In May 2012, a statement of claim was filed with the Financial Industry Regulatory Authority by Saddlebag LLC. The claim alleges that the firm wrongfully invested the client’s assets in illiquid auction-rate securities (ARS). According to securities lawyers, many financial firms sold auction-rate securities as short-term instruments with a highly-liquid nature, much like money market funds.

However, in 2008, the credit crunch resulted in a failure of the ARS market and investors with a piece of the $330 billion market were stuck holding securities that they were unable to sell. Other firms, including Morgan Keegan, have been accused of misleading investors regarding the liquidity risk of auction-rate securities.

Auction-rate securities are tax-exempt, long-term and taxable bonds and their interest rates are connected to the short-term market. Through ARS, issuers can acquire lower short-term rates on long-term financing. Auction-rate securities were marketed as liquid cash alternatives and considered safe before the global credit crunch.

Firms and their registered representatives have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation. According to Thompson Reuters, leading auction-rate securities underwriters included Bank of America, Citigroup, Goldman Sachs, UBS, Lehman Brothers, Morgan Stanley, JPMorgan, Merrill, RBC and Wachovia.

If illiquid investments were unsuitable for you given your age, investment objectives and risk tolerance and you suffered significant losses in the auction-rate securities market, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Recently, Citigroup was found liable for $3.1 million in a FINRA claim filed by a Florida couple. The couple had filed a case in 2010 against Citigroup, alleging negligence and fraud involving more than $1 million in investments. The real estate investments were reportedly made from 2004 to 2007 in condominium developments and real estate projects. The couple’s adviser, Scott Andrew King, was registered with Citigroup from 2002 until 2005. King reportedly referred the claimants to Lawton “Bud” Chiles III without Citigroup’s knowledge. Currently, King works as a broker for Wells Fargo Advisors.

In addition, the claimants were reportedly included in a group of investors who signed personal loan guarantees connected to a $12 million loan to one of the real estate projects. When the loan entered into default, a $10 million judgment was entered against the group. Reportedly, each investor named in the judgment could potentially have to pay the entire amount of the bad loan. The $3.1 million award includes $2.1 million to cover the plaintiffs’ share of the judgment and $1 million in losses. In addition, in the event that the couple is required to pay the entire $10 million judgment, Citigroup will be required to reimburse them the entire amount.

If you were a client of King, or any other full-service brokerage firm-registered representative, who engaged in the practice of “selling away,” you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

ELKs are sometimes called reverse convertibles and can carry high risks. As a hybrid debt security, the return on this type of investment is linked to an underlying equity, most commonly a stock. Usually, ELKs mature in a year and, if the value of the ELK falls below a pre-set price, the investor will not receive cash but, instead, the investment is converted into shares in the underlying security. The value of these shares can be worth less than the investor’s initial investment. According to stock fraud lawyers, ELKs are structured products that are, in some cases, part of a speculative investment strategy that is unsuitable for many investors. According to the Statement of Claim in this case, the 91-year-old female investor was allegedly sold an investment strategy that involved asset allocation that was unsuitable and materially flawed for an investor seeking conservation of principle. The claim is seeking $200,000 in damages for the investor and alleges fraud, breach of fiduciary duty and unsuitable sales. According to securities fraud attorneys, firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given his or her age, investment objectives and risk tolerance. If you received an unsuitable recommendation of an investment strategy involving risky ELKs from Citigroup, or any other full-service brokerage firm, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a no-cost, confidential consultation.

In one case, the investors’ trust interviewed multiple money managers and investment firms including Credit Sussie, CitiGroup, Deutsche Bank, LaSalle Bank and Goldman Sachs. All of these firms recommended diversification across traditional asset classes, such as bonds and equities, as well as selective investments in alternative products for special situations.

However, the claim asserts that GenSpring stood out because of its unique approach which would provide better downside protection and better returns through the use of Multi-Strategy Hedge Funds, such as Silver Creek Funds, instead of the bond or fixed income portion of client portfolios. Allegedly, GenSpring officials claimed that their approach, which had been tested thoroughly, would behave like traditional bonds in terms of asset class correlation and volatility while providing returns across all market cycles that were superior to traditional bonds. The trust invested approximately $10 million and stated its primary goal as capital preservation.

In another case, trustees stated that they would need access to the funds within 6 to 18 months for business opportunities and, thus, needed safe, liquid investments. They invested $25 million with GenSpring, using primarily Multi-Strategy Hedge Funds.

