Investor Lawyers Blog

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs.

Published on: November 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says that Chase Investment Services Corporation will pay back investors for losses sustained from the unsuitable recommendation made that they buy floating rate loan funds and unit investment trusts. In addition to paying back clients $1.9M, Chase must also pay a $1.7M fine.

According to FINRA, brokers with Chase recommended these financial instruments to clients even though the investments were not suitable for them—either because they had hardly any investment experience or only wanted to take conservative risks. The SRO also says that the Chase brokers had no reasonable grounds to think the financial products would be a right fit for these investors.

FINRA believes that Chase failed to properly train its brokers or give them guidance about the suitability of floating-rate loan funds and UITs, as well as the risks involved. For example, there were UITs that contained a significant portion of assets in closed-end funds with high-yield or junk bonds. Yet, despite the risks involved, brokers from Chase made about 260 recommendations that were not suitable for clients who had little (if any) investment experience or were averse to high-risk investments. These investors ended up losing about $1.4 million.

Also subject to substantial credit risk and illiquidity were the floating-rate loan funds. Despite the fact that concentrated positions in the fund were unsuitable for specific clients, FINRA says that Chase brokers still recommended these to clients who wanted low risk, very liquid investments or preferred to preserve principal. Because of these allegedly unsuitable recommendations, investors lost almost $500K.

FINRA says that WaMu, Investments Inc., also recommended that customers by floating-rate loan funds, even though these were not appropriate for the investors. The financial firm, which had merged with Chase in 2009, is also accused of not properly training or supervising its employees that sold the investments.

More About UITs
Unit investment trusts involve diversified securities baskets that may contain high-yield bonds. While junk bonds can make greater returns for investors than investment-grade bonds, they also come with a high degree of risk.

More About Floating-Rate Loan Funds
These mutual funds are invested in short-term bank loans for companies with a below investment grade crediting rating. What investors earn will fluctuate depending on what interest rates the banks happen to be charging on the loans.

In the wake of the allegations against Chase, FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that it was key that financial firms provide the proper guidance and training to brokers about product sales while supervising sales practices.

JPMorgan unit fined $1.7M over investment sales, Bloomberg Business Week/AP, November 15, 2011

FINRA Orders Chase to Reimburse Customers $1.9 Million for Unsuitable Sales of UITs and Floating-Rate Loan Funds, FINRA, November 15, 2011

More Blog Posts:
Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Blog, September 17, 2011

Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation, Institutional Investor Securities Blog, July 16, 2011

Bank of America Merrill Lynch to Settle UIT Sales-Related FINRA Charges for $2.5 Million, Stockbroker Fraud Blog, August 22, 2010

Morgan Stanley Investment Management Settles SEC Charges Over Allegedly Inappropriate Fee Deal for Over $3.3M

Published on: November 17, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says Morgan Stanley Investment Management (MSIM) set up a fee arrangement that charged a fund (as well as its investors) for services that they weren’t actually getting from another party. MSIM has agreed to pay over $3.3M to settle the charges that it violated securities laws.

As the main investment adviser to The Malaysia Fund, MSIM told the fund’s board of directors and investors that a sub-adviser, an AM Bank Group subsidiary, had been contracted to provide research, advice, and support even though according to the SEC, the sub-adviser did not actually provide these services. Rather, AMMB issued just two monthly reports stemming from information that was available to the public. MSIM did not ask for the reports nor did it use the data provided to manage the fund. Still, the fund’s board renewed the contract with this sub-adviser each year from 1996 to 2007 and this cost investors $1.845 million.

The SEC contends that MSIM failed in its obligation to let board members know information that could help them properly assess the terms of the fund’s contract with the sub-adviser. The Commission also says that MSIM’s involvement and oversight with AMMB was inappropriate. Not only did the investment adviser lack the written procedures to properly oversee its sub-advisers, but also, it lacked the procedures to review the work that AMMB did.

The SEC also claims that since no advisory services were actually provided by AMMB, MSIM ended up submitting false information in its semi-yearly and yearly reports. Per the Commission’s order, MSIM violated sections of the Investment Company Act and Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.

By agreeing to settle, MSIM isn’t denying or agreeing to the SEC’s findings. It has, however, agreed to a cease and desist from future violations of both acts and Rule 206(4)-7 thereunder. Of the $3.3 million settlement, $1.5 million is a penalty.

Background:
The Malaysia Fund is a closed-end company belonging to Morgan Stanley’s funds complex. MSIM and the Fund entered into a written advisory agreement in 1987. MSIM gives the Fund investment management services, as well as serves as Fund administrator.

