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July 12, 2010

Morgan Stanley Settles Massachusetts Lending Case for $102 Million

According to Massachusetts Attorney General Martha Coakley, Morgan Stanley has agreed to pay $102 million to settle allegations that it offered predatory subprime mortgage loan funding in the state. The investment firm filed its assurance of discontinuance in Massachusetts state court, agreeing to pay $19.5 million to the state, $58 million in relief to approximately 1,000 Massachusetts homeowners, $2 million to nonprofit groups that help subprime foreclosure victims, and $23.4 million to a state pension plan and a state trust for investment losses. By agreeing to settle, Morgan Stanley is not admitting to or denying the attorney general's allegations.

Coakley contends that the investment bank provided subprime lender New Century billions of dollars. The funds were used to target lower-income borrowers to get them into loans they would not be able to pay back. Coakley contends that even though Morgan Stanley “uncovered signals pretty early on” that New Century’s practices “were not sound” and the “bad loans were causing the lender to collapse" the investment bank went forward with funding and securitizing the loans. Coakley also says that Morgan Stanley was aware that New Century repeatedly violated Massachusetts banking standards between 2005 and 2007, used inaccurate and inflated appraisals, and improperly calculate debt-to-ratio from initial “teaser rates.”

The state says that Morgan Stanley packaged the loans and sold them to big investors. The investment bank has been ordered to revise some of its lending practices.

Bank of America/Countrywide, Goldman Sachs, Fremont Investment and Loan, and others have reached similar settlements with the state. The approximately $440 million in settlement money will provide borrowers, investors, homeowners, and the state with relief and recovery.

Related Web Resources:
Morgan Stanley Settles Massachusetts Subprime Loan Probe, ABC News, June 24, 2010

Morgan Stanley to Pay $102 Million in Subprime Accord, Bloomberg Businessweek, June 24, 2010

Massachusetts Attorney General Martha Coakley

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Posted In: Financial Firms , Morgan Stanley , Subprime Mortgage

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May 17, 2009

Goldman Sachs Reaches $60 Million Settlement with Massachusetts Over Subprime-Mortgage Loans

Massachusetts Attorney General Martha Coakley has announced a $60 million settlement with Goldman Sachs over the alleged role the investment bank played in the subprime mortgage crisis. While Goldman did not originate the loans, it played a role in their securitization. Coakley has been conducting a nationwide probe targeting investment banks that knew certain loans were high risk but still opted to write them, as well as underwrite securities from these loans. Coakley says that state courts are in agreement that a number of these loans were destined to fail from the start.

Massachusetts will use $50 million of the settlement to help 714 Massachusetts homeowners with mortgages that are either delinquent or still performing. The money, however, won’t go toward helping homeowners whose homes have already foreclosed. The other $10 million will go to the state.

Among the terms of the settlement:

• Goldman has consented to principal write-downs of 25% to 30% for first mortgages and upward of 50% for second mortgages if owners want to sell or refinance their homes.

• A homeowner who is significantly delinquent will have to make manageable payments toward mortgages until they are able to sell or refinance.

• If a homeowner cannot sell his or her home, Goldman will help qualified borrowers to refinance and provide other solutions so that they don’t have to foreclose.

• Homeowners that have loans with Goldman entities and those that Litton Loan Servicing LP has serviced will receive immediate help.

By agreeing to the settlement, Goldman is not admitting to or denying wrongdoing. This is the first settlement, however, where an investment bank has been held to task for its role in the subprime lending crisis. Up until this point, prosecutors were only targeting the sources of the subprime loans and not the parties that put together the loans and presented them to investors.

Related Web Resources:
Massachusetts settles with Goldman Sachs, UPI, May 11, 2009

Goldman Sachs, Massachusetts reach settlement on mortgage securities, LA Times, May 12, 2009

Attorney General Martha Coakley

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Posted In: Financial Firms , Goldman Sachs , Subprime Mortgage

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February 2, 2009

Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement

Last month, Merrill Lynch & Co. reached a $550 million settlement with investors and employees over losses related to investments in subprime mortgage-backed assets. A court must approve the proposed settlements.

In the securities class action case, the plaintiffs have accused Merrill Lynch of using statements on collateralized debt obligations and other assets to inflate the market price of its own shares. As a result, the plaintiffs contend, investors lost money.

