BLSLawNotes
The Magazine of Brooklyn Law School | Spring 2010
Alumni Update
Ross Intelisano ’94: Fighting Fraud from Bear Stearns to Bernie Madoff and Beyond
In 2006, Ross Intelisano made a prediction. A seasoned securities arbitration lawyer with a reputation as one of the leading authorities on securities fraud and Ponzi schemes, Intelisano looked into the future and saw a financial crisis of unimaginable proportion. He put his vision on paper and published an article in Bloomberg Law Reports entitled “Hedge Fund Fraud — The Future of Securities Arbitration?” in which he predicted, one year prior to the Bear Stearns High Grade Funds implosion, that broker-dealers would roll out proprietary hedge funds that were bound to unleash havoc on the financial system. Unfortunately for the market, and for the countless number of investors hurt by Bear Stearns, Intelisano was right.
In 2007, as predicted, Bear Stearns’ High Grade hedge funds crashed, with $1.6 billion in losses. Intelisano was there to pick up the pieces, taking on Bear Stearns on behalf of Racetrac, a multi-billion dollar private company that had lost $5 million in Stearns’ High Grade Structured Credit Strategies Hedge Fund. In December 2009, after a 16-day arbitration in Atlanta, Intelisano won a $3.4 million arbitration award on their behalf. The award was groundbreaking for two reasons: It was the first verdict in any forum relating to the High Grade Funds, and it was rendered after portfolio managers Ralph Cioffi and Matthew Tannin were acquitted in a federal criminal trial.
While the Racetrac arbitration was an historic case, it was not the first time Intelisano had been on the pioneering end of an arbitration. He has long been a crusader for defrauded investors.
After graduating from the Law School in 1994, Intelisano joined Pressman & Associates, a one-man shop where he began to practice securities and employment law. Three years later, he was recruited by Eppenstein & Eppenstein, a premier securities arbitration firm, where he served as co-trial counsel on Engel et. al. v. Refco, the legendary commodities fraud case. The 100-day arbitration, on behalf of 13 individuals and family-run businesses, generated a $43 million judgment in 2001. It remains the largest collected arbitration award ever rendered on behalf of retail investors against a brokerage firm.
In 2003, he joined forces with Eppenstein colleague John G. Rich to form Rich & Intelisano where he continued to try landmark cases, most notably working on behalf of investors who lost over $25 million in the $300 million Bayou hedge fund Ponzi scheme run by convicted fraudster Sam Israel. In Bayou, Intelisano once again did the unprecedented, filing a group arbitration case not against Israel, but against the registered investment advisor who had recommended Bayou to investors, for failure to perform adequate due diligence. The case, which was settled in mediation, was the first time in the world of secu¬rities arbitration that anyone had implicated an investment advisor in a Ponzi scheme.
And then came Bernie Madoff and a Ponzi scheme so large that it dwarfed anything the securities world had ever seen ($18 billion is the latest estimate). Intelisano’s phone started ringing. “I spent hours consoling investors, listening to all of these tragic stories of middle class people who had lost every dime they had saved over a lifetime,” he recalled. “I knew they would never get it back. It was the lowest point of my career as a lawyer.”
While he knew he would not be able to help investors sue Madoff (their restitution is being handled by a court-appointed trustee), he brought back the “investment advisor theory” he advanced in Bayou, and is currently representing a group of 12 victims in claims against investment advisors to Madoff feeder funds. The hearings begin in June.
With the Madoff cases ahead of him, and the victories in Racetrac and Bayou behind him, Intelisano has become one of the country’s most well respected experts in the world of hedge fund fraud. He has appeared on The Today Show, Anderson Cooper 360, Dateline NBC, PBS’s Frontline, Closing Bell with Maria Bartiromo, and is regularly quoted in The New York Times and The Wall Street Journal.
Looking into the future, Intelisano believes the horizon remains clouded over with the potential for serious fraud. “Over-the-counter derivatives, credit default swaps, oil futures, all of these products that the government is worried about regulating are very complex and are improperly being sold to retail and institutional investors. Firms aren’t watching the shop. No one is.”
Prediction noted.
