December 10, 2014

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations
According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.


Marwood Group LLC May Be Subject to Insider Trading Charges
Earlier this month, the SEC notified Marwood Group LLC that it is looking to bring an enforcement action against the Washington policy-research firm for insider trading.

The Commission is looking at whether Centers for Medicare and Medicaid Services officials gave the firm inside information about funding for Provenge, a prostate cancer drug. The product’s manufacturer, Dendreon Corp. (DNDNQ), saw its shares drop before the CMS decided to cut coverage on the medication in 2010, as opposed to after.

According to the regulator, a year before the CMS cut coverage, a CMS employee allegedly gave a Marwood employee insider information about the reduction. A week after the reduction was officially announced, the political intelligence put out a research report that included details about the change in coverage

A Marwood spokesperson maintains that the firm did nothing wrong, noting that no one benefited financially from the information. However, SEC officials have said that such a conversation is the equivalent of insider trading.

Under the 2012 Stop Trading on Congressional Knowledge Act, public officials are obligated to keep government-related non-public data hat could shift share prices confidential.


SEC Looks to Suspend S & P from Rating Commercial Mortgage-Backed Securities
The Commission wants to suspend Standard & Poor’s from rating CMBSs. The regulator has been probing whether the credit rating agency modified criteria in 2011 to win business.

In July, the regulator sent S & P a Wells notice notifying it that the agency was pursuing an action linked to six commercial mortgage-backed securities ratings from a few years ago. The purported violations involve the public disclosure and rankings that the credit rating agency made about the securities.

It was in 2011 that the S& P withdrew the grades it issued for a CMBS offering that came from Citigroup (C) and Goldman Sachs Group (GS). This caused both institutions to drop the deal after its placement with investors.

Standard & Poor had withdrawn the rankings to assess whether there were conflicts in the way it used its methodology. It also stopped rating new CMBSs. In August of that year, however, S & P said that it would resume grading deals, noting that the conflict was not a big deal. It modified its criteria the following year and went back into the market.

SEC investigating top Oppenheimer executive
, Investment News, December 10, 2014

Marwood Grp Gets Wells Notice in Insider Trading Crackdown on 'Political Intelligence'
, Fox Business, December 9, 2014

SEC Seeking S&P’s Suspension From Rating Commercial Mortgage Bonds, Bloomberg, December 8, 2014

2012 Stop Trading on Congressional Knowledge Act (PDF)


More Blog Posts:
Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December

November 13, 2014

Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg

According to Bloomberg.com, sources are telling them that Citigroup (C) and Bank of America (BAC) are selling soured U.S. mortgages to satisfy the demand from investment firms that are raising the prices. For example, say the individuals who asked not to be named, Bank of America recently placed approximately $1 billion of beleaguered debt, including nonperforming loans. Meantime, Citigroup purportedly sold around $1 billion of re-performing and nonperforming mortgages.

Lenders are reportedly selling more defaulted mortgages to avoid the cost of holding the debt. Meantime, private-equity firms and hedge funds are trying to make money off of increasing home values. The number of firms looking to acquire debt that has soured is growing.

According to some critics, that housing regulators and other agencies have recently announced rulings that would decrease credit and lending standard for home mortgages is a sign that the government is making the kinds of errors that led to the 2008 housing crisis. With housing giants Freddie Mac (FMCC) and Fannie Mae (FNMA), handing over the majority of their earning to the Treasury Department, government-sponsored enterprises are now lacking the capital buffer they would need in the event there are losses. If the economy gets into trouble again, it may be up to taxpayers once more to bail these GSEs out. It was the U.S. Treasury that helped save Freddie and Fannie with $180 million as the government seized them, placing both under conservatorship.

Last month, the Federal Housing Finance Agency announced that even though sellers of certain asset-backed securities have to keep a minimum of 5% of the asset’s credit risks, securities backed by qualified residential mortgages are exempt from this requirement.

Our mortgage-backed securities fraud lawyers are here to help investors recoup their losses.

Bank of America, Citigroup Said to Sell Soured Home Loans
, Bloomberg, November 12, 2014

Feds to Back Risky Home Loans Again
, The Washington Free Beacon, November 10, 2014


More Blog Posts:
Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

August 27, 2014

Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations

The Financial Industry Regulatory Authority says that Citigroup Global Markets Inc. (C) will pay a fine of $1.85 million for not providing best execution in about 22,000 customer transactions of non-convertible preferred securities, as well as for supervisory deficiencies that went on for over three years. Affected customers are to get over $638,000 plus interest.

A firm and its registered persons have to exercise reasonable diligence to make sure that the sale/buying price the customer pays is the most favorable one under market conditions at that time. FINRA says that instead a Citigroup trading desk used a pricing methodology for the securities that failed to properly factor in the securities’ National Best Bid and Offer. Because of this, contends the self-regulatory organization, over 14,800 customer transactions were priced inferior to the NBBO. The SRO also claims that because Citigroup’s BondsDirect system for order execution used a faulty pricing logic, over 7,200 customers transactions were priced at less than NBBO.

FINRA says that Citigroup’s written supervisory procedures and supervisory system related to best execution in these securities were lacking. It claims that the firm did not review customer transactions for the securities at issue, which were either executed manually by the trading desk or on BondsDirect. Such an assessment could have ensured compliance with Citigroup’s best execution duties. (FINRA noted that it had sent the firm inquiry letters about the reviews.)

Citigroup is consenting to the entry of the SRO’s findings. It isn’t, however, denying or agreeing with FINRA’s claims.

FINRA Fines Citigroup Global Markets Inc. $1.85 Million and Orders Restitution of $638,000 for Best Execution and Supervisory Violations in Non-Convertible Preferred Securities Transactions, FINRA, August 26, 2014

Citigroup to Pay $2.5 Million for Pricing Flaws of Markets Unit, The Wall Street Journal, August 26, 2014


More Blog Posts:
Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS, Stockbroker Fraud Blog, July 28, 2014

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC, Institutional Investor Securities Blog, August 5, 2014

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion, Institutional Investor Securities Blog, July 14, 2014

July 28, 2014

Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS

LavaFlow Inc., a Citigroup (C) business unit, has consented to pay $ 5million to resolve U.S. Securities and Exchange Commission charges that it did not protect subscribers’ confidential trading data in its alternative trading system. LavaFlow consented to the SEC order without denying or admitting to the allegations.

