The Resolution Law Group: The Volcker Rule May Already Be Affecting Financial Markets & The Economy

According to The Wall Street Journal, it’s just been a week since regulators approved the Volcker Rule and already investors and financial institutions are looking for new ways to finance municipal bond investments. The Volcker rule limits how much risk federally insured depository institutions can take, prohibiting proprietary trading, setting up obstacles for banks that take part in market timing, and tightening up on compensation agreements that used to serve as incentive for high-risk trading.

Now, says Forbes, Wall Street and its firms are undoubtedly trying to figure out how to get around the rule via loopholes, exemptions, new ways of interpreting the rule, etc. (One reason for this may be that how much executives are paid is dependent upon the amount they make from speculative trading.) The publication says that banks are worried that the Volcker Rule could cost them billions of dollars.

For example, with tender-option bond transactions, hedge funds, banks, and others employ short-terming borrowings to pay for long-term muni bonds. The intention is to make money off of the difference in interest they pay lenders and what they make on the bonds. While tender-option bonds make up just a small section of the $3.7 trillion muni debt market, it includes debt that has been popular with Eaton Vance (EV), Oppenheimer Funds, and others.

Under the Volcker Rule, big banks will no longer be able to deal in tender-option bonds the way they are structured, which is expected to curb new bond issuance and lower tradings (and why banks are likely scrambling to figure out how else they can finance municipal bonds). Already, the Securities Industry and Financial Markets Association is setting up a group to determine how its members can employ leverage to get into municipal debt.

Meantime, midsize and smaller banks are getting ready to sell collateralized debt obligations because of a provision under the rule that restricts certain risky investments. The Volcker Rule limits banks in their investing in collateralized debt obligations backed by securities that are trust-preferred. (A lot of smaller institutions issued these securities before the financial crisis.)

Now, banks such as Zions Bancorp (ZION) will have to sell some CDOs. Zion is expected to take a $387M charge to write down the securities’ value. The bank is concerned that under the Volcker Rule, the securities would be “disallowed investments.”

Per the rule, the deadline for banks to get rid of its risky assets is July 21, 2015—although an extension can be obtained via the Federal Reserve. That said, banks do need to make an adjustment right away to the accounting treatment they’ve been using for the securities.

If you suspect that you suffered financial losses because of municipal bond fraud, contact The Resolution Law Group to find out whether you should file a securities fraud claim. Your case assessment with us is a no obligation, free consultation.

The Resolution Law Group: Merrill Lynch Settles with SEC Over CDO Disclosures for Almost $132M

The Securities and Exchange Commission says that Merrill Lynch Pierce Fenner & Smith Inc. (MER) will pay $131.8M to settle charges involving allegedly faulty derivatives disclosures. The regulator claims that the firm, which is the largest broker-dealer by client assets, misled investors about certain structured debt products before the economic crisis. By settling, Merrill is not denying or agreeing to the allegations. Also, the brokerage firm was quick to note that the matter for dispute occurred before Bank of America (BAC) acquired it.

According to the Commission, in 2006 and 2007 Merrill Lynch did not tell investors that Magnetar Capital impacted the choice of collateral that was behind specific debt products. The hedge fund purportedly hedged stock positions by shorting against Norma CDO I Ltd. and Octans I CDO Ltd., which are two collateral debt obligations that the firm was selling to customers.

The SEC contends that Merrill used misleading collateral to market these CDO investments. According to Division of Enforcement co-director George Canellos, the materials depicted an independent process for choosing collateral that benefited long-term debt investors and customers did not know about the role Magnetar Capital was playing to choose the underlying portfolios.

Also sanctioned by the SEC were Joseph Parish and Scott Shannon, two managing partners of IR Capital Management LLC. This was the investment adviser that took care of choosing collateral for the CDO Norma. They are accused of compromising their supposed lack of bias by letting a third party with its own interests affect the portfolio-selection process. The SEC says Shannon accepted assets that Magnetar chose while Parish let the hedge fund impact how other assets were selected. The two men will pay over $472,000 to settle the allegations against them and they were suspended from the industry.

Meantime, the US government continues to pursue Wall Street firms over their alleged misconduct involving the mortgage-backed securities creation that is attributed to helping cause investor losses during the financial crisis and the housing slump. The SEC has also pursued claims against Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), and JPMorgan Chase & Co. (JPM) over their involvement in structuring and promoting investments linked to home loans that were faulty.

If you suspect that you have been the victim of securities fraud, contact The Resolution Law Group’s CDO fraud lawyers today.  The Resolution Law Group represents investors with securities claims against financial firms, investment advisers, brokerage firms, brokers, and others. Contact our securities fraud law firm.

The Resolution Law Group: Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor

Fannie Mae is suing nine banks over their alleged collusion in manipulating interest rates involving the London Interbank Offered Rate. The defendants are Bank of America (BAC), JPMorgan Chase (JPM), Credit Suisse, UBS (UBS), Deutsche Bank (DB), Citigroup (C), Royal Bank of Scotland, Barclays, & Rabobank. The US government controlled-mortgage company wants over $800M in damages.

