Articles Posted in Credit Default Swaps (CDS)

UBS Fund Advisor LLC and UBS Willow Management LLC will pay $17.5M, including $13 million to investors that were hurt to resolve Securities and Exchange Commission charges accusing them of failing to disclose that there was a change in an investment strategy involving closed-end fund UBS Willow Fund LLC. The two UBS (UBS) advisory firms have advised the fund.

The SEC contends that from 2000 through 2008, UBS Willow Management – which was a joint venture between an outside portfolio manager and UBS Fund Advisor – invested the assets of the Willow Fund in line with the strategy discussed in marketing collateral and offering documents. However, according to the regulator’s order that instituted a settled administrative proceeding, in 2008, the fund advisor changed tactics and went from focusing on investments in debt put out by beleaguered companies to buying big amounts of credit default swaps.

The Willow fund started to sustain huge losses because of the credit default swaps, which went from 2.6% of the fund’s market value in ’08 to over 25% by March ’09. The fund was eventually liquidated three years later.

The SEC says that UBS Willow Management failed to notify its board of directors or the fund’s investors that the investment strategy had changed. For a time, a marketing brochure given to prospective investors misstated the strategy of the fund, and letters to investors included misleading or false information about credit default swap exposure.
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Our securities fraud lawyers would like to remind you that if you want to opt out of the $100M class action settlement with Oppenheimer Mutual Funds you have to do so by August 31, 2011. OppenheimerFunds Inc. agreed to pay that amount over accusations that it mismanaged its Oppenheimer Champion Fund (OCHBX, OPCHX and OCHCX) and its Oppenheimer Core Bond Fund (OPIGX). The class action was filed by investors accusing OppenheimerFunds of misrepresenting in its offering documents the degree of risk involved in complex securitized instruments, including mortgage-backed securities and credit default swaps.

Under the class action agreement, Champion Fund investors are to be paid $52.5 million. Core Bond investors are to receive $47.5 million. While this amount may seem like a lot, with thousands of class action claimants, Core Bund Fund investors will likely receive approximately 12 cents on the dollar, while Champion Fund investors will receive about 3 cents on the dollar.

This is not a lot of money for your losses, which is why you may want to seriously consider opting out of the class action and pursuing your own securities lawsuit or arbitration claim. Please contact our stockbroker fraud law firm today and ask for your free case evaluation.

You have until August 31, 2011 to send a written exclusion to the class counsel. Your letter cannot be postmarked after the deadline. Failure to opt out will prevent you from filing your own case at a later today. You should, however, get your share of the settlement.

OppenheimerFunds is a Massachusetts Mutual Life Insurance Company subsidiary. Defendants of the class action were charged with violating the Investment Company Act of 1940 and the Securities Act of 1933.

The Oppenheimer Core Bond Fund lost at least 33% of its value in 2008. During the first three months of 2009 it lost another 10%. The bond was promoted as appropriate for and offered by a number of 529 college savings plans, a number of annuities, and retirement plans. The Champion Fund lost about 80% of its value in 2008.

While staying part of a class action in a securities case may appear to be the easy way to recover your investment losses, this is truly not the case. Why should you get back so much left when you’ve lost so much?

By retaining the services of an experienced securities fraud law firm, you increase your chances of recovering the maximum amount possible. We know how devastating it can be to lose money that you have worked so hard for and saved.

OppenheimerFunds Settles Mismanagement Case for $100 Million, Bloomberg Businessweek, July 26, 2011
OppenheimerFunds to pay $100 million to settle mismanagement case, Denver Post, July 27, 2011
More Blog Posts:
Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011
Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010
Wells Fargo Settles Mortgage-Backed Securities Class Action Case for $125M, Institutional Investor Securities Blog, July 19, 2011 Continue reading

According to Goldman Sachs Group Inc. Chief Operating Operator and President Gary Cohn, the investment firm adamant that the bank did not bet against its own clients. He says that Goldman Sachs purchased protection against a decline in just 1% of mortgage-backed securities it underwrote since late 2006. Former clients, regulators, and members of Congress are accusing Goldman Sachs of designing mortgage-backed securities that would fail and then betting on their failure to purchase credit-default swaps, which pay out when a default occurs.

Cohn testified last month before the Financial Crisis Inquiry Commission. He says that in the wake of the serious allegations, the investment firm has examined the $47 billion in residential mortgage-backed securities (RMBS) and $14.5 billion in collateralized debt obligations (CDOs) that the firm underwrote since firm executives began to feel the need to treat the subprime mortgage market with caution in December 2006. He claims that by the end of June 2007, Goldman Sachs held $2.4 billion of bonds from CDOs and $2.4 billion of bonds from RMBS trusts. The investment bank had protection for approximately 1% of the total underwritten. Nearly 60% of the derivatives and bonds in the CDOs were from other institutions.