In both cases, the Multi-Strategy Hedge Fund investments plummeted with the stock market in late 2008 and early 2009. Traditional bonds, however, rose more than 5 percent. According to stock fraud lawyers, the firm’s clients are at a continued risk of liquidity damage because they are unable to liquidate their very large investments.

Securities fraud attorneys say that there was no reasonable basis for GenSpring to believe that the Multi-Strategy Hedge Funds would provide adequate diversification or perform like bonds.

If you are an ultra-high-net-worth investor who suffered significant losses because of GenSpring’s recommendation of Multi-Strategy Hedge Funds, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray., P.C. at (866) 966-9598 for a no-cost, confidential consultation.

The feeder funds used by full-service brokerage firms to invest in Paulson’s Advantage and Advantage Plus Funds went by a variety of names, such as LionHedge Paulson, UBS Paulson Advantage Fund, Morgan Stanley HedgePremier Paulson, Paulson Advantage Access Fund and CAIS Paulson. Stock fraud lawyers say that all of the aforementioned funds invest in Paulson’s funds and that in some cases they may not have provided oversight or due diligence in the funds, despite representations made to investors.

Following the Advantage Fund’s decline, in May 2012 the fund was put on Morgan Stanley Wealth Management’s “watch list” and investors are now being advised to redeem. Three months later, Citigroup reportedly made a similar decision, pulling $410 million from Paulson’s funds. In light of the fact that the Paulson funds were sued by an investor in February 2012, many investors are contacting securities fraud attorneys about their losses. In the 2012 lawsuit, both Paulson & Co. and its funds were charged with deeply investing into SinoForest without conducting adequate due diligence and accused of breach of fiduciary duty.

If you invested in one of the Citigroup, Morgan Stanley, Merrill Lynch or UBS Financial Services feeder funds listed above, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Many claims related to the overconcentration in Citigroup stock in full-service brokerage accounts focus on the fact that many of these portfolios were mismanaged, given that risk management strategies were available that would have offered investors protection for the value of their portfolio. Securities arbitration lawyers say that protective puts and collars, stop loss and limit orders, “zero cost” collars and other “hedge” strategies are risk management strategies that could have been used to protect clients’ portfolios.

Protective puts, limit orders and stop loss orders are a way to give an account an exit strategy and downside protection in the event that a stock declines in value. A “zero cost” collar is a hedging strategy that creates a range of value, allowing the portfolio to maintain its value, irrespective of the direction and fluctuation of the price of the underlying stock. In many cases, investment fraud lawyers say that investors’ concentrated positions were directly exposed to fluctuations in the securities markets because of a failure of full-service brokerage firms to utilize these risk management strategies.

In settling the class action lawsuit, Citigroup has agreed to pay $590 million. The class action alleged that, just prior to the financial crisis, shareholders were misled regarding Citigroup’s exposure to subprime mortgage debt.

Holders of a full-service brokerage account who suffered significant losses as a result of an overconcentration in Citigroup stock may be able to recover their losses through securities arbitration. If you are one of these investors, find out more about your legal rights and options by contacting a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

According to the complaint, which was filed in Manhattan federal court, John Picket, the CSO’s founder, leveraged the assets of the fund in order to purchase debt in the German firm’s offering worth around 558 million Euros, or $730 million. Allegedly, following Pickett’s actions, the CSO fund suffered significant losses. Reportedly, in December 2007, Pickett resigned.

Beach’s investment fraud lawyers stated in the complaint that, “investors were not informed that his departure was the result of his breaches of the fund’s investment restrictions.” Citigroup spokeswoman Danielle Romero-Apsilos declined to comment in relation to the suit.

According to securities fraud attorneys, this is not the first case against Citigroup in relation to the CSO fund. In April 2008, a hedge fund firm filed a lawsuit against Citigroup. The case is Robeco-Sage Capital v. Citigroup Alternative Investments LLC, 601030/2008, New York Supreme Court (Manhattan). Robeco-Sage Capital alleged that Pickett’s “disastrous” investment had resulted in damages to the firm. According to Manhattan court records, this case is no longer active.

The current case is Beach v. Citigroup Alternative Investments LLC, 12-cv-7717, U.S. District Court for the Southern District of New York (Manhattan).

According to the bank, Citigroup Alternative Investments has, since the alleged misconduct occurred, been restructured. Part of the bank was renamed Citi Capital Advisors.

