LPL will provide restitution to Delaware investors related to suitability and supervision violations

Wilmington – Delaware Attorney General Matt Denn announced that LPL Financial, LLC (LPL) has finalized a settlement with the Delaware Attorney General’s Investor Protection Unit and the Massachusetts Attorney General’s Office to resolve an investigation into LPL’s use of Leveraged Exchange Traded Funds.

“State law requires investment professionals to fully disclose the risks associated with complex financial products and to ensure they are suitable investments for their clients,” Attorney General Denn said today. “We’ve acted to hold LPL accountable to Delaware’s Securities Act to ensure all investment professionals are meeting those requirements and are properly supervised so that we can continue to safeguard the investments, pensions, and retirement funds of Delawareans.”

Leveraged ETFs are exchange traded funds that seek to return, on a daily basis, two hundred percent or, negative two hundred percent, of a particular index, commodity, currency, or economic sector. Leveraged ETFs typically do not invest directly in the underlying index or asset class but rather attempt to accomplish this daily objective by using financial derivatives, such as futures and swaps contracts. When Leveraged ETFs are held for periods longer than a day, compounding (among other factors) typically causes the Leveraged ETFs return to diverge from that which might be expected from simply multiplying the change in the underlying index by the relevant factor. This potential divergence is magnified in periods of greater volatility.  Due to this divergence, an investor can lose money when holding Leveraged ETFs over long periods, even if the investor bets correctly on the direction of the relevant index over the same term.

LPL operates as a broker-dealer and a federally covered investment advisor in Delaware. The State’s investigation found that certain LPL investment professionals failed to disclose risks associated with Leveraged ETFs, including the risks described above, and failed to ensure that Leveraged ETFs were suitable investments for their clients. In addition, the investigation found that LPL failed to adequately supervise those investment professionals whose clients held leveraged ETFs for extended periods of time.

LPL settled the investigation by entering into a Consent Order and agreeing to make full restitution to eligible Delaware and Massachusetts investors. In addition, the agreement requires LPL to enhance its oversight of investments in Leveraged ETFs by revising training for their financial advisors, enforcing restrictions on the number of Leveraged ETFs that may be offered to LPL clients, and notifying financial advisors when Leveraged ETF hold periods in client accounts exceed 30 days.

The Attorney General’s Investor Protection Unit enforces the Delaware Securities Act and seeks to prevent the public from being victimized by fraudulent, unscrupulous or overreaching practices by those offering investments and investment services within the state. Attorney General Denn urges investors who believe they have been the victims of such practices to call the Investor Protection Unit Hotline at 302-577-8424 or email the Unit at investor.protection@delaware.gov.

Delaware’s investigation was primarily handled by Investor Protection Director Gregory Strong and Assistant Attorney General David Casler.

Latest enforcement action secures more than $17 million to Delaware from Citi;

Biden’s insistence on accountability for housing crisis has resulted in more than $130 million for Delaware in past three years;

Demands for accountability will continue   

WILMINGTON – Delaware Attorney General Beau Biden announced Monday that Citigroup Inc. will pay at least $17 million to Delaware to settle allegations stemming from the bank’s conduct that helped cause the housing crisis.

The settlement with Citi is part of a multi-billion dollar settlement announced Monday between the bank, the United States Department of Justice, four other states and Delaware. The settlement resolves allegations centering on the bundling and sale of mortgages to investors. The investments – bought by pension funds, mutual funds and other investors – were much riskier than advertised. The resulting losses were disastrous for the economy.

This settlement is the latest result of Biden’s work to ensure there is accountability for those responsible for causing the steepest economic downturn since the Great Depression. Over the past three years, Biden has secured more than $130 million for Delaware from financial institutions in housing-related settlements.

“Our financial system only works when everyone plays by the rules,” Biden said. “The housing crisis was a manmade disaster that did not have to happen. The funds we have secured have helped thousands of Delaware families avoid foreclosure, strengthen communities hit hard by the housing crisis and reimburse taxpayers. Our work seeking accountability and helping Delaware homeowners is not finished.”

Delaware’s recovery comes in two parts. Citi will make a minimum of $10 million in direct relief available to Delaware homeowners in the form of credits similar to the 2012 National Mortgage Settlement (such as mortgage modifications and forgiveness of second mortgages). Citi will also pay the State $7.35 million. As with the recent JPMorgan settlement, these funds will be used to remediate the harm caused by Citi’s misconduct, including reimbursing government entities that suffered losses.