62 • BLSLawNotes
Goldman Must Pay Some Bayou Losses
By LOUISE STORY and GRETCHEN MORGENSON
Goldman Sachs has been ordered to pay $20.58 million to creditors of a failed hedge fund to settle claims that the bank helped the fund perpetrate a Ponzi scheme.
The award represents the first time that a bank has been held accountable for a Ponzi scheme because of its role as a middleman.
Goldman cleared trades and lent money to the Bayou Group, a Connecticut hedge fund that collapsed in 2005, when state and federal investigators said the firm defrauded investors of hundreds of millions of dollars.
The Bayou fraud resurfaced in 2008 when its founder, Samuel Israel III, faked his own suicide after being sentenced to 20 years in prison for fraud. He later turned himself in and is now serving 22 years.
Bayou’s creditors filed a complaint against Goldman two years ago, saying the bank either knew or should have known of Bayou’s fraud. Goldman, the complaint said, had access to Bayou’s trading records, which showed losses, as well as its marketing materials, which showed profits.
The award, in a decision by an arbitration panel of the Financial Industry Regulatory Authority issued on Thursday, may put other banks on notice to better scrutinize their hedge fund clients’ activities.
“This case shows that you can’t just stick your head in the sand when a fraud is going on in your shop,” said Ross B. Intelisano, a lawyer at Rich & Intelisano, who brought the arbitration against Goldman. The bank “argued that you could, and the panel disagreed.”
A Goldman spokesman pointed to the bank’s filing in the case, which questioned whether the creditors could use bankruptcy laws to hold Goldman accountable for the $20.58 million of investor money that Bayou transferred among its Goldman accounts. The money was never actually conveyed to Goldman, the bank said, so it should not be considered a fraudulent transfer.
The arbitration panel does not determine whether wrongdoing occurred, but merely decides on compensation.
“We are disappointed with the award and are considering our options,” said Ed Canaday, a spokesman for Goldman.
Goldman has limited grounds for vacating an arbitration award, however.
The award to Bayou’s creditors is yet another legal woe for Goldman. The bank is also the target of a Securities and Exchange Commission investigation of its mortgage operations before and during the financial crisis, and Goldman is fighting an S.E.C. complaint and private lawsuits about mortgage securities it created. Goldman has defended its actions in the mortgage market and said the parties that purchased its mortgage deals should have known what they were dealing with.
Although the Bayou case dates long before the financial crisis and has nothing to do with mortgage bonds, Goldman made similar claims in its reply. The bank, for instance, said the creditors of Bayou were “highly sophisticated investors.” Goldman also said it had no duty to monitor the “honesty and the finances” of its account holders.
Goldman served as Bayou’s main prime broker from 1999 to 2005, meaning that the bank had a wide view of the hedge fund’s activities, according to the creditors’ complaint. In that role, Goldman was the custodian of Bayou’s assets and a lender to the fund. Goldman also prepared Bayou’s account statements, the creditors said.
The award represents the amount of money that was put into the Bayou funds held at Goldman between March 2003 and June 2005. It accounts for just over 8 percent of the $250 million in losses that Bayou investors incurred in the fraud. If this award is included in the total recovered by Bayou investors, it will rise to more than half of their losses.
Bayou began losing money long before it went bust, for more than $88 million in losses during its association with Goldman. At the same time, Bayou told prospective investors that it had positive returns. During those years, Bayou marketed its relationship with Goldman as a mark of legitimacy, the creditors said.
Goldman was aware that Bayou was losing money, the creditors said. In 2004, Goldman’s risk managers created a list of the top 10 money losers among its clients. The No. 1 loser was a Bayou fund, and two other Bayou funds were ranker lower. The list, the complaint said, was circulated among Goldman executives.
A month after that list was circulated, Goldman requested and received a copy of Bayou’s marketing materials, which falsely claimed positive returns. Goldman also was warned about Bayou by an outside firm in 2002, the complaint said.
Goldman’s employees, the complaint said, “have repeatedly claimed that they had no obligation to concern themselves with what had occurred at the Bayou Hedge Fund at anytime.”
