Investment Fraud Lawyer Blog

Sixty-five years ago, the Justice Department filed an antitrust suit against 17 investment banks seeking to break them up for creating “an integrated, overall conspiracy and combination … to eliminate competition and monopolize” the investment banking business. It failed. Today, the investment banking business is much larger and more profitable, and much more concentrated than it was back then. Only 6 Wall Street firms monopolize the even richer investment banking business today, according to William D. Cohan’s Bloomberg article (“Cohan: How Wall Street Turned a Crisis Into a Cartel”).

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Wells Fargo will pay $148 million to settle charges that its Wachovia Bank unit conspired to rig bids on investment contracts for municipalities. (“Wells to Pay $148 Million to Settle Wachovia Bid-Rig Case,” Wall Street Journal). As part of the settlement, the Justice Department will not prosecute the bank. Wachovia reportedly admitted and accepted responsibility for the illegal conduct (which the SEC has so far not required settling defendants to do).

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Fitch Ratings issued a report on November 16 on the U.S. banking sector saying that “the risks of a negative shock are rising” if the effects of European debt crisis keep spreading. (“Fitch’s Warning Spooks Investors, “ Wall Street Journal).

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JP Morgan Chase and Goldman Sachs have sold credit default swaps that put them on the hook for $5 trillion of debt – but they won’t say whose debt they are on the hook for. That leaves investors worried that it may be debt issued by Greece, Italy, Ireland, Portugal and/or Spain. Greece and Italy are insolvent, and the others are not very creditworthy, according to experts.

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Occupy Wall Street has swept the globe and is generating enormous sympathy and interest in Asia as well as Europe. The spread of Occupy Wall Street to Asia – especially Japan – is further evidence that it is a mistake to dismiss a global groundswell of anger over the flow of money from banks to governments that concentrates wealth in the hands of the 1 percent.

In Japan, the protesters gathered at the swanky Roppongi Hills complex where Goldman Sachs maintains offices. Bloomberg News columnist William Pesek was there, reporting signs saying “No Greed,” “Taxiderm the Rich” and “Stop Vampire Squids,” a reference to Goldman Sachs, which Rolling Stone colorfully characterized as a “great vampire squid wrapped around the face of humanity” (See “The 1 percent meets 2 billion in search of answers,” Daily Report).

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Many investors, both individuals and corporations, were misled by their brokers and harmed during the credit crisis. For various reasons, however, many such investors have not yet taken action to recover their losses. Some have delayed taking action in order to see whether the misconduct warranted legal action while others just put it off until a later time. Investors need to appreciate that time is running out on their claims, and they should act now or forever hold their peace.

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The SEC is expanding its investigation into Wall Street’s sales practices involving toxic collateralized debt obligations that were linked to subprime mortgages as more and more evidence comes out that the Wall Street banks deliberately defrauded some of their customers.

Continue reading "SEC Expands Investigations into Toxic CDO Deals as the Awful Truth Begins to Come Out" »

Matt Taibbi’s recent Rolling Stone article entitled “Is the SEC Covering Up Wall Street’s Crimes?” questions whether corruption plagues the U.S. Securities and Exchange Commission. In that article Taibbi meticulously contends that Wall Street banks and their law firms have, over and over again, shut down fraud investigations by influencing senior SEC officials, who later take lucrative jobs at the very banks that were the targets of the investigations or at the law firms representing those banks.

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The current free fall in the stock market is likely to activated the ticking time bombs that are hidden away in some investors’ portfolios. These time bombs are embedded in a type of structured product called Reverse Convertible Notes or Reverse Exchangeable Notes. The problem has to do with the way these products are structured.

Continue reading "Reverse Convertible Securities More Likely to Become Toxic as Market Swoons" »

JP Morgan Chase will pay $228 million to settle SEC charges that it rigged nearly 100 transactions involving municipal-bond auctions, according to David Benoit’s and Jessica Holzer’s Wall Street Journal article entitled “J.P. Morgan Settles Bid-Rig Case.” There are concurrent settlement agreements with various states. The SEC has settled similar cases against Bank of America for $137 million and UBS AG for $160.2 million.

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SEC Enforcement Chief Robert Khuzami recently stated that the SEC’s decision not to charge top executives of Wall Street banks with wrongdoing in cases involving structured products was appropriate, according to Suzanne Barlyn’s Wall Street Journal article entitled “SEC: Structured-Product Cases Haven’t Reached Top Bank Officers.” According to Mr. Khuzami, top executives were not involved in, and did not know about, the key decisions relating to structured product problems.