Per the order, which institutes a settled administrative proceeding, LavaFlow, which runs an electronic communications network ATS, let an affiliate that runs a smart order router application to access and utilize confidential data related to non-displayed orders belonging to subscribers. The order router was not within ECN’s operations and LavaFlow lacked the proper procedures and safeguards to protect this confidential information.

Even though LavaFlow only let the affiliate use the confidential data for ECN subscribers that were also order router customers, the firm did not get subscribers’ consented for their confidential data to be used like this. LavaFlow also failed to disclose this use to the SEC.

LavaFlow has since discontinued this practice. Prior to that, however, the smart order router executed over 400 million shares over three years.

The SEC also claims that LavaFlow aided and abetted a violation by the affiliate that ran smart order router Lava Trading Inc., which kept offering brokerage firm services after it reregistered. During this several month period, Lava Trading made about $1.8 million. Citigroup Financial Products owns Lava Trading.

The SEC order says that LavaFlow violated certain rules of Regulation ATS and aided, abetted, and caused Lava Trade to violate the Securities Exchange Act of 1934. Of the $5 million settlement, $1.8 million in disgorgement of funds made by Lava Trading while it wasn’t registered, $350,000 in prejudgment interest, and a $2.85 million penalty. LavaFlow has been ordered to cease and desist from future violations.

Alternative Trading System
This is a venue that executed stock traders fro traders, including broker-dealers. These stock trading venues are typically run by banks competing with more traditional order flow exchanges. Federal rules mandate that ATS have safeguards to protect its subscribers’ confidential trading information. In the last few months, trading systems have undergone closer regulator scrutiny, especially in relation to high-frequency traders and their relationship to exchange operators.

Just last week, Barclays (BARC) sought to have a dark pool lawsuit filed against it by New York regulators dismissed. The state’s Attorney General Eric Schneiderman claims the British bank lied about giving preferential treatment to high-frequency traders and committed securities fraud.

According to the complaint, Barclays falsely portrayed how clients orders are routed and claims to protect the order from high-speed firms when actually the dark pool LX is operated to the advantage of traders. The bank is now arguing that Schneiderman used misleading data and cherry-picked facts to supports his claims.

Barclays claims that the dark pool lawsuit doesn’t succeed in identifying a specific fraud, failed to establish any material misstatements, and did not identify victims or any real harm.

The bank also says that the Martin Act, which the regulator claims Barclays violated, doesn’t apply to the lawsuit. Under the New York State securities law, prosecutors only have to prove that fraud occurred and doesn’t insist on proof that a firm meant to bilk investors. Barclay, however, said the act doesn’t apply to claims about how a dark pool is run and that Schneiderman’s office is overstepping its mandate in trying to regulate dark pools, which is an SEC job.

Since the case was filed, a number of clients have left Barclay’s LX and trading volume has declined by 75%.

Citigroup Business Unit Charged With Failing to Protect Confidential Subscriber Data While Operating Alternative Trading System, SEC, July 25, 2014

Read the SEC Order (PDF)

Barclays Files to Dismiss New York Attorney General's Dark-Pool Complaint, The Wall Street Journal, July 24, 2014


More Blog Posts:
Second Circuit Overturns Judge's Decision to Block Citigroup's $285M Settlement With the SEC, Stockbroker Fraud Blog, June 4, 2014

$11M Award Against Citi is Vacated by the New York Supreme Court, Stockbroker Fraud Blog, January 30, 2014

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion, Institutional Investor Securities Blog, July 14, 2014

June 4, 2014

Second Circuit Overturns Judge's Decision to Block Citigroup's $285M Settlement With the SEC

The Second Circuit appeals court said that District Judge Jed Rakoff abused his discretion when he rejected the $285 million mortgage settlement between the SEC and Citigroup (C). The regulator accused Citigroup of selling sections of Class V Funding III, a $1 billion mortgage-bond deal, without revealing that the bank was betting against $500 million of the assets.

Rakoff, a district court judge, said that he partially blocked the settlement because he didn’t agree with a Commission practice in which the party involved gets to resolve a case without denying or admitting to wrongdoing. Last year the SEC reversed its policy that automatically lets companies settle without making a wrongdoing admission. Now, the regulator is compelling admissions in cases that are especially egregious. Also, following Rakoff’s ruling, other judges followed his lead in a number of lawsuits.

This week, however, the appeals court said that the Commission should be granted wide deference when it is deciding whether or not a case should go to trial or settle. The three-judge panel said the deal between the SEC and Citigroup was in the interest of the public.

The court noted that Rakoff shouldn’t have sought to make the agency establish the veracity of the claims made against the party as a condition for whether he would approve the decree of consent. The Second Circuit said that the district court doesn’t have “purview” to mandate facts.

Now, the appeals court is remanding the mortgage case back to Rakoff. However, he isn’t obligated to okay the deal right away. The court said the judge could still seek additional disclosures from the two parties.

The panel also issued guidelines for how to exercise discretion in federal enforcement cases. As long as the SEC abides by these correct procedures, a judge’s decision-making power would be limited.

The appellate court’s decision is expected to directly affect the $616 million securities fraud settlement reached between SEC and SAC Capital Advisors over insider trading allegations. Although a judge approved the deal last year, the ruling was contingent upon the outcome of the appeal in the Citigroup settlement.

Appeals Court Says Judge Erred in Blocking SEC-Citigroup Settlement, The Wall Street Journal, January 4, 2014

Appeals Court Overturns Decision to Reject S.E.C.-Citigroup Settlement, The NY Times, June 4, 2014

Cohen's SAC to pay $616 million in SEC insider trade settlement, Reuters, March 15, 2013


More Blog Posts:
$11M Award Against Citi is Vacated by the New York Supreme Court, Stockbroker Fraud Blog, January 30, 2014
SEC Practice of Settling Enforcement Actions Without Requiring Defendants to Deny or Admit to Allegations Gets Support from Federal Judges and Democrats, Institutional Investor Securities Blog, May 26, 2012

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

January 30, 2014

$11M Award Against Citi is Vacated by the New York Supreme Court

The New York Supreme Court has vacated the $11M FINRA arbitration award against Citigroup Global Markets Inc. (C) and one of its employees. The securities case is Citigroup Global Markets Inc. v. Fiorilla.