JUNE 26, 2010
Goldman Told to Pay Bayou Fund Creditors
By SUSANNE CRAIG
Goldman Sachs Group Inc. was ordered to pay $20.6 million, the largest arbitration award levied against the securities firm, to unsecured creditors of Bayou Group LLC who accused Goldman of ignoring signs of fraud at the hedge-fund firm.
Bayou collapsed in 2005, and the firm's former chief executive, Samuel Israel III, is serving a 20-year prison term for fraud. He pleaded guilty to misrepresenting the value of Bayou's funds and defrauding clients out of more than $400 million.
Goldman cleared trades for the Connecticut hedge-fund firm before it collapsed. In 2008, Bayou's unsecured creditors' committee filed an arbitration claim against two Goldman units.
"Through either gross negligence or a willful choice to ignore the signs of fraud, [Goldman] failed to diligently investigate the red flags it was made aware of, to contact Bayou's auditors to request additional information, or to alert the appropriate authorities of what it had learned," lawyers for the committee alleged in the claim.
A three-person Financial Industry Regulatory Authority arbitration panel didn't provide an explanation for its ruling, issued Thursday. A Goldman spokesman said the panel didn't conclude that the firm committed any wrongdoing or violated any rules.
In its response to the initial arbitration filing, Goldman said the $20.5 million represents money that was fraudulently transferred among Bayou accounts and was never in Goldman's possession. Clearing operations typically maintain client records and send out trade confirmations, often earning big fees in return.
The Goldman spokesman said the New York company is "disappointed with the award and is exploring its options." Unlike court decisions, it is extremely hard to overturn arbitration awards because courts can't review the facts in an arbitration case. Courts are allowed to reverse such awards only for exceptional reasons, such as finding that an arbitrator acted improperly.
"This is a big victory for the victims," said Ross Intelisano, a partner at New York law firm Rich & Intelisano LLP who represented the Bayou creditors.
The largest previous arbitration award against Goldman was $2.8 million in 1994, according to Securities Arbitration Commentator, a Maplewood, N.J., newsletter that tracks arbitration cases. The Bayou ruling also is the sixth-largest arbitration award to any customer of a Wall Street firm, the newsletter said.
Winning damages from clearing firms is especially difficult because firms are required to spell out their duties in advance, often limiting their liability to only those functions. In its response to the arbitration filing, Goldman said the law "does not require clearing firms or prime brokers to monitor the suitability of the transactions they process or to investigate their account holders." Imposing such a standard "would slow commerce, raise costs and imperil financial markets," the firm said.
Separately, the Financial Crisis Inquiry Commission said Goldman President and Chief Operating Officer Gary D. Cohn and Chief Financial Officer David Viniar will testify at a hearing next week to examine the role of derivatives in the financial crisis.
Partner John Rich masterminded the case, and tried it together with partner Ross Intelisano, with significant help from Matt Woodruff, Diane Mall Sammarco and Eric Clem of our office.
The award is on Finra’s website. The Firm represented the Bayou Creditors’ Committee in the 18 day arbitration hearing. The three arbitrator panel held over 13 pre-hearing sessions and 36 hearing sessions in 2008 through 2010.
From 1999 through 2005 Goldman Sachs Execution & Clearing, Goldman’s clearing broker, served as the sole prime and clearing broker for the Bayou funds. During 2002 through 2004, Goldman earned over $5 million in fees from Bayou. The Bayou victims alleged in their complaint that Goldman knew or should have known that Bayou was committing fraud and should have done an investigation into Bayou’s activities at Goldman. Instead, Goldman turned a blind eye to numerous red flags and suspicious activity in order to continue to reap fees.
Since the subprime market meltdown, only one multi billion dollar investor has received a legal award or judgment against brokerage firm for misrepresenting and materially omitting to disclose facts related to CDOs. RaceTrac Petroleum, an Atlanta-based chain of more than 525 retail gasoline convenience stores in the southeast U.S., won a $3.4 million award against Bear Stearns in December 2009. The FINRA arbitration panel ruled that Bear Stearns was liable for misrepresentation and material omission, negligence and failure to supervise related to the Bear Stearns High Grade Funds, a CDO packed hedge fund which caused $1.6 billion in losses in 2007.
