Investment

The founder of fund manager TFS Capital, said he’s planning to apply for a whistleblower reward after the agency announces its penalty against Credit Suisse.

Credit Suisse may have to pay more than $50 million in fines and disgorgement to the SEC and another $30 million to the New York attorney general over allegations the company misrepresented itself. 

The SEC can award whistleblowers between 10% and 30% of a fine, meaning he could potentially receive a $15 million payday. The dark pool whistleblower said he will submit a claim, provided the SEC suit turns out to be along the lines of the complaints he made.

Dark pools, where supply and demand is kept private and only details of executed trades are made public, make up around one-fifth of trading in the $23 trillion U.S. stock market. Credit Suisse’s Crossfinder platform is the largest alternative trading system in the U.S.

Healthy Markets published a report on September 15, 2015 that concluded, "Dark pools play an important role in our markets. Unfortunately, recent regulatory actions against dark pool operatorshavedemonstratedthatinvestors are justifiedintheir longstanding fears over dark pools’ lack of transparency. Investors and their brokers must revise theirown practices and expectations to better protect themselves from dark pool abuses. By demanding more transparency and lesser conflicts of interest, investors and theirbrokersmayhelpensure dark pools continue to play a constructive role in US capital markets in the years to come."

There's an ongoing investigation regarding shareholder losses related to the price discrepancies that came about between Exchange-Traded Funds (“ETFs”) and their underlying assets on August 24, 2015.

Persons with non-public information regarding any ETF should consider their options to help in the investigation or take advantage of the SEC Whistleblower program. Under the SEC whistleblower program, whistleblowers who provide original information may receive rewards up to 30 percent of any successful recovery made by the SEC.

The disconnected price declines occurred in some of the industry’s largest funds: The $19 billion Vanguard Dividend Appreciation ETF (NYSEArca: VIG), which is focused on blue-chip stocks, traded down by as much as 37% while the net asset value of the stocks in its index only fell about 7%. Finally, the $13 billion SDPR S&P Dividend ETF’s (NYSEArca:SDY) price dropped by as much as 38%, although the value of its stock index declined by only 6.2%.

Although the prices eventually corrected, retail investors lost an undetermined amount. Volatility in ETF markets could have an enormous impact on investors as ETFs in the U.S. comprise roughly $2.4 trillion in assets under management and make up over 27% of stock trading volume on U.S. Exchanges.

Among the issues being looked at in the current investigation include representations made by ETF sponsors about pricing, the role of participating dealers and market makers, and the role of high speed trading and arbitrage by the market makers and others.

A settlement has been reached in a whistleblower class action lawsuit brought against Bank of America who is accused of selling billions of dollars of Residential Mortgage-Backed Securities (RMBS) without disclosing to investors key facts about the quality of the securitized loans. 

The $16.65 billion resolution is broken down as follows;

• $10 billion will be paid to settle federal and state civil claims by various entities related to RMBS, collateralized debt obligations and other types of fraud.
• Bank of America will pay a $5 billion civil penalty to settle the Justice Department claims under FIRREA.
• Approximately $1.8 billion will be paid to settle federal fraud claims related to the bank’s origination and sale of mortgages.
• $1.03 billion will be paid to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC).
• $135.84 million will be paid to settle claims by the Securities and Exchange Commission.
• $300 million will be paid to settle claims by the state of California.
• $45 million to settle claims by the state of Delaware.
• $200 million to settle claims by the state of Illinois.
• $23 million to settle claims by the Commonwealth of Kentucky.
• $75 million to settle claims by the state of Maryland.
• $300 million to settle claims by the state of New York.

The bank has conceded that it originated risky mortgage loans and made misrepresentations about the quality of those loans to Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).

This settlement also resolves the complaint filed against Bank of America in August 2013 by the U.S. Attorney’s Office for the Western District of North Carolina concerning an $850 million securitization. Bank of America acknowledges that it marketed this securitization as being backed by bank-originated “prime” mortgages that were underwritten in accordance with its underwriting guidelines. Yet, Bank of America knew that a significant number of loans in the security were “wholesale” mortgages originated through mortgage brokers and that based on its internal reporting, such loans were experiencing a marked increase in underwriting defects and a noticeable decrease in performance. Notwithstanding these red flags, the bank sold these RMBS to federally backed financial institutions without conducting any third party due diligence on the securitized loans and without disclosing key facts to investors in the offering documents filed with the SEC. A related case concerning the same securitization was filed by the SEC against Bank of America and is also being resolved as part of this settlement.