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Category Archives: JPMorgan Chase

Former JPMorgan Chase Broker Oppenheim, Charged in $20 Million Fraud

Our firm will be looking into investor complaints against former JPMorgan Chase broker, Michael J. Oppenheim, as a result of the federal authority’s accusations of embezzlement from his clients over the past four years. Checkout the latest on this breaking story below.

JP Morgan’s Jamie Dimon Gets a Big Raise

Despite the fact that JPMorgan Chase & Co. has recently been mired in regulatory and criminal probes – which ultimately cost the bank more than $23 billion in settlements – the person who oversaw the fiasco unfold is getting a big raise. As reported in the company’s public filing last week, JPMorgan’s board of directors opted to give CEO Jamie Dimon a 74% raise – or $20 million – last year, bringing his pay closer to where it stood before the board faulted his oversight of botched derivatives bets, reports a story in the Los Angeles Times.

Directors had previously cut Dimon’s 2012 pay after the company lost $6.25 billion on the so-called “London Whale” derivatives trade that Dimon once referred to as a “tempest in a teapot.”

Other tempests in the teapot that later proved noteworthy included a record settlement of $13 billion to resolve inquiries into mortgage-bond sales. The bank also paid $2.6 billion and avoided criminal prosecution while settling claims that it failed to stop disgraced broker Bernie Madoff’s Ponzi scheme.

JPMorgan Chase Fined $1.7M Over Risky, Unsuitable Investments

JPMorgan Chase & Co. has been ordered by the Financial Industry Regulatory Authority (FINRA) to reimburse customers more than $1.9 million for losses that occurred from unsuitable investment recommendations. The firm also has to pay a fine of $1.7 million.

According to FINRA, brokers with Chase Investment Services Corp. made nearly 260 unsuitable investment recommendations involving UITs and floating-rate loan funds to unsophisticated customers with little or no investment experience and who had conservative risk tolerance. As result of the investments, Chase customers suffered losses of about $1.4 million.

FINRA also found that Chase failed to implement supervisory procedures to reasonably supervise its sales of UITs and floating-rate loan funds.

A UIT is an investment product that consists of a diversified basket of securities, which can include risky, speculative investments such as high-yield/below investment-grade or “junk” bonds. Floating-rate loan funds are mutual funds that generally invest in a portfolio of secured senior loans made to entities whose credit quality is rated below investment-grade, or “junk.”

Battle Royale: MF Global, J.P. Morgan

J.P. Morgan Chase & Co. and MF Global Holdings once were tight knit business associates; now the two entities are butting heads as regulators search for answers in the case of the $600 million missing from MF Global client accounts.

The discovery of the missing client funds effectively put an end to a potential deal to sell MF Global to Interactive Brokers Group. Instead, MF Global filed for bankruptcy protection last week.

As a result, MF customers are now finding themselves in an unforeseen situation. As reported Nov. 8 by the Wall Street Journal, Ken Morrison is one of many MF Global customers unable to withdraw any cash from his account. Morrison doesn’t know how much he will eventually get back, or when, according to the WSJ article.

But it isn’t just Morrison’s cash at stake, it’s also his trading. Morrison’s account was one of 17,000 accounts that were moved to rivals of MF Global, but the trustee liquidating the MF Global has retained $1 billion in those accounts for the time being to pay any potential claims. On Nov. 7, Morrison had to sell corn and wheat trades in order to come up with the cash necessary to back up his remaining trades, the Wall Street Journal says.

Meanwhile, MF Global says J.P. Morgan dragged its feet when it came to settling trades made by MF Global during the time it tried sell various assets. Execs at MF Global believe the supposed slow-down complicated the company’s efforts to find a buyer and may have even caused the $600 million gap in customer accounts.

JPMorgan Chase Being Sued Over Madoff Fraud

JP Morgan Chase, the main banker for the now-jailed Bernie Madoff, is being sued for $6.4 billion by the trustee charged with liquidating the former financier’s business. According to a statement made earlier this week by trustee Irving H. Picard, the lawsuit is based on claims that JP Morgan aided and abetted Madoff’s fraud.

“JPMorgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff,” David J. Sheehan,” counsel to Picard, said in the statement. “JPMC was at the very center of that fraud, and thoroughly complicit in it.”

Any money recovered from JPMorgan will be returned to Madoff’s victims on a pro rata basis, Picard said.

As reported Dec. 2 by Investment News, the lawsuit is the second-biggest filed by Picard in the Madoff bankruptcy. In May 2009, Picard filed a $7.2 billion claim against investor Jeffry Picower, who later died in October 2009.