The issues in the Goldman ABACUS case are very similar to the Bear Stearns High Grade case. Did Goldman misrepresent or omit disclosing a material fact to the ABACUS investors? Instead of filing a lengthy, costly, public civil lawsuit against Bear Stearns, RaceTrac filed an arbitration claim at FINRA in December 2007 seeking $5 million in damages. Federal prosecutors filed criminal charges against the funds’ portfolio managers, Ralph Cioffi and Matthew Tannin. In March 2009, on the eve of the arbitration hearings in Atlanta, the U.S. Attorneys’ Office in New York ran into federal court in Brooklyn to try to stop RaceTrac from going forward with the arbitration until the criminal trials of Cioffi and Tannin were completed. Judge Block shut the government down and allowed RaceTrac to proceed. A jury then acquitted Cioffi and Tannin of all criminal charges November 2009. However, after 16 days of private arbitration hearings, the FINRA arbitration panel ruled that Bear Stearns was liable and awarded damages of almost 70% of RaceTrac’s investment.
The RaceTrac case took only two years and was won irrespective of the criminal acquittals. There are pending SEC actions against Cioffi and Tannin. The award shows that a large investor may want to choose a quiet, less expensive venue in which equity plays a role as opposed to a civil fraud complaint in court which is exposed to motions to dismiss and will be a three ring circus.
]]>According to the SEC complaint, IKB, the German commercial bank, bought $150 million of Class A-1 and Class A-2 Notes which seem to look like the AAA-rated upper tranches of ABACUS. But there is no other disclosure of who else bought ABACUS from Goldman. I presume that IKB was very cooperative with the SEC and allowed its name to be used in the complaint as opposed to being dubbed “Investor #1". IKB has likely been negotiating with Goldman behind the scenes. I expect to see a civil complaint filed by IKB against Goldman in federal court in New York shortly. However, they are probably better off arbitrating the dispute for numerous reasons (privacy, low cost, limited dispositive motion practice, etc.).
The SEC complaint also explains how a division of ACA, the monoline insurance company, served as the “Portfolio Selection Agent” for ABACUS, and another division of ACA (ACA Capital) also sold protection on $909 million of the super senior tranche of ABACUS through credit default swaps as well. ABN AMRO, the European bank, then assumed that same exposure through CDS deals with Goldman and ACA. The complaint alleges Goldman defrauded IKB, ACA and ABN AMRO. ABN AMRO was bought by the Royal Bank of Scotland and after ABACUS went to almost zero, RBS paid Goldman $841 million, most of which was then paid by Goldman to Paulson due to Paulson’s short bets on the underlying tranches. Got that?
So, RBS is holding the potential claims against Goldman (and Paulson?) for $841 million. Very interesting to see if RBS sues either of them.
But what about the rest of the ABACUS investors? According to the Flip Book available on Reuters’ website, ABACUS was a $2 billion synthetic CDO. Who else bought it besides IKB? And what are these investors going to do once they’ve read the SEC complaint? I have a guess or two.
By the way, Goldman netted $15-20 million for structuring and marketing ABACUS. Amazingly, Paulson paid Goldman $15 million to allow it to help pick the RMBS for ABACUS. This is a killer fact for the SEC.
]]>The SEC's civil fraud complaint alleges that Goldman allowed the multi billion dollar hedge fund Paulson & Co. to help select RMBS (residential mortgage backed securities) for the Abacus CDO, knew that Paulson was concurrently shorting specific tranches of the CDO but did not disclose anything about Paulson to investors in the CDO offering documents or marketing materials.
This is a huge development in that it shows SEC has the fortitude to file actions against the biggest firm of all related to its failure to disclose material information to investors. Goldman will likely be the brunt of civil lawsuits or arbitrations related to the ABACUS CDO. The next question is whether the SEC will file claims against Paulson as well.
CDOs and synthetic CDOs are extremely complex investments which are at the heart of the Bear Stearns High Grade Funds cases our firm is handling.
]]>Morgan Keegan is the subject of numerous arbitration cases relating to over $2 billion of losses in RMK proprietary bond mutual funds managed by James Kelsoe and decimated due to allegedly risky investments. Kelsoe was charged by the SEC. Many law firms around the U.S., including our firm, have been retained by investors who lost money in the Regions Morgan Keegan funds.
