Stock Broker Fraud Blog

Following JP Morgan Chase & Co’s acquisition of Bear Stearns Companies Inc., JP Morgan Chase Chief Financial Officer Michael Cavanagh says the firm is reserving as much as $6 billion for "transaction-related costs," including possible litigation.

Class action lawsuits could come from investors regarding corporate disclosure, as well as from employees over pension plans. Any securities lawsuits targeting Bear Stearns as the plaintiff will also go to JP Morgan Chase.

Lawsuits expected may include those related to the 1934 Securities Exchange Act Section 10(b) (a general antifraud provision) by investors that may feel that Bear Stearns did not disclose accurate information about the company’s health. Employees may sue if they believe that the Employee Retirement Income Security Act (ERISA) had been violated.

On March 16, The Federal Reserve, accompanied by shareholder consent, had approved of a financing plan that allowed JP Morgan Chase & Co. to extend up to $30 billion in nonrecourse lending to the combined entity. This allowed the Wall Street firm to acquire the faltering Bear Stearns. The vote by Federal Governors to allow the loans was unanimous.

The loans gives JP Morgan Chase assurances over $30 billion worth of assets, including subprime lending arrangements and commercial mortgage-backed securities, that were part of the acquisition.

On Monday, the terms of the loan was revised so that JPMorgan will be responsible for the first $1 billion, while the remaining $29 billion will be available as financing to JP Morgan at the Fed’s 2.5% emergency lending rate.

The Fed’s move followed JPMorgan’s change in offer to buy Bear Stearns shares at $10/share instead of $2/share. JP Morgan Chase’s acquisition of Bear Stearns came after a crisis in client confidence placed the firm at risk of bankruptcy.

Possible defenses to pending litigation could include Bear Stearns not knowing how dire its financial health was and its willingness to disclose negative information about the firm, including news that two of its hedge funds collapsed last year.

Please contact Shepherd Smith and Edwards if you are an investor who believes that you are a victim of broker misconduct. Our investment fraud lawyers represent clients living throughout the United States and abroad.

Related Web Resources:

Fed Backs JPMorgan, Bear Stearns Deal, AP, March 24, 2008

JPMorgan Buys Bear Stearns in Fire Sale, The Street, March 17, 2008

Board of Governors of the Federal Reserve System

In a note to investors, Wachovia Securities Analyst Doug Sipkin commented on the state of the leading Wall Street securities firms in light of the worsening global credit crisis.

Sipkin blamed the “The failure of Bear Stearns” on a “management issue” rather than a “market issue.” JP Morgan Chase & Co. recently purchased Bear Stearns, the fifth largest securities company, for $236 million—that’s $2/share—a 90% market drop in just two days. The securities firm ran out of money after clients took away funds.

Sipkin, however, reassured investors that the action taken by the Federal Reserve to reduce emergency lending rates will keep the other four big securities firms in business.

The Wachovia analyst says that worries about Lehman Brothers are misguided and that the bank has sufficient liquidity to keep business running. Sipkin cited Lehman’s “superior management” and “superior business.”

Lehman and Goldman Sachs are expected to garner new business from the Bear sale. Sipkin said Goldman will likely benefit from “migrating prime brokerage balances,” while Lehman would likely pick up “material market share" in mortgages.

Morgan Stanley, said Sipkin, seems to be weathering the crisis because it has its asset management and brokerage businesses.

Sipkin pointed to Merrill Lynch as appearing to be the weakest of the top Wall Street firms—but said that it would also likely stay afloat, considering that its balance sheet had the highest leverage.

Related Web Resources:

Ahead of the Bell: Investment Banks, Chron.com/AP, March 18, 2008

US stock market drops as Bear Stearns sold for $2/share, Reuters, March 17, 2008

JP Morgan Shares to Acquire Bear Stearns, Bear Stearns

If you have been the victim of investor fraud, you are entitled to the recovery of your lost investment. Contact Shepherd Smith and Edwards today to schedule your free consultation with one of our stockbroker fraud lawyers.

