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Archive for April, 2009


Maker of Valvoline Motor Oil takes Legal Action against Oppenheimer for the Sale of Auction-Rate Securities

Ashland Chemical Company, Inc., the maker of Valvoline motor oil, filed a lawsuit against Oppenheimer & Co., in 2009 for the sale of nearly $194 million worth of auction rate securities during 2007 and early 2008. According to the complaint by Ashland Inc., Oppenheimer misrepresented the risks and liquidity related to the securities

When the market for auction-rate securities collapsed in February 2008, Ashland, like thousands of institutional and retail investors, found itself stranded with an illiquid investment that no one wanted to buy. Several months later, in an effort to settle investigations by state and federal regulators, many Wall Street firms, including Citigroup, UBS and Merrill Lynch, agreed to buy back billions of dollars of auction-rate securities from investors. Oppenheimer, however, opted not to participate in the ARS buy-back programs, contending it didn’t issue or underwrite the securities but only sold them.

Ashland filed its lawsuit against Oppenheimer on April 17, 2009 in the U.S. District Court for the Eastern District of Kentucky. Prior to this in November 2008, Massachusetts’ Secretary of State William Galvin sued the firm and charged them with fraud and dishonest and unethical conduct in connection to its auction-rate securities business. Galvin requested that Oppenheimer rescind all sales of auction-rate securities and make full restitution to investors who already had sold their securities. In addition, Galvin also sought to fine the company and several senior-level executives, specifically Oppenheimer Chairman and CEO Albert Lowenthal, whose broker-dealer license he wanted revoked.

Drier to Plead Guilty

Marc Dreier, the New York law firm founder charged with defrauding hedge funds, will plead guilty to federal charges including conspiracy and wire fraud on May 11, his lawyer said.

Dreier sold more than $700 million in phony promissory notes to at least 13 hedge funds and three individuals, according to an indictment unsealed against him last month in federal court in New York. Victims lost more than $400 million, according to the charges.

Dreier, a graduate of Yale College and Harvard Law School, was arrested on Dec. 8 and charged with conspiracy, securities fraud and wire fraud. Prosecutors said he faces 30 years to life in prison if convicted.

Fairfield Greenwich Faces New Investor Fraud Claims

Fairfield Greenwich Group, the hedge fund that steered $7 billion to Bernard Madoff, faces new claims of fraud by investors who previously alleged negligence against co-founders Walter Noel, Jeffrey Tucker and Andres Piedrahita.

The class-action suit, first filed in January in Manhattan federal court, was amended April 24 to include claims that the three co-founders and the firm acted so recklessly in placing client money with Bernard L. Madoff Investment Securities LLC that their actions constituted fraud. The amended complaint relies on documents filed by Massachusetts Secretary of the Commonwealth William Galvin, who filed an administrative complaint against Fairfield Greenwich and its Sentry Funds April 1, and other investigation by the plaintiffs.

The investors’ complaint, which seeks damages for their losses, claims that Fairfield Greenwich and its executives had no basis to tell investors that their historical profits were real, that Madoff’s “split-strike conversion strategy” was legitimate, or that the firm conducted adequate due diligence.

Citigroup receives Claim from Braintree Laboratories for Sale of Auction-Rate Securities

The backlash from institutional investors over auction-rate securities ARS) is causing a world of problems for financial giant Citigroup. Braintree Laboratories, a large Pharmaceutical manufacturer is suing the bank for selling more than $33 million worth of auction-rate securities. Braintree is disputing the sale, which occurred in 2008, and alleging that is was orchestrated at the very same time that federal and state regulators were investigating Citigroup for fraudulent marketing practices relating to auction-rate securities.

In August 2008, in an effort to settle the investigations, Citigroup agreed to buy back as much as $20 billion worth of auction-rate securities from individual investors and small businesses. In addition, the bank paid a $100 million fine. Citigroup also agreed to provide loans to more than 2,500 institutions that held some $12 billion of the securities.

At issue in the Braintree case is the timing of the auction-rate securities sale. As reported in an April 17, 2009 article by Bloomberg, Citigroup apparently sold some of the securities to Braintree on Aug. 6, 2008, just one day prior to its settlement agreement with regulators.

Following the implementation of their buyback program, Citigroup refused to repurchase the auction-rate securities from Braintree which in turn meant that the instruments would remain illiquid and unredeemable until the year 2030. According to the complaint filed by Braintree, Citigroup described the auction-rate securities to Braintree as “seven day rolls” and “government-backed money market investments that could be sold at par at any time on seven days’ notice.”

