Investor Lawyers Blog

FINRA Vows to Step Up Internal Compliance Procedures

Published on: October 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed an administrative complaint against the Financial Industry Regulatory Authority accusing one of the latter’s directors of changing three sets of staff meetings minutes that SEC officials had requested. These revisions made the documents, which were delivered in August 2008, incomplete and inaccurate. This could affect FINRA’s chances of becoming the SRO for investment advisers. Currently, FINRA serves that role for just broker-dealers.

It was FINRA that reported the document problem to the Commission and then worked with the agency to resolve the matter. The SRO then appointed new leadership in the Kansas office (the director has since resigned) where the tampering took place and implemented changes that improved procedures for document handling. Modifications included more live and online ethics training, as well as greater document integrity. Other undertakings FINRA has agreed to:

• Train workers about past document integrity problems • Create a podcast on document integrity to show current and prospective employees • Talk about the importance of document integrity at yearly regulatory meetings, townhall gatherings, and at Senior Management onsite visits at district offices • Mandate that senior Office of Liaison and Counsel meet with every business that is about to undergo an on-site exam before the documents are generated for the SEC

Shareholder Securities Lawsuit Against China North East Petroleum Holdings Ltd., is Dismissed by District Court

Published on: October 30, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In re China North East Petroleum Holdings Ltd. Sec. Litig., a shareholder complaint against China North East Petroleum Holdings Ltd., (NEP), has been dismissed by the U.S. District Court for the Southern District of New York. The court found that the plaintiffs had not sustained economic losses because of the alleged misrepresentations made by the company. Judge Miriam Goldman Cedarbaum said that this was enough grounds for dismissal.

This is the first shareholder lawsuit dismissed against a U.S.-listed Chinese reverse merger company. An attorney for China North says the case outcome is a reaffirmation that despite “innuendo,” many of these companies are legitimate and have every right to be part of the US markets.

Meantime, the attorney for lead plaintiff Acticon AG, in disagreeing with the Court’s ruling, that the decision rested on issues not connected to the sufficiency of allegations of Defendants’ fraudulent misconduct but on whether the plaintiff sustained damages. He believes that the Court misapplied Dura Pharmaceuticals in holding that a short term recovery of the share price after the class period can negate a claim that a Plaintiff sustained economic loss.

Acticon filed its putative class action against China North last year contending that the company had overstated oil reserves and reported earnings (by over $36 million) and failed to account for significant losses. It was just in February 2010 that the company announced that people should not rely on its financial statements for the year ending Dec. 31, 2008 and the first three quarters 2009. Following that announcement, there were numerous director and executive resignations and replacements made.

Per the shareholder lawsuit, Acticon bought about $60,000 China North shares during the class period of 5/15/08-5/26/10 in a number of installments. The court said that Acticon kept the shares for months even though it could have sold them and even after there had been a final allegedly corrective disclosure that was put out in September of last year. It also said that a plaintiff that decides to not take the opportunity to sell at a profit after a corrective disclosure cannot later say that the disclosure caused the later loss of devaluation. For example, Acticon didn’t sell after a 12-day period when China North’s shares closed higher than the average price that it had paid for the shares.

There has recently been an increase in federal securities lawsuits filed against companies with significant operations in the People’s Republic of China that can be found on US Exchanges. The Securities and Exchange Commission also has identified substantial accounting irregularities among these companies, which have applied the reverse merger strategy to join the US markets.

Victory in fraud lawsuit for Chinese company, China Daily, October 27, 2011

More Blog Posts:
Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

Securities Lawsuits Expected to Reach Record High in ’11, Says Advisen Ltd. Report, Institutional Investor Securities Blog, April 23, 2011

Long Island Rail Road Disability Fraud Leads to 11 People Charged

Published on: October 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

This week, at least 11 people were charged over a fraud scam that allowed hundreds of Long Island Rail Road workers to falsely claim that they had disabling injuries in order to collect annual pensions. The scam could cost a federal pension agency over $1 billion. Among the defendants are seven ex- railroad workers (including an ex-federal railroad pension agency employee and a former union president) two doctors, and an office manager.