It will be interesting to see how the SEC allegations effect the firms’ litigation strategy of trying most of the arbitration claims to award. Here is the text of the SEC release.
The SEC's Division of Enforcement alleges that Morgan Keegan failed to employ reasonable procedures to internally price the portfolio securities in five funds managed by Morgan Asset, and consequently did not calculate accurate "net asset values"
(NAVs) for the funds. Morgan Keegan recklessly published these inaccurate daily NAVs, and sold shares to investors based on the inflated prices.
"This scheme had two architects - a portfolio manager responsible for lies to investors about the true value of the assets in his funds, and a head of fund accounting who turned a blind eye to the fund's bogus valuation process," said Robert Khuzami, Director of the SEC's Division of Enforcement.
William Hicks, Associate Director in the SEC's Atlanta Regional Office, said, "This misconduct masked from investors the true impact of the subprime mortgage meltdown on these funds."
According to the Commission's order instituting administrative proceedings, the SEC's Enforcement Division alleges that James C.
Kelsoe, Jr., the portfolio manager of the funds and an employee of Morgan Asset and Morgan Keegan, arbitrarily instructed the firm's Fund Accounting department to make "price adjustments" that increased the fair values of certain portfolio securities. The price adjustments ignored lower values for those same securities quoted by various dealers as part of the pricing validation process. The Enforcement Division further alleges that Kelsoe actively screened and manipulated the pricing quotes obtained from at least one broker-dealer. With many of the funds' securities backed by subprime mortgages, Kelsoe's actions fraudulently prevented a reduction in the NAVs of the funds that otherwise should have occurred as a result of the deterioration in the subprime securities market.
The SEC's Division of Enforcement additionally alleges that Joseph Thompson Weller, a CPA who was head of the Fund Accounting Department and a member of the Valuation Committee, did nothing to remedy the deficiencies in Morgan Keegan's valuation procedures, nor did he otherwise make sure that fair- valued securities were being accurately priced and NAVs were being accurately calculated.
According to the SEC's order initiating proceedings, Morgan Keegan priced each portfolio's securities and calculated its daily NAV through its Fund Accounting Department. The NAV of an investment company is its total assets minus its total liabilities. An investment company calculates the NAV of a single share by dividing its NAV by the number of shares that are outstanding.
According to the SEC's order, each fund held various amounts of securities backed by subprime mortgages and lacked readily available market quotations. Therefore, the securities were internally priced using fair value methods to determine the amount that the funds would reasonably expect to receive on a current sale of the security. In SEC filings, the funds stated that the fair value of securities would be determined by a valuation committee using procedures adopted by the funds. In fact, the responsibility was essentially delegated to Morgan Keegan, which along with the valuation committee failed to comply with the funds' procedures in several ways.
The SEC's Division of Enforcement alleges that from at least January
2007 to July 2007, Kelsoe had his assistant send approximately 262 "price adjustments" to Fund Accounting. In many instances, these adjustments were arbitrary and did not reflect fair value. Despite the lack of any supporting documentation, Kelsoe's price adjustments were routinely entered into a spreadsheet used to calculate the NAVs of the funds.
Kelsoe also routinely instructed Fund Accounting to ignore month-end quotes from broker-dealers that were supposed to be used to validate the prices the firm had assigned to the funds'
securities.
A hearing will be scheduled before an administrative law judge to determine whether the respondents committed the alleged violations and provide them an opportunity to defend the allegations. The hearing also will determine what sanctions, if any, are appropriate in the public interest, and whether financial penalties should be imposed.
The Commission appreciates the assistance of FINRA and a task force of the securities regulators of Mississippi, Alabama, Georgia, Kentucky, South Carolina, North Carolina, Florida, Tennessee, Missouri, Texas, Louisiana, Arkansas, and Illinois.
Link to the SEC's Order in this case:
http://www.sec.gov/litigation/admin/2010/33-9116.pdf
A securities arbitration panel ordered brokerage firm Morgan Keegan & Co. to pay Andrew Stein, a 38-year-old investor in Jupiter, Fla., and his two companies, $2.5 million for losses. Morgan Keegan was found liable for negligence, failure to supervise and selling unsuitable investments.
