The Resolution Law Group: Bank of America’s Countrywide to Pay $17.3M RMBS Settlement to Massachusetts

According to Massachusetts Attorney General Martha Coakley, Countrywide Securities Corp. (CFC) will pay $17 million to settle residential mortgage backed securities claims. The settlement includes $6 million to be paid to the Commonwealth and $11.3 million to investors with the Pension Reserves Investment Management Board. Countrywide is a Bank of America (BAC) unit.

Coakley’s office was the first in the US to start probing and pursuing Wall Street securitization firms for their involvement in the subprime mortgage crisis. Other RMBS settlements Massachusetts has reached include: $34M from JPMorgan Chase & Co. (JPM), $36M from Barclays Bank (ADR), $52 million from Royal Bank of Scotland (RBS), $102 million from Morgan Stanley (MS), and $60 million from Goldman Sachs. (GS).

Meantime, a federal judge is expected to rule soon on how much Bank of America will pay in a securities fraud verdict related to the faulty mortgages that Countrywide sold investors. A jury had found the bank and ex-Countrywide executive Rebecca Mairone liable for defrauding Freddie Mac and Fannie Mae via the sale of loans through that banking unit. The US government wants Bank of America to pay $863.6 million in damages. Mairone denies any wrongdoing.

The case focused on “High Speed Swim Lane,” a mortgage lending process that rewarded employees for the volume of loans produced rather than the quality. Checkpoints that should have made sure the loans were solid were eliminated.

In other recent Countrywide news, a federal judge has given final approval to Bank of America’s $500 million settlement with investors who say the unit misled them, which is why they even invested in high-risk mortgage debt. A number of investors, including union and public pension funds, said they were given offering documents about home loans backing the securities that they purchased and that the content of this paperwork was misleading. They contend that a lot of securities came with high credit ratings that ended up falling to “junk status” as conditions in the market deteriorated.

This payout is the biggest thus far to resolve federal class action securities litigation involving mortgage-backed securities. The second largest was the $315 million reached with Merrill Lynch (MER), which is also a Bank of America unit. That agreement was approved in 2012.

Also, Bank of America was recently named the defendant in a lawsuit filed by the California city of Los Angeles over allegedly discriminatory lending practices that the plaintiff says played a part in causing foreclosures. LA is also suing Citigroup (C) and Wells Fargo (WFC).

The city says that Bank of America offered “predatory” loan terms that led to discrimination against minority borrowers. This resulted in foreclosures that caused the City’s property-tax revenues to decline. BofA, Wells Fargo, and Citibank have said that the claims are baseless.

If you feel you are the victim of Securities 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: 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: 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: 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.

CFTC in Action: Agency Adopts Rules on SIDCOs, Reissues Relief for Contemporaneous Swaps Documentation Requirements, & Its Chair Gensler Praises Swaps Markets

CFTC Adopts Systemically Important Designated Clearing Organization Rules
The US Commodity Futures Trading Commission has adopted its final rules regarding systemically important designated clearing organizations. The new SIDCO rules line up CFTC regulations to with the Principles for Financial Market Infrastructures set up by the International Organization of Securities Commissions and the Bank for International Settlements.

Per the rules, SIDCOs can remain Qualifying Central Counterparties (QCCPs) for international bank capital standard purposes. The rules come with substantive requirements having to do with financial resources, governance, system safeguards, special default rules and procedures for shortfalls or losses that are not covered, disclosure requirements, risk management, efficiency, and recovery and wind-down procedures. The rules also tackle the procedures through which derivatives clearing organizations besides SIDCOs can choose to become subject to additional standards so they can also be considered QCCPs.

Relief on Contemporaneous Swaps Documentation Requirements is Reissued
In other CFTC news, the agency’s Division of Swap Dealer and Intermediary Oversight says that it is extending the no-action relief that it issued earlier this year to swap dealers (SDs) and major swap participants (MSPs). The earlier relief gave certain exemptions to CFTC rules that were put into place in February 2012 and established business conduct standards for MSPs and SDs in their counterparty dealings.

Now, with this latest no-action letter, relief has been issued again along with modifications, including obligatory CFTC registration of swap execution facilities and additional staff guidance regarding CFTC straight-through-processing requirements. Also included are modifications that acknowledge the required immediate and efficient processing of swaps all the way through to clearing. Meantime, conditions that require an agreement between and MSP or SD and its counterparty before swaps can be executed have been removed.