According to prosecutors, employees that took part in the Long Island Rail Road disability fraud claimed they were disabled when in fact they were still able to play golf, ride a bike, or engage in aerobics. The doctors reportedly filed the false claims so they could receive an extra benefit from the Railroad Retirement Board. Per the criminal complaint, Dr. Peter Ajemian recommended that at least 734 employees of LIRR be approved for disability. Dr. Peter Lesniewski recommended that 222 LIRR workers receive disability benefits. A third doctor is believed to have also been involved in the scam but he recently passed away. The doctors allegedly created false illness narratives and medical assessments for hundreds of retirees, receiving $800 – $1200 for each one, in addition to fees for false medical records to support the claims of disability. They also were paid millions in health insurance payments for treatments that were not actually needed.

Approximately $121 million was paid out to LIRR workers, whose disabilities were exaggerated or made up. For example, according to the New York Times, 62-year-old defendant Gregory Noone gets $105,000 in disability and pension payments annually and supposedly is in a lot of pain when he crouches, bends, or grips objects. Yet he manages to play golf and tennis frequently. 55-year-old Steven Gagliano, whose yearly payments are $75,000, took part in a 400-mile bike tour even though he claims to experience back pain that is so severe it is disabling.

The federal government started investigating the scam after the New York Times published a number of articles about LIRR employees abusing federal Railroad Retirement Board pensions in 2008. Per the newspaper, almost all of the railroad company’s career employees were seeking and getting disability payments-that’s three to four times the disability rate of the average railroad company. Also, said the Times, the federal Railroad Retirement Board appears to have been poorly run, with inadequate tests to determine whether disability claims is legitimate. Some railroad officials had even complained that disability benefits were frequently awarded for medical conditions even if a worker’s ability to work hadn’t been impaired. Few claims were turned down.

11 Charged in L.I.R.R. Disability Fraud Plot, NY Times, October 27, 2011
Local Docs Charged in $1B LIRR Disability Scam, Rockville Center, October 27, 2011
US Railroad Retirement Board

More Blog Posts:
“Investor’s Guide to Loss Recovery” Offers Key Information on How to Use Conflict Resolution to Get Your Assets Back, Stockbroker Fraud Blog, September 7, 2011
SEC’s Proxy Access Rule is Rejected by Appeals Court, Stockbroker Fraud Blog, August 5, 2011
No Need for New SRO Overseeing Investment Advisers, Says NASAA Official to Congress, Stockbroker Fraud Blog, April 10, 2011 Continue Reading ›

Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M

Published on: October 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Abraham Moses Fisch, a Texas criminal defense attorney, has been arrested and charged with money laundering, conspiracy to commit money laundering, obstruction of justice, and conspiracy. According to prosecutors, Fisch and Lloyd Glen Williams, who is Houston used car financier, allegedly ran a scam that fooled criminal defendants into thinking they could get the charges against them dropped if they were willing to pay money. Since 2008, the two men have allegedly bilked $1.48 million from a number of defendants through their Houston financial fraud.

For example, per the Houston Chronicle, in 2006, Fisch told accused convinced that cocaine trafficker Edilberto “Beto” Portillo that he could get him released from prison for $1 million. At the time, Portillo was charged with money laundering and drug trafficking. He agreed to pay this amount to Fisch’s friend, who turned out to be Williams. Although Williams wasn’t a lawyer, he was presented was someone who had high level contacts and could resolve criminal cases, get charges dismissed, or have prison sentences reduced.

Another defendant that the two men bilked was Umawa Oke Imo. The Houston physical therapy agency owner just went to prison for a $45 million Medicare/Medicaid fraud scheme.

Prosecutors say that the two co-conspirators would mislead their clients about the process of working with the government. The two men also allegedly lied to some, telling them that government officials had accepted the funds as bribes. Not only did the scheme cost those charged with crimes money, but it also prevented them from reaching legitimate plea agreements and caused them to wrongly think that the cases against them would be dropped.

