The Resolution Law Group: Five Years After Lehman’s Bankruptcy, How is the US Financial System Doing Now?

It was nearly five years ago on September 15, 2008 when the public learned that Lehman Brothers had gone bankrupt, resulting in billions of dollars of losses on a financial system already struggling with a housing market that was failing, as well as a growing credit crisis. Also, Merrill Lynch (MER) would be forced to join with Bank of America (BAC), the US car industry was in trouble, and insurer AIG stood on the brink of collapse. Now, while there has the economy has somewhat recovered, many Americans can’t help but worry that such a financial meltdown could happen again.

Back then, Wachovia (WB) was also in peril of going down and Washington Mutual (WAMUQ) was failing miserably—to become the biggest US banking failure to date—and government and financial industry leaders scrambled to save what they could. Bailouts were issued and emergency measures taken including: a federal takeover of housing finance giants Freddie Mac and Fannie Mae, which kept the housing market going by allaying worries that the two entities would default on bonds,the guaranteeing of money market mutual funds that the then-trillion dollar industry depended on for the business short-term funding as well as retirement, and the setting up of the Troubled Asset Relief Program (allowing the Treasury to help put back confidence in banks via the buying of equities of securities in many of these banks and recapitalizing the system.

In a USA Today article, ex-US senator Christopher Dodd said that he believes there will be another crisis; only this one could also involve China, Brazil, and India—not just the US and the European continent. Meantime, while US Chamber of Commerce’s Center for Capital Markets Competitiveness CEO and President David Hirschmann said that a crisis as big as the one in 2008 is not as likely, he predicts there will still be failures. He also said that it is unclear whether we’ve established a better system for identifying problems and risks.

In August, US President Obama delineated a proposal to rework the country’s housing finance-system, which would phase out Freddie and Fannie. While putting them under government control a few years back provided some reprieve, this was never meant to be permanent solution to the problems that happened.

Also in the article, ex-US Treasury Secretary Henry Paulson said he wants broader industry reform and while he believes the Dodd-Frank Wall Street Reform and Consumer Act is a big move n the right direction, he expressed the need for a reworking of the federal financial regulatory agencies and a closer examination of their duties, which sometimes overlap. There also have been calls from government watchdogs for reforms to the biggest US banks because of concerns that their interrelatedness and complexities make them an ongoing risk to the financial system.

If you feel you are the victim of Broker Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

 

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The Resolution Law Group: UBS Agrees to Pay $120 Million in Lehman Bros. Dispute

UBS has agreed to pay $120 million to settle a lawsuit by investors who accused the Swiss bank of misleading them about the financial condition of Lehman Brothers Holdings in connection with the sale of structured notes.

The preliminary settlement was disclosed in papers filed late Thursday in the U.S. District Court in Manhattan, and requires court approval.

It resolves claims over roughly $900 million of Lehman securities that UBS (UBS) underwrote and sold between March 2007 and September 2008, court papers show. Lehman filed for bankruptcy protection on Sept. 15, 2008.

UBS had no immediate comment on the settlement. Lawyers for the investors didn’t immediately respond to requests for comment.

 UBS has agreed to pay $120 million to settle a lawsuit by investors who accused the Swiss bank of misleading them about the financial condition of Lehman Brothers Holdings in connection with the sale of structured notes.

The preliminary settlement was disclosed in papers filed late Thursday in the U.S. District Court in Manhattan, and requires court approval.

It resolves claims over roughly $900 million of Lehman securities that UBS (UBS) underwrote and sold between March 2007 and September 2008, court papers show. Lehman filed for bankruptcy protection on Sept. 15, 2008.

UBS had no immediate comment on the settlement. Lawyers for the investors didn’t immediately respond to requests for comment.

The Resolution Law Group: The Banks Have Blood on Their Hands

We invited Bill Black to return to explain whether the level of systemic risk due to fraud in our financial markets has improved or worsened since the dire situation he painted for us in early 2012. Sadly, it looks like abuse by the big players has only flourished since then.

In the U.S., our regulators have publicly embraced a “too big to prosecute” doctrine. We are restraining, underfunding, and dismantling regulatory oversight in the interest of short-term stability for the status quo. Which, as a criminologist, Black knows with certainty creates an environment where bad actors will act in their self-interest with assumed (and likely real, at this point) impunity.

If you can steal with impunity, as soon as you devastate regulation, you devastate the ability to prosecute. And as soon as that happens, in our jargon, in criminology, you make it a criminogenic environment. It just means an environment where the incentives are so perverse that they are going to produce widespread crime. In this context, it is going to be widespread accounting control fraud. And we see how few ethical restraints remain in the most elite banks.

You are looking at an underlying economic dynamic where fraud is a sure thing that will make people fabulously wealthy and where you select by your hiring, by your promotion, and by your firing for the ethically worst people at these firms that are committing the frauds. And so you have one of the largest banks in the world, HSBC, being the key ally to the most violent Mexican drug cartel, where they actually did so much business together that the drug cartel designed special boxes to put the cash in that they were laundering that fit exactly into the teller windows so that there would be no delay. This is the efficiency principle of drug laundering.

