Investor Lawyers Blog

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients

Published on: April 14, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Accused of not putting in place policies to prevent analyst huddles, Goldman Sachs Group Inc. (GS) will settle for $22 million the allegations made against it by US regulators. According to the Securities and Exchange Commission and FINRA, due to the nature of the financial firm’s internal control system research analysts were able to share non-public information with select clients and traders.

To settle the securities case, Goldman will pay $11 million each to FINRA and the SEC. It also consented to refrain from committing future violations and it will reevaluate and modify its written policies and procedures so that compliance won’t be a problem in the future. The financial firm has agreed to have the SEC censure it. By settling Goldman is not denying or admitting to the allegations.

Meantime, FINRA claimed that Goldman neglected to identify and adequately investigate the increase in trading in the financial firm’s propriety account before changes were made to analysis and research that were published. The SRO says that certain transactions should have been reviewed.

This is not the first time that Goldman has gotten in trouble about its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

The latest securities actions are related to two programs that the financial firm created that allegedly encouraged analysts to share non-public, valued information with select clients. The SEC says that during weekly “huddles” between 2006 and 2011, Goldman analysts would share their perspectives on “market color” and short-term trading with company traders. Sales employees were also sometimes present, and until 2009, employees from the financial firm’s Franchise Risk Management Group who were allowed to set up large, long-term positions for Goldman also participated in the huddles.

Also in 2007, the financial firm established the Asymmetric Service Initiative. This program let analysts share ideas and information that they acquired at the huddles with a favored group made up of approximately 180 investment management and hedge fund clients.

The SEC contends that ASI and the huddles occurred so that Goldman’s traders’ performances would improve and there would be more revenue in the form of commissions. The financial firm even let analysts know that it would be monitoring whether ideas discussed at the huddles succeeded and that this would be a factor in performance evaluations. The Commission said that the two programs created a serious risk, especially considering that a lot of ASI clients were traders who did so often and in high volume.

Meantime, FINRA claimed that before changes were made to published analysis and research, Goldman would neglect to identify and adequately investigate the increase in trading in the financial firm’s proprietary account. The SRO says that there were certain transactions that should have been reviewed.

This is not the first time that Goldman has gotten in trouble over its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

Goldman Sachs to Pay $22 Million Over Analyst Huddle Claims, Bloomberg, April 12, 2012

More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Morgan Stanley to Compensate A Number of Texas Homeowners for Alleged Misconduct by Saxon Mortgage Services

Published on: April 12, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Reserve Board has ordered Morgan Stanley (MS) to retain an independent consultant to evaluate foreclosures initiated by former subsidiary Saxon Mortgage Services in 2009 and 2010. Saxon, which intends to shut down its processing center in Forth Worth, is accused of engaging in a “pattern of misconduct and negligence” related to residential mortgage servicing and foreclosure processing. The order mandates that Morgan Stanley compensate homeowners who were hurt financially because of certain deficiencies, including wrongful foreclosures.

Per the Fed, Saxon initiated at least 6,313 foreclosures against homeowners during the years cited above. Regarding certain actions, Saxon is accused of failing to confirm ownership and other information, not properly notarizing signatures, failing to implement proper controls and oversight, and neglecting to adequately staff and fund its operations to handle the increase in foreclosures.

Morgan Stanley had bought Saxon for $706 million during the housing bubble. Earlier this month, the financial firm completed its sale of the mortgage lender to Ocwen Financial of Florida. In the wake of the sale, Morgan Stanley is no longer involved in mortgage servicing. However, should the financial firm reenter this market while the Consent Order is still in effect, it will have to execute better risk-management, corporate governance, compliance, servicing, borrower communication, and foreclosure practices similar in quality to what mortgage servicers who had to abide by enforcement actions in 2011 had to implement.

Stockbroker Fraud Roundup: SEC Issues Alert for Broker-Dealers and Investors Over Municipal Bonds, Man Who Posed As Investment Adviser Pleads Guilty to Securities Fraud, and Citigroup Settles FINRA Claims of Excessive Markups/Markdowns

Published on: April 10, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The SEC’s Office of Compliance Inspections and Examinations has put out an alert reminding broker-dealers about what their supervisory and due diligence duties are when it comes to underwriting municipal securities offerings. According to the examination staff, there are financial firms that are not maintaining enough written evidence to show that they are in compliance with their responsibilities as they related to supervision and due diligence. OCIE Director Carlo di Florio stressed how sufficient due diligence when determining the operational and financial condition of municipalities and states before selling their securities, is key to investor protection.