Per Section 15(a) of the Investment Company Act, no person can act as a registered investment company’s investment adviser without a written contract that meets certain requirements and has been approved by most voting securities. The original contract can continue to be renewed as long as the Board or most of the outstanding voting securities approves it.

SEC Charges Morgan Stanley Investment Management for Improper Fee Arrangement, SEC, November 16, 2011

More Blog Posts:
Retirement Fund’s CDO Lawsuit Against Morgan Stanley is Dismissed by District Court, Institutional Investor Securities Fraud, October 27, 2011

Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Fraud, September 17, 2011

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures, Stockbroker Fraud Blog, September 19, 2011

MF Global Holdings Clients Unable to Access Their Money Following Chapter 11 Bankruptcy

Published on: November 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Wall Street Journal reports that in the wake of MF Global Holdings Ltd. filing for bankruptcy protection, about 33,000 of the securities firm’s clients are finding that they can’t access their cash until trustee James Giddens gives them permission. Giddens is the trustee overseeing the liquidation of MF Global Holdings’ broker-dealer unit, MF Global Inc.

Giddens had asked court permission to move about 60% of the $869 million that has been frozen-that’s about $520 million. He is hoping that if the court says, then the distributions would soon follow. However, a spokesman for Giddens has warned that because of MF Global’s financial woes, customers might not be able to get all of their money back.

MF Global Holdings sought Chapter 11 protection last month after a number of credit downgrades and a steep drop in its stock price. Some $600 million also appears to have gone missing. While this bankruptcy is not considered as big a debacle as that of Lehman Brothers Holdings, for traders, investors, and brokers that sold and bought derivatives via MF Global, the repercussions have been devastating.

AARP Offers Older Investors 5 Warning Signs for Avoiding the Next Major Ponzi Scam

Published on: November 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The AARP has issued a fraud protection bulletin warning investors how to avoid becoming the victim of whoever happens to be peddling the next Ponzi scheme. Unfortunately, older investors are among the favorite prey of financial fraudsters. According Investor Protection Trusts CEO Don Blandin, one in five people in the 65 and over age group have already been exploited. Millions more are at risk.

To help investors, AARP has put out a description of five red flags warning of a possible financial scam:

1) The broker-adviser tells you that you wouldn’t be able to access your money during a “lock-up” period.

Jefferson County, Alabama Declares Municipal Bankruptcy

Published on: November 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In the biggest municipal bankruptcy in this country to date, Alabama’s Jefferson County has sought Chapter 9 bankruptcy protection. The filing comes after the failure of state lawmakers to support an agreement with JPMorgan Chase & Co. (JPM) and other creditors to lower its over $3B debt tied to a sewer system. Now, Jefferson County’s creditors must contend losses in the hundreds of millions of dollars. There is also once more the worry that defaults may go up in the municipal bond market. This sewer-debt crisis has stalled economic progress in Alabama.

The accord that had been tentatively reached with creditors offered $1.1 billion in concessions and yearly sewer-raises of up to 8.2% for the first three years. Lawmakers, however, worried that these terms would take a toll on the poor, while creditors wouldn’t commit in writing to the agreement.

Jefferson County’s leading unsecured creditors are Bayerische Landesbank, a JPMorgan unit, and Depository Trust Co. In addition to sewer debt, the county owes approximately $1 billion. This includes $801M in school-construction bonds and $201M in general-obligation securities.

JPMorgan, which had over $1.2B of the county’s sewer debt as of May, didn’t want Jefferson County to file for Chapter 9. It was just two years ago that the financial firm consented to pay $722M to settle SEC charges that its bankers issued payments to people affiliated with Jefferson County politicians to garner business. Larry Langford, a former county commissioner, was even convicted of receiving bribes.

It is up now to Jefferson County to demonstrated to a federal judge that it cannot cover its bills. It must also set up a plan for how to fulfill its commitments.

Municipal bankruptcies are different from corporate ones in that creditors are not allowed to sell or seize the county’s assets. A trustee also cannot be appointed to run the county. Just recently, Harrisburg, Pennsylvania also filed for bankruptcy. The state capital noted that it had millions of dollars in late bond payments linked to a trash-to-energy incinerator. In August, Central Falls Rode Island filed for bankruptcy protection. The city has nearly $21 million in outstanding debt, not to mention unaffordable pension costs.

Although municipal bankruptcies don’t happen as often as corporate bankruptcies, Jefferson County is the eleventh one this year. Prior to this bankruptcy, the largest one was in 1994 when $1.7B in interest-rate bets losses and approximately $2.2 billion in outstanding debt promoted Orange County, California to file in 1994.