Last month, Picard sued UBS AG for at least $2 billion, claiming the company also helped Madoff in his fraud.

Madoff currently is serving a 150-year prison sentence after admitting his guilt in the biggest Ponzi scheme – $65 billion – in U.S. history. Meanwhile, investors who were defrauded by Madoff lost some $20 billion in principal.

Risky Interest-Rate Swaps Spell Trouble For Denver Schools

Under the advice of JPMorgan Chase, high-risk interest-rate swaps have produced a mountain of debt for the Denver Public School system. The intent of the deal was for Denver schools to raise $750 million to refinance old debt and fully fund its pension system. That didn’t happen.

As reported back in March 2010 by The Cherry Creek News, it was former Denver Public School Superintendent Michael Bennet who first convinced the Denver school board to buy into the deal with JP Morgan. The strategy involved using variable-rate debt with interest rates of about 5%. The bank then attached an interest-rate swap to the arrangement, which essentially bet taxpayer money that interest rates would remain high.

When interest rates fell to historic lows, the deal earned the banks millions of dollars in fees, while Denver schools lost big.

Denver now wants to get out of the deal. But it will pay a hefty price to do so. The schools would have to pay the banks $81 million in termination fees, or about 19% of the system’s $420 million payroll.

As for the former superintendent at the center of the debacle, Bennet is now Democratic Senator Bennet – and desperately trying to stave off the bad press surrounding his role in the Denver school deal. On Tuesday night, Bennet beat out Andrew Romanoff – 54.2% to 45.7% – in Colorado’s Senate primary.

Interest-Rate Swaps Dig Municipalities Deeper Into Debt

Interest-rate swaps have become synonymous with toxic investments for a growing number of states, cities and towns across America. States and local governments initially turned to the exotic financial instruments as a way to boost their budgets. Instead, many have found themselves pushed to the brink financially and forced to cut basic services like public transportation and sanitation.

An interest-rate swap is a contract between a bond issuer such as a school district or a state or city government and an investment bank. Both parties involved in an interest-rate swap transaction essentially “bet” on the movement of interest rates. Whichever party guesses wrong ends up paying. How much is paid or lost depends on several factors, including the size of the debt and current economic conditions.

When the housing industry started to crumble in 2007, followed by the downturn in the financial markets, interest-rate swap deals quickly began to sour for many state and local governments. Case in point: the Denver school system.

Denver schools turned to interest-rate swaps in 2008 on the advice of JPMorgan Chase and the Royal Bank of Canada. The deal was supposed to eliminate a $400 million pension fund gap for the school system. Instead, it caused a financial drain on Denver’s already-strapped budget. So far, Denver schools have paid $115 million in interest and other fees – an amount that’s at least $25 million more than what was initially envisioned.

Escaping an interest-rate swap is not easy or cheap. As reported Aug. 6 by the New York Times, Denver schools must pay the banks $81 million in termination fees, or about 19% of the system’s $420 million payroll.

Wisconsin is in a similar boat. Several years ago, s group of five school districts invested in derivatives as a way to boost returns to a joint pension fund. They now face losses of nearly $200 million, with the retirement system close to bankruptcy. A lawsuit has since been filed against the financial institutions behind the deal, Stifel Nicolaus & Co. and the Royal Bank of Canada (RBC).

Perhaps the most publicized case involving interest-rate swaps is that of Jefferson County, Alabama. As in the Denver school system, JP Morgan was the bank that arranged the Jefferson County deal, which entailed refinancing the Jefferson County sewer system in 2002 and 2003 with $5 billion in interest-rate swaps. Far from the money-saving investment proposed by the bankers, the deal nearly bankrupted Jefferson County.

If you have a story to tell involving interest-rate swaps, please contact a member of the securities fraud team at Maddox, Hargett & Caruso.

Regulators Take Aim At Reverse Convertibles

Complex investments known as reverse convertibles face growing scrutiny from regulators for their hidden risks, lack of transparency and, in some instances, because of the manner in which they are represented to investors by certain brokers.

As reported in a June 24 story by Bloomberg, brokers for JPMorgan Chase & Co., Royal Bank of Scotland Group Plc, and Barclays Plc have been charging fees on some structured notes that equal or exceed the securities’ highest possible yield.

“It seems inconceivable that the commission could be more than the potential return to clients,” said Durraj Tase in the Bloomberg article. Tase, who is an adviser with First Liberties Financial in New York, added: “If you are paying more fees than your potential return, as an adviser, I would not be able to suggest that note.”

