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.

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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: “It was a billion dollar fraud to feed Wall Street greed,” claimed Matthew Martens, a top lawyer for the S.E.C. in his opening statement to the jury.

The trial of Fabrice Tourre, otherwise known as “Fabulous Fab,” has started in Federal Court in New York. The Securities and Exchange Commission alleges that Fabulous Fab, who used to work for Goldman Sachs, secretly worked with a powerful hedge fund to engineer a mortgage investment that was doomed to fail.

“It was a billion dollar fraud to feed Wall Street greed,” claimed Matthew Martens, a top lawyer for the S.E.C. in his opening statement to the jury.

Geoffrey Broderick, the senior partner of the Resolution Law Group, says “while the trial against a former employee of Goldman Sachs is a step in the right direction, this is still only a civil case, and no one has gone to jail for the criminal conduct that occurred.”

Mr. Broderick adds that “The housing market will continue to suffer until it is fixed by the Courts or the Legislature. Somebody has to fix the problem. That is why The Resolution Law Group continues its fight for homeowners. Homeowners cannot expect the problem to fix itself.”

The Resolution Law Group continues to prosecute ground breaking litigation in Federal Court on behalf of homeowners suing lenders and servicers for, among other things, the illegal use of MERS, robo-signing, and intentionally ignoring underwriting standards and encouraging inflated appraisals.

The Resolution Law Group is currently enrolling clients into the pending lawsuit. For further information, visit its website at www.TheResolutionLawGroup.com

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

The Resolution Law Group: Both Sides Rest in Ex-Goldman Sachs Bond Trader Fabrice Tourre’s Trial For Alleged Mortgage-Backed Securities Fraud

In federal court, both the Securities and Exchange Commission and former Goldman Sachs Group (GS) vice president Fabrice Tourre have both rested their case in the civil trial against the bond trader. Tourre is accused of MBS fraud for his alleged involvement in a failed $1 billion investment connected to the collapse of the housing market. After the SEC finished presenting its evidence, U.S. District Judge Katherine Forrest turned down Tourre’s bid to have the securities case against him thrown out. He denies wrongdoing and says that his career is in now in shambles.

According to the regulator, Tourre purposely misled participants in the Abacus 2007-AC about the involvement of John Paulson’s hedge fund Paulson and Co. The Commission contends that Tourre concealed that Paulson helped select the portfolio of the subprime MBS underlying Abacus—a $2 billion offering linked to synthetic collateralized debt obligations. The latter then shorted the deal by betting it would fail.

The SEC’s complaint points to Tourre as primarily responsible for the CDO, which it says says he devised and prepped marketing collateral for and was in direct contact with investors. The regulator believes that by failing to disclose Paulson’s role, Tourre broke the law. They also contend that instead the bond trader instead told customers that as an Abacus investor, Paulson’s hedge fund expected the securities to go up.

Tourre also is accused of misleading ACA Capital Holdings, which Goldman retained to supervise the deal, about Paulson’s role. ACA would go on to invest in Abacus and insure it.

When the mortgage securities underlying the Abacus became toxic, its investors lost $1 billion. Meantime, the short positions by Paulson made about the same.

Testifying on his own behalf at the civil trial, Tourre told jurors that after the SEC filed its securities fraud case against him in 2010, for over a year Goldman Sachs made him take a leave of absence but kept paying his $738,000 base salary. In 2007, Tourre said, his salary and bonus was $1.7 million, which was tied to profits he made for the firm.

Goldman has already paid $550 million to settle SEC charges against it over the ABACUS 2007-AC1 debacle. The Commission accused the financial firm of misleading investors about the subprime mortgage product.

As part of settling, the financial firm admitted that its marketing materials for the subprime product had incomplete data and it made a mistake when stating that ACA chose the reference portfolio without revealing Paulson’s part in the selection process or that the latter’s interests were counter to that of the collateralized debt obligation investors.

Unfortunately, when the housing market failed, a lot investors that placed their money in subprime mortgage products suffered huge losses, many of which were a result of broker misconduct, fraud, misrepresentations, omissions, and other wrongdoing. At The Resolution Law Group, our mortgage-backed securities lawyers have been helping institutional and individual investors recoup these losses.

If you feel you are the victim of Mortgage 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

The Resolution Law Group: Major financial crisis trial kicks off in New York

Trial of Ex-Goldman Sachs trader Fabrice Tourre begins

Fabrice Tourre, a former Goldman Sachs mortgage trader, leaves federal court after the first day of a lawsuit being brought against him by the Securities and Exchange Commission.

NEW YORK — He’s either a duplicitous Wall Streeter, or just a scapegoat who never lied to investors.

A jury of four men and five women will decide whether Fabrice Tourre, the ex-Goldman Sachs trader dubbed “Fabulous Fab,” defrauded investors in the lead-up to the financial crisis.

Tourre’s civil securities fraud trial — considered the highest-profile case stemming from the crisis — got underway in a federal court New York on Monday.

The U.S. Securities and Exchange Commission claims Tourre secretly worked with a powerful hedge fund to engineer a mortgage investment doomed to fail.

“It was a billion-dollar fraud to feed Wall Street greed,” said Matthew Martens, a top SEC attorney, in his opening statement.

Tourre’s former employer, the giant investment bank Goldman Sachs, settled parallel claims against the firm for $550 million in 2010.

Pamela Chepiga, Tourre’s lawyer, said her client was merely a scapegoat.