The hearing was called to probe the relationship between Goldman and American International Group Inc (AIG). The investment bank had purchased CDO protection from the insurer. Billions of dollars in federal funds had allowed AIG to stay in business even though it was facing bankruptcy and a number of the insurer’s counterparties, including Goldman, are believed to have benefited. Cohn has argued that all market participants benefited from the government’s assistance.

Related Web Resources:
Goldman Sachs Shorted 1% of its Mortgage Bonds, CDOs, Cohn Says, Business Week, June 30, 2010
Goldman’s Cohn: Firm Didn’t Drive Down Mortgage-Asset Marks, Bloomberg.com, June 30, 2010
Financial Crisis Inquiry Commission
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Germany and France are calling on the European Union to accelerate its plans for proposals to put restrictions on credit default swaps and ban naked short selling of bonds and some stock. French President Nicolas Sarkozy and German Chancellor Angela Merkel wrote a joint letter to the European Commission last month.

The two leaders noted that strong market volatility was making it necessary to question certain financial methods and that improving the transparency of short-selling positions on shares and bonds was important. Just this May, the German government unilaterally decided to ban the naked short selling of certain stocks and bonds. Sarkozy and Merkel are also pressing for swift resolution of the differences between the European Parliament and EU member states over a new banking supervision scheme. Disputes regarding the amount of power new agencies will have to oversee banking, securities, and insurance industries have yet to be resolved.

The EC welcomed the letter, saying that the German and French leaders were voicing support for its work, and noted that the “final phase of completing our proposals” is under way. Commission spokeswoman Pia Arenkilde-Hansen also noted that the EC is working with key stakeholders to tackle the issue of derivatives. She did however, point out that member states have “divergent positions” when it comes to short selling. The EC has not yet found a consensus.

The EC acknowledged the need for urgency but insisted that rushing the proposals would be a mistake.

Related Web Resources:
Merkel And Sarkozy Want EU To Ban High-Risk Trading, World News, June 11, 2010
EU leaders ask for short selling, CDS rules, Business Week, June 17, 2010
European Commission
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US Senator Susan Collins (R-Maine) has introduced a new bill to regulate investment-bank holding companies, credit default swaps, and other financial instruments that state and federal regulators have yet to regulate. Collins says the bill, called the Financial Regulation Reform Act of 2008, seeks to restore public faith in the US financial system in the wake of current credit difficulties-problems that have led to plunging home prices, a decrease in consumer sales, an increase in foreclosure rates, and significant losses in retirement savings.

Collins says the new legislation will get rid of any gaps in the government’s oversight of the financial markets and develop more reforms of the financial regulatory system.

The Bill Proposes Three Main Reforms:

• Giving the Federal Reserve supervisory authority over investment-bank holding companies.
• Creating a national commission on financial regulation reform to evaluate, make recommendations, and implement changes to the current regulatory structure.
• Create transparency and oversight in the credit default swaps market by requiring that the Commodity Futures Trading Commission be notified about CDS contracts and mandating that parties make trades using a federally approved clearing house.

Credit Default Swaps
CDS are insurance-like contracts involving one party promising to cover losses on certain securities if a default occurs. Sold by hedge funds, banks, and other entities, they usually apply to mortgage securities, municipal bonds, and corporate debt.

Many CDS’s are represented as safe investments, when in fact, their risks often far outweigh their benefits. It was the unregulated credit default swaps market, a trillion-dollar-market, that reportedly led to the collapse of Lehman Brothers and AIG.

Sen Collins Introduces Legislation to Strengthen Financial Regulation and Oversight, Collins.Senate.gov, November 18, 2008
Credit Default Swaps: The Next Crisis?, Time, March 17, 2008 Continue reading

Five school districts in Wisconsin are suing Stifel Nicolaus & Co., Inc. and Royal Bank of Canada (RBC) for losses incurred after the bank and brokerage firm sold the districts “Credit Default Swaps,” (also called “CDS” or complex credit derivatives) worth $200 million resulting in some $150 million in losses. The school districts claim that the bank and brokerage firm told them that the CDS investments were safe even though they knew otherwise.

The school districts involved in the lawsuit include Kimberly Area School District, Kenosha Unified School District, School District of Waukesha, Whitefish Bay School District, and West Allis – West Milwaukee School District. They are seeking full recovery of their money. Attorney Robert Kantas of the stockbroker fraud firm law firm Shepherd Smith Edwards & Kantas LTD LLP is representing the school districts.

The districts’ lawsuit accuses Royal Bank of Canada and Stifel Nicolaus of either negligently or purposely misrepresenting the investments and withholding key information. The plaintiffs’ complaint names specific times when they were told that “15 Enrons” would need to happen before the districts would be affected, none of the CDO’s had sub-prime debt, and the investments were “safe” and “conservative.” The districts later found out that some of the CDOs they purchased included leases, home equity loans, commercial mortgage loans, residential mortgage loans, credit card receivables, auto finance receivables, and other debt obligations.

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