Articles Posted in OTC Derivatives

Annuities are insurance contracts that make routine payments to customers either immediately or at some point in the future.  This insurance contract allows investors to protect and grow their retirement savings while providing them with guaranteed income.  Some brokers and financial advisors recommend selling or exchanging annuities for “better” investment opportunities.  However, liquidating or exchanging an annuity comes with a high price– commissions, tax implications, and the loss of benefits associated with the original annuity.  For these reasons, liquidating or exchanging an annuity without very clear financial reasons may be  unsuitable for customers.  The securities fraud lawyers at Rich, Intelisano & Katz, LLP (RIK) have recovered millions for investors who suffered from annuity-related losses.

When investors sell or exchange their annuities, it comes with a heavy price.  First, when customers sell their annuity, they are subjected to costly fees and penalties.  For example, the customer may incur surrender charges and high cancellation fees.  Second, customers will lose all benefits associated with the annuity, such as legacy protection which is a death benefit to help provide a legacy for your loved ones.  Third, the customer forfeits expected benefits from the annuity– the customer will no longer have guaranteed income.  Fourth, taxes may become immediately due on the proceeds.  Lastly, there are often high commissions associated with the sale of annuities.

Regardless of the costs and losses associated with selling or exchanging annuities, brokers and financial advisors sometimes recommend such actions to customers in order to generate commissions for themselves.  Essentially, liquidating or exchanging annuities could potentially be a scheme for your broker or advisor to take money out of your savings and put it into their pocket.  What’s worse is that the broker or advisor will use your money from the sale of the annuity to purchase another annuity or other investment products further increasing commissions and fees.  Just like with any scheme to take advantage of customers, this is ill-suited and exceedingly improper.

Deutsche Bank has agreed to pay a fine of $55 million to settle charges by the SEC that it filed misstated financial reports during the height of the global financial crisis relating to a multibillion dollar portfolio of derivatives.

The SEC’s multi-year investigation culminated in an Order Instituting a Settled Administrative Proceeding, available on the SEC’s website. According to investigators, the bank overvalued a portfolio of derivatives consisting of Leveraged Super Senior (“LSS”) trades, through which it purchased protection against credit default losses. This leverage created a “gap risk”, which the bank initially took into account in its financial statements, by adjusting down the value of the LSS positions. However, according to the SEC’s Order, when the credit markets started to deteriorate in 2008, Deutsche Bank steadily altered its methodologies for measuring the gap risk. Each change in methodology reduced the value assigned to the gap risk until Deutsche Bank eventually stopped adjusting for gap risk altogether. In other words, the bank slowly tweaked its formula over the months so that the risk didn’t show in its financial reports.

Therefore, “at the height of the financial crisis, Deutsche Bank’s financial statements did not reflect the significant risk in these large, complex illiquid positions”, according to Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.

Merrill Lynch was fined almost $20 million by the Financial Conduct Authority (FCA) in London for incorrectly reporting more than 35 million transactions from 2007 to 2014. Merrill Lynch didn’t report, at all, another 120,000 transactions. It’s the largest fine ever levied by the FCA for reporting failures. While this may not seem like a big deal to the investing public, it is. The proper reporting of transactions is a hallmark of the securities industry. Without it, during tumultuous times, investors will not have a perfect view of the trades that occurred in their portfolios. Indeed, for some of the transactions, Merrill didn’t identify the counterparties on trades. This is problematic for over the counter derivative investors because investors couldn’t ascertain counterparty risk on their trades and if the trades went bad, it would be impossible for the investor to know how to potentially resolve the issue. What’s worse is that the FCA had warned Merrill in 2002 and fined Merrill in 2006 for the same types of infractions. In today’s fragmented, digital marketplace, proper reporting is absolutely necessary. Let’s hope the record fine is a wake up to call Merrill and others.

Here is a New York Times piece on it.

http://www.nytimes.com/2015/04/23/business/dealbook/british-regulator-fines-merrill-lynch-19-8-million-for-reporting-failures.html?smprod=nytcore-ipad&smid=nytcore-ipad-share&_r=0

Below is a piece by Bloomberg on our firm’s $383 million claim against Citigroup. There’s more on this case on the firm’s website at https://www.riklawfirm.com/

Citigroup’s Mathur Said to Depart With Hybrid Traders as Pandit Cuts Jobs By Donal Griffin – Dec 9, 2011

Citigroup Inc. (C), the third-biggest U.S. bank, is shrinking a team of traders who deal in “hybrid” products as Chief Executive Officer Vikram Pandit cuts Wall Street jobs, two people familiar with the matter said.

Below is an American Lawyer piece which explains our clients’ pending $383 million FINRA arbitration against Citigroup. It goes on to talk about how there are more and more large and complex cases at FINRA. It’s true. As partner John Rich points out at the end of the article, our firm is involved in other multi-million dollar matters at FINRA. In fact, we handled the Bayou v. Goldman FINRA arbitration case which generated a $20.6 million award, and is mentioned in the article. We think FINRA arbitration will continue to attract sophisticated legal disputes because it is more efficient and timely than court litigation.

Too Big for Their Britches?

Nate Raymond

Below is Bloomberg piece about our client’s $383 million FINRA arbitration claim against Citigroup Global Markets, Inc. related to hedge funds, private equity, and derivatives.

Bloomberg

Citigroup Saudi Deal Haunts Pandit By Donal Griffin – Nov 30, 2011

Below is an On Wall Street piece about our firm’s representation of a Saudi investor in a $383 million FINRA arbitration against Citigroup Global Markets, Inc.

Citigroup Aims to Stop Arbitration From Proceeding By Lorie Konish, On Wall Street October 7, 2011

A new lawsuit filed by Citigroup Global Markets Inc. this week against a set of Saudi family investors with a $383 million claim against the firm will determine whether that case can proceed to arbitration.

Below is a story about CGMI’s attempt to stay a $383 million FINRA arbitration filed by our firm related to inappropriate behavior with respect to derivatives, hedge funds, and private equity transactions.

Oct. 6 (Bloomberg) — A Citigroup Inc. unit sued two Saudi investors seeking to block Financial Industry Regulatory Authority arbitration of their $383 million claim that the bank “wiped out” their family’s wealth.

Abdullah and Ghazi Abbar, a father and son from Jeddah who put family money into hedge funds, have no customer agreements or accounts with Citigroup Global Markets Inc., a New York-based broker dealer that they blame for mismanaging their family’s life savings, according to a complaint the Citigroup unit filed yesterday in federal court in Manhattan.

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