Houston Pension Fund Accuses Bank of Fraud
In the U.S. District Court Southern District of California, the Houston Municipal Employees Pension System has filed a securities fraud case against Bofl Holding (BOFI) Inc. The pension fund claims that the bank employed illegal lending practices and depended on off-balance-sheet entities to enhance profits.
According to the plaintiff, Bofl did not disclose its use of off-balance-sheet entities to buy lottery receivables, failed to put into place a healthy compliance system, and gave loans to foreign nationals even though they had suspect or criminal histories. The Houston pension fund also believes that Bofl did not fully disclose to investors that it had been subject to regulatory and government subpoenas or that there were pending federal probes against it.
Dallas Pension Fund Files Lawsuit Against CDK Realty Advisors
The Dallas Police and Fire Pension System is suing CDK Realty Advisors. The Texas pension fund claims that the advisory firm directed it toward risky deals while making excessively high fees and garnering other benefits. The plaintiff is seeking to recover millions of dollars.
CDK Realty Advisors once managed over $700M for the Dallas pension fund. Now, the latter is claiming multiple breaches of fiduciary duty. It is also claiming write-downs and losses of over $320M because of the risky investments. The Dallas Police and Fire Pension System says that CDK should have done a better job of protecting the fund’s members.
In one example cited, the pension fund says that it lost $6M because CDK allegedly engaged in self-dealing related to one particular real estate investment. According to the Dallas fund, CDK recommended that purchase of the complex through a limited partnership. Meantime, the investment adviser was not only playing the role of property manager but also it entered into sweetheart deals with owners of the limited partnership. The deals they arranged purportedly involved renting and selling units at rates that were below-market.
The pension fund’s Texas securities case is a response to the lawsuit filed by CDK accusing the Dallas pension fund of not paying it $139,468M in management fees.
Meantime, CDK claims the fund’s contentions are meritless and it intends to go to court to defend itself. A lawyer representing CDK noted that the board and management of the Dallas pension fund had approved the deals, which have “substantially increased” the retirement money of the city’s firefighters and police officers who belong to the pension system.
Texas Lawyers Accused of Misappropriating $13.8M in Escrow Deposits
The U.S. Securities and Exchange Commission is accusing two Texas attorneys of fraud involving $13.8M in escrow deposits. According to the regulator, Christopher Brenner and J. Mac Rust, while serving as Atlantic Rim Funding escrow agents, took $1.25M in client money to pay themselves and others while betting the remainder on high-risk securities derivatives.
The two men allegedly bilked over two-dozen small business owners looking to obtain loans from a commercial lender. They are accused of telling potential clients that if they deposited money equivalent to 10% of the loan they were asking for, the funds would go toward buying securities that Atlantic Rim Funding would use as “leverage.” This was then supposed to be used to get the borrowers commercial loans that were ten times greater than the amount they had deposited.
It was SEC examiners who detected the fraud while examining one of the firms where the two men allegedly made trades.
The person running the purported scheme that Brenner and Rust were involved in is referred to in court papers as a convicted felon with a history of securities law violations. This individual is already serving 20 years behind bars in another fraud case.
Houston pension fund sues Internet banker BofI for securities fraud, CNBC/Reuters, April 14, 2016
Dallas Police and Fire Pension System, The Courier, April 6, 2016
Texas Attorneys Accused in $13M Escrow Scam, CFO, May 13, 2016