If you suffered significant losses in the now-defunct Citigroup CSO, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

New York City investor Margaret Hill filed the case in 2011 and requested over $3.5 million in damages. Her losses were a result of Citi’s Rochester Municipal Fund. Investment fraud lawyers say Hill’s case alleged that she was sold unsuitable investments by Citigroup Global Markets Inc. which, in addition, misrepresented facts.

According to the allegations against Citigroup, Hill bought the Rochester Fund as an alternative to her individual municipal bond funds because Citigroup said it would pay more interest and would be a “safe” alternative to her funds at that time. However, the Rochester Fund reportedly consisted primarily of tobacco bonds and risky derivative securities. After purchasing the bond in 2007, Hill sold the funds in 2009, suffering losses amounting to $2.9 million.

Securities fraud attorneys say it is often falsely assumed that wealthy investors are more sophisticated investors than the average investor. However, brokerage firms and financial advisors are still responsible for adequately disclosing all risks associated with a particular investment. In this case, the value of the derivative securities that made up the fund depends on the underlying assets’ performance which can experience significant fluctuations.

If you suffered significant losses as a result of your investment in a municipal bond that was falsely represented as “safe,” you may be able to recover you losses through securities arbitration. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Securities arbitration lawyers say this situation is similar in some ways to what happened when, after Lehman declared bankruptcy, Series 2008A of Main Street Natural Gas Inc. Gas Project Revenue Bonds were downgraded. In the case of the Lehman bonds, the bonds were not guaranteed by Lehman Brothers, though certain payment obligations of the gas supplier were guaranteed.

The following is a list of gas prepayment bonds that have been affected by downgrades:

• Tennessee Energy Acquisition Corporation Gas Project Revenue Bonds, Series 2006A
• Public Energy Authority of Kentucky Inc. Variable Rate Gas Supply Revenue bonds, Series 2006A
• New Mexico Municipal Energy Acquisition Authority Gas Supply Variable Rate Revenue Bonds, Series 2009
• American Municipal Power Inc., OH Electricity Purchase Revenue Bonds, 2007A
• Lancaster Port Authority Gas Supply Variable Rate Revenue Bonds, Series 2008
• Salt Verde Financial Corporation, AZ Senior Gas Revenue Bonds, 2007
• Central Plains Energy Project Gas Project Variable Rate Revenue Bonds (Project No. 2), Series 2009
• Main Street Natural Gas Inc. Gas Project Variable Rate Revenue Bonds, Series 2010
• Texas Municipal Gas Acquisition & Supply Corporation II Gas Supply Revenue Bonds, Series 2007A & 2007B
• California Statewide Communities Development Authority Gas Supply Revenue Bonds, Series 2010
• Municipal Energy Acquisition Corp. Gas Revenue Bonds, Series 2006A & 2006B
• Indiana Bond Bank Gas Revenue Bonds, 2007
• Northern California Gas Authority No. 1 Gas Project Revenue Bonds, Series 2007A & 2007B
• Main Street Natural Gas Inc. Gas Project Revenue Bonds, Series 2006A & 2006B
• Roseville Natural Gas Financing Authority, CA Gas Prepayment Revenue Bonds, Series 2007A
• Public Authority for Colorado Energy Natural Gas Purchase Revenue Bonds, Series 2008
• Main Street Natural Gas Inc. Gas Project Revenue Bonds, Series 2007A
• Long Beach Bond Finance Authority Natural Gas Purchase Revenue Bonds, Series 2007A & 2007B
• Natural Gas Acquisition Corporation of the City of Clarksville, TN Gas Revenue Bonds, Series 2006
• Texas Municipal Gas Acquisition & Supply Corporation I, Gas Supply Revenue Bonds, Series 2006A & 2006B
• Texas Municipal Gas Acquisition & Supply Corporation I, Gas Supply Revenue Bonds, Series 2008D
• Black Belt Energy Gas District Gas Project Revenue Bonds, Series 2012A
• Central Plains Energy Project Gas Project Revenue Bonds (Project No. 3), Series 2012

According to stock fraud lawyers, the profitability and yield of investor holdings may be impacted by the downgrades placed on these investments. Furthermore, if the gas supplier guarantor’s credit risk was not disclosed, or if the bonds were recommended as “safe,” investors may be able to recover losses through securities arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

In connection with FINRA’s efforts, UBS Financial Services, Morgan Stanley, Wells Fargo and Citigroup Global Markets Inc. have agreed to pay $7.3 million in fines and $1.8 million in restitution, totaling $9.1 million. This will settle allegations that they sold inverse and leveraged ETFs to clients for which the investment was unsuitable. According to FINRA, these four firms did not have a “reasonable basis” for the recommendation of the securities to certain clients and also failed to provide adequate supervision. For more than a year, from January 2008 through June 2009, $27 billion in inverse ETFs were bought and sold by the firms.