The Ohio State Teachers Retirement System is the lead plaintiff in the class action lawsuit, which represents investors who bought preferred shares between October 17, 2007 and December 31, 2008. The agreed upon settlement is $475 million in cash.

Plaintiffs of the Employee Retirement Income Security Act class action have agreed to settle for $75 million in cash. Participants in the ERISA lawsuit are Merrill Lynch employees with Merrill Lynch stock in specific retirement plans. The plaintiffs have accused Merrill of failing to adequately reveal subprime-related losses that impacted its retirement accumulation plan, its savings and investment plan, and its employee stock ownership plan.

By agreeing to settle, Merrill Lynch says it is not admitting to any wrongdoing.

Fallout from the Subprime Mortgage Crisis
The subprime mortgage crisis has resulted in millions of dollars in losses for investors. If you believe that you were a victim of investor fraud or broker dealer misrepresentation and that these inappropriate actions caused you to sustain investor losses, you may be entitled to the recovery of those losses.

Related Web Resources:
Merrill Lynch settles subprime lawsuit, Business Insurance, January 20, 2009

Merrill settles employee class action for $75M, Investment News, January 19, 2009

Ohio announces $475M Merrill Lynch settlement, Forbes.com, January 16, 2009

Continue reading "Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement" »

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Posted In: Financial Firms , Merrill Lynch , Subprime Mortgage

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October 16, 2008

Securities and Exchange Commission Sues Five World Group Securities Brokers For Persuading Clients to Refinance Homes With Subprime Mortgages

This month, the US Securities and Exchange Commission filed a civil lawsuit against five World Group Securities brokers for allegedly pushing investors into refinancing their homes with subprime mortgages. The SEC is accusing the mortgage brokers of taking advantage of the clients’ lack of education, modest financial means, and poor fluency in English to fraudulently sell them unsuitable securities—primarily variable universal life policies.

Because most of the investors who were persuaded to purchase the securities lacked the funds or income to do so, the defendants allegedly persuaded them to come up with the money through the refinancing of their fixed-rate mortgages into subprime adjustable-rate negative amortization mortgages. The brokers received compensation from the securities sale and the mortgage refinancings.

The defendants in the case are Guillermo Haro, Jesus Gutierrez Kederio Ainsworth, Angel Romo, and Gabriel Paredes. The Commission says that the brokers violated the antifraud provisions of the securities laws.

The SEC says the men misrepresented the returns the investors would get back from the securities, the nature and liquidity of the variable universal life policies, and the new mortgages’ terms, as well as failed to reveal key facts to the investors. The Commision's complaint also accuses the brokers of falsifying customer account forms and placing inaccurate securities sales information on order tickets.

The SEC calls the men’s actions and their willingness to allow their clients to risk the potential loss of their homes “egregious” conduct that will not be tolerated. The Commission is seeking disgorgement, injunctions, and financial fines against the defendants.

If you are a victim of investor fraud, it is important that you find out about the legal remedies available to you.

Commission Charges Five Registered Representatives with Fraudulent Sales of Unsuitable Securities Funded Through Subprime Mortgage Refinancings, SEC, October 3, 2008

World Group Securities brokers charged with fraud, Bizjournals.com, October 13, 2008

Related Web Resource:

Subprime Mortgage, Investopedia

Continue reading "Securities and Exchange Commission Sues Five World Group Securities Brokers For Persuading Clients to Refinance Homes With Subprime Mortgages" »

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Posted In: SEC Enforcement , Subprime Mortgage , World Group Securities

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April 1, 2008

Merrill Lynch Sues Insurer for Failing to Honor Claims Opening Door to Mysterious "Swaps" Market

Merrill Lynch & Co. has publicly opened the door to what many believe could be an even larger problem to the credit markets than the widely publicized sub-prime mortgage debacle - the little understood and sledom discussed "swaps" market.

Perhaps the world’s most high-profile financial firm, Merrill - itself a frequent complainer about lawsuits – has filed a monster of a suit in a New York court against bond insurer Security Capital Assurance Ltd. (SCA). Merrill Lynch sued the insurer alleging it failed to honor seven contracts promising to cover losses on $3.1 billion in "credit swaps," after which SCA filed a countersuit against Merrill for $28 million. .

Merrill claims SCA walked away from signed insurance contracts guaranteeing Merrill against losses. SCA counterclaims that Merrill broke a stipulation in one of the contracts which entitles SCA to terminate all the agreements and collect damages. (Perhaps Merrill is getting a taste of what many us have experienced: an insurance company happy to collect premiums but which later relies on a technicality to avoid payment.)