The SEC has also issued an Investor Bulletin to provide individual investors with key information about municipal bonds. Its Office of Investor Education and Advocacy wants to make sure investors know that the risks involved include:

Call risk: the possibility that an issuer will have to pay back a bond before it matures, which can occur if interest rates drop.

Credit risk: The chance that financial problems may result for the bond issuer, making it challenging or impossible to pay back principal and interest in full.

Interest rate risk: Should US interest rates go up, investors with a low fixed-rate municipal bond who try to sell the bond prior to maturity might lose money.

Inflation risk: Inflation can lower buying power, which can prove harmful for investors that are getting a fixed income rate.

Liquidity risk: In the event that an investor is unable to find an active market for the municipal bond, this could stop them from selling or buying when they want to or getting a certain bond price.

As a municipal bond buyer, an investor is lending money to the bond issuer (usually a state, city, county, or other government entity) in return for the promise of regular interest payments and the return of principal. The maturity date of a municipal bond, which is when the bond issuer would pay back the principal, might be years-especially for long-term bonds. Short-term bonds have a maturity date of one to three years.

In other stockbroker fraud news, Citigroup Inc. (C) subsidiary Citi International Financial Services LLC has agreed to pay almost $1.25 million in restitution and fines to settle claims by FINRA that it charged excessive markups and markdowns on corporate and agency bond transactions between July 2007 and September 2010. The SRO says that the markdowns and markups ranged from 2.73% to over 10% and were too much if you factor in the market’s condition during that time period, how much it actually cost to complete the transactions, and the services that the clients were actually provided. FINRA also claims Citi International failed to exercise “reasonable diligence” to ensure that clients were billed the most favorable price possible. To settle the SRO’s claims, Citi International will pay about $648,000 in restitution, plus interest, and a $600,000 fine.

Also, a man falsely claiming to be an investment advisor has pleaded guilty to securities fraud. Telson Okhio, president of the purported financial firm Ohio Group Holdings Inc., has pleaded guilty to wire fraud over a financial scam that defrauded one Hawaiian investor of about $1 million.

Okhio solicited $5 million from the investor while claiming that the money would be invested in the foreign currency exchange market using a $100 million trading platform. He said the investment was risk-free and would earn 200% during the first month. Okhio is accused of immediately taking $1 million of the investor’s money and placing the funds in his personal account. He faces up to 20 years behind bars.

Investor Bulletin: Municipal Bonds, SEC.gov
Individual Posing as Investment Advisor Pleads Guilty to Wire Fraud Charges, FBI, March 16, 2012

FINRA Fines Citi International Financial $600,000 and Orders Restitution of $648,000 for Excessive Markups and Markdowns, FINRA, March 19, 2012

More Blog Posts:
Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

CFTC Says RBC Took Part in Massive Trading Scam to Avail of Tax Benefits, Stockbroker Fraud Blog, April 4, 2012
Wirehouses Struggle to Retain Their Share of the High-Net-Worth-Market, Institutional Investor Securities Blog, April 6, 2012 Continue Reading ›

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities

Published on: April 10, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has decided that investors can sue Bank of New York Mellon (BK) over its role as trustee in Countrywide Financial Corp.’s mortgage-backed securities that they say cost billions of dollars in damages. While Judge William Pauley threw out some of the clams filed in the securities fraud lawsuit submitted by the pension funds, he said that the remaining ones could proceed. The complaint was filed by the Benefit Fund of the City of Chicago, the Retirement Board of the Policemen’s Annuity, and the City of Grand Rapids General Retirement System. The retirement board and Chicago’s benefit fund hold certificates that 25 New York trusts and one Delaware trust had issued, and BNY Mellon is the indentured trustee for both. Pooling and servicing agreements govern how money is allocated to certificate holders.