Regulators here and in Europe have been looking into claims that a lot of banks manipulated Libor and other rate benchmarks to up their profits or seem more financially fit than they actually were. In its securities fraud lawsuit, Fannie Mae contends that the defendants made representations and promises regarding Libor’s legitimacy that were “false” and that this caused the mortgage company to suffer losses in mortgages, swaps, mortgage securities, and other transactions. Fannie May believes that its losses in interest-rate swaps alone were about $332 million.

UBS, Barclays, Rabobank, and Royal Bank of Scotland have already paid over $3.6 billion in fines to settle with regulators and the US Department of Justice to settle similar allegations. The banks admitted that they lowballed their Libor quotes during the 2008 economic crisis so they would come off as more creditworthy and healthier. Individual traders and brokers have also been charged.

Libor
Libor is used to establish interest rates on student loans, derivatives, mortgages, credit card, car loans, and other matters and underpins hundreds of trillions of dollars in transactions. The rates are determined through a process involving banks being polled on borrowing costs in different currencies over different timeframes. Responses are then averaged to determine the rates that become the benchmark for financial products.

Also a defendant in Fannie Mae’s securities case is the British Bankers’ Association, which oversees the process of Libor rate creation.

Earlier this year, government-backed Freddie Mac (FMCC) sued over a dozen large banks and the British Bankers’ Association also for allegedly manipulating interest rates and causing it to lose money on interest-rates swaps. Defendants named by the government-backed home loan mortgage corporation included Bank of America, JP Morgan Chase, Citigroup, Credit Suisse, and UBS.

The Resolution Law Group represents investors with securities claims against financial firms, investment advisers, brokerage firms, brokers, and others. Contact our securities fraud law firm today.

The Resolution Law Group: Three Ex-GE Bankers Convicted of Municipal Bond Bid Rigging Are Set Free

In a 2-1 ruling, the U.S. Circuit Court of Appeals in New York panel has decided that three ex-General Electric Co. bankers charged with conspiring to bilk cities in a muni bond bid rigging scam can go free because the US government waited too long to prosecute them. Reversing last year’s convictions of Dominick Carollo, Steven Goldberg, and Peter Grimm, the court dismissed the criminal case against them and ordered that they be released from prison.

According to prosecutors, the three men worked with guaranteed investment contracts that allowed municipalities to make interest on money made from bond sales until they wanted to spend on local projects. The government believes that between August 1999 and May 2004 Carollo, Goldberg, and Grimm gave three brokers, including UBS PaineWebber, kickbacks to win actions for the contracts even if it meant the bank would make interest payments that were artificially low.

A federal jury convicted the former GE bankers of defrauding the country and conspiracy to commit wire fraud. They appealed, appealed, contending that the indictment on July 27, 2010 exceeded the statute of limitations, which is six years for conspiracy to bilk the US via tax law violations and five years for conspiracy. The government disagreed, arguing that the limitations’ statute went on as long as GE was paying rates that were not competitive.

Meantime, GE on Friday consented to settle for $18.25M a class action securities case over municipal bond fixing. The plaintiffs accused the company of rigging municipal bond bids. GE is among the financial firms and lenders accused of working together to rig prices for municipal derivatives. Investors say that the price fixing of the bonds violated antitrust laws and caused them to get lower interest rates.

GE had previously settled similar securities claims made by state attorneys general for $30 million, Three years ago it settled for $70 million municipal bond rigging allegations made by the US Justice Department.

If you are a municipal bond investor who suffered financial losses you think may be due to securities fraud, contact our municipal bond fraud law firm today. http://www.theresolutionlawgroup.com

 

The Resolution Law Group: Three Ex-GE Bankers Convicted of Municipal Bond Bid Rigging Are Set Free

In a 2-1 ruling, the U.S. Circuit Court of Appeals in New York panel has decided that three ex-General Electric Co. bankers charged with conspiring to bilk cities in a muni bond bid rigging scam can go free because the US government waited too long to prosecute them. Reversing last year’s convictions of Dominick Carollo, Steven Goldberg, and Peter Grimm, the court dismissed the criminal case against them and ordered that they be released from prison.

According to prosecutors, the three men worked with guaranteed investment contracts that allowed municipalities to make interest on money made from bond sales until they wanted to spend on local projects. The government believes that between August 1999 and May 2004 Carollo, Goldberg, and Grimm gave three brokers, including UBS PaineWebber, kickbacks to win actions for the contracts even if it meant the bank would make interest payments that were artificially low.

A federal jury convicted the former GE bankers of defrauding the country and conspiracy to commit wire fraud. They appealed, appealed, contending that the indictment on July 27, 2010 exceeded the statute of limitations, which is six years for conspiracy to bilk the US via tax law violations and five years for conspiracy. The government disagreed, arguing that the limitations’ statute went on as long as GE was paying rates that were not competitive.

