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Archive for March, 2010


Credit Suisse Ordered to Pay FINRA Arbitration Award

Credit Suisse Group AG, the biggest bank in Switzerland by market value, was ordered by a U.S. judge to pay STMicroelectronics NV the remainder of a $431 million award over unauthorized investments in auction-rate securities.

The arbitration award, ordered in 2009 by the Financial Industry Regulatory Authority, was affirmed on March 19 by U.S. District Judge Deborah Batts in New York, who cited a “record replete with evidence of Credit Suisse’s fraud.”

“Credit Suisse has grasped unsuccessfully at straws to avoid payment of the arbitration award in this case,” Batts said in the ruling. The unpaid balance is about $354 million, including $23 million in interest, Geneva-based STMicroelectronics said today in a statement.

Europe’s biggest semiconductor maker, which hired Credit Suisse to make investments for the company, accused the bank of investing in risky securities after claiming it would only invest in student loans backed by the U.S. government. STMicroelectronics sued when the value of the securities fell and in February 2009 won an arbitration award before the Washington-based regulator, known as FINRA.

“We respectfully disagree with the court’s decision and are evaluating an appeal,” Alex Biscaro, a spokesman for Zurich-based Credit Suisse, said today in an e-mailed statement.

At least 19 underwriters and broker-dealers were sued in class-action, or group, lawsuits since the $330 billion market for auction-rate securities collapsed in February 2008. Some have been compelled by regulators to buy back billions of dollars of the securities.

Provident Asset Management Expelled for Offering Fraudulent Private Placement Deal

The Financial Industry Regulatory Authority (FINRA) announced today that it has expelled Provident Asset Management, LLC, a Dallas based broker-dealer. The expulsion stems from a series of fraudulent private placement offerings marketed through an affiliate, Provident Royalties, LLC. Some have called the offering a Ponzi scheme, a massive one at that, involving thousands of investors.

Provident Asset Management was found to have misrepresented how the funds raised through the offering would be used. Despite assurances that capital raised would be used in the exploration and acquisition of real estate, oil and gas leases, and gaining mineral rights, investor funds were in actuality commingled and used by an affiliated issuer to pay off older investors.

The scheme operated for almost three years through 23 series of offerings sold via a network of over 50 retail broker-dealers. Through these offerings and this network of broker-dealers, over $480 million was raised, involving some 7,700 individual investments made by thousands of investors around the country.

Though the move announced by FINRA today will be welcomed by many, it does little to amend the damage done to defrauded investors. Many have turned to FINRA arbitration as a means to recoup their investment loss.

 

Fiduciary Duty Reform Proposal May Backtrack on Previous Rhetoric

There is speculation this week that Senator Christopher Dodd (D-CT), will introduce new financial reform legislation that fails to create single fiduciary duty for Registered Independent Advisors (RIAs) and Broker-Dealers. This represents an expected 180˚on the subject of fiduciary duty reform in light of intense lobbying efforts by the financial industry.

The provision, rather than create a single standard, calls on the Securities and Exchange Commission (SEC) to conduct a study on regulatory standards in the RIA/Broker-Dealer field, and then propose rules on the issue. The provision was first circulated by Senator Tim Johnson (D-SD), a Banking Committee member, three weeks ago.

Those in the financial industry have heard about the potential of a single fiduciary standard applying to both RIAs and broker-dealers for years, yet such talk has remained just that, talk. As quoted by Investmentnews.com, Knut A. Rostad, Chairman of The Committee for the Fiduciary Standard, had this to say: “Studying this issue is a straw man… [t]here has been so much study that has been done over the past 15 years that the SEC has become a think tank on the issue of fiduciary issues, but the industry needs to explain why these investor protections should not be afforded to their customers.”

It remains to be seen if this proposal will be put forth, but if it is, such a move will undoubtedly signal a softening in the rhetoric of financial industry reform that has been tossed around following the subprime mortgage meltdown of two years past.

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