Daily Archives: January 2, 2015

Damning court filings show Morgan Stanley pushed risky subprime mortgage lending


Morgan Stanley encouraged irresponsible lending

Among the filings was evidence of employees’ knowledge of the poor quality of these mortgages. Due diligence executive Pamela Barrow joked in an email about “first payment defaulting straw buyin’ house-swappin first time wanna be home buyers.”

In addition, when lower-ranking due diligence employees tried to alert her to the bad mortgages Morgan Stanley was buying, Barrow shrugged them off.

“good find on the fraud :),” she wrote to one, adding that she would no longer be using his services.

Morgan Stanley, for its part, maintains in court filings that there is no evidence that it controlled New Century’s practices.

The filings came from a 2012 lawsuit in which the ACLU accused New Century of discriminatory lending practices.

SEC maintains a running list of all the enforcement actions it has taken in relation to the financial crisis

Here is  a running list:

Concealed from investors risks, terms, and improper pricing
in CDOs and other complex structured products:

  • Citigroup – SEC charged Citigroup’s principal U.S. broker-dealer subsidiary with misleading investors about a $1 billion CDO tied to the housing market in which Citigroup bet against investors as the housing market showed signs of distress. The court approved a settlement of $285 million which will be returned to harmed investors. (10/19/11)
  • Commonwealth Advisors – SEC charged Walter A. Morales and his Baton Rouge-based firm with defrauding investors by hiding millions of dollars in losses suffered during the financial crisis from investments tied to residential mortgage-backed securities. (11/9/12)
  • Goldman Sachs – SEC charged the firm with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. (4/16/10)
    • Goldman Settled Charges – Firm agreed to pay record penalty in $550 million settlement and reform its business practices. (7/15/10)
    • Fabrice Tourre Found Liable – A jury found former Goldman Sachs Vice President Fabrice Tourre liable for fraud relating to his role in a synthetic collateralized debt obligation tied to subprime residential mortgages. (8/1/13)
  • Harding Advisory LLC – SEC charged a Morristown, N.J.-based firm and its CEO for misleading investors in a CDO about the asset selection process. (10/18/13)
  • ICP Asset Management – SEC charged ICP and its president with fraudulently managing investment products tied to the mortgage markets as they came under pressure. (6/21/10)
  • J.P. Morgan Securities – SEC charged the firm with misleading investors in a complex mortgage securities transaction just as the housing market was starting to plummet. J.P. Morgan agreed to pay $153.6 million in a settlement that enables harmed investors to receive all of their money back. (6/21/11)
  • Merrill Lynch – SEC charged the firm with making faulty disclosures about collateral selection for two CDOs that it structured and marketed to investors, and maintaining inaccurate books and records for a third CDO. Merrill Lynch agreed to pay $131.8 million to settle the charges. (12/12/13)
  • Mizuho Securities USA – SEC charged the U.S. subsidiary of Japan-based Mizuho Financial Group and three former employees with misleading investors in a CDO by using “dummy assets” to inflate the deal’s credit ratings while the housing market was showing signs of severe stress. The SEC also charged the deal’s collateral manager and portfolio manager. Mizuho agreed to pay $127.5 million to settle the charges, and the others also agreed to settlements. (7/18/12)
  • NIR Capital Management – SEC charged the two managing partners of the Charlotte, N.C.-based investment advisory firm for compromising their independent judgment and allowing a third party to influence the portfolio selection process of a CDO. Scott H. Shannon and Joseph G. Parish III agreed to collectively pay more than $472,000 to settle the charges. (12/12/13)
  • Stifel, Nicolaus & Co. – SEC charged the St. Louis-based brokerage firm and a former senior executive with defrauding five Wisconsin school districts by selling them unsuitably risky and complex investments. (8/10/11)
    • RBC Capital Markets – SEC charged the firm for misconduct in the sale of unsuitable CDO investments to five Wisconsin school districts. The firm settled the charges by paying $30.4 million to be distributed to the school districts through a Fair Fund. (9/27/11)
  • Wachovia Capital Markets – SEC charged the firm with misconduct in the sale of two CDOs tied to the performance of residential mortgage-backed securities as the housing market was beginning to show signs of distress. Firm settled charges by paying more than $11 million, much of which will be returned to harmed investors. (4/5/11)
  • Wells Fargo – SEC charged Wells Fargo’s brokerage firm and a former vice president for selling investments tied to mortgage-backed securities without fully understanding their complexity or disclosing the risks to investors. Wells Fargo agreed to pay more than $6.5 million to settle the charges. (8/14/12)
  • UBS Securities – SEC charged UBS Securities with violating securities laws while structuring and marketing a CDO by failing to disclose that it retained millions of dollars in upfront cash that should have gone to the CDO for the benefit of its investors. UBS agreed to pay nearly $50 million to settle the SEC’s charges. (8/6/13)

