s liquidity, he did not succeed in showing that the statements caused his financial losses. It also dismissed his control-person claim against Pandit, saying that there was a failure to plead a primary violation by the bank.

Texas Securities: SEC Says District Court is Mistaken In Not Forcing SIPC to Act for Stanford Ponzi Scam Victims

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

Addressing the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission maintains that a lower court was wrong to deny the agency’s bid to compel the Securities Investor Protection Corporation to act on behalf of investors who were victimized by the Allen R. Stanford Ponzi scam. Thousands of investors sustained losses as a result of the scheme. Meantime, Stanford is serving 110 years behind bars for running the $7 billion scheme that involved certificate of deposit sales issued by his Stanford International Bank in Antigua.

“Stanford Securities was a Houston-based firm which sold uninsured CD’s issued by foreign firms to investors all over the world,” said Texas securities fraud attorney William Shepherd. “Its founder was tried for securities fraud in a Federal Court and was sentenced to what will be a lifetime without parole in a federal penitentiary. Little has been gotten back by investors who, unlike the victims of the Ponzi scheme perpetrated by Barnard Madoff, have not been able to recover up to a maximum of $500,000 each from SIPC.”

It was last summer that the U.S. District Court for the District of Columbia noted the preponderance of the evidence standard and found that investors that had bought CD’s from Stanford’s Antigua bank were not, under the meaning of the Securities Investor Protection Act, “customers” of Stanford Group Co., which was Stanford’s brokerage firm in the US. Had that court ruled otherwise, SIPC would have to start liquidation proceedings for the broker-dealer and some 21,000 Stanford CD purchasers could have sought reimbursement through SIPC claims.

Criminal Securities Fraud News: Hedge Fund Founder Gets 12 Years for Fraud, Research Firm Executive Goes to Prison for Insider Trading, and Holding Firm CEO Enters Guilty Plea to Conspiring to Bribe Brokers

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

Hedge Fund Founder Gets 12 Years for Investment Fraud

Albert Ke-Jeng Hu, the hedge fund founder of Fireside LS and Asenqua Beta Fund, is to serve 12 years behind bars for running an investment fraud scam. Prosecutors say that he lied to clients and told them his funds contained over $200 million while promising they would get returns of up to 30%.

The US government, however, says none of this was true and that Hu placed “virtually none” of investors’ money into the funds and instead, used the cash to pay off earlier investors and cover his personal spending. Last year, Ke-Jeng Hu, who was extradited from Hong Kong in 2009, was convicted of seven counts of wire fraud. The Securities and Exchange Commission’s related securities case against him has not yet been resolved.

NY AG Says Madoff Trustee Shouldn’t Be Able to Block $410M Settlement with Money Manager Merkin

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

New York Attorney General Eric Schneiderman doesn’t believe that Madoff Trustee Irving Picard should be allowed to block the $410 million securities settlement reached between the state and J. Ezra Merkin, the former GMAC Financial Services chairman who was the money manager of funds that acted as the “feeders” to the Ponzi mastermind. Picard wants the settlement stayed.

Schneiderman had filed a New York securities case against Merckin in 2009 to recover some of the money lost in the multibillion dollar Bernard Madoff Ponzi scam that went on for decades. Picard, however, contends that he is the only one entitled to seek recovery for the victims of the scheme. He also says it is his job to thwart attempts to take assets owned by the bankruptcy estate. He has argued that with the Merckin deal Schneiderman is trying to get around bankruptcy law. As of August 2012, he had raised approximately $9 billion for Madoff’s former clients, who lost about $17 billion of their capital when the Ponzi scam collapsed.

Now, Schneiderman and Bart Schwartz, who is the receiver for Merkins’ funds, are asking a federal district court to stop Picard’s motion seeking injunction to block the settlement. They say that Picard has known for some time that this case was seeking resolution but that he had previously made no attempt to stay their efforts. They pointed out that there are investors depending on this settlement to get their lost funds back.

JPMorgan Chase Ordered to Remedy Risk Management Breakdowns Involving “London Whale” Trades

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

The Office of the Comptroller of the Currency and The Federal Reserve is ordering JPMorgan Chase (JPM) to fix the breakdown that occurred in its risk management that resulted in the “London Whale” trades. These were outsized credit derivatives bets made by a group of traders in the UK that resulted in over $6 billion in losses for the investment bank. Due to the extremity of the some of the positions, prices in the markets became distorted. The “London Whale” is the nickname of one of the traders involved.

According to the newly issued enforcement actions, the internal controls of the bank did not succeed in spotting and preventing specific trading involving credited derivatives that Chief Investment Office Ina Drew conducted and this led to the losses. The OCC says that per investigations that were conducted, there had been certain deficiencies, such as poor risk management procedures and processes, insufficient governance and oversight for proper material risk protection, inadequate control of trade valuation, models that were not properly developed or implemented, and insufficient internal audit processes. Meantime, the Fed pointed to deficiencies of senior management letting the board of directors know about certain issues.

While JPMorgan Chase doesn’t have to pay a fine, there are steps it is going to have to take to enhance its risk management and improve its anti-money laundering procedures. The OCC says that the financial firm’s controls for anti-money laundering have key deficiencies related to the reporting of suspicious activity, the monitoring of transactions, risk assessment, customer due diligence, independent testing, and the proper placement of adequate internal control systems.

Morgan Stanley & Goldman Sachs Settle Federal Homeowner Foreclosure Complaints for $557 Million

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

Goldman Sachs (GS) and Morgan Stanley (MS) have agreed to collectively pay $557M to settle complaints accusing them of wrongfully foreclosing on homeowners. Under their respective agreements with the Federal Reserve, Morgan Stanley will pay $227M while Goldman will pay $330M.

Approximately 220,000 people who lost their homes due to “robo-signing” and other abuses could receive compensation as a result. Per the agreement with the two investment banks, they will pay $232 million in cash to compensate homeowners. This will conclude the loan files review against the two banks that were ordered in 2011. Cash payments will vary and may go as high as $125,000 to borrowers whose homes foreclosed in 2009 and 2010. $325M will go toward lowering mortgage balances and forgiving outstanding principal on home sales that made less than what borrowers owed on mortgages.

The deals stuck by Morgan Stanley and Goldman Sachs is similarly structured to the $8.5B one reached last week with JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), PNC Financial Services (PNC), MetLife Bank (MET), SunTrust (STI), Sovereign (SOV), Aurora, and US Bank. They are paying 3.8 million homeowners approximately $3.3 billion to conclude the foreclosure review. $5.2 billion is for forgiveness of principal and mortgage modifications. Ally Financial and HSBC are in talks to work out similar settlements. The Fed reports that now, over 4 million borrowers will receive cash compensation.