Judge Charles Ramos vacated the award after determining that the parties had agreed to settle the arbitration case for $800,000 before arbitration. He said that it did not benefit the public interest to honor arbitrations of disputes that were settled before they were arbitrated.

The securities case involves a complaint filed by former legal adviser to the Holy See John Fiorilla. He contended that he turned over approximately $16 million of Royal Bank of Scotland PLC (RBS) stock—an inheritance from his dad—to Smith Barney adviser Robert Loftus. The latter is not a party in this arbitration claim.

Fiorilla claims even though the firm said it would provide protection from losses and hedge the highly concentrated the position because Loftus’s supervisors had been negligent the investment stayed overconcentrated. Between 2007 and 2009, the value of the claimant’s investment in the RBS stock dropping from $35/share to $2 share.

Fiorilla asked for a $19.5 million FINRA arbitration award and he was awarded nearly $11 million. Citigroup then filed a motion to vacate claiming that because of the agreement to settle previously, his securities claim should have never gone to arbitration.

FINRA Arbitration
Our FINRA arbitration law firm represents investors with escurities claims against financial firms and/or its advisors and brokers. You want to make sure you work with a securities fraud law firm that knows how to file and prepare this type of claim to help you recover your investment losses.

Court overturns $11 million arbitration award against Citigroup, Investment News, January 16, 2014


More Blog Posts:

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice, Stockbroker Fraud Blog, September 17, 2013

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

Lawyers, Investor Advocates Want to Know More About SEC Supervision Of FINRA’s Arbitrator Selections, Institutional Investor Securities Blog, December 2, 2013

September 17, 2013

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton "Bud" Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

The FINRA arbitration panel’s ruling this week includes over $1 million for the couple’s real estate investment losses and $2.1 million for the couple’s portion of the $10 million judgment. Should the Madhanys have to pay the entire $10 million amount, Citigroup will have to pay them back.

Selling Away
The securities industry prohibits selling away, which is a practice involving advisors promoting investments privately without their firm’s knowledge. Brokerage firms can be held liable when a broker engages in “selling away.”

Our securities lawyers represent investors that have lost their investments because of selling away, elder financial fraud, and other types of securities fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today and ask to speak with one of our FINRA arbitration lawyers.

Citigroup must pay couple $3.1 million for not overseeing broker: panel, Reuters, September 16, 2013

Orlando couple win $3.1M award from Citigroup Global, Orlando Sentinel, September 17, 2013


More Blog Posts:
Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013

August 23, 2013

FINANCIAL FIRMS IN THE SPOTLIGHT: Raymond James Gives RIA’s Access to Alternative Investments, Citigroup’s $730M Bondholder Settlement is Approved, JPMorgan Deals with China-Related Hirings Inquiry, & Merrill Lynch’s Future as an Entity is Uncertain

Affiliated RIAs of Raymond James to Get Access to Firm’s Alternative Investments
The Raymond James Alternative Investment Group will give its affiliated registered investment advisers access to hedge funds, private real estate, managed futures, private equity, and alternative mutual funds beginning next month. The move is part of Raymond James’ (RJF) attempt to strengthen its RIA platform.

Already, it has added more support services for investment advisers in the areas of marketing, practice marketing, and succession planning. The financial firm also brought in four regional director for recruiting and existing practices while cutting equity ticket charges and waving certain individual retirement account fees.

Citigroup’s $730M Bondholder Settlement is Approved by a Federal Judge
U.S. District Judge Sidney Stein in Manhattan has approved the $370 million bondholder settlement reached with Citigroup Inc. (C) over claims that before the financial crisis the bank hid its exposure to toxic mortgage assets worth billions of dollars. According to court papers, the agreement is with investors that purchased Citigroup bonds and preferred stock in four dozen offerings between 5/06 and 8/08 and involved the bank raising over $71 billion dollars.

The plaintiffs contended that Citigroup played down its exposure to about $160 billion in CDOs and structured investment vehicles backed by high-risk assets, overstated the assets’ qualities, and understated reserves to offset loans. However, while Judge Stein said that the $370 million recovery is substantial and adequate, it wasn’t the “best possible” one for them, seeing as experts believe actual losses sustained was about $3 billion.

US Investigates JPMorgan Over Hiring of Chinese Officials’ Children
Federal authorities in the US are looking into whether JPMorgan Chase & Co. (JPM) hired Chinese officials kids in order to gain business in that country. According to The New York Times, a confidential US government document alleges that China Everbright Group retained the firm after the latter hired the son of Tang Shuangning, the company’s chairman. JPMorgan provided a number of services, including advice on investment banking over a stock offering. The document also says that the firm hired the daughter of the ex-deputy chief engineer of China’s railway ministry in 2007, which is about the same time that JPMorgan was awarded a contract to take China Railway Group public.

What Does Merrill Lynch’s Future Look Like?
According to an article in Investment News, over four years after its acquisition by Bank of America Corp. (BAC), Merrill Lynch (MER) could soon stop existing as a legal entity. An August 2 filing notes that although Bank of America will retain the Merrill brand for its investment bank and retail brokerage, the subsidiary will be dissolved, possibly in the fourth quarter of this year.

Merrill would keep doing business under Merrill Lynch Pierce Fenner & Smith Inc. and this restructuring would reportedly not impact its advisers. Meantime, Bank of America would take on all of Merrill’s debt and obligations.