Our securities fraud attorneys are committed to fighting institutional investor fraud by helping municipalities and other clients that have sustained losses recoup their losses.

Jefferson County, Alabama, Votes to Declare Biggest Municipal Bankruptcy, Bloomberg.com, November 9, 2011

Jefferson County, Alabama to file for largest municipal bankruptcy, CNN, November 9, 2011

More Blog Posts:
Jefferson County, Alabama Votes to Settle its $3.14B Bond Debt with JPMorgan and Other Creditors, Institutional Investor Securities Blog, September 7, 2011

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market, Institutional Investor Securities Blog, May 16, 2011

JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions, Stockbroker Fraud Blog, July 9, 2011

Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading

Published on: November 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Southern District of New York, the Honorable Jed S. Rakoff has ordered Raj Rajaratnam to pay a record $92.8 million penalty for insider trading. This is the largest amount any individual has been ordered to pay for this type of securities fraud.

It was just last month that Rajaratnam, the billionaire Galleon Group, LLC co-founder, was sentenced to 11 years in prison and ordered to pay $10 million for his financial scam that garnered $63.8M in illegal gains. He also was forced to forfeit $53.8M. A jury had convicted Rajaratnam of multiple counts of securities fraud and conspiracy for using illegal tips to make trades before news about mergers, earnings, forecasts, and spinoffs became public.

Along with the fines from the criminal case, the penalty for the civil case ups the total of monetary sanctions that Rajaratnam has been ordered to pay to over $156.6 million. The SEC’s civil action also permanently enjoins him from violating sections of the Securities Act of 1933, the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.

It was in 2009 that the SEC charged Rajaratnam and several others in the insider trading scam. More defendants were named later that year, as well as in 2010. The case against them was part of a wider insider trading probe that has now charged 29 entities and individuals. Securities in over 15 publicly traded companies were involved resulting in more than $90 million in illicit profits or losses avoided.

Last month, the SEC was able to get a final judgment by consent against Galleon Management. The hedge fund is permanently enjoined from violating the federal securities laws’ antifraud provisions. It is also jointly and severally liable for what Rajaratnam has been ordered to pay.

Also in October, the SEC charged Rajat K. Gupta for providing insider trading tips to Rajaratnam. Gupta, who used to be the global head at McKinsey & Co., was on the boards of Procter and Gamble and Goldman Sachs at the time.

Alleged tips included confidential information about P & G and Goldman’s respective quarterly earnings and a $5 million investment that the latter was planning to make in Berkshire Hathaway. These latest charges come now, after the SEC dismissed charges in an earlier administrative proceeding against Gupta for the same alleged misconduct. Gupta also recently pleaded not guilty to insider trading charges, including multiple counts of securities fraud and one count of conspiracy to commit securities fraud.

The New York Times reports that in the last two years, the US government charged 56 people with insider trading. 51 of these individuals have either been convicted or pleaded guilty.

With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall St., NY Times, October 26, 2011
SEC Brings New Charges against Raj Rajaratnam, SEC, October 26, 2011
More Blog Posts:
Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam, Stockbroker Fraud Blog, October 13, 2011
Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011 Continue Reading ›

Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme

Published on: November 11, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The CFTC has been able to get a permanent injunction and default judgment against former Houston resident Jeffery Alan Lowrance and First Capital Savings and Loan. As restitution for their involvement in an alleged off-exchange foreign currency Ponzi scam, both will pay $1.2 million in restitution and a civil monetary penalty of $3.3 million. They have been permanently banned from commodity-related activities.

According to the order, Lowrance and First Capital Savings and Loan fraudulently solicited at least three dozen to get involved in forex trading. The two of them allegedly falsely claimed that they were successful traders and promised up to 4.15% monthly returns on their investments. They also are accused of publishing bogus client account statements that showed supposed monthly profits on the financial firm’s Web site. The court said that not only did both Lowrance and First Capital fail to put the money clients gave them into forex trading accounts, but also, they allegedly misappropriated the funds to set up a religious newspaper, support Lowrance’s personal expenses and the expenses of his family members, and pay supposed profits to existing investors. The order mandates that any entity or person that provided Lowrance and his company with domain registration or web hosting services now pull offline any of their Web sites that are soliciting clients to trade forex or commodity futures.

It was the U.S. Attorney’s Office for the Northern District of Illinois that indicted Lowrance for running a $25 million financial scam. In July, the SEC charged him with running a multimillion-dollar Ponzi scheme that defrauded hundreds of investors. Lowrance allegedly raised about $21 million. The investors he targeted lived in over two dozen US states. He enticed investors by claiming to share their Christian values and government views.