Yesterday – Sunday – it was reported that JP Morgan bailed-out Bear Stearns by paying its shareholders a measly quarter of a billion dollars. One question plaguing Wall Street is how many other victims of sub-prime mortgages will emerge? Below we assess the winners and losers of this deal and also report some good news: Claims by investors who had accounts at Bear Stearns are not dead!

Winners and Losers?

A year ago, BSC’s stock sold for $150 per share. Last Friday BSC’s shares fell from 57 to 30. Reportedly, as government big-wigs and financial moguls met on Saturday to attempt to salvage BSC, there were discussions with several firms to pay around $15 per share but on Sunday only JP Morgan was left – offering $2 per share. Although BSC faced certain bankruptcy if nothing were done, Bear Stearns shareholders say they are the big losers.

Meanwhile, while brokering a sale of BSC to the highest bidder, our government put up $30 billion in loss guarantees. That's $100 per warm body in the U.S. This amount also translates to $115 per share of BSC stock. Yes, we as citizens will be exposed to losses of over $100 per share for Bear Stearns’ folly! Who are the real losers? You and me!

Are there any winners? The “efficient market theory” holds that the price of a company’s stock on any given day is what that firm is worth. If so, how did J.P Morgan fare? Today, the first after the BSC deal was reported, JP Morgan’s stock rose more than 10% - a $13 billion increase in total market capitalization!

Meanwhile, shares of other investment banks today lost as follows: Merrill Lynch fell 5%, Goldman Sachs fell 6% and Lehman Brothers lost a whopping 20%! Had J.P. Morgan shares lost only 5%, that firm would have fallen over $6 billion in market capitalization. Thus, as of today, J.P. Morgan is almost $20 billion better off thanks to the BSC takeover. This is two-thirds of the exposure to U.S. taxpayers, which made the $20 billion windfall to JP Morgan possible. Some would call this welfare for the rich. Big winner: JP Morgan

Not too late to recover from Bear Stearns!

Many institutional and individual investors claim they were sold “trash” or otherwise cheated by Bear Stearns. Many fear their claims will disappear after the Bear Stearns bailout. Yet, according to reports, JP Morgan will set aside $5 to $6 billion as a reserve for litigation and arbitration claims against Bear Stearns. Those who lost should contact an experienced securities law firm soon to learn if they should seek recovery.

The law firm of Shepherd Smith and Edwards represents institutions and individuals nationwide with significant claims against Wall Street financial firms. We have handled dozens of claims against against Bear Stearns. We seek recovery of losses for improper actions by firms as well as for broker misconduct . Contact us to arrange a free confidential consultation with one of our attorneys to learn whether we can seek recovery for you or your firm.

Who is/was Bear Stearns?

Founded in 1923, Bear Stearns Companies (BSC) is/was a maverick Wall Street investment banking firm with few friends. Former CEO Allen “Ace” Greenberg, who reportedly issued strange memos including about the cost of paper clips, ruled BSC for decades before being criticized for earning almost $16 million in 1992, his final year (although a paltry sum by today’s standards). Perhaps clairvoyant about his firm’s future, Ace was also rumored to have a hard hat in his office with his name on it.

For decades, BSC was criticized for acting as a “clearing agent” for hundreds of small thinly-capitalized “introducing” brokerage firms. A number of these were actually “boiler room” operations, such as one portrayed in a movie by that name. Brokers at these firms often touted their connection with Bear Stearns to persuade victims to part with their savings. Yet, BSC could not resist the huge profits earned from this operation, primarily from margin interest income it charged investors, many who could not afford these costs or to take the high risks involved in margin trading.

BSC’s most recent CEO is/was “Jimmy” Cayne, who allegedly was playing bridge at his country club as the firm’s largest hedge fund imploded last summer. Sources report he was also playing golf (and perhaps cheating) at the same club. In the firm’s financial game, Cayne’s score last weekend was way over par and, in bridge terms, down 7, doubled and redoubled!

Oddly enough, Bear Stearns faced another bailout situation a decade ago, but as a “bailor” not “bailee”, when an infamous hedge fund “Long Term Capital” threatened to bring down world financial markets. Bear Stearns was the only major U.S. investment firm which refused to participate in the bailout, earning it low marks among its peers. As the saying goes, “what goes around comes around.”