Meantime, GE on Friday consented to settle for $18.25M a class action securities case over municipal bond fixing. The plaintiffs accused the company of rigging municipal bond bids. GE is among the financial firms and lenders accused of working together to rig prices for municipal derivatives. Investors say that the price fixing of the bonds violated antitrust laws and caused them to get lower interest rates.

GE had previously settled similar securities claims made by state attorneys general for $30 million, Three years ago it settled for $70 million municipal bond rigging allegations made by the US Justice Department.

If you are a municipal bond investor who suffered financial losses you think may be due to securities fraud, contact The Resolution Law Group municipal bond fraud law firm today.

The Resolution Law Group: Volcker Rule is Approved by SEC, FDIC, Federal Reserve, CFTC, and OCC

Five regulatory agencies in the US have voted to approve the Volcker Rule today. The measure establishes new hurdles for banks that engage in market timing and will limit compensation arrangements that previously provided incentive for high risk trading.

While the Federal Reserve Board and the Federal Deposit Insurance Corporation voted unanimously to approve the Volcker Rule, the Securities and Exchange Commission approved it in a 3-2 vote, the Commodity Futures Trading Commission approved it in a 3-1 vote, and the Office of the Comptroller of the Currency’s sole voting member also said yes. President Barack Obama praised the rule’s finalization. He believes it will improve accountability and create a safer financial system.

Named after ex-Federal Chairman Paul Volcker, the rule sets up guidelines that impose risk-taking limits for banks with federally insured deposits. It mandates that they show the way their hedging strategies are designed to function, as well as set up approval procedures for any diversions from these plans. Per the rule’s preamble, banks have to make sure hedges are geared to mitigate risks upon “inception” and this needs to be “based on analysis” regarding the appropriateness of strategies, hedging instruments, limits, techniques, as well as the correlation between the hedge and underlying risks.

Banks with federal insured deposits won’t able to take part in proprietary trading, which involves engaging in risky investment endeavors for their own benefits. They also won’t be allowed to take ownership stakes in private equity funds and hedge funds.

Unlike an earlier version of the rule, which gave an exemption to the proprietary trading ban involving US Treasury securities, this final rule lets firms trade foreign debt. That said, foreign banks in the US will have to contend with stringent trading restrictions and overseas banks with US offices won’t be allowed to sell, buy or hedge investments for profit.

According to CNN.com, advocates of reform believe that with the Volcker Rule’s restrictions taxpayers wont have to bail out these institutions In the future. Meanwhile, representatives of the industry are calling measure burdensome and too complicated.

Banks wanted the rule to protect market timing (with the firms hold the securities to engage in customer transactions). They also wanted to keep their ability to trade for hedging purposes.

Now, with the Volcker Rule, to show that they are taking part in market making (rather than speculation), banks will need to demonstrate that trades are being determined by customers’ “reasonably expected near-term demands,” and that historic demand and existing market conditions have been factored into the equation. Also, although banks will now have to contend with more limits on foreign bond trading, they can still take part in the proprietary trading of federal, state, municipal, and government-backed entities’ bonds.

As for hedging, firms will have to identify specific risks that such activities would offset. Bankers involved in hedging won’t be compensated in a manner that rewards proprietary trading.

The Resolution Law Group represents institutional investors and high net worth individual investors throughout the US. We help our clients recover their securities fraud losses

The Resolution Law Group: SEC Considers Imposing Proxy Adviser Rules

The US Securities and Exchange Commission is looking at whether proxy advisers have become so influential when it comes to corporate elections that rules should be imposed in them to create greater transparency. At a recent SEC-hosted meeting, brokers, institutional investors, business groups, and unions debated about the role that proxy advisors Glass Lewis & Co. LLC and Institutional Shareholder Services Inc. have played in shareholder voting.

According to Bloomberg, research from non-profit organization Conference Board reports that with the growth in institutional investors’ percent of voting shares going up by over 50% there has been a growing demand for proxy research. However, there is concern by some that proxy advisors have a lot of power over the governance decisions of public companies yet they don’t have to contend with much Commission oversight. Critics think proxy advisors influence shareholders to vote blindly on proxy measures without getting disclosures about possible conflicts. Meantime, supporters of proxy advisors say that they provide an important service—especially to small institutional investors that lack the resources to assess every vote they make.

Mutual funds, pensions, and other mutual funds tend to be proxy advisers’ typical clients. SEC Commissioner Daniel Gallagher attributes proxy advisers’ “outsized role” to policy guidance issued by the agency in 2009 telling investment advisers they could fulfill an obligation to vote in the best interests of shareholders by depending on third party research.

It was just this year that Glass Lewis & Co. LLC and Institutional Shareholder Services Inc. consented to abide by a European Securities and Markets Authority recommendation that they obey a voluntary conduct code about disclosing the way they make recommendations and manage conflicts of interest. Still, Business Roundtable & the US Chamber of Commerce have asked for more disclosures.

The Resolution Law Group represents investors with securities claims against financial firms, investment advisers, brokerage firms, brokers, and others. Contact our securities fraud law firm today.