Per the indictment against Fisch and Williams, the two men money laundered the money they made from the fraud. Fisch is also charged with failing to submit his tax returns in a timely manner every year that he received money for the financial scam. If convicted, he faces 10 years/each of the obstruction of justice counts, 5 years for conspiracy, 10 years for each money laundering charge, 1 year for each failure to file tax return count ((between 2006 and 2010), and 10 years for conspiracy to commit money laundering. Meantime, Williams just pleaded guilty to filing a false tax return and obstruction of justice. He faces up to three years behind bars for the bogus filing, five years max for conspiracy, and a $250,000 fine.

Also arrested was Fisch’s wife, Monica Bertman, who allegedly assisted with her husband’s financial scam. If convicted, she faces up to 10 years for obstruction of justice, up to five years for conspiracy, and also a $250,000 fine.

Feds say Houston lawyer bilked more than $1 million, Chron.com, October 28, 2011
Local Defense Attorney and Others Arrested in Connection with Scheme to Obstruct Justice, FBI, October 28, 2011

Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011
Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011
Merrill Lynch Faces $1M FINRA Fine Over Texas Ponzi Scam by Former Registered Representative, Stockbroker Fraud Blog, October 10, 2011 Continue Reading ›

Boogie Investment Group Inc. Fails Because of Fraudulent Private Placements by Provident Royalties LLC and Medical Capital Holdings Inc.

Published on: October 27, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Boogie Investment Group Inc. has submitted its withdrawal request to the Financial Industry Regulatory Authority. The small broker-dealer is the 20th financial firm that sold Provident Royalties private placements to either leave the brokerage business or announce its intentions to depart. According to Investment News, that’s nearly 40% of independent broker-dealers. Just this year alone, 11 broker-dealers that sold the private placements closed shop. Provident’s bankruptcy receiver reports on its Web site that 52 broker-dealers sold the shares.

Boogie sold about $410K in private placements. Its revenue at the end of the fiscal year was $422K-a definite reduction from the $1.2M of three years back. One of the reasons Boogie decided to bow out of the industry is because of the litigation expenses stemming from the failed private placements. Not only is Boogie contending with a class action lawsuit, but also, it is faced with a securities case filed by investors that purchased Provident’s Shale Royalties products and other arbitration cases not related to Provident private placements.

The Financial Industry Regulatory Authority has been tough on the financial firms and individuals that sold interests in private placements while allegedly failing to thoroughly investigate these products or even have reasonable grounds to believe that placements were suitable for clients. The failure to do the appropriate due diligence resulted in the firms being unable to know what were the risks involved. FINRA also says that the principals it has sanctioned lacked a reasonable basis for allowing their financial firms’ registered representatives to keep selling the offerings.

Retirement Fund’s CDO Lawsuit Against Morgan Stanley is Dismissed by District Court

Published on: October 27, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A district court judge has dismissed a securities fraud lawsuit filed by the Employees’ Retirement System of the Government of the Virgin Islands against Morgan Stanley (MS). The investor complaint, submitted in 2009, accused the financial firm of defrauding investors.

The pension fund had purchased the notes as part of a CDO that was marketed and set up by Morgan Stanley. The plaintiffs believe that the financial firm worked with Standard & Poor’s and Moody’s Investor Services to set up “false and misleading Triple-A credit ratings” for the notes. Because the high ratings, the plaintiffs bought the notes at a price that was inflated. The fund contends that the financial firm knew that in fact Morgan Stanley had insider information that the MBS underlying the notes were a lot riskier than they were led to believe and came from lenders that employed flawed underwriting standards. Many of notes were downgraded to junk by the end of 2007. The plaintiffs said the firm purposely got investors to get behind the CDO because it was taking a short position on underlying assets.

The portfolio, which was 92% residential mortgage-backed securities and was backed by $1.2 billion in assets, was exposed to $100 million from New Century Mortgage Corp. and over $130 million in loans from Option One Mortgage Corp. According to the retirement fund, the two homebuyers had poor credit scores. The Libertas collateralized debt obligation went into credit-default swaps, which referenced specific residential MBS.

