Articles Posted in Goldman Sachs

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Investors who suffered significant losses as a result of their auction-rate securities investment with Jeffries Group LLC may be able to obtain a recovery via FINRA securities arbitration. Jeffries Group is a subsidiary of Leucadia National Corp., another full-service brokerage firm. Recently, Jeffries was ordered to pay an investor $7 million regarding an auction-rate securities dispute.

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.

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Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses in their accounts with GenSpring Family Offices LLC, a firm owned by a wholly-owned SunTrust subsidiary. Reportedly, arbitration cases have already been filed on behalf of ultra-high-net-worth investors which allege mishandling of investment accounts by GenSpring.

GenSpring Clients Could Recover Losses

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.

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As a significant number of gas prepayment bonds ratings have been downgraded by Moody’s Investors Service, stock fraud lawyers are advising investors to be cautious regarding their investments in these bonds. As a result of downgrades in Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., Credit Agricole Corporate & Investment Bank, Merrill Lynch & Co., BNP Paribas, Morgan Stanley, Royal Bank of Canada and Societe Generale, numerous bonds became subject to review and subsequent downgrades.

Investors Beware as Gas Prepayment Bonds Downgraded by Moody

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:

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According to an announcement on April 12, 2012, from the Financial Industry Regulatory Authority (FINRA), Goldman Sachs & Co. has been fined $22 million for “failing to supervise equity research analyst communications with traders and clients and for failing to adequately monitor trading in advance of published research changes to detect and prevent possible information breaches by its research analysts.” A related settlement with Goldman was announced by the Securities and Exchange Commission on the same day. Securities fraud attorneys say Goldman will pay $11 million each to the SEC and FINRA.

News: FINRA Fines Goldman, Sachs over “Trading Hurdles”

Goldman established “trading huddles” as a business process in 2006, according to FINRA’s statement. These “trading huddles” were designed to allow weekly meetings for research analysts, in which they would share trading ideas with traders for the firm. These traders worked with clients and, occasionally, equity salespersons. In addition, analysts apparently discussed specific securities while they were considering changing the conviction list status or published research rating of the security. Clients had access to the “trading huddle” information and were not restricted from direct participation through calls placed by analysts to high priority clients of the firm.

Unsurprising to investment fraud lawyers, a significant risk was created by trading huddles: material non-public information could be disclosed by analysts. Such information includes conviction list status and rating changes. Despite this risk, Goldman failed to have adequate controls to monitor communications before and after the trading huddles. Furthermore, an adequate monitoring system was not in place to detect possible trading in advance of conviction list and research rating changes in proprietary or employee training, institutional customer or client-facilitation and market-making accounts. Had these practices been allowed to continue, insider trading could have resulted, according to securities fraud attorneys.

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On December 14, 2011, a class action lawsuit was filed against Bank of New York Mellon Corporation, also known as BNY Mellon, in the United States District Court of the Southern District of New York. The lawsuit was filed for the class period of February 28, 2008, to August 11, 2011. Investment attorneys are encouraging individuals who acquired BNY Mellon stock through personal investment, inheritance or employment to explore possible securities arbitration claims as a means of recovering losses.

BNY Mellon Investors Seeking Investment Attorneys for Securities Arbitration 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.

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The Federal Housing Finance Agency (FHFA), acting as conservator for Fannie Mae and Freddie Mac, has filed securities lawsuits against a total of 17 financial entities in both federal and state courts. States in which the lawsuits were filed are New York and Connecticut. Financial institutions affected by the lawsuits, which were filed in September 2011, include Bank of America, Credit Suisse, Citigroup, Countrywide, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley and Deutsche Bank. These institutions, along with 8 others, violated federal securities and common laws when selling mortgage-backed securities. This is not the first time many of these financial institutions have been charged with securities fraud, and investment attorneys are doubtful that it will be the last.

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.

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Citigroup settled charges brought by the U.S. Securities and Exchange Commission, and has agreed to pay $285 million to do so. According to the SEC, Citigroup defrauded investors by betting a toxic housing-related debt would fail, but selling the CDO to investors anyway. According to an article by Reuters, “The SEC said the bank’s Citigroup Global Markets unit misled investors about a $1 billion collateralized debt obligation by failing to reveal it had a ‘significant influence’ over the selection of $500 million of underlying assets, and that it took a short position against those assets.”

Citigroup to Pay $285 Million for CDO Fraud

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.”

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The U.S. Securities and Exchange Commission has introduced a proposal in which bets made by securitization participants and underwriters against ABS, or asset-backed securities, that cause a conflict of interest will be barred. The hope is that this bar will prevent possible harm to investors that are caused by these conflicts of interest.

SEC Proposes Revision of Rule that will Reduce ABS Conflicts

According to Investopedia, an asset-backed security is “a financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternate to investing in corporate debt.” While an alternate to corporate debt investment can be appealing to investors, asset-backed securities are not without their risks.

On September 19, a 4-0 vote by SEC commissioners passed the decision to seek comment on a Dodd-Frank Act-required rule. The clarification of this rule would “restrict those who package or sponsor asset-backed securities from engaging in deals that put their interests in conflict with buyers for a year after the first closing of a sale,” according to Bloomberg Businessweek.

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