Another FINRA arbitration panel in Birmingham, Alabama ordered Morgan Keegan to pay over $1.1 million which according to counsel on the case represented 80% of the $1.4 million net losses in the RMK funds.
Morgan Keegan is the subject of numerous arbitration cases relating to over $2 billion of losses in RMK proprietary bond mutual funds managed by James Kelsoe and decimated due to allegedly risky investments. Many law firms around the U.S., including our firm, have been retained by investors who lost money in the Regions Morgan Keegan funds.
These two cases are important due to the size of the recoveries. Many of the Morgan Keegan bond fund cases involve losses of under $100,000. Now, the larger cases on behalf of wealthier investors are funneling through the arbitration system. Awards greater than $1 million are very impressive in this context.
Investor in defunct Bear fund wins $3.4 mln award
3:15pm EST
* Award follows acquittal of fund managers
* JPMorgan Chase is responsible for paying the investor
By Matthew Goldstein
NEW YORK, Feb 9 (Reuters) - A Georgia-based chain of service stations that lost money with a Bear Stearns hedge fund that collapsed in July 2007 has won a $3.4 million arbitration award.
The award by the securities industry arbitration panel is the first ruling in favor of an investor in one of two now defunct Bear hedge funds since a jury acquitted the funds' former managers of criminal charges in November.
The award suggests that investors who lost $1.6 billion in the collapse of the two highly leveraged funds may still be able to recoup some of their money. The award was made on Dec. 23 and was posted recently on a website maintained by the Financial Industry Regulatory Authority.
The three-member arbitration panel, as is customary, did not offer much of a rationale in its written decision for the award of $3.4 million in damages to Racetrac Petroleum Inc, an Atlanta-based chain of more than 525 gas stations and convenience stores across the U.S. Southeast.
The award represents 70 percent of Racetrac's $5 million investment in one of the former Bear funds, according to a copy of the arbitration award posted on the website.
Ross Intelisano, one of Racetrac's attorneys, declined to comment on the award. Carl Bolch, chief executive officer of privately-held Racetrac, did not return a phone call.
The arbitration panel reached its decision after holding 32 hearing sessions last year. Six of those hearings took place in December, after a Brooklyn, N.Y., jury acquitted former Bear managers Ralph Cioffi and Matthew Tannin on Nov. 10.
Federal prosecutors had charged the pair with lying to investors about the health of the funds, which had invested heavily in complex bonds backed by subprime mortgages. The summer 2007 collapse of the funds, which at their peak controlled more than $30 billion in mortgage-related securities, is often seen as the start of the financial crisis.
The arbitrators found that Bear, which is now part of JPMorgan Chase & Co
The Racetrac ruling shows that even though Cioffi and Tannin were acquitted, "they can still be held responsible in an arbitration forum for their misconduct," said attorney Steven Caruso, who represents Bear fund investors in a number of pending arbitrations.
The ruling is a blow to JPMorgan Chase, which assumed most of Bear's legal liabilities when it acquired the ailing investment bank in March 2008.
A JPMorgan spokesman declined to comment on the award.
When JPMorgan bought Bear for $10 a share in a deal engineered by the federal government, the bank said it was setting aside $6 billion to pay for any litigation arising from the acquisition. But following the acquittal of Cioffi and Tannin, some in the legal world thought investors in the Bear funds might have a tough time prevailing in lawsuits and arbitration.
Indeed, many investor lawsuits and arbitrations had been put on hold pending the outcome of the criminal trial.
But the Racetrac case went forward after a U.S. district judge rejected an attempt by federal prosecutors to stay the arbitration. (Reported by Matthew Goldstein; editing by John Wallace)
"Investor in Defunct Bear Fund Wins $3.4 Mln Award"
* Award follows acquittal of fund managers
* JPMorgan Chase is responsible for paying the investor
By Matthew Goldstein
NEW YORK, Feb 9 (Reuters) - A Georgia-based chain of service stations that lost money with a Bear Stearns hedge fund that collapsed in July 2007 has won a $3.4 million arbitration award.
The award by the securities industry arbitration panel is the first ruling in favor of an investor in one of two now defunct Bear hedge funds since a jury acquitted the funds' former managers of criminal charges in November.
