Bank of America

Puerto Rico Retiree Plan Accuses UBS and Others of Bond Price Rigging

Published on: April 29, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Puerto Rico Government Employees and Judiciary Retirement Systems Administration, a pension plan for retirees of the U.S. territory’s government, has filed a proposed securities class action in federal court against Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Barclays Capital, Inc. (BARC), BNP Paribas Securities Corp., Bank of America Securities, Credit Suisse Securities, FTN Financial Securities, Deutsche Bank Securities, JP Morgan Securities, Morgan Stanley (MS), Merrill Lynch, Pierce, Fenner & Smith, and UBS Securities. The retirement fund is accusing the defendants of rigging bond prices to keep the prices up on Freddie Mac and Fannie Mae bonds.

Freddie and Fannie, both U.S. government-sponsored entities (GSEs), offer bonds to raise money for loans. According to the Puerto Rico pension plan’s bond fraud case, the trading desks of the various banks worked together to artificially raise the prices of the GSE bonds when the market took a hit after the 2008 financial crisis and Fannie and Freddie started reducing the number of bonds issued for sale. This decrease led to a loss in profits for those underwriting and trading in Fannie Mae and Freddie Mac bonds. The plaintiff contends that instead of the banks opting to lower the difference between their purchasing and selling prices and competing for clients, they worked together to fix the bond prices so they could “maximize” their profits at the expense of customers.

The Puerto Rico retirement plan’s complaint comes weeks after another proposed class action was brought by two other pension funds also accusing banks of rigging the price of GSE bonds. The pension fund plaintiffs in that fraud case are the Trust and Sheet Metal Workers’ Local 19 Pension Fund and the Dallas Area Rapid Transit Employees’ Defined Benefit Retirement Plan. The defendants are Bank of America NA, Barclays Capital, Wells Fargo Securities, LLC, Citigroup Global Markets, Inc., BNP Paribas Securities Corp., Deutsche Bank Securities, JPMorgan Securities, HSBS Bank Plc, HSBC Securities, JP Morgan Chase Bank, TD Securities, Nomura Securities International Inc., and Merrill Lynch, Pierce, Fenner & Smith.

Big Banks Are Accused of Rigging Freddie Mac and Fannie Mae Bonds

Published on: February 27, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The City of Birmingham Retirement and Relief System and the Electrical Workers Pension System Local 103 have filed a proposed class action securities fraud lawsuit accusing a number of big banks of colluding with one another to rig the prices of Federal Home Loan Mortgage Corp. (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) unsecured bonds. The defendants in the case include JP Morgan (JPM), Bank of America (BAC), Citigroup (C), Barclays Bank (BARC), Deutsche Bank (DB), Credit Suisse (CS), UBS (UBS), Merrill Lynch, BNP Paribas Securities Corp., FTN Financial Securities, Goldman Sachs (GS), and First Tennessee Bank.

According to Law360, the plaintiffs contend that the bank took advantage of the dark market nature of the “private, ‘over the counter’ (OTC) market” where these bonds are bought and sold to get investors to buy the Freddie Mac and Fannie Mae bonds at prices that were “artificially high.”

Fannie and Freddie are both government-backed mortgage-finance companies. They are typically known for converting mortgages into mortgage-backed securities. This investor fraud lawsuit, however, is focused on their unsecured bonds. The proposed class contends that investors purchased the bonds because they thought they were safe, liquid, low risk, and likely to make returns. Their complaint states that the plaintiffs and other investors had not expected the “overcharges and underpayments” that resulted because of the banks’ alleged collusion.

Philadelphia Sues Citigroup, Goldman Sachs, Bank of America and Other Big Banks, Alleges Municipal Bond Rigging

Published on: February 21, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The city of Philadelphia, Pennsylvania is suing Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Wells Fargo & Co. (WFC), Barclays Plc (BAR), JPMorgan Chase & Co. (JPM), and Royal Bank of Canada (RBC) for allegedly rigging rates for variable-rate demand obligations (VRDOs). Philadelphia had issued over $1.6B of these bonds.

VRDOs are tax-exempt municipal securities that can be redeemed by investors early because they are tendered to banks. The banks can then remarket the bonds to other investors while charging issuers a fee.