Under the contracts, SCA says it was granted "control rights" over the CDOs, meaning it had control over decisions affecting the investments. SCA alleges that "Merrill Lynch made the decision to blatantly ignore its prior commitments,” when, in a “rushed campaign” to dump risk from its books, Merrill Lynch promised such control rights to others.

Yet, some believe the greater importance of this suit is that it reveals the tip of the iceberg regarding the exposure of the world’s financial institutions to the multi-trillion dollar “swaps” market. The swap contracts in question were agreements to cover missed payments on collateralized-debt obligations, but an untold amount of “swaps” agreements outstanding cover more possibilities and circumstances than most of us can imagine!

Because the “swaps market” is almost totally unregulated and involves agreements eerily similar to those engineered at Enron, few publicly venture a guess as to the gravety of the exposure to the financial markets should such swap agreements simply began to unwind.

The law firm of Shepherd, Smith, Edwards & Kantas is committed to assisting investors to recover losses in their accounts at securities firms. If you or someone you know is a victim of securities fraud, contact us today to arrange a free confidential consultation with one of our attorneys.

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Posted In: Merrill Lynch , Subprime Mortgage

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March 12, 2008

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis

Appearing before the U.S. Congress last week, Countrywide Financial CEO and founder Angelo Mozilo, Ex-Citigroup CEO Charles Prince, and Ex-Merrill Lynch Chairman and CEO Stanley O’Neil gave their testimonies to the House Committee on Government and Oversight Reform.

The three men say that reports about their compensation are “grossly exaggerated” and that they too have lost millions of dollars from the mortgage debacle. On Thursday, the Congressional issued a report stating that the three men earned $460 million between 2002 and 2006.

All three men say their income from the firms are tied to the profits that the companies made in the years prior to the mortgage crisis and that their company stock has dropped dramatically since then.

Mozilo reportedly stood to earn $115 after Countrywide’s pending sale to Bank of America is completed. He now has agreed to forfeit $37.5 million.

O’Neal received $161 million after stepping down from Merrill Lynch. Prince left Citigroup last November with about $68 million.

Other Wall Street CEO’s that have generated media buzz for their generous compensations:

-Last year, Goldman Sachs Chairman and CEO Lloyd Blankenfein received $68 million—the largest bonus ever for an industry head.

-Robert Nardelli, Chrysler Chairman and CEO, took away $210 million in stock options, money, and retirement benefits after being asked to leave Home Depot.

In 2006, 386 Fortune 500 firm chiefs received $10.8 million in compensation.

Shepherd Smith and Edwards represents stockbroker fraud clients that have lost money because of the negligence or misconduct of a member of a securities industry. One of our securities fraud lawyers can discuss your case during a free consultation.

Related Web Resources:

Mortgage mess CEOs defend pay, CNN Money.com, March 7, 2008

Congress quizzes financial execs on CEO pay 'lottery', USA Today, March 7, 2008

Committee Holds Hearing on CEO Pay and the Mortgage Crisis, House Committee on Government and Oversight Reform

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Posted In: Citigroup , Countrywide Financial , Morgan Stanley , Subprime Mortgage

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February 22, 2008

SEC Involved in 36 Subprime Mortgage Industry Probes

The Securities and Exchange Commission is conducting three dozen open investigations into misconduct in the subprime mortgage industry. The probe is taking a look at possible misconduct involving:

• The origination process
• Insider trading
• Securitization and sales of mortgage-backed securities

According to SEC Division of Enforcement Associate Director Cheryl Scarboro, the SEC wants to know who may have been involved, who knew about any misconduct, and who acted inappropriately. Scarboro also directs the SEC Subprime Working Group, which coordinates these probes with other SEC divisions.

In SEC v. Doral Financial Corp., Doral settled claims that it overstated income on nonconforming loans for $25 million. The primary issues pertaining to this case included valuation of the future income stream, valuation of interest-only STRP’s, and applying a flat rate to value investments.

These issues are of major significance in pending cases involving the subprime mortgage industry. Other issues of focus in the SEC investigations include ownership transfer and booking the gain on sale.

The SEC has met with the companies it is investigating is helping to streamline the process.