In Retirement Board of Policemen’s Annuity and Benefit Fund of City of Chicago v. Bank of New York Mellon, the plaintiffs are accusing BNYM of ignoring its responsibility as the investors’ trustee. They believe that the bank neglected to review the loan files for mortgages that were backing the securities to make sure that there were no defective or missing documents. The bank also allegedly did not act for investors to ensure that loans having “irregularities” were taken from the mortgage pools. As a result, bondholders sustained massive losses and were forced to experience a great deal of uncertainty about investors’ ownership interest in the mortgage loans. The plaintiffs are saying that it was BNYM’s job to perfect the assignment of mortgages to the trusts, certify that documentation was correct, review loan files, and make sure that the trust’s master servicer executed its duties and remedied or bought back defective loans. Countrywide Home Loans Inc. had originally been master servicer until it merged with Bank of America (BAC).

The district court, in granting its motion, limited the lawsuit to the trusts in which the pension fund had interests. It also held that the fund only claimed “injury in fact” in regards to the trusts in which it held certificates. The court found that the certificates from New York are debt securities and not equity and are covered under the Trust Indenture Act. The plaintiffs not only did an adequate job of pleading that Bank of America and Countrywide were in breach of the PSAs, but also they adequately pleaded that defaults of the PSAs were enough to trigger BNYM’s responsibilities under Sections 315(b) and (c). The court, however, threw out the claims that BNYM violated Section 315(a) by not performing certain duties under the PSAs and certain other agreements.

BNYM says it will defend itself against the claims that remain.

Bank of NY Mellon must face lawsuit on Countrywide, Reuters, April 3, 2012

Judge Rejects Bank Of NY Mellon Motion To Dismiss Countrywide Suit, Fox, April 3, 2012

More Blog Posts:
District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2012

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investor Securities Blog, October 20, 2011

Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations

Published on: April 6, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Harry Friedman, a principal of Global Arena Capital Corp. has agreed to a bar that prevents him from associating with any Financial Industry Regulatory Authority member. Although he has not admitted to or denied the allegations against him, Friedman has consented to the sanction and the entry of findings accusing him of not properly supervising a number of employees who used improper markups in a fraudulent trading scheme that, as a result, denied clients of best execution and the most favorable market price.

It was Friedman’s job to make sure that the head trader provided accurate disclosure on order tickets, such as when they were received and executed, the role that the broker-dealer played, and how much compensation the financial firm would get from each securities transaction. According to FINRA, Friedman either knew or should have known that order tickets were not being marked properly.

FINRA also found that Friedman, whose job it was to supervise and review trading activity involving his firm, failed to reconcile daily positions and trades in principal accounts. Also, per the SRO, Global Arena Capital Corp., through Friedman, did not set up, maintain, and enforce supervisory control policies and procedures that were supposed to ensure that registered representatives and others were in compliance with securities regulations and laws. Also, for three years, Friedman allegedly falsely certified that the financial firm had the necessary processes in place and that they had been evidenced in a report that the CCO, CEO, and other officers had reviewed.

In other FINRA-related news, Berthel, Fisher & Company Financial Services, Inc. registered principal Marsha Ann Hill has been suspended from associating with any Financial Industry Regulatory Authority member for a year. She also will pay a $20,000 fine.

Hill is accused of allegedly making unsuitable recommendations to a customer regarding the purchase of a variable annuity for $110,418.97 and two private placement offerings for $10,000 each. Per the findings, the transactions were not suitable because over 90% of the client’s liquid net worth had been placed in the variable annuity, which was illiquid and had a seven-year surrender period. (The SRO says that the private placement offerings were not only high risk, but also they failed to meet the client’s investment objectives.) Hill is accused of misusing the customer’s funds when she delayed the investments, resulting in her firm violating SEC Rule 15c3-3.

She also allegedly sold a private placement to an unaccredited investor. When her supervisor noted that this was an accredited-only investment, Hill erased certain information on the Account Information Form and put different yearly income, liquid net worth, and net worth amounts without letting her client know. Hill is settling the securities fraud allegations against her without deny or admitting to them.

Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC, Stockbroker Fraud Blog, July 28, 2011
Despite Reports of Customer Satisfaction, Consumer Reports Uncovers Questionable Sales Practices at Certain Financial Firms, Stockbroker Fraud Blog, January 7, 2012
SIFMA Wants FINRA to Take Tougher Actions Against Brokers that Don’t Repay Promissory Notes, Institutional Investor Securities Blog, January 17, 2012 Continue Reading ›

Wirehouses Struggle to Retain Their Share of the High-Net-Worth-Market

Published on: April 6, 2012 | by Shepherd Smith Edwards & Kantas, LLP

With their share of the high-net-worth-market expected to drop down to 42% in 2014 from the 56% peak it reached five years ago, wirehouses are looking to regain their grip. According to Cerulli Associates, Bank of America Merrill Lynch (BAC), Wells Fargo (WFC), Morgan Stanley Smith Barney (MS), and UBS (UBS)—essentially, the largest financial firms—will see their portion of the high-net-worth market continue to get smaller. Meantime, because private client groups can now be called the largest high-net-worth services provider, they can expect their hold to continue as they likely accumulate about $2.8 trillion in high-net-worth assets in two years—a 49% market share.

The Cerulli report says that the wirehouses’ reduced share of the market can be attributed to a number of factors, including the fact that high-net-worth investors are allocating their wealth to several advisors at a time. Also, during the economic crisis of 2008, many investors transferred some assets out of the wirehouses. There were also the wirehouse advisers that chose to go independent or enter another channel. In many cases, these advisors’ clients ended up going with them.

The private client groups are the ones that have benefited from this shift away from wirehouses. A main reason for this is that they are considered safer for both advisors that wanted a change and investors who were seeking lower risks.

Also, per the report, there has been healthy growth in the independent advisor industry. The registered investment advisor/multi-family offices grew their assets under management by 18% two years ago. Meantime, during this same time period, wirehouses assets only grew by 2%.

In other wirehouse-related news, beginning summer, ERISA Section 408(b)(2) ‘s new point-of-sale fee disclosure rules will make it harder for these firms to up the fees they charge investors. According to AdvisorOne, as a result, these firms are raising the fees that they charge mutual fund companies instead.

Wirehouses and mutual fund companies usually have a revenue sharing agreement. In exchange for investing their clients’ money in a mutual fund, a wirehouse charges the mutual fund company a fee (this is usually a percentage of every dollar that the client invests). However, in the wake of the upcoming disclosure changes, financial firms have started raising that fee.

For example, according to The Wall Street Journal, at the start of the year, UBS approximately doubled the rate that mutual funds must now pay. The financial firm is seeking up to $15 for every new $10,000 that a clients invests in a mutual fund. Moving forward, this will go up to $20 annually. Morgan Stanley’s new raised rate is $16 a year. It used to charge $13 for stock funds and $10 for bond funds.

Wirehouses are saying that since its the brokerage firms and not the individual financial adviser who gets the separate payment streams, the rate won’t impact the judgment of an adviser when it comes to selecting funds. Such fees paid by mutual funds can impact a financial firm’s bottom line. For example, last year, almost a third of Edward Jones’s $481.8 million in profits came from mutual fund company fees.

Wirehouses Battle to Keep Market Share, On Wall Street, March 28, 2012

FINRA Bars Registered Representatives Accused of Securities Misconduct and Negligence, Stockbroker Fraud Blog, April 5, 2012

FINRA Bars Registered Representatives Accused of Securities Misconduct and Negligence

Published on: April 5, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Registered representative Erick Enrique Isaac has turned in a Letter of Acceptance, Waiver and Consent that affirms his agreement to be barred from associating with any Financial Industry Regulatory Authority member. Although he isn’t denying or admitting to the findings, Isaac has consented to the described sanction and the entry of findings that claims he became affiliated with a member firm at the behest of a relative, a former registered representative who needed access to a broker-dealer to make trades for his clients.

While registered with the financial firm, Enrique allegedly gave trading directions from this relative to another firm representative, who then made the trades. He also allegedly started sending over hundreds of thousands of dollars in commissions on those securities transactions to the relative.

FINRA’s findings contend that Isaac knew that his relative was controlling the trading in at least some of the client accounts that resulted in commission fees. He also kept sending the commission funds to the relative even after finding out that the latter was barred by the SRO from associating with a member firm.

Also submitting a Letter of Acceptance, Waiver and Consent in another FINRA case is First Merger Capital, Inc. registered principal Mark SImonetti who is not allowed to associate with any FINRA member for three months.