California Sues Wells Fargo Over Auction Rate Securities

California sued units of Wells Fargo & Co. today, claiming they sold investors $1.5 billion of auction-rate securities and deceptively advertised them as being as safe as cash.

A complaint filed in state court in San Francisco names Wells Fargo Investments LLC, Wells Fargo Brokerage Services LLC and Wells Fargo Institutional Services LLC as defendants.

The complaint wasn’t immediately available to the public, however, the California AG’s office said the lawsuit seeks to recoup losses to investors.

GM Likely To Miss Debt Payment

General Motors Corp is unlikely to make a $1 billion debt payment due June 1 because it expects to be in the process of restructuring its debt through a voluntary exchange or bankruptcy court by that point, a spokeswoman for the automaker said on Wednesday.

GM has been given until June 1 to win sweeping concessions from creditors, including bondholders and the United Auto Workers union, under the terms of its U.S. government supervised restructuring.

Spokeswoman Renee Rashid-Merem said GM was working to offer a bond exchange that would reduce the $28 billion in debt owed to bondholders. Such an exchange could still be in progress as of June 1, precluding the bond payment, she said.

Madoff Trustee Brings Suit to Recover More Money

The trustee appointed to liquidate Bernard L. Madoff Investment Securities LLC sued Kingate Management Ltd. for the return of $255 million transferred to the firm’s funds in the months before Madoff’s collapse.

Irving Picard, appointed under the Securities Investor Protection Act, filed a complaint April 17 in U.S. Bankruptcy Court in New York stating that transfers of $100 million to Kingate Global Fund Ltd. and $155 million to Kingate Euro Fund Ltd. from Madoff firm accounts in October and November were improper.

Citigroup Spain Sued Over Lehman Products

Citigroup Inc.’s Spanish unit improperly sold investment products for Lehman Brothers Holdings Inc., according to lawyers who say they filed a lawsuit on behalf of as many as 122 clients.

Citigroup used aggressive marketing campaigns to sell the products, failed to diversify client investments and didn’t advise customers of what was happening at Lehman, said Zunzunegui Securities Lawyer and Jausas, two law firms that are representing the customers. The suit seeks 3 million euros($4 million), the firms said in an e-mailed statement.

The law firms said they are also attempting to reach a settlement with other banks, including Banco Santander SA, on behalf of customers affected by the collapse of Lehman. Lehman- related claims against Spanish banks may reach 100 million euros, the law firms said.

Citigroup Spain Sued Over Lehman Products

Citigroup Inc.’s Spanish unit improperly sold investment products for Lehman Brothers Holdings Inc., according to lawyers who say they filed a lawsuit on behalf of as many as 122 clients.

Citigroup used aggressive marketing campaigns to sell the products, failed to diversify client investments and didn’t advise customers of what was happening at Lehman, said Zunzunegui Securities Lawyer and Jausas, two law firms that are representing the customers. The suit seeks 3 million euros($4 million), the firms said in an e-mailed statement.

The law firms said they are also attempting to reach a settlement with other banks, including Banco Santander SA, on behalf of customers affected by the collapse of Lehman. Lehman- related claims against Spanish banks may reach 100 million euros, the law firms said.

Carlyle Group Under Investigation

Carlyle Group is being probed by New York prosecutors and the U.S. Securities and Exchange Commission over whether the world’s second-largest private- equity firm made illegal payments to intermediaries to secure $1.3 billion in investments from the state’s pension fund, according to a person with knowledge of the matter.

New York Attorney General Andrew Cuomo and SEC lawyers are investigating Carlyle, hedge funds and other private-equity firms that did business with New York’s employee pension fund, according to the person, who declined to be identified because the probe isn’t public.

The probe is related to civil lawsuits and criminal charges filed last month by Cuomo and the SEC against former New York state Deputy Comptroller David Loglisci and political adviser Hank Morris for allegedly soliciting millions of dollars in kickbacks from firms managing the state’s retirement fund.

Morris was a so-called placement agent for Searle & Co., a registered broker-dealer that arranged deals between Carlyle and the New York State Common Retirement Fund, the person said. Morris allegedly pressured the investment firms to use Searle’s services and received millions of dollars in payments in exchange, court filings show.

Loglisci arranged for the pension fund, the third-largest in the U.S., to invest $5 billion with private-equity firms and hedge-fund managers that paid “sham” finder fees to Morris and others, the SEC said in last month’s complaint filed in federal court in Manhattan. Loglisci told managers the payments were required to do business with the fund, the regulator said.

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