Per U.S. District Court for the Southern District of New York, the Virgin Islands government pension fund did not adequately plead that Morgan Stanley misled it about the quality of the MBS that were underlying the Libertas CDO. Judge Barbara S. Jones, said the plaintiffs failed to state a fraud claim because its pleadings were not successful in alleging that Morgan Stanley made misstatements about the credit ratings of notes based on the underlying mortgage-backed securities. Also, the court noted that it wasn’t Morgan Stanley that issued the ratings or the statements in the CDO’s operating memorandum disclosures. Because of this, the court said that the plaintiff could not allege that Morgan Stanley had issued to it a materially false statement.

Shepherd Smith Edwards and Kantas founder and securities fraud attorney William Shepherd said, “Our law firm has been successful in maintaining similar cases in arbitration or state courts. I am curious as to just how and why this case was filed, or otherwise ended-up, in a federal court. Pleading requirements under federal securities laws are problematic, and there are a number of other hurdles one must overcome in federal court proceedings. There is no private right of action available under New York’s securities statute (The Martin Act). Other types of claims may be pursued under NY state law.”

Morgan Stanley Wins Dismissal of Virgin Islands Pension Fund’s CDO Lawsuit, Bloomberg, September 30, 2011

More Blog Posts:

Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts, Stockbroker Fraud Blog, August 10, 2011

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges

Published on: October 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

After surrendering to federal authorities today, Rajat Gupta has entered a not guilty plea to the criminal charges against him involving insider trading. Gupta, who was a former Proctor and Gamble and Goldman Sachs director, is accused of multiple counts of securities fraud and one count of conspiracy to commit securities fraud. He allegedly gave Galleon Group cofounder Raj Rajaratnam corporate secrets about Goldman. Our stockbroker fraud law firm has been following Rajaratnam’s criminal case on our blog site. (See below.) Earlier this month, he was sentenced to 11 years in prison over an insider trading scam that illegally garnered $63.8 million.

Gupta, who also once was a global head at McKinsey & Co., came under close scrutiny during Rajaratnam’s trial when he was brought up in testimony and phone conversations that were recorded in secret. He is also now facing civil charges with the Securities and Exchange Commission, which contends that he provided Rajaratnam with illegal tips about both Proctor and Gamble and Goldman Sachs’ quarterly earnings and an approximately $5 billion investment that Berkshire Hathaway was planning to make in the financial firm. Based on Gupta’s tips, Rajaratnam avoided losses of/made illegal profits of over $23 million. Rajaratnam made over 800,000 in illegal profits from the Berkshire Hathaway tip when, after first having Galleon funds buy over 215,000 Goldman shares, he ordered the liquidation of the Goldman holdings a day after the information and Goldman’s public equity offering became public.

Rajaratnam also made over $18.5 million in illegal profits for Galleon funds after Gupta allegedly told him that Goldman had positive 2008 second quarter financial results. Rajaratnam then had the hedge fund buy Goldman securities but liquidated them when Goldman made news of its earnings for that quarter public. Other charges stem from Gupta allegedly notifying Rajaratnam that fourth quarter results for that same year were negative. The Goldman holdings were sold off, allowing Rajaratnam to avoid over $3 million in losses. When Gupta allegedly tipped him about P & G’s 2008 4th quarter earnings, Rajaratnam had Galleon funds sell short about 180,000 P & G shares, generating over $570,000 in illicit profits.

According to the SEC, Gupta got his confidential information from board conversations while serving as director at both companies. At the time, Gupta had numerous business ties with Rajaratnam and was seeking to strengthen that relationship. Not only had Gupta invested in Rajaratnam’s hedge funds, but they also began a number of financial ventures together.

The SEC had recently dropped its previous administrative action against Gupta over the insider trading allegations. Following that move, he vowed to drop his lawsuit claiming that the regulatory proceeding had violated his constitutional rights.