Raymond James to Offer Alternative Investments to Custodial Clients, Financial Planning, August 14, 2013

Judge Approves Settlement Between Citigroup, Investors, The WSJ, August 20, 2013

JP Morgan faces hiring inquiry, Guardian/Program Business, August 20, 2013

Merrill out to pasture?, Investment News, August 18, 2013


More Blog Posts:
FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 28, 2013

Brokerage Firms Change Hands as Insurers Divest In House Securities Firms, While REIT Manager Schorsch Buys First Allied Securities, Stockbroker Fraud Blog, June 12, 2013

March 9, 2013

US Courts & Securities Roundup: Arbitration Award in Citi’s Favor is Approved & Investors’ Claims Against An Oppenheimer Private Equity Fund Are Dismissed

District Court Approves Citigroup’s Arbitration Award in Securities Case Against the Abu Dhabi Investment Authority
A judge held that a tribunal did not behave in manifest disregard of the law and that its refusal to provide two documents that the Abu Dhabi Investment Authority had asked for did not make the proceedings “fundamentally unfair.” The court confirmed an award issued in Citigroup Inc.’s (C) favor, which found that the ADIA did not succeed in showing that the arbitration panel’s New York choice of law decision and evidentiary rulings warranted that the award be vacated.

The securities case is Abu Dhabi Investment Authority v. Citigroup Inc.
The disagreement between the two parties comes from a $7.5B investment that ADIA made in Citi in 2007. When differences that could not be reconciled came up, ADIA filed its arbitration claim with the International Centre for Dispute Resolution. It wanted to either have the contract rescinded or be paid over $4B because of alleged common law fraud, securities fraud, breach of contract, and negligent misrepresentation.

However, the arbitration panel ruled in favor of Citi. ADIA then sought to have the award vacated, noting that the tribunal’s decision to invoke New York substantive law to all claims occurred in manifest disregard” of the law while violating the Federal Arbitration Act. The court, however, disagreed. It also said that the tribunal’s refusal to grant access to two document requests was not a violation of the New York Arbitration Convention or the FAA, especially considering that it granted ADIA’s 56 other document requests, which gave the latter access to over 550,000 document pages.


Investors Claims Against An Oppenheimer Private Equity Fund Are Dismissed
The U.S. District Court for the District of Massachusetts has turned down two public retirement funds’ securities claims against an Oppenheimer & Co. Inc. The claimants contend that the Oppenheimer Global Resource Private Equity Fund I LP and related defendants had made false claims to try to get investors. Judge Rya Zobel granted the defendant’s motion to dismiss the Massachusetts securities lawsuit.

The Quincy Retirement Board and the Brockton Retirement Board had substantially invested in the Oppenheimer-administered fund in 2010. Meantime, the fund invested in a fund administered by the Romanian government. The Oppenheimer fund had estimated its investments’ worth via market price but later allegedly changed that up to applying the shares’ par value, which is a lot higher than their market value. As a result, the defendant allegedly about “quadrupled” its reported holdings’ value.

The plaintiffs putative filed a class action securities case in 2012 accusing the fund of “inflating” numbers to draw in investors and get them to think that the fund was making a profit when it was actually at a loss. They contended that the fund’s offering materials made misstatements and violated the ’33 Act. The court, however, said that the act only creates liability for statements that are untrue in a prospectus if public offerings are involved and not private placements.

Related Web Resources:

Abu Dhabi Investment Authority v. Citigroup Inc., Justia Docket

Brockton Retirement Board v. Oppenheimer Global Resource Private Equity Fund I LP, Justia Docket


More Blog Posts:

FINRA Pulls Back on Regulating Registered Investment Advisers, Stockbroker Fraud Blog, February 19, 2013

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities, Institutional Investor Securities Blog, May 8, 2012

November 7, 2012

Citigroup to Pay $2M Massachusetts Over Allegedly Improper Disclosure About Facebook Before IPO & SEC Wants Additional Comments on Nasdaq’s Proposed $62M Fund For Those that Experienced Technical Glitches After Trading Began

Citigroup Global markets Inc. (C) has consented to pay $2M to settle claims by the state of Massachusetts that a research analyst improperly disclosed information about Facebook (FB) before the company’s initial public offering. According to Secretary of the Commonwealth William F. Galvin, the financial firm neglected to supervise this person, who allegedly gave research information to a media technology site. Galvin says that this disclosure violated state securities laws, a nondisclosure arrangement between Facebook and Citigroup, and FINRA and NASD rules. While Citigroup has admitted to the statement of facts, it has not denied or admitted violating SRO rules and securities laws.

Per the allegations In re Citigroup Global Markets Inc., Mass. Sec. Div., the junior analyst emailed the information to AOL Inc.-owned media site TechCrunch. The data contained projections by a senior analyst about the IPO. Citigroup is accused of not detecting or preventing the disclosure until responded to a subpoena issued by Massachusetts. Also implicated in the order was a senior Citigroup analyst accused of giving data about YouTube Inc. revenue estimates to a French magazine without getting the communication approved first.

The Facebook IPO in May has attracted a lot of attention from regulators and lawmakers. One reason for this is allegations that analysts gave certain investors select data about the offering. There was also the problem of technical glitches that arose when trading began. Securities lawsuits and congressional and regulatory probes ensued.

To compensate investors that suffered losses from the technical snafus, Nasdaq Stock Market LLC is proposing a $62 million reimbursement fund. Now, the Securities and Exchange Commission is asking for more comment about this proposed fund. As of October 26, most of the 11 letters it had received had voiced objections. For example, some took issue with the $40.527 benchmark price that was used to figure out how much members are owed, while others didn’t like how only a limited number/kinds of orders are eligible for compensation: sells that were priced at $42 or under that failed to execute, sales in this price range that were executed at a lower price, purchases priced at $42 that went through but weren’t confirmed right away, and purchases at the same price that not only went through and weren’t confirmed but also efforts were made to cancel them. Qualified market participants wanting to take part in the compensation program would have to relinquish other related claims that might also be valid.

Citi fined $2 million over Facebook IPO, fires two analysts, Reuters, October 26, 2012

Read the Consent Order resolving the proceedings between Massachusetts and Citigroup(PDF)


More Blog Posts:

Citigroup Inc. CEO Vikram Pandit Resigns, Institutional Investor Securities Blog, October 16, 2012

Citigroup Inc.’s $590M CDO Putative Class Action Settlement Gets Preliminary Approval from District Court, Stockbroker Fraud Blog, September 13, 2012

Massachusetts Commonwealth Secretary William Galvin Sues UBS for Fraud, Stockbroker Fraud Blog, June 30, 2012

Continue reading "Citigroup to Pay $2M Massachusetts Over Allegedly Improper Disclosure About Facebook Before IPO & SEC Wants Additional Comments on Nasdaq’s Proposed $62M Fund For Those that Experienced Technical Glitches After Trading Began" »

September 13, 2012

Citigroup Inc.’s $590M CDO Putative Class Action Settlement Gets Preliminary Approval from District Court

The U.S. District Court for the Southern District of New York has given preliminary approval to the putative class action settlement reached between Citigroup Inc. (C) and its shareholders. Citigroup has agreed to pay $590 million over allegations that it misled the plaintiffs about its exposure to tens of billions of dollars collateralized debt obligations that were backed by residential mortgaged-backed securities and instead hid its toxic assets on its books. The plaintiffs contend that they sustained huge losses as a result. A settlement hearing for final approval is scheduled in January 2013.

The preliminary deal reached between the parties is the third largest shareholder class action settlement to be reached related to the 2008 financial crisis. Automated Trading Desk LLC shareholders, led by founder David Whitcomb and ex-ATD executive Jonathan Butler, are spearheading this securities case. (Citigroup had paid $680 million to buy ATD in 2008.) Other plaintiffs include pension funds in Ohio, Colorado, and Illinois.

Per the plaintiff shareholders, who purchased Citigroup shares between February 26, 2007 and April 18, 2008, it was around this time that Citigroup was involved in a “quasi-Ponzi scam” to make it seem as if its assets were doing well. The financial firm allegedly made material misrepresentations about CDO exposure—instead, claiming that it had sold CDOs worth billions of dollars and was no longer contending with their related risks—and failed to let investors know that it had guaranteed the securities (even transferring the guarantees it had established so the risks would be hidden).

The plaintiffs are also accusing Citibank of failing to do write-downs of the instruments in a timely manner during the class period ,even though it was aware that the subprime crash would cause great harm to its CDO holdings, and repackaging securities that no one wanted to buy into new CDOs so its exposure to the securities would be concealed. Also, per the amended complaint, Citigroup allegedly failed to modify its valuations when the CDO indexes revealed a huge drop in the securities values. Instead, the financial firm depended on higher valuations provide by sales it made to itself or from ratings firms.

Although Citibank is settling, it continues to deny the shareholder plaintiffs’ allegations. It claims it reached the agreement to get rid of the “burden and expense” of allowing this litigation to proceed. It also is saying that it is a different company now than what it was at the start of the economic crisis. Meantime, the interim lead plaintiffs have said they agreed to settle because it would be a “significant benefit” especially in light of the risk that the Settlement Class might not get anything if they had lost the CDO securities lawsuit.

Citigroup agrees to $590 million subprime settlement
, The Washington Post, August 29, 2012

Citigroup Pays ATD Executives Again in $590 Million Deal, Bloomberg, August 30, 2012

In re Citigroup Inc. Sec. Litig., S.D.N.Y., No. 07 Civ. 9901 (SHS), 8/29/12 (PDF)

More Blog Posts:
Wells Fargo Securities Settles for Over $6.5M SEC Charges Over Allegedly Improper Sale of ABCP Investments with Risky MBS and CDOs, Institutional Investor Securities Blog, August 14, 2012

Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs, Stockbroker Fraud Blog, May 3, 2012

Continue reading "Citigroup Inc.’s $590M CDO Putative Class Action Settlement Gets Preliminary Approval from District Court" »

August 11, 2012

Stockbroker Securities Roundup: Criminal Convictions Vacated Against Six Charged in Front Running Scam and Citigroup Broker Cleared in $1B CDO Deal SEC Case

The U.S. Court of Appeals for the Second has vacated the convictions of six brokers who were criminally charged in a front-running scam to give day traders privileged information via brokerage firms’ squawk boxes. The case is United States v. Mahaffy.

Judge Barrington Parker said that confidence in the jury’s verdict was undermined because the government did not disclose a number of SEC deposition transcripts “pursuant to Brady v. Maryland, 373 U.S. 83 (1963).” Also, noting that there were flaws in the instructions that the jury was given, the second circuit vacated the honest-services fraud convictions that they had issued against the defendant.

The brokers, who were employed by different brokerage firms, had been charged for conspiring to provide A.B. Watley day traders confidential data about securities transactions. This entailed putting phone receivers close to the broker-dealers internal speaker systems so that the traders could make trades in the securities that were squawked before the customer orders were executed.

The defendants were acquitted on 38 of the 39 criminal counts, with the jury hung on the count of securities fraud conspiracy in 2007. A mistrial was declared. In 2009, the last count of conspiracy involving property fraud and honest services fraud was retried and the defendants wee convicted. However, after defendant Kenneth Mahaffy was pursued by the SEC via administrative proceedings that involved transcripts of investigative dispositions going as far back as the end of 2004, the defendants pushed for a new trial because they said these papers had exculpatory Brady material that undermined or were in contradiction to government witnesses ‘testimony regarding whether “allegedly misappropriated information” had in fact been “confidential” under Carpenter v. United States, 484 U.S. 19 (1987).

The district court said that even if the prosecution had shared this testimony, the jury would not have reached another conclusion. Now, however, the appeals court is disagreeing and has vacated the part of the conspiracy convictions related to confidential data being misappropriated.

Another broker who was recently cleared of wrongdoing is former Citigroup Global Markets Inc. (ASBXL) executive Brian Stoker. He was accused of making material misrepresentations related to the $1 billion collateralized debt obligation that resulted in the $285 billion settlement between the financial firm and the SEC that US District Judge Jed Rakoff rejected last year.

The SEC said that Stoker, who was the main structurer on the Class V Funding III CDO and in charge of making sure the offering circular was accurate, allegedly did not disclose that the financial firm was employing the CDO as a proprietary trade and that it planned on shorting a specific assets set in its investment portfolio to benefit itself at investors’ expense. (Class V III and other CDO squareds create leveraged housing market exposure, which can increase investors losses should the market collapse.) However, jurors in federal court in Manhattan have decided that Stoker was not liable for misleading investors.

Reuters reports that the outcome of SEC v. Stoker could be a boon to the SEC in the case involving Rakoff’s rejected settlement. The 2nd circuit had ruled that the district judge acted improperly when he turned the settlement down. The appeals court said it was up to the Commission and not a federal judge to decide whether such a settlement benefits the public. A separate panel will now consider a joint appeal filed by Citi and the SEC against Rakoff’s decision. Should Citi’s legal representatives argue that the Commissions evidence was completely revealed during the Stoker trial, this would undermine Rakoff’s contention that he and the public didn’t see the SEC’s case and so could not understand why merely a $285 million settlement was reached when investor lost close to $700 million in the bank’s mortgage-backed securities sale.

Stockbroker fraud can lead to massive losses for investors. You want to retain the services of a securities law firm that can help you recover your lost investment whether through arbitration or litigation.

United States v. Mahaffy (PDF)

SEC Loses Lawsuit Against Ex-Citigroup Official Stoker, Bloomberg, July 31, 2012


More Blog Posts:

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

SEC Looks Likely to Win Appeal in $285M Securities Settlement that Judge Rakoff Rejected, Institutional Investor Securities Blog, March 15, 2012

While Former Merrill Lynch & Co. Stockbroker is Found Guilty of Witness Tampering, Seven Other Defendants are Acquitted in “Squawk Box” Securities Fraud Case Involving A.B. Watley Employees, Stockbroker Fraud Blog, July 7 2007

August 7, 2012

Plaintiff Says Morgan Stanley Fired Him for Calling out Investment Adviser Who Was Churning Accounts and Bilking Investors

Clifford Jagodzinski has filed a lawsuit against Morgan Stanley & Co. (MS), Morgan Stanley Smith Barney, and Citigroup (C). He claims that he was fired from his job at Morgan Stanley as a complex risk officer because he reported that an investment adviser was churning accounts and earning tens of thousands of dollars while defrauding clients. Jagodzinski filed his case in federal court.

He contends that even though he always received excellent job evaluations during the six years he worked for Morgan Stanley, he was terminated as an employee 10 days after he told supervisors that unless the financial firm started reporting unauthorized trades it would be violating SEC regulations. Jagodzinski said that the financial firm told him to sign a confidentiality agreement with a non-disparagement clause and then proceeded to hurt his career by claiming that he was let go because of poor performance. He wants reinstatement and punitive and compensatory damages of over $1 million for whistleblower violations.

Jagodzinski believes that his trouble started after he told his supervisors, Ben Firestein and David Turetzky, that Harvey Kadden, one of the firm’s new wealth managers, was allegedly flipping preferred securities so that he could make tens of thousands of dollars in commissions, while causing his clients to sustain financial losses or make little gains as he exposed them to risks that could have been avoided. Jagodzinski said that while he was initially praised for identifying the alleged misconduct, his supervisors told him not to look into the matter further. He believes this is because Morgan Stanley had given Kadden a $25 million guarantee, and due to their high expectations of him, they didn’t want to hurt his book of business.

Jagodzinski said that he encountered similar resistance when he notified the financial firm of other violations, including those involving Bill Siegel, another financial adviser that he accused of making unauthorized trades. Once again, he says he was told not to investigate or report the alleged violations further—even though (he says) Siegel admitted to making 80 unauthorized trades for one client and other ones for other clients. Although Turetsky allegedly told him that this was because he didn’t want Siegel fired, Jagodzinski suspects that his supervisor was more concerned that the defendants would have to pay penalties and fines. He also said that when he reported his concerns that yet another financial adviser was not just engaging in improper treasury trades but also abusing drugs, his worries were again brushed aside.

An employee who gets fired for blowing the whistle on a company or a coworker can have grounds for filing a wrongful termination lawsuit. If the wronged employee is a whistleblower, he is entitled to certain protections, which include being shielded from retaliation on the job for stepping forward and doing what is right.

Worker Says He Caught Morgan Stanley in the Act, Courthouse News Service, August 3, 2012

Ex-Morgan Stanley Risk Officer Sues Bank Over Firing, Bloomberg, August 1, 2012


More Blog Posts:

Dodd-Frank Whistleblower Protection Amendment Must Be Applied Retroactively, Said District Court, Stockbroker Fraud Blog, July 21, 2012

SEC’s Office of the Whistleblower In Early Phase of Evaluating Reward Claims, Institutional Investor Securities Blog, March 23, 2012

District Court Denies UBS Summary Judgment in Sarbanes-Oxley Whistleblower Lawsuit, Stockbroker Fraud Blog, June 27, 2012

Continue reading "Plaintiff Says Morgan Stanley Fired Him for Calling out Investment Adviser Who Was Churning Accounts and Bilking Investors " »

May 3, 2012

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs

Wells Fargo & Co. (WFC), UBS AG (UBSN), Morgan Stanley (MS), and Citigroup Inc. (C) have consented to pay a combined $9.1 million to settle Financial Industry Regulatory Authority claims that they did not adequately supervise the sale of leveraged and inverse exchange-traded funds in 2008 and 2009. $7.3 million of this is fines. The remaining $1.8 million will go to affected customers. The SRO says that the four financial firms had no reasonable grounds for recommending these securities to the investors, yet they each sold billions of dollars of ETFs to clients. Some of these investors ended up holding them for extended periods while the markets were exhibiting volatility.

It was in June 2009 that FINRA cautioned brokers that long-term investors and leveraged and inverse ETFs were not a good match. While UBS suspended its sale of these ETFs after the SRO issued its warning, it eventually resumed selling them but doesn’t recommend them to clients anymore. Morgan Stanley also had announced that it would place restrictions on ETF sales. Meantime, Wells Fargo continues to sell leveraged and inverse ETF. However, a spokesperson for the financial firm says that it has implemented enhanced procedures and policies to ensure that it meets its regulatory responsibilities. Citigroup also has enhanced its policies, procedures, and training related to the sale of these ETFs. (FINRA began looking into how leveraged and inverse ETFs are being marketed to clients in March after one ETN, VelocityShares Daily 2x VIX Short-Term (TVIX), which is managed by Credit Suisse (CS), lost half its worth in two days.)

