New York Securities Lawyer Blog

Published on: July 26, 2010

Madoff Trustee To Bring Clawback Actions Against Victims

Today an article appeared in the Wall Street Journal (“WSJ”) indicating that the Trustee for the Bernard L. Madoff Investment Securities liquidation, Irving Picard, intends to sue 1,000 Madoff victims in clawback actions. The clawback actions will be brought through an adversarial proceeding in the Bankruptcy Court before the Honorable Judge Lifland. Mr. Picard stated that he will likely sue what he has incorrectly described as “net winners.” A copy of the article is available with an online subscription to the WSJ here. You can also find some commentary on the story here.

Published on: July 9, 2010

Brooklyn Law School Mag Features Ross Intelisano

By Ross B. Intelisano

Below is a profile of Ross Intelisano from the Spring 2010 edition of the Brooklyn Law School Magazine BLSLaw Notes.

BLSLawNotes

The Magazine of Brooklyn Law School | Spring 2010

Published on: July 9, 2010

Goldman Must Pay Some Bayou Losses – New York Times

By Ross B. Intelisano

Below is a New York Times Piece about Bayou v. Goldman Sachs

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.

Published on: June 30, 2010

Goldman Told to Pay Bayou Fund Creditors – WSJ

By Ross B. Intelisano

Below is the Wall Street Journal piece regarding Bayou v. Goldman Sachs.

JUNE 26, 2010

Goldman Told to Pay Bayou Fund Creditors

Published on: June 28, 2010

Rich & Intelisano Wins Largest Arbitration Award Ever Rendered Against Goldman Sachs – $20.5 Million

By Ross B. Intelisano

Rich & Intelisano, LLP won a $20.5 million arbitration award against Goldman Sachs related to the Bayou hedge fund Ponzi scheme. The award is 100% of the compensatory damages requested. It is the largest arbitration award ever rendered against Goldman and the sixth largest customer arbitration award against any Wall Street firm. It is also the first win in any court or arbitration forum by investors against a clearing or prime broker related to a hedge fund Ponzi scheme based upon fraudulent transfer theories.

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.

Published on: May 27, 2010

MAT Five

By Lax & Neville LLP

A large FINRA arbitration award was recently rendered against Citigroup Inc. (“Citigroup”) for sales practice abuses concerning Citigroup’s selling and marketing of the MAT Five LLC (“MAT Five”). The MAT Five had a $500,000 minimum investment requirement and was promoted to fixed-income investors who were seeking preservation of capital. Citigroup represented that the MAT Five was designed to produce stable cash flows in a tax-advantaged arbitrage opportunity. In actuality, the MAT Five was a very risky investment. Based on these claims, our firm has filed numerous arbitrations against Citigroup on behalf of investors and customers of Citigroup who invested in the MAT Five.

Published on: April 26, 2010

Several FINRA Arbitration Panels Find in Favor of Investors in Lehman Brothers Principal Protected Structured Notes

By Lax & Neville LLP

One notable development for investors relates to several FINRA arbitration awards recently rendered against UBS Financial Services, Inc. (“UBS”) for sales practice abuses concerning UBS’s selling and marketing of principal protected structured notes issued by Lehman Brothers Holdings, Inc. (“Lehman Brothers”), which are structured investment vehicles that combine a fixed income note with a derivative typically linked to an equities index, a group of indices, or other assets. These products were developed, underwritten, offered, marketed and sold by UBS to its customers and investors as safe and principal protected investments; however, they were extremely risky and became worthless when Lehman Brothers filed for bankruptcy. Based on these claims, our firm has filed numerous arbitrations against UBS on behalf of investors and customers of UBS who invested in Lehman Brothers principal protected structured notes.

Published on: April 20, 2010

RaceTrac Arbitration May Show ABACAS Investors’ Best Path to Recover Against Goldman

By Ross B. Intelisano

Investors who lost $1 billion in the Goldman Sachs structured ABACAS CDO were handed a strategic road map by the SEC when it filed the civil fraud complaint against Goldman on Friday. The alleged misrepresentation to ACA by Goldman that Paulson was long the equity tranches of ABACUS and the omission to disclose to ABACUS investors in writing and orally that Paulson handpicked securities in ABACUS while it was simultaneously shorting the same securities are the crux of a potential claim by ABACUS’ investors against Goldman. But what path should investors forge to recover their losses? Court or arbitration? The recent RaceTrac v. Bear Stearns arbitration award shows that a large investor can win a private arbitration against a significant brokerage firm related to misrepresentations and omissions of CDO’s regardless of the risk disclosure language contained in the prospectus.

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.

Published on: April 16, 2010

ABACUS Lawsuits Against Goldman Sachs Coming?

By Ross B. Intelisano

The investment world is buzzing about the SEC’s fraud allegations against Goldman Sachs for misrepresenting and omitting to disclose Paulson’s role in choosing RMBS securities for the ABACUS CDO and then shorting the same individual RMBS through CDS transactions with Goldman. According to the SEC, “investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.” It is hard to tell whether direct investors in ABACUS lost $1 billion or whether that includes companies which had CDS risk exposure to it. Either way, what are the money losers going to do about it?

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?

Published on: April 16, 2010

Goldman Sachs Charged in ABACUS CDO Case By SEC

By Ross B. Intelisano

The SEC charged Goldman Sachs with defrauding investors of ABACUS 2007-AC1, a synthetic CDO created and sold by Goldman in early 2007 when the subprime world was reeling. Investors in ABACUS ultimately lost $1 billion.

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.