Of the 56 people that the government has charged with its crackdown on insider trading, 51 either were convicted or pleaded guilty.

With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall St., Dealbook, October 26, 2011
SEC Files Insider Trading Charges against Rajat Gupta, SEC, October 26, 2011
Rajat Gupta, SEC Agree to Drop Galleon-Related Suit, Administrative Action, Bloomberg, August 5, 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
Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011 Continue Reading ›

UBS Fined $12M for Supervisory Failures and Regulation SHO Violations in Securities Short Sales

Published on: October 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

UBS Securities has agreed to pay FINRA a $12 million fine over violations that led to millions of short sale orders of securities being mismarked or entered into the market even though there was no reasonable basis for thinking that they could be delivered or borrowed. FINRA says that UBS did not properly supervise the short sales and violated Regulation SHO. In settling, the financial firm is not denying or admitting to the charges. UBS has, however, agreed to an entry of FINRA’s findings.

Per Reg SHO, a broker must have reason to believe that a security can be delivered or borrowed before allowing a short sale order. Financial firms have to document this “locate information” prior to the sale happening so as to decrease the amount of potential failed deliveries. Broker-dealers also are supposed to designate an equity securities sale as either short or long.

Short sales involve sellers that don’t own the security that they are selling. To deliver the security, the short seller has to either borrow or buy it.

FINRA says that UBS had a flawed Reg SHO supervisory system when it came to locates and marking sale orders and that this resulted in supervisory failure, which played a role in serious regulation failures showing up throughout the investment bank’s equities trading business. In addition to putting into the marketplace millions of short order sales without locates (involving supervisory and trading systems, accounts, desks, strategies, the financial firm’s technology operations, and procedures), millions of sale orders were also mismarked—many of them as “long” —which led to more Reg SHO violations. FINRA also claims that “significant deficiencies” involving UBS’s aggregation units could have played a role in more locate violations and significant order-marking.

Because of UBS’s alleged supervisory failures, many of the violations weren’t fixed or detected until after the FINRA probe prompted the financial firm to evaluate its systems and procedures. UBS has since taken steps to upgrade these in an effort to have stricter Reg SHO controls.

Per FINRA Chief of Enforcement Brad Bennett, financial firms are responsible for making sure that they have the proper supervisory and trading systems so that naked short selling that is “potentially abusive” doesn’t happen. He noted that the violations committed by UBS could have hurt the market’s integrity.

Supervisory failures is a type of broker misconduct. It is a brokerage firm’s responsibility to create and execute written procedure that do the job of monitoring its employees’ activities so securities fraud and mistakes don’t happen that can cause investors to suffer losses and/or the market to go into chaos.

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

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

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses

Published on: October 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global Markets Inc. (C) is suing Abdullah and Ghazi Abbar. The Saudi investors have filed a FINRA arbitration claim against the Citigroup unit seeking to recover the $383 million that they say the bank lost their family’s money. The Abbars, who are father and son, are accusing Citigroup Global Markets of mismanaging their family’s savings.

Citigroup, which wants injunctive relief, says that the entities that took care of the the Abbars’ private-equity loan and leveraged option transactions are located abroad and therefore not under FINRA’s jurisdiction for arbitration. The financial firm also says that father, son, and their investment entities are not CGMI clients and their claims are not activities related it. The investment bank has noted that the Abbars chose to pursue it rather than the non-U.S. parties that they actually had agreements with that completed the transactions. The Abbars, however, say that those overseeing the Citigroup entities that took party in the daily management of their credit deal are personnel that are registered with FINRA.

Says Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd, “The financial industry has created its own securities arbitration forum to resolve disputes and claims between and against its members. It is ironic when claims are filed that they often go to court to beg to get out of arbitration, their self-imposed fate. While courts in New York seem to operate to accommodate Wall Street’s wishes, the law for decades has held that decisions regarding the liability of securities firms are for the arbitrators, not the courts. If these investors have properly alleged any wrongdoing by the U.S. securities firm, the court has no business intervening. Such wrongdoing can be simply ‘control person liability,’ which is the failure to control or properly supervise the behavior or operations of a subordinate or subsidiary.”