FINRA accused Simonetti of knowing that registered representatives at First Merger Capital were paying the operators and co-owners of a branch of the financial firm (a foreign-based publicly traded company) $350,000 for unspecified services. Even though this should have indicated to Simonetti that the financial firm’s COO was not appropriately discharging his compliance and supervisory duties, he still allegedly failed to properly supervise the brokers to make sure that everyone disclosed all material information about this consulting agreement when soliciting clients to buy stock in the company.

Also, per FINRA, when the counsel for another foreign-owned publicly traded company referred clients, who were current and former company employees, to First Merger Capital, no one at the financial firm spoke to these new clients to make sure that the information they provided when opening the accounts was accurate.

The customers deposited more than 3.8 million shares of company stock. The company’s CEO, who was given control of the sales of the stock, then gave the order for company shares to be sold. More than $23 million of company stocks were sold. These were the only transactions in the clients’ accounts. Also, a number of branch owners and operators who took part in securities transactions netted commission as a result. FINRA says that SImonetti should have monitored, analyzed, and investigated these transactions to figure out whether they warranted a Suspicious Activity Report. As part of the settlement, Simonetti has agreed to participate in the FINRA Department of Enforcement’s investigation into this matter and to testifying truthfully.

FINRA Fines AXA Advisors $100,000 For Allegedly Not Firing Broker who Ran Ponzi Scam Sooner, Stockbroker Fraud Blog, March 16, 2012

FINRA May Surrender Proprietary BrokerCheck Lock, Stockbroker Fraud Blog, March 8, 2012

Citigroup Ordered by FINRA to Pay $1.2M Over Bond Markups and Markdowns, Institutional Investor Securities Blog, March 27, 2012 Continue Reading ›

Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans

Published on: April 5, 2012 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Arbitration panel has ordered Merrill Lynch (BAC) to pay over $10 million to two brokers who claim the financial firm wrongly denied their deferred compensation plans to vest. Per the FINRA arbitration panel, senior management at Merrill purposely engaged in a scam that was “systematic and systemic” to prevent its former brokers, Tamara Smolchek and Meri Ramazio, from getting numerous benefits, including the ones that they were entitled to under the financial firm’s deferred-compensation programs, so that it wouldn’t be liable after the acquisition. The panel accused Merrill of taking part in “delay tactics” and “discovery abuses.”

Some 3,000 brokers left Merrill after Bank of America Corp. (BAC) acquired it in 2008. A lot of these former employees are now claiming that they were improperly denied compensation.

Smolchek and Ramazio alleged a number claims related to their deferred compensation plans’ disposition. Causes of action against Merrill included breach of duty of good faith and fair dealing, breach of contract, breach of fiduciary duty, unjust enrichment, constructive trust, conversion, defamation, unfair competition, tortious interference with advantageous business relations, violating FINRA Rule 2010, fraud, and negligence.

Broker employment contracts usually mandate that an employee stay with a financial firm for several years before they are entitled to vest the money they are earning in their tax-deferred accounts. However, several of Merrill’s deferred compensation programs allow brokers that have left the firm for “good reason” to have their money vest.

The FINRA panel expressed shock that after the departure of 3,000 Merrill advisers following the Bank of America acquisition, the firm did not approve a single claim for vesting that cited a “good reason” under the deferred compensation programs. Per Merrill’s own analysis, had it approved the vesting requests, the financial firm might have paid anywhere from the hundreds of millions to billions of dollars in possible liability.

Per the compensation ruling, Merrill has to pay Ramazio $875,000 and Smolchek $4.3 million in compensatory damages for unpaid deferred compensation, unpaid wages, lost wages, lost book, lost reputation, and value of business. The FINRA panel also awarded $1.5 million in punitive damages to Ramazo and $3.5 million to Smolchek.

The same day that the decision was issued, Merrill filed an appeal. The financial firm wants the ruling overturned, claiming that it never received a fair hearing and that panel chairwoman Bonnie Pearce was biased. Merrill contends that Pearce did not disclose that her husband is a plaintiff’s lawyer who sued the financial firm for customers and brokers in at least five lawsuits. Merrill is accusing Pearce of “overt hostility.”