The award suggests that investors who lost $1.6 billion in the collapse of the two highly leveraged funds may still be able to recoup some of their money. The award was made on Dec. 23 and was posted recently on a website maintained by the Financial Industry Regulatory Authority.
The three-member arbitration panel, as is customary, did not offer much of a rationale in its written decision for the award of $3.4 million in damages to Racetrac Petroleum Inc, an Atlanta-based chain of more than 525 gas stations and convenience stores across the U.S. Southeast.
The award represents 70 percent of Racetrac's $5 million investment in one of the former Bear funds, according to a copy of the arbitration award posted on the website.
Ross Intelisano, one of Racetrac's attorneys, declined to comment on the award. Carl Bolch, chief executive officer of privately-held Racetrac, did not return a phone call.
The arbitration panel reached its decision after holding 32 hearing sessions last year. Six of those hearings took place in December, after a Brooklyn, N.Y., jury acquitted former Bear managers Ralph Cioffi and Matthew Tannin on Nov. 10.
Federal prosecutors had charged the pair with lying to investors about the health of the funds, which had invested heavily in complex bonds backed by subprime mortgages. The summer 2007 collapse of the funds, which at their peak controlled more than $30 billion in mortgage-related securities, is often seen as the start of the financial crisis.
The arbitrators found that Bear, which is now part of JPMorgan Chase & Co
The Racetrac ruling shows that even though Cioffi and Tannin were acquitted, "they can still be held responsible in an arbitration forum for their misconduct," said attorney Steven Caruso, who represents Bear fund investors in a number of pending arbitrations.
The ruling is a blow to JPMorgan Chase, which assumed most of Bear's legal liabilities when it acquired the ailing investment bank in March 2008.
A JPMorgan spokesman declined to comment on the award.
When JPMorgan bought Bear for $10 a share in a deal engineered by the federal government, the bank said it was setting aside $6 billion to pay for any litigation arising from the acquisition. But following the acquittal of Cioffi and Tannin, some in the legal world thought investors in the Bear funds might have a tough time prevailing in lawsuits and arbitration.
Indeed, many investor lawsuits and arbitrations had been put on hold pending the outcome of the criminal trial.
But the Racetrac case went forward after a U.S. district judge rejected an attempt by federal prosecutors to stay the arbitration. (Reported by Matthew Goldstein; editing by John Wallace)
And a snippet from the piece:
“So far, Wall Street isn't taking much heat from current or potential candidates to succeed Mr. Cuomo.
Mr. Coffey, a former Navy pilot who won $6 billion for investors in the failed telecommunications company WorldCom Inc., was described in a magazine article that followed his victory as "Wall Street's New Nemesis." He said in an interview that his reputation "is not going to be an albatross around my neck in this election."
Noting the securities industry's importance to the economy of New York, he said his aim as attorney general would be to root out corrupt individuals. "I think Wall Street works great when it plays by the rules," said Mr. Coffey, 53.”
Sean has been committed to a lifetime of public service. His resume is truly spectacular. Here are some highlights. He graduated from Annapolis with merit in 1978. On active duty during the Cold War, Sean flew as a P-3 Orion mission commander tracking Soviet nuclear submarines.
After completing his first squadron tour, Sean was selected for important shore assignments in Washington, D.C. as Junior Officer Intern to the Joint Chiefs of Staff and the personal military assistant to then-Vice President George H.W. Bush. While stationed in Washington, Sean attended Georgetown University Law Center at night, winning several academic awards, serving as the sole evening-division editor of the Georgetown Law Journal and graduating magna cum laude.
In 1987, after resigning from active Navy service, Sean returned to New York as a litigation associate with the law firm of Paul Weiss Rifkind Wharton & Garrison. Sean was appointed an Assistant U.S. Attorney in the Southern District of New York in 1991. He worked with federal, state and local law enforcement agencies prosecuting a wide variety of cases involving firearms, narcotics, business crime, bank fraud, and other major crimes. Sean tried many cases to verdict.