In a recent TIME.com article, Keefe, Bruyette & Woods Inc. Bose George estimated potential losses from the subprime mortgage crisis at around $250 billion. Columbia University professor Charles Calomiris estimates the losses at over $300 billion but under $400 billion. $1 trillion outstanding subprime mortgages currently exist.

Please contact Shepherd Smith and Edwards to discuss your case. We have helped thousands of investors recoup their losses.

Related Web Resources:

How Bad Will the Mortgage Crisis Get?, TIME.com, February 19, 2008

SEC probing three dozen subprime cases, Reuters, December 21, 2007

Why a U.S. Subprime Mortgage Crisis Is Felt Around the World, New York Times, August 21, 2007

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Posted In: SEC , Subprime Mortgage

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February 11, 2008

Pondering the SEC’s Role in the Subprime Mortgage Crisis

What was the role of the Securities and Exchange Commission in the collapse of the subprime mortgage bubble? Although mortgage brokers, investment banks, and ratings agencies are frequently held responsible for the demise, little is said about the roles of the Financial Industry Regulatory Industry (FINRA) and the SEC—both watchdog agencies that are responsible for monitoring complex credit derivatives and their suitability requirements for investors.

Yet where was the SEC when it was time to oversee investment banks and determine whether they had sufficient capital for their balance sheets, trading positions, and the appropriate risk management systems so that major losses could be avoided?

One notable problem is that there is not enough clear data available about the credit derivatives market. Structured finance products, including collateralized debt obligations (CDOs) are traded over-the-counter in the United States. This means that price information for these products is not easily accessible.

It wasn’t until 2007 that the SEC, the Commodities Futures Trading Commission (CFTC), and other members of the President’s Working Group recommended that stricter oversight of the over-the-counter market be implemented.

While regulators are now examining the way banks structured, priced, and sold mortgage-laden securities, some industry insiders feel that these steps were taken too late. Should the SEC have noticed the warning signs?

In 2006, Merrill Lynch senior executive Jeff Kronthal was fired when he responded reluctantly to former Chief Executive Stanley O’Neal’s mandate that firms be more aggressive about taking risks with mortgage securities. Morgan Stanley’s new Chief Executive John Thain rehired Kronthal last December.

In 2005, Bear Stearns reported in its 2005 financial disclosure that it was threatened by a possible civil enforcement action related to pricing, analysis, and valuation of $63 billion in CDOs. Bear Stearns also reported that then-New York Attorney General Eliot Spitzer had contacted the firm about $16 billion in CDOs it had sold to an undisclosed client.

Former SEC attorney Gary Aguirre says that while aggressively pursuing Pequote Capital and its alleged involvement in an insider trading case in 2005, he was fired when he tried to interview Morgan Stanley Chief Executive John Mack. Aguirre claims that the SEC is too closely associated with the industry it regulates.

Earlier this month, securities regulators in Massachusetts filed a civil fraud lawsuit against Merrill Lynch over $14 million in CDOs that the firm sold to the town of Springfield. Regulators say they were unsuitable for and sold without the town’s permission. Merrill has admitted to the town’s lack of consent and paid its investment back in full—although it now has little value.

The Federal Bureau of Investigation says it is conducting criminal investigations into 14 firms regarding their involvement in mortgage securitization activities.

Morgan Stanley, Merrill Lynch, Bear Stearns, and Goldman Sachs all admit that different regulators have asked them about their handling of subprime mortgage securities.

If you are an investor who has lost money because of the misconduct or negligence of someone in the securities industry, please contact Shepherd Smith and Edwards today. Your first consultation with one of our stockbroker fraud lawyers is free.

Related Web Resources:

SEC

Collateralized Debt Obligation (CDO), Investopedia

Subprime Mortgage, Investopedia

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Posted In: Bear Stearns , Collateral Debt Obligation , Goldman Sachs , Morgan Stanley , SEC , Subprime Mortgage

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Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

Morgan Stanley Settles Massachusetts Lending Case for $102 Million

Goldman Sachs Reaches $60 Million Settlement with Massachusetts Over Subprime-Mortgage Loans

Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement

Securities and Exchange Commission Sues Five World Group Securities Brokers For Persuading Clients to Refinance Homes With Subprime Mortgages

Merrill Lynch Sues Insurer for Failing to Honor Claims Opening Door to Mysterious "Swaps" Market

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis

SEC Involved in 36 Subprime Mortgage Industry Probes

Pondering the SEC’s Role in the Subprime Mortgage Crisis

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