Rakoff Rejection of Citi / SEC Settlement Pierces Wall Street’s Alice-in-Wonderland Thinking

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com:

It’s not every day that a federal judge issues a landmark decision, particularly one that could help investors wanting to sue giant financial institutions. But that’s what happened Monday, when U.S. District Judge Jed Rakoff rejected a proposed $285 million settlement between Citigroup and the Securities and Exchange Commission that would have allowed Citi to put the SEC’s mortgage-backed-securities case in the rear-view mirror.

The SEC claims that Citigroup misled investors in a $1-billion fund holding assets the bank had projected would lose money. And just as Citigroup was selling the fund to investors, it shorted many of the fund’s underlying assets for its own account.

Under the proposed settlement, Citigroup would have avoided admitting any wrongdoing. Instead, Judge Rakoff struck a blow for investors by employing a little common sense-he essentially ruled that if a court is going to sign off on a settlement, it has to understand the merits of the allegations.

Since 1972, the SEC has allowed defendants like Citigroup to settle cases and pay substantial fines without admitting liability. Why should a bank pay a huge fine without admitting wrongdoing? According to Bloomberg news, the SEC adopted that policy so defendants could later claim publicly-and in private litigation-that they really hadn’t done anything wrong.

Such is the Alice-in-Wonderland logic of Wall Street. In the case of Citigroup, the bank was apparently happy to write a check for $285 million, as long as it didn’t have to admit it had done anything wrong. That admission would make for bad publicity for banks like Citigroup and also hand a hammer to investors looking to sue the bank.

Judge Rakoff is telling us that these “no-fault” settlements make no sense. How can a judge sign off on such a settlement when he or she doesn’t have enough facts to fairly evaluate it?

His decision also means that the SEC should only start fights it can finish, and shouldn’t plan on “wrist-slap” settlements. “If the allegations of the complaint are true, this is a very good deal for Citigroup,” he wrote. “Even if they are untrue, it is a mild and modest cost of doing business.”

Rather than allow Citi-or really its shareholders-to just cut a check and move on, Rakoff scheduled a public trial regarding Citi’s misconduct for this coming July.

The four-years-and-counting Great Recession, caused in large part by Wall Street’s deceptive packaging subprime-mortgage junk products, has apparently had an impact on Judge Rakoff’s thinking. “In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth,” Judge Rakoff wrote. The proposed settlement is “neither fair, nor reasonable, nor adequate, nor in the public interest.”

Thank you, Judge Rakoff, for forcing Wall Street to finally face the music instead of allowing them to go on living in Wonderland.

Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitrations and state and federal litigations against financial institutions, including Citigroup.

Read article by Securities Attorney Jake Zamansky on Forbes.com

The Search for MF Global’s Missing 1.2 Billion Video

Zamansky & Associates LLC (“Zamansky”) is investigating MF Global Holdings Inc. (“MF Global”) for possible violation of the federal securities laws.

Below is a video from CNBC about the search for the missing MF Global money with Jake Zamansky talking about the class action lawsuits filed against MF Global.

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Risk Control: Wall Street’s Achilles’ Heel

Below is a recent article published by Securities Attorney Jake Zamansky on Forbes.com:

A 31-year-old trader just cost UBS $2.3 million and its CEO. Jerome Kerviel collared Societe Generale with losses of $7.2 billion with his so-called “rogue” trading. In March 2008, 100-year-old investment bank Bear Stearns collapsed, its stock price falling from $160 to $2 per share. In 2007-2008, Citigroup’s enormous undisclosed subprime exposure eventually caused its share price to fall from $60 all the way down below $3. And lastly, UBS deceptively sold over $1 billion of Lehman structured products to unsuspecting retail customers and has been pummeled in arbitration hearings.

What do these financial disasters have in common? Inadequate risk controls, lax supervision and shoddy training.  State-of-the-art risk controls and professional supervision comprise the basic safety net investors and regulators expect from Wall Street. Unfortunately, in recent years both have been borderline nonexistent.

The Bear Stearns Hedge Funds that went belly-up in the summer of 2007 had touted to investors their superior “risk controls” as part of their sales pitch. In reality, the lack of meaningful controls appears to have sunk the funds, resulting in a total loss to investors.

The elite group within AIG that once raked in billions by selling insurance on corporate debt bragged that it wouldn’t lose a dollar on its credit default swaps. The group was so confident that its senior managers didn’t even require the traders to hedge their risk. A few weeks later, it took a $5 billion writedown and needed the first installment in a seemingly never-ending lifeline just to survive.

Firms up and down Wall Street-household names, blue-chip banks-leveraged themselves 30:1 chasing outsize profits and massive paydays. Most blew up and survived only with serial bailouts.  We are now, in the words of Meredith Whitney, in a world populated by “zombie banks.”

Wall Street’s leading firms cast aside the industry’s cardinal principle in the industry: strong risk controls and proper supervision and training of brokers. The rest of us paid the price with hundreds of billions in taxpayer-funded bailouts, a cratering economy, intractable unemployment and now the threat of a “double-dip” recession.

But rather than recognizing the roots of the current fiasco and shouldering some blame, Wall Street’s main objective now is to repeal or roll back the Dodd Frank rules put in place just a couple of years ago to correct the problems that led to the 2008 financial meltdown, and hopefully prevent a repeat.  They are spending millions on lobbyists to convince Congress that Dodd Frank is too burdensome, too strict and won’t allow them to come up with the next great “financial innovation.”

Here’s an idea: spare us from the brand of creativity that brought us mortgage-linked synthetic CDOs last time around and nearly caused another Great Depression. Get back to the basics of stringent risk controls and strict supervision.

On Wall Street, some people just never seem to “get it.”

Disclosure: Zamansky & Associates represents investors in arbitration cases and federal and state court actions against most Wall Street firms, including UBS and Citigroup.

Read Article on Forbes.com

ZAMANSKY WARNS OPPENHEIMER CHAMPION FUND INVESTORS THEY WILL LOSE POTENTIALLY VALUABLE LEGAL CLAIMS IF THEY DO NOT OPT OUT BY AUGUST 31, 2011.

Zamansky & Associates LLC warns investors in the Oppenheimer Champion Income Fund (”Champion Fund”) that the deadline for opting out of the settlement is August 31, 2011. The settlement for investors is reportedly $52.5 million, or approximately three ($.03) cents on the dollar. Investors who accept the settlement agree to release all claims they have against their broker or financial advisor who sold them the Champion Fund. If any investor does not opt out, he or she will lose their rights to bring a potentially valuable legal claim in arbitration before FINRA against the broker or financial advisor who sold him or her the Champion Fund.

The Oppenheimer Champion Fund was sold and marketed to investors as sa afe and secure income investment for elderly or retired investors who desired an income return while conserving principal.  Unbeknownst to investors, the Champion Fund invested in mortgage-backed securities, credit default swaps and other risky derivatives causing a loss of over 80% of the Fund’s value. The financial advisors and brokers who sold the Champion Fund to investors had due diligence obligations to “know the security” they sold to investors, and were required to have a “reasonable basis” for recommending the security. Thus, Champion Fund investors may have valid legal claims against their financial advisors or brokers where the recovery potentially far exceeds the three-cent settlement. Nonetheless, these claims are lost on August 3, 2011, if the investor does not notify the court that it is opting out of the settlement.

If you would an evaluation of your potential claim against the broker or financial advisor who sold you the Champion Fund, please contact Jake Zamansky at (212) 742-1414, or email at Jake@Zamansky.com. Zamansky & Associates has obtained successful recoveries for numerous clients in cases involving the Oppenheimer Champion Fund and other unsuitable funds and securities.