So these banks figuratively have the blood of over a thousand people on their hands. They are willing to fund people that murder and torture and behead folks. And they are willing to do that year after year, despite warnings from the regulators that they are doing this. And the regulators are not willing to actually take serious action until there has been “true devastation.”

And as time passes, our ability to bring effective justice should we want to atrophies:

I will tell you one of the things from being a former enforcement specialist: If you do not bring cases for year after year after year, it would be like a tennis player who stopped playing tournaments for ten years and never practices, and then he or she goes onto the court. What is going to happen?

They will get crushed by the opposition. So once you have given up enforcing the laws, I can tell you this with my lawyer hat on and former enforcement hat: You fear bringing these cases because you have allowed your skills to deteriorate so badly.

Given the sorry statements from officials like Lanny Breuer, who stepped down as the DOJ Criminal Division Chief earlier this year (he headed up the investigation of the banks and mortgage companies), we may already be at this stage.

Black sees a natural end to this systemic rot: a day where the bad actors no longer trust one another, and the system implodes upon itself:

I can tell you as a criminologist and as a former financial regulator, this is what you need to know about fraud: Fraud involves me, the fraudster, getting you to trust me. And then I betray your trust for my financial gain. And so there is no more destructive asset against trust than elite fraud.

So yes, we have been running a system under which the fraudsters get incredibly wealthy. And now they get incredibly wealthy and they do not even get prosecuted. And if there is a civil case – actually, they get the worst of all worlds. It sounds large for propaganda purposes, but all of us in finance know it is trivial. It is often literally a week of income, where their income is massively increased by the frauds.  The statistics show that there has been a general withdrawal of less sophisticated investors, in particular, from the marketplaces — and it’s because people do not trust the markets anymore.

Here is what people forget: After Lehman Brothers goes, the run that occurred was not Ma and Pa. The run that occurred that, for example, broke the buck in the money market mutual funds: that was a massive run of the most sophisticated financial players, where they were taking out hundreds of millions or even tens of billions, in some cases of money, in some cases, literally, in microseconds. In other words, bankers no longer trusted other bankers. And when that happens, markets do not simply become inefficient; they actually lock up. And that is what happened thousands of times after Lehman collapsed, because bankers would no longer trust other bankers’ evaluation of the assets.

And we have not even discussed derivatives to this point. Which is the not-800-pound gorilla, but the $8-trillion-ton-gorilla that is out there. So we already have the insanity of derivative trades in which both of us book a gain because we have different evaluations for the asset. So we have phenomenal paper gains that cannot be true. When the markets no longer trust each other, then those kinds of transactions do not work anymore, and there is no liquidity, and you are in the equivalent of trying to sell minority shareholder interest in a privately held corporation. How is that going to work out for you? Ever tried to do that?

So all across the globe, all across history, minority shareholders get completely screwed in that circumstance, when liquidity dries up. Well, the same thing can happen to much broader markets, including in particular the derivatives markets.

And if it does, when trust is interrupted, much less eroded, in the ways I have talked about it in the derivatives market, liquidity completely dries up. Anything that functions like a market-maker collapses, and you get whole financial systems that grind to a halt. And they do not happen just a few times. It can happen in thousands of markets roughly simultaneously.

You asked me earlier about Dodd Frank, and I said it had no coherent strategic vision. And a couple of the areas in which it had no coherent strategic vision we have talked about. It did not deal with the international competition-in-laxity. It did not deal with “too big to fail.” And it did not deal with derivatives. So I would say that was strike one, strike two, strike three.

If you feel you are the victim of Bank Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud

Lehman Brothers Australia Wants Federal Court to Approve $248M Settlement Payment Plan to Creditors

The liquidators of Lehman Brothers Australia want the Federal Court there to approve their plan that would allow the bank to pay $248M in securities losses that were sustained by 72 local charities, councils, private investors, and churches. Although the court held Lehman liable, no compensation has been issued because the financial firm went bankrupt.

Per that ruling, the Federal Court found that Lehman’s Australian arm misled customers during the sale of synthetic collateralized debt obligations. The court also said that Lehman Brothers subsidiary Grange Securities was in breach of its fiduciary duty and took part in deceptive and misleading behavior when it put the very complex CDOs in the councils’ portfolio. (Lehman had acquired Grange Securities and Grange Asset Management in early 2007, thereby also taking charge of managing current and past relationships, including the asset management and transactional services for the councils.) The court determined that the council clients’ “commercial naivety” in getting into these complex transactions were to Grange’s advantage.

Via the liquidators’ plan, creditors would get a portion of a $211 million payout. This is much more than the $43 million that Lehman had offered to pay. The payout would include $45 million from American professional indemnity insurers to Lehman, which would then disburse the funds to those it owes.

If the Federal Court approves the settlement, IMF will dismiss a class action securities case against Lehman.

Securities Fraud
Brokerage firms are not supposed to get unsophisticated or conservative investors involved in high risk, complex investments, even if the customers are institutions and not individuals. When doing so results in investment losses, there may be grounds for an institutional investment fraud case.

If you, your family, friends, neighbors or associates have been subjected to Securities Fraud, please contact The Resolution Law Group at (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud