Investment Fraud Lawyer Blog

Some judges are starting to question lenient settlement deals proffered by Wall Street firms and their arguably captive regulator, the SEC, according to an August 19, 2010 article in the Wall Street Journal by David Weidner called “In Search Of Justice for Wall (Street).” Two U.S. District Court Judges, Jed S. Rakoff and Ellen Segal Huvelle, have rejected settlements on the ground that the penalties were too small to be fair to the investing public. Another federal judge, Emmet G. Sullivan, threatened to reject but ultimately accepted a settlement proposed by the SEC and Barclays PLC. Judge Sullivan reportedly had earlier called it a "sweetheart deal."

Continue reading "Judges Begin to Question "Sweetheart" Securities Regulatory Settlements" »

The Financial Industry Regulatory Authority (FINRA) is investigating possible sales practice violations (e.g., misrepresentations and omissions) by Morgan Stanley, Barclays, and Credit Suisse in pitching collateralized debt obligation securities (CDOs) to institutional investors, according to a July 23, 2010 Reuters article by Steve Eder and Leslie Gevirtz, “FINRA probes M Stanley, Barclays, Credit Suisse.”

Continue reading "FINRA Investigates CDO Sales Practice Abuses by Morgan Stanley, Barclays and Credit Suisse" »

Citigroup was “negative” on subprime mortgages at least as early as 2006. Despite that, Citigroup continued to originate subprime mortgages and underwrite subprime mortgage-backed securities in large quantities. In 2007, Citigroup originated $19.7 billion in subprime mortgages and underwrote $13.4 billion in subprime mortgage-backed securities. Senior management says it did not have a clue what was going on. See April 8, 2010 article in the Huffington Post by Shahien Nasiripour, “Citi ‘Negative On Subprime mortgages As Early As 2006, Yet Firm Continued to Pump Out Subprime Mortgage Products.”

Continue reading "Citi Knew of Subprime Problems and Risks in 2006" »

Faced with proposed new regulations for mortgage-backed securities designed to prevent another financial crisis, some Wall Street banks are saying that they should have no responsibility “to undertake any sort of credit analysis” when creating and selling mortgage-backed securities, and that they have no ability to do that, according to Floyd Norris, a commentator on finance and economics, in his August 5, 2010 New York Times article, “Caveat Emptor, Continued.”

Continue reading "Wall Street Banks Seek to Avoid Responsibilty for Checking Out Mortgage Securities They Sell to the Public" »

Merrill Lynch hid its toxic subprime exposure inside off-balance sheet “Special Purpose Vehicles” (like one named Pyxis) until autumn of 2007 when CDO specialists at Moody’s figured it out and set off alarm bells that forced Merrill to revise its self-reported subprime exposure from $15.2 billion to $46 billion, according to an August 9, 2010 New York Times article by Louise Story, “Merrill’s Risk Disclosure Dodges Are Unearthed.” And – get this – Merrill’s senior executives supposedly did not know what was going on!

Continue reading "Merrill Lynch Concealed Subprime Risks Using Tricky Tactics" »

Citigroup has consented to charges by the Securities and Exchange Commission that it misled public investors about the extent of its exposure to sub-prime mortgage-related assets during 2007. Citigroup will pay $75 million to settle the charges, as widely reported in the financial press.

Continue reading "Citi Pays a Cheap Price for Lying to the Public - When is the SEC Going to get Serious about Fraud?" »

A United States District Court judge has ruled that a class action may proceed against Citigroup and others for making an array of material misrepresentations and omissions in public offering materials associated with bonds purchased by the plaintiffs (Reuters, “Judge Rules Bondholders Can Pursue Citigroup Suit,” July 12, 2010).

Continue reading "Bondholders Sue Citigroup for Misrepresntations Regarding CDOs and Other Toxic Securities" »

Goldman, Sachs & Co. has agreed to pay $550 million and reform its business practices to settle SEC charges that it misled investors in a subprime mortgage CDO known as ABACUS 2007-AC1, which collapsed, according to multiple articles in the Wall Street Journal, CNBC.com, and others. In so doing, Goldman admitted it made a “mistake” in failing to disclose the fact that the CDO’s investments were selected in part by a hedge fund manager who was betting on the CDO to fail. The SEC had charged Goldman and its vice president, Fabrice Tourre, with fraud. At this time, the SEC's litigation will continue against Tourre.

Continue reading "Is Goldman Getting Off Too Easy in its SEC Settlement?" »

The Securities and Exchange Commission is investigating the sale of $200 million in collateralized debt obligations (CDOs) to several Wisconsin school districts, according to a recent Wall Street Journal article by Meena Thiruvengadam and Kelly Nolan (“SEC Investigates Failed CDOs Sold to Wisconsin Schools”). The schools have also filed a lawsuit alleging that the CDOs were misrepresented and that important risk disclosures were omitted.

Continue reading "Wall Street's Sale of Toxic CDOs Undermines Education and Other Government Services" »

According to a recent New York Times article by Gretchen Morgenson and Louise Story titled “Documents Show Goldman Pressure on A.I.G,” Goldman Sachs made a huge bet against AIG in 2008 by purchasing $3 billion of credit default swaps insuring against a possible default by AIG, at the very same time that Goldman was driving AIG to default on its obligations by aggressively demanding cash collateral from AIG pursuant to credit default swaps insuring risky pools of subprime mortgages that Goldman had purchased from AIG.

Continue reading "Goldman Faces Allegations that It Pushed A.I.G. Over the Cliff" »

It’s crunch time for financial reform, and Wall Street banks are lobbying hard to keep a central pillar of financial reform from becoming law, and, at the same time, are planning ways of getting around whatever financial reform restrictions do become law, according to a recent New York Times article by Eric Dash and Nelson D. Schwart titled “Banking Lobbyists Make a Run at Reform Measures.”

Continue reading "Wall Street Intensifies Efforts to Thwart Financial Reform as Greed Trumps Common Sense" »

Another member of the bewildering zoo of derivative products dreamed up and sold by Wall Street – this time a constant proportion debt obligation (CPDO) named Rembrandt – has imploded wiping out unsuspecting investors, according to a June 21 article on Bllomberg.com by Christine Harper, Shannon D. Harrington and James Sterngold, titled “Failed AAA Rated Rembrandt on Wall Street Spurs Opacity Outcry.” As the title says, Rembrandt was an opaque “black box” whose inner workings could only be modeled by computers, and so, of course, was given the highest investment grade rating of AAA. Rembrandt was reportedly linked to credit-default swaps on investment-grade companies, and lost 93 percent of its value in two years.

Continue reading ""Financial Innovation" Benefits Wall Street at Investors' Expense" »

Merrill Lynch and other Wall Street firms sold the riskiest tranches of collateralized debt obligations (“CDOs”), not just to institutions, but to individual investors, as safe investments, according to a recent Wall Street Journal article by Dan Fitzgerald titled “Didn’t See Risk, and Got Stung.” Now that the CDOs have imploded, and investors are seeking recovery of their losses, Merrill is telling them that risk disclosure documents and the investors’ supposed sophistication mean they cannot recover. Merrill is wrong for a number of reasons.

Continue reading "Wealthy Individuals Have Been Victimized By Wall Street's CDO Fraud" »

According to a recent article in the Atlanta Journal Constitution, “at least a dozen local governments and other institutions that used derivative deals called swaps to try to lower the cost of bond issues have ended up owing as much as $394 million in fees to the Wall Street investment banks that set up the deals….” AJC, 5/30/10, “Paying a Price for Risky Schemes.” That article looked at how much money a small number of governmental and institutional investors in Georgia have paid to buy their way out of interest rate swaps in the wake of the financial crisis, but it is likely that this is a nationwide phenomenon. The article raised a number of questions—including whether it was appropriate for taxpayer money to be invested in securities with such a high level of risk—but it did not raise the question of whether there are legal remedies that would allow government officials and others to recover the financial losses resulting from such investments.

Continue reading "Local Governments and Non-Profits Have Suffered Catastrophic Losses as a Result of Wall Street's Excesses" »

Bloomberg.com has reported that Goldman Sachs Group Inc.’s $2 billion Hudson Mezzanine collateralized debt obligation, sold in 2006, is now the target of a probe by the SEC.

Continue reading "SEC Expands Investigation of Goldman Sachs CDO Abuses" »

The Financial Crisis Inquiry Commission, a bipartisan commission that was appointed by Congress to investigate and report on the causes of the financial crisis, reported that Goldman Sachs tried to conceal information and obstruct its investigation into the causes of the crisis, according to USA Today’s David Lieberman in his June 8 article, “Goldman accused of trying to thwart probe.”

Continue reading "What Is Goldman Sachs Trying To Hide?" »

In “Paying a price for risky schemes,” Atlanta Journal Constitution reporter Russell Grantham presents an excellent overview of how at least a dozen metro governments and nonprofits that issued debt were whipsawed by the “shadow banking system” – the freezing of the auction rate securities markets and complex derivative contracts called swaps. As a result, they have been forced to pay or owe as much as $394 million that they did not expect to, according to the article, which identifies the borrowers as:

“Atlanta airport, Atlanta water/sewer, Underground Atlanta, Children’s Healthcare of Atlanta, Piedmont Healthcare, Woodruff Arts Center, Georgia Tech, Georgia State University, DeKalb Medical Center, Emory University, Gwinnett Medical Center, Marietta, MARTA, Power South Energy Cooperative, and Cobb County Kennestone Hospital Authority. “

Continue reading "Wall Street Abuses Have Significantly Increased the Economic Problems Currently Faced by State and Local Governments" »

The National Credit Union Administration (“NACUA”) should be considering litigation against Wall Street firms that sold collateralized debt obligations (“CDOs”) to its member firm Eastern Financial Florida Credit Union (“Eastern Financial “), which resulted in losses of nearly $150 million and Eastern Financial’s placement in conservatorship in April 2009, according to a recent New York Times article by Gretchen Morgenson.

Continue reading "Credit Union Joins Long Line of Victims Damaged by Toxic CDOs" »

The Federal Deposit Insurance Corporation, which insures deposits and manages failed banks placed in receivership, among other things, has received toxic collateralized debt obligations (CDOs) with a “book value” of over $400 million from approximately two dozen failed banks around the country. In this case, “book value” means cost basis. In reality, the CDOs’ values are difficult to ascertain and may be virtually zero. "[A] lot of these things will have little or no market value," said Miguel Browne, assistant director in the FDIC’s division of resolutions and receiverships.

Continue reading "The FDIC Has Been Left Holding Substantial Toxic CDO Debt" »

The answer appears to be a resounding yes. The SEC's recently filed a lawsuit against Goldman Sachs alleging fraud in the sale of mortgage-backed collateralized debt obligations (CDOs). CDOs are a structured finance product in which a large number of mortgages or other debt instruments are pooled in a trust and divided into multiple layers or “tranches” that pay interest to investors based on the risk and priority of each tranche, with the senior tranches paying lower rates because they are safer investments and the junior tranches paying higher returns for comparatively higher risk debt. The SEC alleges that Goldman Sachs created CDOs backed by high-risk subprime mortgages and then took short positions betting that they would fail while simultaneously recommending that some of their customers buy the securities. In other words, some customers were sold CDO securities and told that they were a good long-term investment, while Goldman and other customers shorted them because they were expected to go down in value. If that is true, many investors were defrauded, and they too should have the right to sue or bring an arbitration claim—especially since the SEC action has not requested restitution or recision for investors.

Continue reading "Were Toxic CDO Investments Deliberately Dumped on Unsuspecting Investors?" »