The other large sophisticated, institutional investors involved in the deal knew the hedge fund’s role, and that it was shorting, or betting against, the investment, Chepiga said.

“Fabrice Tourre never lied to anyone,” Chepiga said.

The SEC says hedge fund Paulson & Co. made $1 billion when the investment — tied to subprime residential mortgages — tumbled at the expense of other investors.

The SEC again highlighted Tourre’s colorful emails, one of which infamously described Goldman clients buying the investment as “widows and orphans.”

But Chepiga questioned one email’s role in the case, saying it was merely a late-night personal email taken out of context.

“It’s an old-fashioned love letter to his girlfriend,” she said.

Martens said Goldman actually lost money in the ill-fated deal — but not on purpose. The New York-based bank could not find enough investors to buy the complex investment, known as a collateralized debt obligation, or CDO.

“Sometimes you get tripped up on your own fraud,” Martens said.

The trial is expected to last three weeks and include testimony from Tourre himself.

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.

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

The Resolution Law Group: Synthetic CDOs Are Once Again In Demand Among Investors

Despite the damage attributed to them during the 2008 credit market crisis, synthetic collateralized debt obligations are once again in high demand among investors. The popularity of these risky investments, with their high returns and rock-bottom interest rates, are so high that even after being denounced by investors and a lot of lawmakers back in the day, now Morgan Stanley (MS) and JPMorgan Chase (JPM ) in London are among those seeking to package these instruments.

CDOs allow investors to bet on a basket of companies’ credit worthiness. While the basic version of these instruments pool bonds and give investors an opportunity to put their money in a portion of that pool, synthetic CDOs pool the insurance-like derivatives contracts on the bonds. These latest synthetic CDOs, like their counterparts that existed during the crisis, are cut up into varying levels of returns and risks, with investors wanting the highest returns likely buying portion with the greatest risk.

Granted, synthetic CDOs do somewhat spread the risk. Yet, also can increase the financial harm significantly if companies don’t make their debt payments.

The Wall Street Journal reports that a source in the know says that Morgan Stanley and JP Morgan are attempting to draw in even more investors, which the banks need enough of if they are to actually move forward with these latest synthetic CDOs. Due to rules now in place mandating that banks put aside huge quantities of capital against possible losses against such instruments, the two giants are not expected to invest in their deals.

What makes these newer CDOs different from their credit crisis-era ones? (An investor usually buys one of the (generally) six CDO slices.) One slice has been reportedly harder to sell because its yield is not enough. Also, buyers of the slices that aren’t as high risk would now likely receive more protection against possible losses than buyers of similar slices did several years ago.

Creditflux, a data provider, reports that during 2007, financial firms put out $634 billion of synthetic CDOs. In 2009, sales plummeted to $98 billion. While certain banks and hedge funds have been working together to put together private, small deals that have packaged derivatives into trades that are custom made, those deals were usually small and credit rating firms generally haven’t assessed them.

Another source says that there is now also a differently purposed CDO in development that Citigroup (C) Inc. is selling. This CDO uses derivatives linked to the bank’s loans portfolio and involves shipping companies outside the United States. The financial firm’s purported need to make room for new loans while being able to hold less capital to cushion possible shipping loan losses is said to be the motivation for the approximately $500 million deal (expected to bring in 13-15% in yearly yields). The WSJ says that investors of this type of CDO will be “on the hook” for certain losses, reports the WSJ.

Another security that investors seem to be hungry for these days are collateralized loan obligations. CLOs are tied to corporate debt, and to date, this year, over $35 billion of CLs have been sold in this country.

At The Resolution Law Group P.C., we haven’t forgotten the massive losses investors took from synthetic CDOs during the 2008 financial crisis. We continue to represent investors that have suffered securities fraud losses linked to these investments. Contact our institutional investor fraud law firm today  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

The Resolution Law Group Update: Standard & Poors Wants DOJ’s Mortgage Debt Lawsuit Against It Tossed

Standard Poors is asking a judge to dismiss the US Justice Department’s securities lawsuit against it. The government claims that the largest ratings agency defrauded investors when it put out excellent ratings for some poor quality complex mortgage packages, including collateralized debt obligations, residential mortgage-backed securities, and subprime mortgage-backed securities, between 2004 and 2007. The ratings agency, however, claims that the DOJ has no case.

Per the government’s securities complaint, financial institutions lost over $5 billion on 33 CDOs because they trusted S & P’s ratings and invested in the complex debt instruments. The DOJ believes that the credit rater issued its inaccurate ratings on purpose, raising investor demand and prices until the latter crashed, triggering the global economic crisis. It argues that certain ratings were inflated based on conflicts of interest that involved making the banks that packaged the mortgage securities happy as opposed to issuing independent, objective ratings that investors could rely on.

Now, S & P is claiming that the government’s lawsuit overreaches in targeting it and fails to show that the credit rater knew what the more accurate ratings should have been, which it contends would be necessary for there to be grounds for this CDO lawsuit. In a brief submitted to the United States District Court for the Central District of California, in Los Angeles, S & P’s lawyers argue that there is no way that their client, the Treasury, the Federal Reserve, or other market participants could have predicted how severe the financial meltdown would be.

S & P is also fighting over a dozen other CDO lawsuits filed by state attorneys general that make similar securities fraud allegations. The states are generally invoking their consumer-protection statutes, which carry a lower burden of proof, and the credit rating agency is seeking to have their securities lawsuits moved to federal court.

If you, your family, friends, neighbors or associates have been subjected to Mortgage 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