In 1995, Sean joined the law firm of Latham & Watkins where, as counsel and later partner, he defended Fortune 500 companies in many complex civil, regulatory, and criminal matters. After several years as a corporate defense attorney, Sean decided to return to pursuing corporate misconduct and joined the litigation firm of Bernstein Litowitz Berger & Grossmann, which represents many of the world’s largest institutional investors, including New York State’s Common Retirement Fund and Teachers’ Retirement System and many Taft-Hartley union funds.
In his eleven years at Bernstein Litowitz, Sean led teams that recovered billions of dollars for victims of corporate fraud and malfeasance and won praise for achieving significant corporate governance improvements. Among Sean’s notable successes was his role in the WorldCom securities litigation, a case he took to trial in 2005 as lead attorney for thousands of investors, including the New York State Common Retirement Fund. Sean and his team recovered over $6 billion and -- in a historic first -- required all outside directors and key wrongdoers to contribute from their personal funds. Sean was selected as one of the National Law Journal’s “Winning Attorneys” of 2005, and profiled by Bloomberg Markets magazine (“Wall Street’s New Nemesis”), the American Lawyer (“Taking Citi to School” and “Breaking the Banks”), and The Wall Street Journal (“It’s Coffey Time”). Sean recently retired from Bernstein Litowitz to seek the Democratic nomination to become New York’s next Attorney General.
To me, the office of the Attorney General is one of the most important positions in our state’s government and, in more recent months, our country. As we face difficult times, I am confident Sean is the person who can best serve as the people’s lawyer and advocate. This is Sean’s first run for elected office and, with that, he brings a diverse and successful legal career as a prosecutor, defense attorney and plaintiff’s lawyer. He is an honest, loyal, professional man who will bring a great deal of integrity to the office.
The authors explain how competitive Goldman is and how profits and risk management drive the firm. They go on to explain how difficult it will be for Goldman to handle the backlash of paying out huge bonuses in an environment of double digit unemployment rates.
For a long time, Goldman was by far the gold standard of investment firms. Much of the financial crisis stems from every other firm trying to be like Goldman and making huge, leveraged bets with proprietary capital. The difference has been that Goldman has always one stop ahead of the rest of the Street. Partly due to the “market color” it receives as an investment bank, prime broker, clearing firm, counter party, and trader, Goldman somehow is nimble enough to know when to stop on a dime and bet the other way. Merrill, Citi, Morgan and the rest could never do that. Merrill, especially, was three steps behind and was late to the CDO game just like it was late to the prop trading game and the internet craze.
Goldman is now in a bind. It’s entire business model is based upon paying employees who generate profits for the firm. It has generated huge profits using cheap money. Did the world really expect Goldman not to take advantage of the low cost of borrowing and two less competitors in the market place (Lehman and Bear)? Now, the press will hammer Goldman if the firm follows its normal course of business. But if the Goldman trader who’s P&L is up $20 million for the year gets stiffed on his bonus, he’s leaving for a hedge fund. It’s that simple.
Have no fear though, Goldman is smart enough to figure a way out that no other firm has thought of. And haters can continue to hate Goldman just like baseball fans outside of New York hate the Yankees.
]]>A receiver was appointed for Medical Capital. Most recently, the SEC filed its First Amended Complaint on November 9, 2009 and the Receiver filed his Fourth Status Report. Both documents are available on the Receiver’s website at http://www.medicalcapitalreceivership.com/
The FINRA press release states disclosure records for former brokers will be available on BrokerCheck beginning November 30. It goes on to state, “This is an important step for investors and for investor protection," said FINRA Chairman and CEO Richard Ketchum. "Individuals previously barred by FINRA and other regulators have surfaced in a number of recent frauds in other parts of the financial industry that cost unsuspecting investors millions of dollars. It has never been more critical for investors to research the backgrounds of the financial professionals they deal with than it is today."
This is an important addition to the publicly available regulatory records of former brokers. Often times, permanently barred brokers, traders and salesmen will attempt to work at unregistered entities such as hedge funds. It is difficult for potential investors to do due diligence on a hedge fund manager without the historical BrokerCheck information. In the past, if a registered representative was out of the business for more than two years, a public investor had no access to the broker’s disciplinary record.
BrokerCheck is available at www.finra.org/brokercheck