The SEC complaint contends that Lowrance and his financial firm told investors they were guaranteed a “predictable” income each month, along with returns as high as 7.15%. Certain clients even received bogus credit letters. Even though by 2008 Lowrance and his company had lost all of the investors funds, between June 2008 and February 2009 he still solicited at least another $1 million from at least three dozen investors.

The SEC is alleging violations of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and the Securities Act of 1933. It is seeking penalties, disgorgement, and other relief.

Court Orders Jeffery A. Lowrance and His Company to Pay More than $4.5 Million for Operating Foreign Currency Ponzi Scheme, CFTC
SEC CHARGES OPERATOR OF $21 MILLION FOREX PONZI SCHEME, SEC, July 15, 2011
Read the indictment (PDF)

More Blog Posts:
Texas Securities Fraud: SEC Moves to Freeze Assets of Stewardship Fund LP, Stockbroker Fraud Blog, November 5, 2011
Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M, Stockbroker Fraud Blog, October 28, 2011
Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011 Continue Reading ›

UBS Settles for $8M SEC Charges Over the Inaccurate Recordkeeping of Short Sales

Published on: November 11, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Less than a month after UBS Securities, LLC agreed to pay $12M to settle Financial Industry Regulatory Authority claims of supervisory failures and violating regulation SHO in securities short sales, the broker-dealer has now consented to an $8M penalty to settle Securities and Exchange Commission charges over poor recordkeeping related to the short sales.

Under Regulation SHO, broker-dealers have to accurately record how it has given out locates. A locate is a determination of that broker-dealer’s representation that it has set up to borrow, already borrowed, or reasonably believes it is able to borrow the security to settle a short sale. The SEC contends that UBS employees regularly attached a lender’s employee name to such locates even though that person had never been contacted to confirm availability. Thousands of locates were sourced this way.

The Commission also claims that at least for the last four years, UBS’s “locate log” inaccurately showed which locates came from direct confirmation with lenders and which ones were based on electronic feeds. (Although broker-dealers employees usually can access the electronic availability feed that lenders send to broker-dealers, they can’t always depend on the feeds and need to get directly in touch with lenders to confirm the security’s actual availability.) The SEC’s probe found that UBS employed practices made it hard to determine whether it had reasonable grounds for granting locates.

While the Commission’s order did not find that the broker-dealer executed short sales without a reasonable grounds for thinking that it could borrow the stock to complete its settlement obligations, it did find that UBS violated sections of Regulation SHO and the Exchange Act. SEC Director George S. Canelllos noted that it is important that regulators be able to know that a firm’s records are accurate and can serve as evidence that the financial firm is complying with the law in addition to safeguarding “against illegal short selling.” With short sales, the security being sold doesn’t belong to the seller. The short seller must either buy or borrow the security to deliver it.

In addition to the $8M penalty, UBS greed to hire an independent consultant that will review the UBS Securities Lending Desk’s policies, practices, and procedures regarding locate requests. By settling, the broker-dealer is not denying or admitting to wrongdoing.

Regulation SHO
Under Regulation SHO, broker-dealers cannot accept short-sale orders in equity securities or a effect a short sale in one unless the dealer or broker has borrowed the security, become involved in an arrangement to borrow it, or has reasonable grounds to believe it can borrow the security to be delivered when due. Documented compliance must come with this requirement. A “locate” shows that the broker-dealer has fulfilled these requirements. It is fairly common for customers to ask for locates from broker-dealers.

With the FINRA case, the SRO contended that it was supervisory failures that allowed UBS’s employees to commit the Regulation SHO violations. Significant deficiencies with UBS aggregation units were also believed to be factors resulting in locate violations and order-marking.

SEC Charges UBS With Faulty Recordkeeping Related to Short Sales, SEC, November 10, 2011

FINRA Fines UBS Securities $12 Million for Regulation SHO Violations and Supervisory Failures, FINRA, October 25, 2011

More Blog Posts:
UBS Fined $12M for Supervisory Failures and Regulation SHO Violations in Securities Short Sales, Institutional Investor Securities Blog, October 25, 2011

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Stockbroker Fraud Blog, April 12, 2011

UBS Trader Charged with Fraud Related to $2B Trading Loss, Stockbroker Fraud Blog, September 23, 2011

SEC and DOJ Charge Two Florida Men With Free Riding Securities Scam

Published on: November 10, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Two Florida men are accused of defrauding investors and broker-dealers by allegedly not telling them that they didn’t have enough money or securities to pay for their stock trades. The US Justice Department is charging Scott Kupersmith with securities fraud and wire fraud, while the Securities and Exchange Commission is charging him and Frederick Chelly with involvement in a front-running scam to trade free of risk at the expense of broker-dealers.