On June 15, RBS gave brokers a 2.75% commission to sell a three-month reverse-convertible note with a 2.56% potential yield, according to the Bloomberg story. In May, JPMorgan charged 5.25% in fees and commissions on a three-month Citigroup-linked note that paid 5% interest, and Barclays offered brokers a 2% commission on a security paying 2% interest.

In February 2010, the Financial Industry Regulatory Authority (FINRA) issued an alert to investors on the risks associated with reverse convertibles. Among things, FINRA warned that reverse convertibles expose investors not only to risks traditionally associated with bonds and other fixed income products – such as the risk of issuer default and inflation risk – but also to the additional risks of the unrelated assets, which are often stocks.

In the case of JPMorgan’s reverse convertibles, investors are exposed to losses if Citigroup declines by more than 20%.

If you have suffered losses in Reverse Convertibles, please contact our securities fraud team. We can evaluate your situation to determine if you have a claim.

Goldman Sachs Causes Outrage Over Executive Pay

Goldman Sachs just announced a compensation pool- which translates into year-end bonuses and executive pay – of $16.2 billion for 2009. That’s up 47% from the previous year. The news come amid a backlash of criticism from investors and lawmakers alike who say Goldman and other Wall Street players continue to reap the benefits of a financial crisis that they, in large part, created through excessive risk taking and the marketing and selling of complex, highly leveraged financial instruments. In the meantime, Main Street is left to do the clean up work – paying for their errors in judgment via federal bailouts.

Goldman Sachs in particular has taken public heat lately, following news reports on the way the investment bank allegedly packaged and sold risky securities to investors as sound investments and then made bets that those same securities would fail. Goldman wasn’t the only investment firm using this “shorting” strategy, but it certainly made some huge profits as a result of it.

The products in question are known as synthetic collateralized debt obligations, and they ultimately produced billions of dollars in losses for individual and institutional investors. Among those investors: pension funds and insurance companies across the country.

Goldman’s shorting tactics are now the subject of an investigation by Congress and its newly established Financial Crisis Inquiry Commission. So far, some of the most interesting insight has come from Phil Angelides, chairman of the Commission. When folks like Goldman Sachs Chairman and CEO Lloyd Blankfein and JPMorgan’s Jamie Dimon gave their explanation for the near-collapse of the nation’s financial markets, they described what amounted to a “perfect storm.” Angelides, however, cut to the chase, saying:

“Was it a perfect storm or a man-made storm?”

The White House is calling for tougher regulations and oversight of the nation’s banking industry – an idea that is long past due. An independent consumer financial protection agency is part of the proposed overhaul plan. Even more important, speculation and other risk taking on the part of commercial banks and financial institutions – something that previously put the nation’s entire economy in peril – would be drastically limited.

Preferred Stock Losses: Freddie Mac Series Z

Investors of Freddie Mac Preferred Stock, Series Z are unlikely to forget the date of Sept. 6, 2008. It was on that day the U.S. government made the unprecedented move to place both Freddie Mac and Fannie Mae under the conservatorship of the Federal Housing Finance Agency (FHFA).  In doing so, investors holding preferred shares of Freddie Mac Series Z saw the value of their investment plummet overnight.

The initial offering of Freddie Mac Preferred Stock, Series Z occurred in late 2007 when the mortgage giant – whose financial health already was in jeopardy – found itself severely undercapitalized. Underwriters of the Series Z offering included Goldman Sachs, J.P. Morgan and Citigroup Global Markets, as well as others.

As it turns out, the offering circulars associated with Freddie Mac Preferred Stock Series Z failed to alert investors to a number of possible risks that the preferred shares posed. Among the missing information: Freddie Mac was extremely undercapitalized. It had significant exposure to an undetermined amount of mortgage-related losses. The company also lacked proper risk-management procedures. Most important, insolvency was a real possibility in Freddie Mac’s future.

It’s now believed that many of the brokerage firms that acted as underwriters of the Freddie Mac Preferred Stock Series Z offering knowingly kept this information from investors. Not only did they allegedly fail to disclose the true risks associated with the offering itself but they also may have kept the facts about Freddie Mac’s financial condition under wraps, as well.

Freddie Mac’s Series Z offering initially was issued at a price of $25.55 in November 2007. In September 2008, the preferred stock had declined 95%, trading at $1.25 per share.

If you experienced investment losses in Freddie Mac’s Preferred Stock, Series Z or another preferred stock, please contact us. A member of our securities fraud team will evaluate your situation to determine if you have a viable claim for recovery.

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