CGMI placed $343 million of the Abbars money in hedge funds that were included in a leveraged option swap transaction. In their FINRA arbitration claim, the Abbars argue that leading CGMI officers, including ex- global wealth management chief Sallie Krawcheck and Chief Executive Officer Vikram Pandit, pursued them.

Father and son contend that because of alleged “gross misconduct” by CGMI, their wealth was lost. They say that the bank’s failure to monitor the investments properly led to their total collapse during the height of the economic collapse in 2008. The Abbars also believe that lendings related to the Citigroup investments played a role in the losses. The Abbars says that Citigroup, which then started managing the positions that remained in the portfolio while implementing a program to redeem it, will “unjustly benefit” by about $70 million from the redemption of these investments.

Citigroup Sues to Block Arbitration of Saudi Investors’ Claim, Bloomberg/Businessweek, October 6, 2011
Citigroup Aims to Stop Arbitration From Proceeding, OnWallStreet, October 7, 2011

More Blog Posts:
Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011
Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011
Citigroup to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, Institutional Investors Securities Blog, October 20, 2011 Continue Reading ›

California Investigating Whether Bank of America & Countrywide Financial Used False Pretenses to Sell Mortgage-Backed Securities to Investors

Published on: October 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Not long after bowing out of talks over a possible $25 billion dollar settlement between state and federal officials and the country’s largest banks (including Bank of America Corp, Citigroup, and JP Morgan Chase & Co.) over alleged foreclosure abuses, California’s Attorney General’s office has subpoenaed BofA as part of its investigation into whether it and subsidiary Countrywide Financial employed false pretenses to get private and institutional investors to purchase risky mortgage-backed securities. By walking out of the negotiations on the grounds that the banks weren’t offering a big enough settlement, the state of California has given itself the option of arriving at a larger settlement.

California Attorney General Kamala D. Harris has called the proposed settlement “inadequate” for the homeowners in her state. She has also has set up a mortgage fraud strike force tasked with investigating all areas of mortgage fraud.

Countrywide is credited with playing a role in the housing boom and its later collapse because of subprime loans it gave clients with poor/no credit histories, mortgages that let borrowers pay such a small amount that their loan balances went up instead of down, and “liar” loans that were issued without assets and income being confirmed. Also, a lot of the most high-risk loans were bundled up to support private-label securities that became highly toxic for investors and banks.

Meantime, Federal and state officials are trying to get California to rejoin the larger talks. Just this week, they presented the possibility of helping troubled creditworthy owners refinance their loans. California’s involvement is key for any deal because the state so many borrowers that owe more than the value of their homes, are in foreclosure, or are running behind on mortgages.

New York, too, has backed out of the group—a move that proved to be another blow for negotiations, as well as for the Obama Administration. Officials from other states, such as Nevada, Delaware, Minnesota, Massachusetts, and Kentucky, have also expressed worry about the breadth of the settlement and whether all potential misconduct has been investigated.

With its acquisition of Countrywide in 2008, BofA has sustained high losses over settlements as a result of its subsidiary’s loans. According to the Los Angeles Times, these settlements include:

• A promise to forgive up to $3 billion in principal for Massachusetts Countrywide borrowers
• $600 million to former Countrywide shareholders
• Billions of dollars to Freddie Mac and Fannie Mae over buybacks of bad home loans
• $8.5 billion to institutional investors over the repurchase of Countrywide mortgage-backed bonds
• $5.5 billion reserved for mortgage bond investors with similar claims

California reportedly subpoenas BofA over toxic securities, Los Angeles Times, October 20, 2011

California Pulls Out of Foreclosure Talks, Wall Street Journal, October 1, 2011

More Blog Posts:
$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

Federal Home Loan Banks Say Countrywide Financial Corp Mortgage Bond Investors May Be Owed Way More than What $8.5B Securities Settlement with Bank of America Corp. is Offering, Institutional Investor Securities Blog, July 22, 2011

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