Additional Information About Bear Stearns:

Profile and Background of Bear Stearns Companys

For more blog stories about Bear Stearns Companies Click Here

Additional Information About JP Morgan Chase:

Profile and Background of JP Morgan Chase

For more blog stories about JP Morgan Chase Click Here

The city of Cleveland, Ohio is suing 21 financial institutions for hundreds of millions of dollars in damages caused by subprime lending and securitization. The defendants named in the lawsuit are:

• Deutsche Bank Trust Company
• Ameriquest Mortgage Company
• Bank of America Corporation
• The Bear Stearns Companies
• Citigroup, Inc.
• Countrywide Financial Corp.
• Credit Suisse (USA)
• Fremont General Corporation
• GMAC-RFC
• Goldman Sachs Group
• Greenwich Capital Markets, Inc.
• HSBC Holdings, PLC
• Indymac Bancorp., Inc.
• J.P. Morgan Chase Co.
• Lehman Brothers Holdings, Inc.
• Merrill Lynch & Co., Inc.
• Morgan Stanley
• Novastar Financial Inc.
• Option One Mortgage Corporation
• Washington Mutual Inc.
• Wells Fargo & Co.

The city of Cleveland says that the defendants issued loans to people who would never have been able to pay them back and that the foreclosures were inevitable. The lawsuit says that not only did the financial institutions issue loans to ill-qualified borrowers, but they securitized the loans and used the profits to fund more subprime mortgages, make more money, and secure more borrowers.

In the past two years, Cleveland has experienced over 7,000 foreclosures. Entire city blocks have been vacated and violent crime and arson incidents have increased. 1,000 abandoned homes have been torn down. Cleveland is calling the “propagation of subprime mortgages… and the corresponding foreclosures... a public nuisance as defined by Ohio common law.

As a result, the city of Cleveland’s population was 444,000 last year—way down from its nearly one million residents in 1950. The decrease in population size has negatively affected the city’s budget.

The stockbroker law firm of Shepherd Smith and Edwards represents investors who have lost money due to the misconduct or negligent actions of broker-dealers and other financial institutions. Contact Shepherd Smith and Edwards today and one of our stockbroker fraud lawyers will be happy to offer you a free consultation.

Related Web Resources:

Cleveland Sues 21 Lenders Over Subprime Mortgages, Herald-Tribune, January 12, 2008

Read the Complaint (PDF)

JP Morgan Securities Inc. says it will pay $500,000 to settle charges that it failed to disclose to regulators that it used and paid consultants to acquire a number of municipal securities offerings.

The settlement agreement was announced by the Financial Regulatory Authority (FINRA), which is in charge of enforcing the Municipal Securities Rulemaking Board (MSRB) rules and any violations. According to MSRB regulations, firms must disclose any payments to consultants for municipal securities offerings.

FINRA says that JP Morgan actually stated in its MSRB filing that it did not use or pay any consultants to make any municipal securities-related transactions. In fact, from January 22 through June 2004, JP Morgan actually used consultants extensively in connection to its municipal bond business, paying some 40 consultants $7.1 million in total.

Yet 10 of JP Morgan’s quarterly disclosures to MSRB stated that consultants “obtained or retained” zero business. JP Morgan also denied paying consultants for municipal securities-related business even though it made at least six payments worth $750,000 in total to at least 16 consultants for at least 70 municipal securities offerings.

JP Morgan is not denying or admitting to the charges by agreeing to the $500,000 fine.

If you are the victim of broker misconduct, you should speak with a stockbroker fraud lawyer right away. An experienced attorney can help you recover your lost investment. Contact Shepherd Smith and Edwards today.

Related Web Resources:

FINRA Fines J. P. Morgan Securities $500,000 for Failing to Disclose Use of Payments to Consultants to Obtain Numerous Municipal Securities Offerings, FINRA, December 13, 2007

Municipal Securities Rulemaking Board

NYSE Regulation fined 14 of its member firms a total of $10.4 million in fines for failing to deliver trade confirmations to their clients and other violations.

Citigroup Global Markets received the heaviest fine of $2.25 million for failing to deliver trade confirmation documents in more than a million consumer transactions. Lehman Brothers and DeutscheBank were each fined $1.25 million.