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Describing JP Morgan Chase as an “active enabler” that “knew” about the fraud being perpetrated by Bernard Madoff, the Madoff bankruptcy trustee has amended his complaint against JPMorgan Chase to increase the amount of compensatory damages claimed from $5.4 billion to $19 billion, an amount that is based on the trustee’s latest estimate of principal lost by all Madoff investors by the time the Ponzi scheme collapsed in December 2008, according to Linda Sandler’s Bloomberg article entitled against JP Morgan to “JPMorgan Hit With $19 Billion Damages Claim by Madoff Trustee.” The suit to recover assets to be distributed to defrauded Madoff investors alleges that JP Morgan had “actual knowledge” of the Madoff ponzi scheme but failed to take any action to stop the fraud.

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J.P. Morgan Securities LLC has agreed to pay $153.6 million to settle SEC charges that it misled investors in a complex “built to fail” mortgage securities transaction just as the housing market was starting to plummet.

Continue reading "The Real Truth Regarding Some of Wall Street's Subprime Shenanigans Begins to Emerge" »

Best-selling “Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led To Economic Armegeddon,” by Gretchen Morgenson and Joshua Rosner, “calls out greedy guys behind mortgage mess,” according to a USA Today book review by Kathryn Caravan. See also “Home Truths,” by James Freeman of the Wall Street Journal. Both reviews provide examples of how the book peels back layer after layer of a bad onion to reveal how a nice-sounding idea (home ownership for all) turned into a house of cards that was doomed to collapse, after being propped up by private greed and public corruption.

Continue reading "The Subprime Mortgage Mess: How the American Dream Turned into a Nightmare" »

The National Credit Union Administration (“NCUA”) has filed suit against J.P. Morgan Chase and Royal Bank of Scotland seeking to recover more than $800 million in failed credit unions’ losses in residential mortgage-backed securities, and expects to file additional lawsuits against five to ten other Wall Street firms to recover billions of dollars in additional losses, according to a Wall Street Journal article by Ruth Simon and Liz Rappaport entitled “NCUA Sues J.P. Morgan, RBS Over Mortgage Bonds.”

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Investors in today’s markets, particularly seniors, are caught between extremely low interest rates and the risk of pursuing higher returns they want or need. Brokerage firms are capitalizing on that dilemma by selling structured products as a way to earn above-market returns purportedly without market risk. But as Robert Powel, editor of MarketWatch’s Retirement Weekly, points out in his article entitled “Investors warned about risky structured products,” structured product sellers routinely overstate the potential upside and understate the potential downside of these investments. The net result has been the rampant destruction of investors’ wealth.

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The Securities and Exchange Commission is broadening its investigation into the world of “built to fail” collateralized debt obligations (CDOs) by looking at Merrill Lynch’s CDO business, according to articles by Marian Wang of Pro Publica (“Merrill Lynch Investigated for CDO Deal Involving Magnetar”) and Kara Scannell of the Financial Times (“SEC Probes $1.5 Billion Merrill CDO Sale). The news is apparently “sending chills” through other banks that put together deals with Magnetar, such as Citigroup, UBS, Wachovia (now Wells Fargo) and Deutsche Bank, according to John Carney of CNBC (“Who Else Did Magnetar Deals?”).

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Immediately before its bankruptcy in 2008, Lehman Brothers conjured up a way to pick up extra cash that apparently not even the experts at JPMorgan figured out until it was too late. Bob Ivry alerted the public to the scam in an article in Bloomberg Markets magazine after an extensive investigation by Bloomberg News uncovered the following details of exactly what happened.

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Defense-minded institutions that have long remained on the sidelines when defrauded have finally woken up and are jumping on the plaintiff-recovery bandwagon as they seek to protect themselves against a variety of wrongdoing, according to Vanessa O’Connell’s Wall Street Journal article entitled “Company Lawyers Sniff Out Revenue.” These actions include waves of claims against Wall Street financial institutions for fraud in the sale of mortgage backed securities, CDOs and related exotic investments.

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Simply stated, senior investors (in fact, all investors) should be very leery of high-risk structured products. Author John Wasik, in conjunction with Demos and The Nation Institute, has published a white paper entitled “How Safe Are Your Savings? How Complex Derivative Products Imperil Seniors’ Retirement Security.” The paper’s focus is on structured products and how they are mis-marketed to seniors, the group most in need of safe and secure income. The paper is reportedly the result of more than a year of research involving interviews with investors, state securities regulators, investors’ attorneys and officials with the Securities and Exchange Commission (SEC).

Continue reading "Study: Structured Products Pose Huge Risks to Investors' Portfolios" »