With ETFs and ETNs now being recognized as a significant problem, we are likely to see more sanctions leveled by FINRA. According to stock fraud lawyers, the SEC ceased approving applications for ETFs in March 2010, when those ETFs used derivatives. Furthermore, the SEC indicated that it wanted to determine if leveraged and inverse ETFs warranted additional investor protection. There is concern, from both FINRA and the SEC, that inverse and leveraged ETFs are being confused with traditional, less risky ETFs.

According to securities fraud attorneys, the higher risk of leveraged and inverse ETFs is a result of the fact that they use leverage and compounding and they reset daily. Because of this, these investments’ performance can be significantly different from the underlying index’s performance.

If you suffered significant losses as a result of your investment in an inverse ETN or ETF that was unsuitable for you, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a stock fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

According to FINRA’s findings, from July 2007 through September 2010, Citi International charged excessive markups and markdowns on corporate and agency bonds. These markups and markdowns, which were as low as 2.73 percent and as high as more than 10 percent, are considered excessive within the given market conditions, value of the services rendered and cost of transaction execution. Furthermore, from April to June 2009, reasonable diligence was not given to the purchase or sale of corporate bonds in order to present the most favorable price to customers. Citi International, a subsidiary of Citigroup Inc., neither confirmed nor denied the charges.

FINRA’s Executive Vice President of Market Regulation, Thomas Gira, stated, “FINRA is committed to ensuring that customers who purchase and sell securities, including corporate and agency bonds, receive fair prices. The markups and markdowns charged by Citi International were outside of appropriate standards for fair pricing in debt transactions, and FINRA will continue to identify and address transactions that violate fair pricing standards, regardless of whether a markup or markdown is above or below 5 percent.”

While securities arbitration lawyers applaud FINRA’s efforts to monitor the securities industry, victims of fraud cannot afford to wait for regulators to identify fraud. Victims should contact a securities fraud attorney immediately if they feel they have been the victim of fraud.

If you believe you have been the victim of securities fraud, find out more about your legal rights and options by contacting a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Luckily, investors who suffered significant losses may have a valid securities arbitration claim.

Brokers, and brokerage firms, have a fiduciary duty to their clients. They must research an investment prior to making a recommendation to an investor in order to establish that the investment is suitable. It must be appropriate for each individual investor, taking into consideration the investor’s investment objectives, investment experience, net worth and age. The Financial Industry Regulatory Authority has a dispute resolution form where investors can settle disputes with their brokerage firms relating to unsuitability and other forms of stock broker fraud.

Brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market may or may not be a conservative trading strategy. This depends on the sector of the market and assets in the account relative to the investment’s concentration level.

Broker misconduct has occurred if the broker in charge of the account made an unsuitable recommendation or took an unnecessarily risky position in the ETN or ETF.

If you suffered significant financial losses as a result of the unnecessary risks of your broker, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Bank of America held commercial loans from small banks amounting to around $400 million in 2006. In 2007, securities packages were put together from these loans and then sold to investors. The subpoena arrives only one day after Bank of America, JP Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. settled allegations of engaging in abusive mortgage practices. These abusive practices included engaging in deceptive practices in the offering of loan modifications, a failure to offer other options before closing on borrowers with federally insured mortgages, submitting improper documents to the bankruptcy court and robo-signing foreclosure documents without proper review of the paperwork.

The settlement amounted to $25 billion and involved federal agencies plus authorities in 49 states. This settlement is designed to give $2,000 to around 750 borrowers whose homes were foreclosed upon after the home values dropped 33 percent from their 2006 worth, and to provide mortgage relief. In addition, all five banks will pay $766.5 million in penalties to the Federal Reserve. This is considered to be the biggest federal-state settlement ever. Bank of America will also pay $1 billion to settle allegations that it, together with its Countrywide Financial unit, engaged in fraudulent and wrongful conduct.