Other firms sanctioned included UBS Securities; Bear Stearns & Co.; Credit Suisse Securities (USA) LLC ; Banc of America Securities LLC; Goldman Sachs & Co.; JP Morgan Securities; Wachovia Capital Markets LLC; and Keefe, Bruyette & Woods Inc. Fines levied against these firms ranged from $375,000 to $800,000.

According to the New York Stock Exchange (NYSE) enforcement wing, the violations occurred between July 1, 2003 and Oct 31, 2004. These include failures to ensure delivery of prospectuses to customers who purchased securities and mutual funds, failure to deliver product descriptions to customers purchasing exchange traded funds and failure to establish and maintain appropriate supervisory procedures regarding such activities.

Each of the member firms also agreed to certify that its current policies and procedures are reasonably designed to ensure compliance with current federal securities laws and regulations regarding such requirements. This action was one of the final acts by the regulatory staff of the NYSE prior joining the Financial Industry Regulatory Authority (FINRA) which has taken over all former NASD and NYSE regulatory responsibilities.

Shepherd Smith and Edwards represents investors nationwide in claims against securities firms. We have represented investors in more than 1,000 securities cases. To learn whether we may be able to assist you with a claim contact us to arrange a free consultation with one of our attorneys.

For a second time, the U.S. District Court for the Southern District of New York told J.P. Morgan Chase &Co. shareholders that they cannot hold the investment bank responsible for securities fraud related to its alleged complicity in helping Enron cover up its true financial situation.

Judge Sidney H. Stein said the second amended complaint had the same flaws as the first complaint: The Enron shareholders, not the investment bank’s shareholders are the victims of Enron’s collapse and therefore the ones defrauded—if the allegations were borne out.

According to the plaintiffs, they became investors in JPM Chase because it was known for its financial discipline and integrity. The bank, however, was unlawfully helping and abetting Enron’s wrongful conduct. Its reputation suffered after its role in the Enron scandal was revealed.

The plaintiffs claim that JPM Chase defrauded its investors from November 1999 to July 2002 by concealing its role in the Enron fraud debacle. Enron was one of JPM Chase’s most lucrative clients. The investment bank also hid the fact that it created Mahonia Natural Gas Limited and Mahonia Limited, two shell companies that the bank used to give Enron billions of dollars in credit masked as revenue from prepaid commodities.

These transactions allegedly allowed Enron to cover up its debt so it wouldn’t have to appear on its balance sheet. JPM Chase allegedly was paid “exorbitant advisory fees” by Enron in exchange for its help. It also allegedly invested millions of dollars in one of Enron’s money-spinning partnerships that it used to “consummate various sham transactions” that was used to cover up the ownership risks of Enron’s assets.

The court said that both complaints were dismissed because they did not satisfy fraud pleading requirements. For example, while the second complaint showed new ways that JPM Chase issued misleading misrepresentations, the plaintiffs still did not show how these misrepresentations were just “non-actionable puffery.”

Also, the court said the amended complaint included charges connected to the bank’s less than complete due diligence when underwriting notes offerings by WorldCom Inc. and its helping and abetting of Enron’s misconduct. The court said that these were not relevant to the current action because they concerned WorldCom and Enron shareholders, not JPM Chase’s shareholders. It also noted that the investment bank’s failure to reveal the true nature of the Mahonia partnerships was not material and that JPM Chase’s deals with Enron had generated just $86 million over five years—just a fraction of the investment bank’s overall revenues during that time.

If you are investor that has incurred a financial lose because of the wrongful actions of an investment bank or another member of the securities industry, please call Shepherd Smith and Edwards today for your free consultation. We have a successful track record for helping investors recover their losses.

Related Web Resources:

Enron Suit Against JP Morgan Dismissed, Forbes.com, March 30, 2007

JP Morgan

The AAJ (American Association for Justice) is asking Securities and Exchange Commission Chairman Chris Cox and General Counsel Brian Cartwright to address media reports that the SEC thought about supporting Merrill Lynch & Company during attempts by Enron shareholders to hold Enron banks accountable. The AAJ wants the SEC to publicly disclose the extent of its connections to Merrill Lynch.