The U.S. Attorney for the District of New Jersey claims that Kupersmith engaged in free riding, which happens if a client sells or purchases securities in a brokerage account while lacking the money or securities to cover the trades. Kupersmith and his associates are believed to have facilitated the securities scam by setting up several brokerage accounts at financial firms in New Jersey and outside the state.

In addition to falsely representing himself as having a personal net worth of approximately $5 million, Kupersmith is also accused of made it appear as if he ran a Manhattan hedge fund with assets of up to $20 million. These misrepresentations allowed him to raise about $500,000 of investor monies, which he then used to cover personal expenses or pay principal and interest payments to earlier investors in this Ponzi-like scam.

The SEC says that Kupersmith and Chelly’s scam caused financial fraud allowed them to make $600K in illegal trading profit while broker-dealers lost more than $2 million as a result. The Commission says that the two men presented themselves as private investors or money managers.

They allegedly set up a number of accounts for corporate entities under their control in brokerage firms while buying/selling the same amount of the same stock in various accounts. Often, this would happen during the course of one day and with the intention of making money from the changes in stock price. The SEC says that Kupermith and Chelly would take the profits from the trades but that when substantial losses were likely, they wouldn’t pay able to cover sales they had asked for, which caused broker-dealers to take the losses.

The two men also falsely made it appear as if they had assets with a third-party custody bank even though they didn’t own the stock that they were selling and often didn’t have enough money to pay for the stock that they did buy. Share sale proceeds were then used to buy the same shares.

The two men used Delivery Versus Payment/Receipt Versus Payment accounts at the broker-dealers to trade. Te financial firms offered these accounts to the two men because they were under the impression that Kupersmith and Chelly had the money to cover their trades.

Read the SEC’s Complaint (PDF)

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Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M, Stockbroker Fraud Blog, November 8, 2011
Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011
Banco Espirito Santo S.A. Settles for $7M SEC Charges Alleging Violations of Investment Adviser, Broker-Dealer, and Securities Transaction Registration Requirements, Institutional Investors Securities Blog, November 5, 2011 Continue Reading ›

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff

Published on: November 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In Federal District Court today, Judge Jed S. Rakoff expressed concerns about the $285M securities settlement that Citigroup had reached with the Securities Exchange Commission. The financial firm was accused selling $1B in high-risk mortgage-linked collateralized debt obligation that it allegedly knew were at risk of failing. A federal judge must approve the settlement.

Rakoff is the same judge that wouldn’t approve Bank of America’s $33M securities settlement with the SEC for allegedly misleading investors. He later approved a revised settlement of $150 million.

At today’s hearing over the Citigroup deal, Rakoff said the settlement raises issues of concerns about the SEC’s enforcement practices. Approving the agreement would close the case on regulators’ claims that the financial firm.

While Rakoff has not yet made a decision about whether he will approve the settlement, he did question whether the SEC had any genuine desire to find out exactly what happened rather than just settling up. The SEC allows parties to settle without denying or admitting to any wrongdoing. Rakoff also raised concerns about the banks often break the promise they make when settling that they won’t violate securities laws in the future. This is the fifth time that Citigroup has settled securities claims with the SEC over alleged civil fraud. Rakoff also raised questions about why the bank’s settlement involves just a $95 million penalty when investors’ are estimated to have lost $700 million on the CDO.

Even though Citigroup didn’t jump into subprime mortgage loan packaging, it got involved in the housing boom just as that was reaching its heights As the market collapsed, Citigroup sustained over $30 billion in losses, and the government had to bail the bank out twice.

Last year, the financial firm consented to pay $75 million over allegations that it intentionally didn’t notify investors that their investment in the subprime mortgage market were declining in value when the financial crisis hit. Citigroup has since reorganized its risk management function

Citigroup’s $285M Settlement
The SEC claims Citigroup misled clients over a $1 billion derivatives deal involving Class V Funding III, which is a collateralized debt obligation. Not only did the financial firm select the portfolio but it also bet against it. Investors were not told of Citigroup’s conflicting allegiances and they sustained huge losses. Meantime, Citigroup made $126 million from taking a short position against the CDO’s assets, as well as another $34 million in fees.

Judge in Citigroup Mortgage Settlement Criticizes S.E.C.’s Enforcement, NY Times, November 9, 2011

Judge Dredd may scotch $285M Citi settlement: Attorney, Investment News, November 8, 2011

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

FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010