CFTC Chair Speaks at Swaps Execution Facility Conference
At the recent Swaps Execution Facility Conference, CFTC Chair Gary Gensler said that now, for the first time, all swaps market participants are able to compete on a level playing field. He noted that prior to 2012 there was no transparency in the swaps market and that this played a role in the 2008 financial crisis. Gensler credits the Dodd-Frank Act and the significant compliance dates that are now in effect.

He spoke about how real-time clearing now exists and that there are 18 temporarily registered swaps execution facilities that offer impartial market access. Gensler also talked about how his agency’s staff just put out guidance reminding SEFs about their duty to make sure that all market participants can fully engage on order books or request-for-quote systems while addressing questions that market participants had wanted the CFTC to answer.

Additionally, the CFTC chief talked about how he believed that by February a trade execution requirement for a significant chunk of the interest rate and credit index swaps markets would be in place. Gensler also spoke about how in addition to a finalized block rule for swaps there should also be one for futures.

The Resolution Law Group is a securities fraud law firm that represents institutional investors and high net worth individuals seeking to recoup their financial losses.

Lawmakers & Industry Folk Address the DOL Amending the Definition of Fiduciary, Reg A Plus Offerings, Oversight, Rogue Brokers, and Expungement Rules

US House Passes A Bill Prohibiting the US Labor Department DOL From Amending Its Definition of “Fiduciary” Until SEC’s Uniform Conduct Standard is Established
A bill that would not allow the Department of Labor to amend its rules regarding the definition of the term “fiduciary” until after Securities and Exchange Commission adopts its own rule that places broker-dealers and investment advisers under a uniform standard of conduct has passed in the US House of Representatives. The DOL has been trying to revise its definition of “fiduciary” in the Employee Retirement Income Security Act (ERISA). Those who voted to prohibit revising the definition have been worried about possibly ending up with two rulemakings that were inconsistent with one another.

Reg A Plus Offerings and Their Oversight Get Capitol Hill Debate
At a Senate Banking Committee’s Securities, Insurance, and Investment Subcommittee hearing about developments involving the Jumpstart Our Business Startups Act, discussion ensued about Reg A Plus offerings. The SEC has yet to put out a proposal about “Reg A Plus,” which is the term used by its staff to refer to the new Reg A threshold.

Per the JOBS ACT’S Title IV, the SEC has to put in place a rule that will give exemption to certain offerings of up to $50 million (the current Reg A exemption is $5 million). While Reg A plus offerings would be exempt from SEC registration, they will have to adhere to state level registration unless found on a national securities exchange or sold to a “qualified purchaser.” Already, some in the industry are calling for a “workable definition” of what constitutes a “qualified purchaser” so that certain offerings would be exempt from state registration requirements.

There are those who believe that Reg A Plus offerings would benefit “Main Street businesses” that are not the likeliest candidates for other JOBS Act provisions. That said, the existing blue sky registration process puts in place additional limitations and burdens that might discourage those who would use a new Reg A Plus exemption.

Meantime, the North American Securities Administrators Association has put out a proposal (and is seeking comment) on streamlining the review of Reg A Plus offerings by the states. NASAA says long standing state policies will have to be modified and a “peel back” of certain requirements is necessary to make the offerings more viable.

Sen. Markey Worries About Rogue Brokers, Expungement of Violations from Public Records
In letters to the SEC and the Financial Industry Regulatory Authority, US Sen. Edward Markey (D-Mass) expressed his concerns about the high rate of broker-dealers that are able to get certain complaints removed from their records. Markey co-authored the bill that eventually led to the creation of FINRA’s BrokerCheck, which is the online database that provides information about the records of broker-dealers and brokers that the public can access. However, he worries that with such a high expungement rate for these advisers, investors are not getting an accurate picture of these people’s records.

The senator from Massachusetts believes that expunging settlement deals from a broker’s records should be prohibited. Meantime, FINRA said it has started to make changes to preserve the integrity of its BrokerCheck system and enhance investor protections.

Markey also voiced worry about a report in the Wall Street Journal noting that millions of dollars in arbitration awards aren’t paid because some firms file for bankruptcy instead. Markey wants the SRO to make brokerage firms carry insurance to cover arbitration awards. He is dismayed that there are thousands of brokers who keep selling securities even after being kicked out by FINRA. He told the SRO that it needs to do a better job of finding “rogue brokers” who stay in business even though they’ve been expelled.

The Resolution Law Group represents individual and institutional investors that have sustained losses from broker fraud. Contact our stockbroker fraud law firm today.