On January 12, 2007, the AAJ turned in to the SEC a Freedom of Information Act request. The AAJ wants the SEC to disclose if, how, and when they communicated with Merrill Lynch regarding Enron and whether Counsel Cartwright and Chairman Cox have recused themselves from the Enron case because they had both once worked for the law firm (Latham and Watkins) representing Merrill Lynch. Also, the Center for Responsive Politics is reporting that Latham & Watkins was Chairman Cox’s largest contributor while he served in the U.S. Congress. The law firm reportedly contributed $124,594 on two separate occasions.

At least 30 states are supporting the Enron shareholders who have filed lawsuits against investment banks that are accused of taking part in accounting fraud because of the Enron scandal. Merrill Lynch is one of these banks.

Attorneys for the investment bank recently requested that the SEC file a brief supporting the firm in front of the U.S. Fifth Circuit Court of Appeals in New Orleans. According to an AP reporter, the SEC considered the request, although it had won tens of millions of dollars from Citigroup Inc., Merrill Lynch, and JP Morgan Chase & Co. because of their participation in the Enron Scandal in 2003.

According to AAJ Chief Executive Officer Jon Haber, "In light of the troubling reports that the SEC, at the request of a major Wall Street bank involved in the Enron scandal, considered interceding in a way that could harm shareholders, the public has a right to know if the fox is guarding the hen house. This is just the latest in a series of audacious moves by some in corporate America to roll back the Enron reforms and avoid accountability.''

Shepherd, Smith, and Edwards is dedicated to assisting investors nationwide to recover losses caused by inappropriate actions of stockbrokers and their firms. For more information, contact Shepherd, Smith, and Edwards today.

Related Web Resources:

Merrill Lynch

American Association for Justice

U.S. Securities and Exchange Commission

JP Morgan Chase & Co. is reporting a 68% increase from the sale of their corporate trust unit, as well as strong investment growth. Credit quality became weaker, however. This suggests that the investment bank's individual and commercial clients, like with many major banks, had a more difficult time paying their bills.

JP Morgan Chase is the third largest bank in the U.S. For its 4th quarter, the bank reported a net income of $4.53 billion, up $2.7 billion from the previous year. Revenue was $16.05 billion. According to analysts, 2007 is looking “modestly better than expected” for JP Morgan Chase.

Meanwhile, Wells Fargo & Co, the fifth largest bank in the country, reported a 13% rise in fourth quarter earnings. Credit losses for Wells Fargo also grew.

According to JP Morgan Chase’s CEO Jamie Dimon, "All of our six businesses have been getting stronger almost every quarter," he said. He also said that the integration of the bank branches JP Morgan Chase had acquired from Bank of New York was going well. The branches were traded for JP Morgan Chase’s corporate trust unit. Dimon did warn, however, that there would be losses in the coming quarters as well as higher loan delinquencies.

In the investment bank’s retail financial services, net income decreased from $803 million to $718 million. These figures were attributed to acquiring Bank of New York’s consumer business, a mortgage loan portfolio loss, and the sale of their insurance business last July.

Card services for JP Morgan Chase rose to $719 million from $302 million during the 4th quarter in 2005. JP Morgan Chase’s reported net income for 2006 was $14.44 billion. Annual net income in 2005 was $8.48 billion.

Despite the discovery of unprecedented fraud on Wall Street, brokerage firms continue to earn unbelievable – even unconscionable profits! Self-regulators are shrinking their role (as the National Association of Securities Dealers and New York Stock Exchange merge their regulatory units), and the Securities and Exchange Commission appears to be losing its regulatory power over financial advisors as well as over the sale of insurance policies and annuities which are nothing more than mutual funds with an “insurance wrapper”. Meanwhile, unregulated “hedge funds” flourish with little or no oversight. The bottom line is: “On Wall Street, Crime Pays!”

If you believe that you have been the victim of broker misconduct, Shepherd, Smith, and Edwards would like to help you. Don't let broker misconduct go unpunished. Contact Shepherd, Smith, and Edwards today.

Related Web Resource:

JP Morgan Chase Tops Forecasts, CNN.com, January 17, 2007

JP Morgan Chase