According to InvestmentNews, the city is looking to represent a number of hospitals, municipalities, and universities with its lawsuit. The complaint contends that the banks worked with each other to manipulate the VRDO rates in secret so they could make hundreds of millions of dollars in unearned fees. The alleged rigging occurred between 2/2008 and 6/2016. The collusion purportedly involved the banks agreeing not to compete against each other for re-marketing services.

Big Banks End 2018 Holding At Least $1.6B of Unsold Loans Involving Leveraged Buyout Debt

Published on: December 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg, market woes have left Goldman Sachs Group Inc. (GS), Barclays Plc (BARC), Bank of America Corp. (BAC), and other Wall Street banks unable to get rid of at least $1.6B of “unwanted leveraged buyout debt” as investors continue to run from high-risk assets in the wake of fears about the global economy. A leveraged buyout (LBO) involves the acquiring of a company using borrowed funds. The assets of the company that is acquired, as well as the acquiring company’s assets, usually serve as collateral. LBOs make it possible for companies to get involved in big acquisitions without having to use a lot of capital.

Bloomberg reports that as of the 22nd of December, at least four loan sales involving acquisitions and buyouts had yet to “clear the market” leaving banks with no choice but to retain the debt on their books, including:

· A group led by Goldman Sachs in charge of the financing for First Reserve’s acquisition of pipeline operator Blue Racer was expected to end the year holding a $516M loan.

SEC Grants $83M in Whistleblower Awards in $415M Bank of America Settlement

Published on: March 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has awarded two whistleblowers almost $50M and another over $33M in the largest whistleblower awards that the regulator has issued to date. This ups the total of SEC whistleblower awards granted to $262M to 53 individuals in the last six years.

According to the SEC Office of the Whistleblower Chief Jane Norberg, these latest awards show that whistleblowers can offer information that is “incredibly significant,” making it possible for the regulator to go after serious violations that could have gone “unnoticed. “ Until these latest awards, the largest SEC whistleblower award granted was $30M in 2014.

Whistleblowers who provide quality, unique information involving securities law violations that lead to a successful enforcement action rendering over $1M in monetary sanctions may be eligible to receive an award that is 10-30% of the funds collected.

Merrill Lynch to Pay $425M to the SEC and $5M to FINRA for Misusing Customer Funds and Misleading Investors About Structured Notes

Published on: June 23, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch will pay $415M to resolve civil charges accusing the firm of misusing customer funds and not safeguarding customer securities from creditor claims. According to the Securities and Exchange Commission, the firm violated the regulator’s Customer Protection Rule by using customer funds inappropriately instead of depositing them in a reserve account.

Instead, said the SEC, Merrill Lynch took part in complex options trades that artificially lowered how much in customer funds needed to be in the reserve account. This liberated billions of dollars a week from ’09 to ’12. The firm used the funds for its own trades. If Merrill had failed with these trades there would have been a substantial shortfall in the reserve account.

Merrill Lynch, which is owned by Bank of America (BAC), has admitted wrongdoing as part of the settlement.

The SEC said that the firm violated the Customer Protection Rule when it didn’t abide by the requirement that customer securities that had been fully paid for be kept in lien-free accounts and protected from third parties claims in the event that Merrill Lynch were to collapse. Such a failure would have exposed customers to great risk and there would have been uncertainty as to whether they’d be able to get their securities back.
Also, contends the Commission, from ’09 to ’15, Merrill held up to $58B of customer securities a day in a clearing account that was subject to a general lien to be handled by its clearing bank.

FINRA Orders Merrill Lynch to Pay $2.4M in Fine, Restitution for Hundreds of Securities Transactions That Violated Fair Price Guidelines

Published on: December 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is ordering Bank of America’s (BAC) Merrill Lynch to pay a $1.9M fine for violating fair price guidelines over seven hundred times during a two-year period. The financial firm also must pay restitution of over $540K to customers that were affected.

According to the self-regulatory organization, Merrill’s credit trading desk purchased MLC notes from retail customers at up to 61.5% under the market price. General Motors had issued the notes prior to its bankruptcy. MLC Notes stands for Motors Liquidation Company Senior Notes.

Out of 716 transactions, 510 of them involved notes bought at markdowns that were greater than 10%. The desk would then sell the notes to brokers at market cost.