The Securities and Exchange Commission describes ETFs as (usually) registered investment companies with shares that represent an interest in a portfolio with securities that track an underlying index or benchmark. While leveraged ETFs look to deliver multiples of the performance of the benchmark or index they are tracking, inverse ETFs seek to do the opposite. Both types of ETFs seek to do this with the help of different investment strategies involving future contracts, swaps, and other derivative instruments. The majority of leveraged and inverse ETFs “reset” daily. How they perform over extend time periods can differ from how well their benchmark or underlying index does during the same duration. Per Bloomberg, leveraged and inverse ETFs hold $29.3 billion in the US.

“These highly leveraged investments were - and still are - being bought into the accounts of unsophisticated investors at these and other firms,” said Leveraged and Inverse ETF Attorney William Shepherd. “Although most firms do not allow margin investing in retirement accounts, many did not screen accounts to flag these leveraged investments which can operate on the same principle as margin accounts.”

For investors, it is important that they understand the risks involved in leveraged and inverse ETFs. Depending on what investment strategies the ETF employs, the risks may vary. Long-term investors should be especially careful about their decision to invest in leveraged and inverse ETFs.

Finra Sanctions Citi, Morgan Stanley, UBS, Wells Fargo $9.1M For Leveraged ETFs, The Wall Street Journal, May 1, 2012

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors, SEC

FINRA investigating exchange-traded notes: spokesperson, Reuters, March 29, 2012


More Blog Posts:
SEC to Investigate Seesawing Credit Suisse TVIX Note, Stockbroker Fraud Blog, March 30, 2012

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

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investor Securities Blog, April 12, 2012

Continue reading "Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs " »

April 10, 2012

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

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 "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" »

January 21, 2012

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors

Last month, a US judge refused Citigroup’s request to overturn a $54.1M arbitration award that a Financial Industry Regulatory Authority arbitration panel had ordered the financial firm to pay investors Gerald D. Hosier, Jerry Murdock Jr. and Brush Creek Capital. The award was the largest amount ever granted to individuals in a securities arbitration proceeding.

Following Citigroup’s request that a United States district court toss out the award, details from what were confidential proceedings have been unsealed. According to the New York Times, documents viewed by the arbitrators show that on a scale of 1 to 5, with 5 signifying the highest risk (usually only assigned to products that potentially carried the risk of an investor losing everything), Citigroup rated these investments as having a 5 rating for risk. Is it no wonder then that investors could and would go on to lose 80% of what they had investments.

The investments, which were municipal arbitrage portfolios, are known as ASTA/MAT. Citigroup Global Markets sold them through MAT Finance LLC.

Per internal e-mails, after the investments began declining in value in early 2008, when Citigroup wealth management head Sallie Krawcheck asked for the MAT’s risk rating,” She was told that it was “3-5.” Also, customers were never told about the 5 rating that their investments were previously given. The Times also reported that during a conference call involving brokers whose clients had sustained losses, the portfolio manager was directed to not discuss internal guidelines, which contained different information than what was in the prospectus that investors had received.

Citigroup eventually would offer to buy back the investments at a discount price but only if investors agreed to not file a securities fraud lawsuit against the financial firm. (Brokers have said they felt pressured by Citigroup to get investors on board with this. For example, a memo with the heading “Fund Rescue Options “noted that if the broker’s client let Citigroup repurchase the instruments, this would not be noted in his/her U-5 regulatory record. If, however, the client chose to sue, then this would appear in the broker’s U-5.)

In their securities fraud case, Claimants accused Citigroup of failure to supervise, fraud, and unsuitability. After the FINRA arbitration panel ordered them to pay the investors, Citigroup argued that panel members had ignored the law and contended that despite verbal statements made to investors, the latter had signed agreements acknowledging that the risk of losing everything was a possibility. Judge Christine Arguello would go on to affirm the FINRA panel’s decision. While the majority of the award was compensation for the claimants’ investment losses, about $17 million was for punitive damages.

Secrets of a Sales Machine, NY Times, January 14, 2012

Citigroup Slammed With $54 Million Award by FINRA Arbitrators in MAT/ASTA Case, Forbes, April 12, 2011


More Blog Posts:
Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge, Institutional Investor Securities Blog, December 27, 2011

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest, Stockbroker Fraud Blog, January 20, 2012

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2012

Continue reading "Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors " »

January 20, 2012

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest

FINRA says that Citigroup Global Markets will pay a fine of $725K for not disclosing specific conflicts of interest during public appearances made by research analysts and in research reports. By settling, Citigroup is not denying or admitting to the charges although it has, however, consented to an entry of the findings.

According to the SRO, in research reports published between 1/07 and 3/10, the financial firm did not disclose possible conflicts of interest that existed in certain business connections, including the facts that the financial firm and its affiliates:
• Received revenue or investment banking from certain companies
• Had an at least 1% or more ownership in companies that were covered
• Managed public securities offerings
• Made a market in certain covered companies’ securities

Also, FINRA says that Citigroup research analysts did not reveal these same conflicts when bringing up the covered companies during public appearances.

As a result of these alleged failures to disclose, FINRA contends that Citigroup kept investors from knowing of possible biases in the research recommendations that it made. FINRA says that such disclosures are essential in order to make sure that investors are given all of the information they need when making decisions about investments.

The SRO said that the reason Citigroup did not provide the required information is that the database for identifying and creating disclosures experienced technical difficulties and/or was inaccurate. FINRA also cites a lack of proper supervisory procedures that could have prevented such inaccuracies and disclosure failures. However, Citigroup did self-report a number of the deficiencies and has taken remedial steps to remedy them.

A financial firm can be held liable when failure to disclose key facts about an investment leads to an investor sustaining financial losses. In many instances, such omissions are made to hide or diminish the risk involved in the investment. While some omissions are intentional, others can occur due to inadequate supervision or the lack of proper systems and procedures to make sure such failures to disclose don’t happen.