Needless to say, between the recent settlement, the subpoena regarding two of its CLOs, and numerous potential securities arbitration claims related to its CDOs, Bank of America is not off to a good start in 2012. If suspicions about the Bank of America CLOs turn out to be correct, investors who suffered losses as a result may have a valid securities arbitration claim. Investors are advised to stay informed on this issue as it holds potential for loss recovery.

The details of the FINRA proceedings, which were confidential, have been unsealed following Citigroup’s request that the award be tossed out by a United States district court. The documents viewed by FINRA arbitrators show, according to the New York Times, that Citigroup rated the investments of the claimants at a 5 rating for risk on a scale of 1 to 5, with 5 being the highest risk rating. Investors went on to lose 80 percent of their investments, which is no surprise considering the risk rating.

The investments in question were municipal arbitrage portfolios, or ASTA/MAT. They were sold by Citigroup Global Markets through MAT Finance LLC. Internal emails show that the investments began their decline in value in early 2008, following which Sally Krawcheck requested the risk rating of the MAT. Despite the fact that documents showed a risk rating of 5, she was told the risk rating was “3-5.” In addition, Citigroup did not disclose the investments’ 5 rating to investors. Furthermore, according to The Times, the portfolio manager was instructed not to discuss information the internal guidelines — which differed from the investors’ prospectus — in a conference call that involved the brokers of clients that had sustained losses.

Claimants in the original securities arbitration proceedings listed fraud, unsuitability, and failure to supervise as alleged misconduct committed by Citigroup. Of the $54.4 million awarded to investors, $17 million was awarded in punitive damages.

Earlier this month, Judge Christine Arguello refused Citigroup’s request to overturn FINRA’s arbitration award. If you have been the victim of fraud, unsuitability or failure to supervise, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

“Citigroup failed to make required conflict of interest disclosures which prevented investors from being aware of potential biases in its research recommendations,” says FINRA Executive Vice President and Chief of Enforcement Brad Bennett. “Firms need to provide investors with full and accurate information so they will be able to take it into consideration before making an investment decision.”

Conflicts of interest not included in research reports and analysts’ public appearances included the fact that Citigroup and/or Citigroup affiliates co-managed or managed public securities offerings, would make a market in the related securities, received revenue and/or investment banking from the related securities and/or had ownership in covered companies that amounted to 1 percent or more.

The cause of the failure, according to FINRA’s findings, was “because the database it used to identify and create the disclosures was inaccurate and/or incomplete due primarily to technical deficiencies.” In addition to the insufficient database, adequate supervisory procedures for monitoring the research reports were not in place. Adequate supervisory procedures would have ensured that the required disclosures were provided in research reports.

While Citigroup did not confirm or deny the charges, the firm has consented to FINRA’s findings. The firm will have to pay a fine of $725,000 for the misconduct. Investment attorneys continue to watch FINRA arbitration for incidents that could lead to potential investor claims.

Underwriters named in the lawsuit include BNY Mellon Capital, Barclays, Citigroup, Merrill Lynch, Goldman Sachs, UBS and Morgan Stanley. Under Section 11 and Section 12(a)(2) of the Securities Act of 1933, underwriters of public offerings may be held liable if they fail to conduct a due diligence investigation of the information provided in prospectuses and registration statements.

The class action lawsuit states that, “The Underwriter Defendants underwrote BNY Mellon’s May 11, 2009 and/or June 3, 2010 common stock offering which were conducted pursuant to materially false and misleading offering materials and are charged with violations of the Securities Act in their capacity as underwriters for such offering.” Furthermore, allegations of the class action state that “throughout the Class Period, defendants concealed and failed to disclose material adverse facts about the Company’s financial well-being, business relationships, and prospects,” and goes on to claim that as a result of the wrongful acts and omissions of the defendants, combined with the “precipitous decline” of the common stocks’ market value that resulted from the disclosure of a FX trading scheme, investors suffered damages.

If you incurred losses as a result of BNY Mellon stocks related to this case, contact a stock fraud lawyer immediately to find out more about your legal rights and options. Contact The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

The FHFA is seeking civil penalties as well as damages. Allegedly, the financial institutions violated fiduciary duty by providing misleading loan descriptions as a part of their sales and marketing materials. The marketing materials did not reveal the true risk factors associated with the loans. According to the FHFA’s press release, “Based on our review, FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the Enterprises for those securities.”