IRS Finalizes Rules On Info Returns For Foreign Cos.

Law360, New York (December 23, 2014, 4:24 PM ET) — The Internal Revenue Service and U.S. Department of the Treasury released final regulations on Tuesday explaining that fully or partly foreign-owned businesses will have to file information returns with their income tax returns and cannot file them separately if those returns are late.

U.S. corporations that are 25 percent foreign-owned and foreign companies that do business in the U.S. must file a Form 5472 Information Return. The federal government used to allow those businesses to file Form 5472 separately from their income tax returns if the…

Source: Law360

WaMu Trust Cuts $37M Deal With Execs Over Bank’s Collapse

Law360, New York (December 23, 2014, 6:48 PM ET) — A Delaware bankruptcy judge on Tuesday signed off on a $37 million settlement of a suit brought by Washington Mutual Inc.’s liquidating trust that accused the holding company’s former officers and directors of recklessness for approving a $500 million transfer to Washington Mutual Bank shortly before it collapsed.

U.S. Bankruptcy Judge Mary F. Walrath approved the deal, which ends litigation in Washington state as well as a dispute in Bermuda with insurers who balked at picking up the defense tab for the former leadership. The settlement…

Source: Law360

Royal Bank of Scotland : RBS and NatWest block over £1 million in payday loan broker fees

From today, according to new rules set by the FCA, payday loan brokers must make clear the fees they charge and that they are not acting as a lender – or be banned from charging customers.

RBS and NatWest revealed in November that they were receiving in excess of 600 calls each day from customers caught  out by unclear terms and conditions of payday loan brokers.

These T&C’s allowed pay day loan brokers to share the information provided to them (including bank account details) to other companies who often then charged customers for making an application. Because these companies never explicitly said how customers’ information would be shared  customers did not know  they would be liable for charges until they were taken from their account.

Read on.

“Audit The Fed” Bill Gains Momentum, Yellen Starts Damage Control

As The Washington Times reports,

After years of being blocked by Democratic leader Harry Reid, the Senate will finally get a chance next year to vote on legislation to force a broad audit of the Federal Reserve’s decision-making.

Once championed in Congress by former Rep. Ron Paul, the push to force the country’s central bank to undergo a full audit has been picked up by his son, Sen. Rand Paul, and others, and has the backing of the leader of the new Republican majority, Sen. Mitch McConnell, Kentucky Republican, whose office says the legislation will earn a floor vote.

But despite overwhelming support in the House, where the legislation has twice passed, the bill is not a sure thing in the Senate, and the Fed itself is pushing back. Chairwoman Janet L. Yellen said earlier this month the Fed remains opposed to stricter oversight of its monetary policy decisions, and Reuters reported she and other Fed officials are lobbying Capitol Hill to drop the audit push.

“Back in 1978 Congress explicitly passed legislation to ensure that there would be no GAO audits of monetary policy decision-making, namely policy audits. I certainly hope that will continue, and I will try to forcefully make the case for why that’s important,” Ms. Yellen told reporters at a press conference two weeks ago.

For supporters in Congress, the fight is a matter of constitutional prerogatives and good governance. They argue that President Obama’s 2009 Recovery Act, which totaled $800 billion in spending and tax cuts, was dwarfed by the trillions of dollars of stimulus the Federal Reserve oversaw.

While the bill is not a sure thing, it appears to have The Fed worried as Reuters reports, Yellen and other Fed officials are lobbying Capitol Hill to drop the audit push.

That’s it, we can never trust bankers again