It is a broker’s obligation to fairly disclose all the risks involved in a potential investment. (Misrepresenting material facts is another way that risks are concealed and investors end up losing money.

It doesn't matter whether malicious intent was involved. If a broker-dealer concealed OR failed to disclose key information related to your investment and you suffered financial losses on your investment, you may have a securities fraud case on your hands that could allow you to recover your losses.


Citi settles with Finra over alleged conflicts at its brokerage, Investment News, January 20, 2012

Finra Fines Citigroup $725,000 For Alleged Research Violations, The Wall Street Journal, January 18, 2012

Financial Industry Regulatory Authority

More Blog Posts:
Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011

Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010

Continue reading "Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest" »

November 28, 2011

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff

U.S. District Judge Jed S. Rakoff has turned down the proposed $285M settlement between the SEC and Citigroup Global Markets Inc. However, unlike with the SEC’s tentative $33M settlement with Bank of America that he rejected, eventually approving a $150 million settlement between both parties—this time, Rakoff is ordering the SEC and Citigroup to trial.

The SEC claimed Citigroup sold Class V Funding III right as the housing market fell apart in 2007 and then bet against the $1 billion mortgage-linked collateralized debt obligation. Meantime, the financial firm allegedly failed to tell clients about this conflict of interest. Investors would go on to lose nearly $700 million over the CDO, while Citigroup ended up making about $160 million.

To many observers, Rakoff’s decision doesn’t come as a surprise. He has expressed concern with the SEC’s handling of securities cases for some time. In his ruling today, Rakoff was very clear in stating that he didn’t believe the tentative agreement was “fair… reasonable… adequate, nor in the public interest.” He also called for the “underlying facts” and made it clear that the SEC’s typical boilerplate settlement, which usually involves the other party agreeing to the terms but not admitting to or denying wrongdoing, was not going to suffice.

Until now, the SEC’s settlement policy has allowed the Commission to declare a victory while letting defendants get away with not acknowledging any wrongdoing so that private plaintiffs cannot use such an outcome in litigation against them. Now, however, Rakoff wants the court and the public to actually learn whether or not Citigroup acted improperly.

Also in his opinion, Rakoff spoke about how the current settlement doesn’t do anything for the investors that Citigroup allegedly defrauded of hundreds of millions of dollars. Not only that but the SEC isn't promising to compensate the alleged securities fraud victims.

For now, the trial between Citigroup and the SEC is scheduled for July 2012. However, the Commission could decide to appeal Rakoff’s ruling and ask an appellate court to either make him accept the $285 million settlement or appoint a new judge to the case. According to the New York Times, however, this could prove challenging because a writ of mandamus would be required.

Our securities fraud law firm has had it with financial firms defrauding investors and then getting away with this type of misconduct. It is our job to help our clients recoup their losses whether via arbitration or in court.

Behind Rakoff’s Rejection of Citigroup Settlement, NY Times, November 28, 2011

Judge to SEC: Stop settling, start really suing, OC Register, November 28, 2011

Read Judge Rakoff's Opinion


More Blog Posts:
Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, Stockbroker Fraud Blog, February 15, 2010

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

Continue reading "Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff" »

October 22, 2011

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

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

September 9, 2011

Claimant Not Only $100K Loses Securities Arbitration Case Against Citigroup Global Markets But Gets Stuck with Financial Firm’s $50K in Legal Bills

Alphonse M. Lucchese, a CitiSmith Barney customer, has not only lost his $100,000 securities claim against the financial firm in Financial Industry Regulatory Authority arbitration, but he also now must pay for Citigroup’s $49,985 in attorney fees. The case is Alphonse M. Lucchese, Claimant, v. Citi Smith Barney, Citigroup Global Markets, Inc., Robert Joseph Malenfant, and Alfred George Weaver, Respondents.

Lucchese had originally filed a securities fraud lawsuit in Middlesex Superior Court of Massachusetts. The case was later dismissed and sent to arbitration.

Lucchese claims Smith Barney stockbroker Weaver, who is a Respondent, recommended that he buy 4,000 shares of Lehman preferred. Despite his reservations—including concerns about the stock and how they compared with other companies’ shares—Lucchese “reluctantly agreed” and at $25/share spent $100,000.

The stock initially dropped 20%—a $20,000 drop in value. The Claimant says that Weaver told him to hold on to his stock. When the financial markets collapsed, Lucchese’s stocks’ worth then dropped by 63%. He says that when he told Weaver to sell the position even though it meant losing $63,000, the broker recommended that the Claimant still hold on to his shares and that Lehman was not going to fail… only it did. Lucchese’s shares then became worthless when Lehman filed for bankruptcy.

While Weaver acknowledged making a mistake by not selling Lucchese’s stock, the Respondent claims that the Claimant never ordered him to sell. Lucchese disputes this account.

The arbitrator, when ruling on the case, decided that there was lack of credible evidence supporting Lucchese’s claim. He also found that Weaver acted on “good faith” when he advised Lucchese not to sell prior to Lehman filing for bankruptcy and that the broker would have no way of knowing that this would happen.

Lucchese’s claims of securities fraud, including breach of fiduciary duty, breach of contract, negligence, failure to supervise, violations of federal and state securities laws, and other violations were denied in their entirety. In addition, the arbitrator determined that the Claimant should be responsible for Citigroup’s legal fees of $49,985, $3,150 in arbitration forum fees, and $400 for the explained decision.

Most securities cases must be resolved in arbitration and you want to make sure you are represented by experienced stockbroker fraud lawyers to increase your chances of recouping your losses. A securities claim is not the type of case you want to handle on your own.


Citi Smith Barney Customer Sues Over 2008 Failure to Sell Lehman Shares, Forbes, December 18, 2011


More Blog Posts:
Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011

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 to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, October 20, 2011

**This post has been backdated for publication.

Continue reading "Claimant Not Only $100K Loses Securities Arbitration Case Against Citigroup Global Markets But Gets Stuck with Financial Firm’s $50K in Legal Bills " »