Congress and regulators have put forth a continuing effort to deal with the practices of institutions that led to the financial crisis of 2008 and this lawsuit is part of that goal. It is similar to the one filed on July 27, 2011 against UBS Americas Inc. The Housing and Economic Recovery Act of 2008 gives the FHFA the authority to file complaints such as this one.

As conservator of Freddie Mac and Fannie Mae, the FHFA is responsible for preserving the assets of these companies, but if — as an individual investor — you have suffered investment losses that you believe to be the result of misleading marketing materials or a breach of fiduciary duty, find out more about your legal rights and options by contacting an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Citigroup is the third major bank to settle with the SEC for failing to disclose betting against a collateralized debt obligation, or CDO, and then marketing it to customers. JPMorgan settled for $153.6 million in June and Goldman Sachs settled for $550 million in July 2010.

In November 2007, the CDO defaulted and, while investors faced losses, Citigroup made $160 million. This contributed to the 2007-2009 financial crisis and is, therefore, a part of the mission to reduce broker fraud and hold Wall Street figures accountable for triggering the recession. According to the SEC, the Citigroup employee who was primarily responsible for structuring the transaction was Brian Stoker. In response to the files charged against him by the SEC, one of his lawyers said the allegations had “no basis.”

Credit Suisse Group AG, the collateral manager of the CDO, as well as Samir Bhatt, Credit Suisse’s portfolio manager who was primarily responsible, have settled separate charges with the SEC. Bhatt is suspended for associating with an investment advisor for six months and Suisse will pay $2.5 million. Citigroup represented Credit Sussie in marketing materials outlining the deal, according to the SEC.

Citigroup will forfeit $160 million in “alleged improper fees and profits,” $30 million in interest and will also pay a fine of $95 million. The settlement, according to Citigroup, “resolves all outstanding SEC inquiries into those activities.” Citigroup neither admitted nor denied wrongdoing.

Chiaese’s broker fraud began in 2008 and lasted roughly two years. To earn the trust of new clients, he flaunted the investment experience he earned at Merrill Lynch, Citibank and other firms. After earning his clients’ trust, he raised $2.4 million by promising to invest conservatively and traditionally. Not only did he fail to invest conservatively and traditionally, he did not invest the money at all. The majority of the money, $1.7 million, came from a union pension fund belonging to Local 333, United Marine Division, International Longshoreman’s Association. The bilked fund contained the pensions of 850 individuals. Of the total $2.4 million stolen, Chiaese spent $1.4 million on personal expenses. In addition, he used $280,000 to repay other investors.

Chiaese, 38, pleaded guilty to securities fraud and could have faced 20 years in prison and $5 million in fines. In addition to the final sentence, 58 months in prison and $2.5 million in restitution, Chiaese will submit to three years of supervised release once his prison sentence is served. Chiaese was sentenced by U.S. District Judge William Martini and was released on a $750,000 bond. However, provisions of his bail required that Chiaese must avoid working in finance and participate in a drug treatment program.

Under this new program, cash awards will be issued to corporate employees who report fraud to the SEC in order to expose corporate crime. Individuals who report fraud under this program could receive up to 30 percent of the amount that is collected from the guilty party. To qualify, the tipster must volunteer new information that leads to a successful collection of at least $1 million in fines.

“Through their knowledge of the circumstances and individuals involved, whistleblowers can help the commission identify possible fraud and other violations much earlier than might otherwise have been possible,” SEC officials say. “That allows the commission to minimize the harm to investors, better preserve the integrity of the United States’ capital markets, and more swiftly hold accountable those responsible for unlawful conduct.”

Though many are singing the praises of this new program, it has been a hotly-contested issue for quite some time with many objections, especially from corporations and corporate lawyers. Plans for the office were announced in November and a six-month corporate interests lobbying campaign followed. Participants in the campaign included Citigroup, Google, General Electric, JP Morgan Chase and the United States Chamber of Commerce. This campaign included more than 1,300 forms letters and 200 comments about the program. Sean McKessey, Chief of the SEC Office of the Whistleblower, said that he was prepared for the negative reactions to the proposal because “virtually every side of the argument told me that they were going to sue me — or us.”

The central argument that corporations have asserted is that the program will discourage whistleblowers from reporting fraud within the company first, thereby undermining company policies. However, McKessey maintains that the way the office policies are set up is valid because employees will be able to report fraud even if their bosses are involved. Furthermore, any whistleblowers will have incentive to report fraud internally first, as doing so can increase the amount of the award.