Merrill Lynch Loses $10 Million Compensation Ruling, The Wall Street Journal, April 4, 2012

Merrill Lynch Savaged by FINRA Arbitrators in Historic Employee Dispute, Forbes, April 4, 2012

More Blog Posts:
Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 30, 2011

Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011

Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 26, 2012

CFTC Says RBC Took Part in Massive Trading Scam to Avail of Tax Benefits

Published on: April 4, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Commodities Futures Trading Commission has filed a lawsuit accusing Royal Bank of Canada of taking part in hundreds of millions of dollars worth of illegal futures trades to earn tax benefits linked to equities. In its complaint, the CFTC claims the Toronto-based lender made misleading and false statements about “wash trades” between 2007 and 2010, which allowed affiliates to trade between themselves in a manner that undermined competition and price discovery on the OneChicago LLC exchange. This electronic-futures trading exchange is partly owned by CME Group Inc.

The alleged scam is said to have involved RBC officials working with two subsidiaries on the selling and buying of futures contracts that give the right to sell the stock later on at certain prices. CFTC said that this removes the risk of RBC sustaining any losses on the investments, while locking in the tax breaks.

Also, according to the CFTC, RBC designed certain instruments related to the transactions that were traded on OneChicago. The transactions, which involved narrow-based indexes and single-stock futures, were used to hedge the risks involved in holding the equities. CFTC says that the Canadian bank tried to cover up the scam and even provided misleading and false statements when CME started asking questions.

RBC contends that CFTC’s allegations against it are “absurd” and the lawsuit “meritless.” The bank also claims that the trades in question were completely documented and reviewed, as well as monitored by the exchanges and CFTC.

CFTC Enforcement director David Meister said that the securities action shows that the regulator will not balk at bringing charges against those that illegally exploits the futures market for profit. The CFTC has been under pressure to get tougher on its oversight of the futures industry in the wake of MF Global Holdings Ltd.’s failure last year. The demise of that securities firm resulted in an approximately $1.6 billion shortfall in client funds. Measured by the futures contracts’ national dollar amount, this case against RBC is the biggest wash-sale lawsuit the CFTC has ever brought.

Meantime, RBC says that the CFTC’s allegations against it are “absurd” and the lawsuit “meritless.” The bank has issued a statement claiming that the trades in question were completely documented and reviewed, as well as monitored by the exchanges and CFTC.

The US regulator is seeking injunctions against additional violations and monetary penalties of three times the monetary gain for each violation or $130,000/per violation from 10/04 to 10/08 and $140,000/violation after that period.

CFTC Deals Out Royal Pain, Wall Street Journal, April 3, 2012

RBC Sued by US Regulators Over Wash Trades, Bloomberg Businessweek, April 3, 2012

More Blog Posts:
SEC Inquiring About Wisconsin School Districts Failed $200 Million CDO Investments Made Through Stifel Nicolaus and Royal Bank of Canada Subsidiaries, Stockbroker Fraud Blog, June 11, 2010

Texas Man Sued by CFTC Over Alleged Foreign Currency Fraud, Stockbroker Fraud Blog, February 23, 2012

CFTC and SEC May Need to Work Out Key Differences Related to Over-the-Counter Derivatives Rulemaking, Institutional Investor Securities Blog, January 31, 2012 Continue Reading ›

Netherlands Offers Jurisdiction To Class Actions Securities Cases for US Citizens and Others Who Cannot Obtain Redress Domestically

Published on: April 3, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Ever since the US Supreme Court ruled in Morrison et al v National Australia Bank Ltd et al that claimants not residing in the United States or American citizens who purchased shares on a foreign exchange can’t settle or litigate their case in the US, these parties have been seeking other jurisdictions to get their claims resolved. Recently, the Netherlands has stepped in to provide this needed alternative.

It was earlier this year that the Amsterdam Court of Appeal accepted jurisdiction to preside over a class action securities settlement involving Zurich Financial Services (ZFS) subsidiary Converium Holding shares. The involvement of Dutch shareholders’ association VEB and Stichting Converium Securities Compensation Foundation was enough for court jurisdiction to be granted even though not a lot of the class members reside in the Netherlands. (The appeals court used the Dutch Act on the Collective Settlement of Mass Claims to grant jurisdiction). As a result, about 10,000 institutional and individual investors who sustained financial losses when they invested in Converium stock outside the US were able to share $58.4 million, minus legal fees.

There was a class action settlement that was declared in the US that awarded $84.6 million to a smaller group of class members. However, only US persons and those that bought their Converium securities on any exchange were allowed to participate in the class, which was certified by the United States District Court for the Southern District of New York.