Despite paying the settlement, Deutsche Bank claims no wrong-doing

At the height of the financial crisis, Deutsche Bank mispriced derivative assets in a multibillion dollar portfolio to hide trading losses in the credit markets. Now, after a five-year investigation, they’re paying the price.

Results of the Financial Crisis

Overvaluing the portfolio by $1.5 billion, the bank filed false financial statements for at least six months. Officials are blaming it on “inadequate internal accounting controls” caused by the chaos of the crisis. Because the crisis caused a huge financial fallout, the bank claims that were no standards for assessing risk at the time the portfolio was valued.

According to investopedia, “the derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.”

The Blame Game

Although the bank has not admitted to violating federal securities law, they have agreed to a $55 million payout to the Securities and Exchange Commission. Despite the instability induced by the crisis, the S.E.C. has ruled in a 13-page cease-and-desist order that although there were serious complexities, the bank did not take the time to properly calculate the risk for the portfolio.

The financial crisis, which was caused by the the collapse of Lehman Brothers in September 2008 and the near-collapse of the insurance corporation American International Group, created a complex atmosphere and a whole slew of frenzied behaviors. The portfolio dealt with complex securities and improper valuation, and is one of the biggest cases of this nature to date.

Who Blew the Whistle?

The investigation came after two former employees, Matthew Simpson and Eric Ben-Artzi,  blew the whistle on the misvaluing of the derivatives. These employees informed the S.E.C and other relevant parties that the false pricing overvalued the portfolio so the bank could avoid the need for a government bailout by hiding the true amount of financial losses.

The Deutsche Bank settlement is among the last investigations caused by the crisis to come to a conclusion.

The bank does not take responsibility and believes that this occurrence holds no indication for past and future activities, but released a statement that said it “has enhanced policies, procedures and internal controls regarding the valuation of illiquid assets” since recovering from the financial crisis.

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JP Morgan Chase is being accused of cheating investors by breaking fuduciary laws

The financial planner you (supposedly) can trust

A fiduciary is a type of financial planner who is obligated to put your interests as a client before their own.

For example, let’s say a fiduciary selected two fund options for you to invest in. The funds were equal in terms of risk and reward, except one had a higher fee than the other. In this case, the fiduciary would have to recommend the cheaper of the two options to you, even though it would result in them making less money.

Many financial planners, though, are not fuduciaries. They are allowed to put their own interests ahead of your’s. And even worse, they are not legally required to tell you about their conflict of interests (ie, who is paying them to advise certain investments to you).

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Why is the Securities and Exchange Commission investigating JP Morgan Chase?

JP Morgan is accused of having abused the trust of investors who used their Fuduciary Services. The accusation claims JP Morgan’s executives built a culture of deception. The culture was created by rewarding advisers with bonuses for getting their clients to invest in products that would financially benefit JP Morgan.

The SEC has subpoenaed both executives of the company as well as internal documents.

Will justice be served?

For many corporate giants, fines are simply the cost of doing business. When they make more money illegally than the amount they are fined for, then it is worth it to them to continue to act illegally.

If JP Morgan’s asset-management unit is found guilty, it will be interesting to see how the SEC acts in handing out punishment.

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The latest exposure of massive misdeeds in the financial world – all things being uncovered now in the wake of the big downturn – points to banks in the US, Switzerland, and Great Britain conspiring to steal from their customers to rig the foreign currency market, the world’s biggest and least regulated market. The rigged markets allowed each bank to make bigger profits, and the banks under investigation are getting off, so far, with fines that amount to another cost of doing business.

Oh, heads are rolling – the heads of about 30 fairly low-level currency traders who were caught passing messages in private electronic chat rooms about how to keep “numptys,” or stupid colleagues, out of their business. The traders apparently formed groups with names like “the three musketeers” and “the A-team” and banded together with traders at other banks to share private information about clients that would help them rig trades.

The foreign currency market trades about $5.3 trillion each day, many times more than the amount traded on Wall Street. The rates of exchange change every day at the same time, and traders at the banks being fined, along with traders at other banks under investigation, were accused of flooding the market with trades just before the daily rate change to raise rates and increase their banks’ profit.

Bank regulators have been investigating the matter, and negotiating with the banks involved, for months in an effort to clean up the industry a bit after uncovering other misconduct that led to the financial crisis, such as the fixing of the London interbank offered rate, or Libor, a key global interest-rate benchmark. Several banks have already reached settlements in those cases.

Six of the world’s biggest banks (the Swiss bank UBS, the British banks HSBC and the Royal Bank of Scotland, and US banks JPMorgan Chase, Bank of America, and Citigroup – the banks most willing to reach a settlement rather than necessarily the most guilty), having recently been levied a total of $4.25 billion in fines for rigging the foreign exchange market, are now, predictably, tightening up their internal controls and tsk-tsking about their employees’ “unacceptable” and “improper” conduct, and looking forward to “closing the matter.”

No mention has been made of reparations for the clients stolen from, nor of any responsibility of higher-ups at the banks for their employees’ actions.

Investigators, sensing a more widespread culture of corruption that extends into the upper echelons of bank management and the far corners of the financial industry, could implicate many more than the handful of banks fined so far. The banks fined, and other banks as well, could still face criminal charges in the matter (the US feds are reportedly planning to file charges against at least one bank by the end of the year), as could individual bank employees. But chances are those individual bank employees will not be the bank presidents, or even the vice presidents.

What do you think could be done to prevent corrupt bank practices? Tell us your opinion below.

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The penalty came in response to shady loan practices from Countrywide. A company program, nicknamed “Hustle,” encouraged employees to hand out a large quantity of loans, with little emphasis being placed on ensuring the quality of the loan. According to Reuters, the Hustle program was “widely seen as a key factor in the recent U.S. housing crisis.” Read more here.

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To be able to further recover money for the victims, Picard would have needed to recover transfers that were made abroad between foreign entities, such as Madoff “feeder funds” and banks. Due to the intricacies of bankruptcy law, however, a U.S. District Judge ruled that doing so would not be allowed. The reasoning being that the United States does not have the jurisdiction to control the financial happenings in other countries, even in cases that stemmed in America.

While this was a setback for Picard and the many people who were duped by Madoff, the judged suggested that Picard could attempt to recover the money by directly dealing with the foreign countries’ authorities.

The post Madoff Victims Left To Lose Billions In Court Ruling appeared first on Citizens Report.

The apparent investigation into these complex securities, known as CLOs, comes as the U.S. winds down a flurry of crisis-era cases focusing on collateralized debt obligations, or CDOs.

According to The Wall Street Journal, the SEC has a number of CLO cases in the pipeline amid fears these complicated deals create new avenues for fraud.

The paper said the agency has also expanded an inquiry into how Wall Street banks sell CLO deals, which are negotiated privately between buyers and sellers.

The SEC declined to comment on the news.

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The 2nd U.S. Circuit Court of Appeals rejected Gupta’s claim that wiretap evidence should not have been admitted to show that he leaked news about Goldman’s finances, including a crucial investment by Warren Buffett’s Berkshire Hathaway Inc, by phone to Galleon Group hedge fund founder Raj Rajaratnam.

Circuit Judge Amalya Kearse said the timing of Gupta’s calls, coming just one minute after he learned “extraordinary” news about Goldman’s finances, followed by Rajaratnam’s fast and large trades in Goldman shares, were “powerful evidence that Rajaratnam was given the confidential information by Gupta.”

Tuesday’s decision upholding Gupta’s conviction and two-year prison term for securities fraud and conspiracy was a fresh endorsement of the aggressive tactics that prosecutors have used to thwart insider trading, in a probe unveiled in October 2009.

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