“Many neighborhoods in Delaware continue to suffer from the effects of the housing crisis,” Biden said. “Financial recoveries such as this one will give communities opportunities to thrive.”

The federal investigation was led by the U.S. Department of Justice’s Residential Mortgage-Backed Securities Working Group, under the leadership of Associate U.S. Attorney General Tony West.

“Associate Attorney General West’s leadership makes possible the joint federal-state law enforcement actions that hold accountable the financial institutions that broke the rules and helped cause the housing crisis,” said Biden, who is also a working group member.

Previous financial settlements that Biden’s office has secured with banks relating to their conduct that contributed to the housing crisis include:

• In February 2012, Biden, 48 of his colleagues and the federal government signed a $25 billion settlement with the nation’s five largest mortgage-servicing banks. That settlement brought $11.7 million to the State and has, so far, meant $75 million in financial benefits to 3,000 Delawareans. It also included important new protections for America’s military personnel that Biden fought to include;

• In November 2013, Biden secured $19 million from JP Morgan Chase to settle allegations that the bank misled investors about the risk level of mortgage-backed securities; and

• In December 2013, Biden announced that Ocwen Financial Corporation and its subsidiary, Ocwen Loan Servicing, will provide $7 million to Delaware borrowers, holding Ocwen accountable for past mortgage servicing and foreclosure abuses, providing relief to homeowners and stopping future fraud and abuse.

The Citi matter was handled for Delaware by Victoria Counihan, David Casler, and Owen Lefkon of the Attorney General’s Investor Protection Unit, and Matthew Lintner, Fraud Division Director.

-30-

Wilmington – Attorney General Beau Biden today announced that the Delaware Department of Justice Investor Protection Unit has obtained an indictment charging Michael A. Kwasnik with theft, securities fraud, sale of unregistered securities, and acting as an unregistered broker dealer following its investigation of a scheme to defraud investors. Kwasnik, age 45, of Marlton, New Jersey, was indicted March 17, by the New Castle County Grand Jury.

“We are protecting  Delaware’s investors and enforce our securities laws,” Biden said. “I urge any investor who believes they may be a victim of investment fraud to contact our Investor Hotline at (302) 577-8424.”

The indictment charges Kwasnik with soliciting Delaware victims on multiple occasions between May 2010 and September 2010. In addition to 4 counts of theft, the indictment charges Kwasnik with 4 counts of securities fraud, 4 counts of selling unregistered securities, and 4 counts of acting as an unregistered agent. Delaware law prohibits misrepresentations in the sale of securities, requires that securities for sale in Delaware be registered with the State, and requires persons selling securities in Delaware to be properly licensed with the Attorney General’s Investor Protection Unit.

The Attorney General’s Office, through its Investor Protection Unit, enforces the Delaware Securities Act, which regulates the sale of investment products and the activities of investment professionals in Delaware. The Unit investigates and prosecutes securities fraud and licensing violations by investment brokers and advisers. Delaware investors are encouraged to report suspected incidents of investment crime and fraud by calling the Attorney General’s Investor Hotline at (302) 577-8424.

This case is being handled for the Investor Protection Unit by Deputy Attorneys General William Green and Stephen McDonald, Special Investigator Kevin Lange, and Paralegal Courtney Patas.

The Delaware Department of Justice reminds the public that an indictment is merely an allegation and is not evidence of guilt. Defendants are presumed innocent and are entitled to a jury trial at which the state bears the burden of proving each charge beyond a reasonable doubt.

JPMorgan Chase will compensate State for selling mortgage-backed securities that were central to economic crisis; Biden says “we will continue to seek accountability”

Wilmington – In the latest effort by his office to hold accountable those responsible for the mortgage foreclosure crisis, Delaware Attorney General Beau Biden announced that JPMorgan Chase will pay $19.7 million to settle allegations stemming from conduct that helped cause the greatest economic downturn since the Great Depression.

Tuesday’s settlement is part of a global agreement that JPMorgan also reached today with the U.S. Department of Justice and four other states resolving allegations concerning the bundling and sale of mortgages to investors. The investments – bought by pension funds, mutual funds and other investors – were much riskier than advertised. The resulting losses were catastrophic for the economy.

“Our financial system only works when everyone plays by the rules,” Biden said. “As a result of our coordinated investigations, we are holding accountable one of the financial institutions that broke the rules and helped cause the economic crisis that brought our nation to its knees.  Even as the American people recover from this crisis, we will continue to seek accountability on their behalf.”

Delaware’s $19.7 million will be used to compensate a variety of state entities for their losses on these investments and to fund further efforts to help Delawareans emerge from the financial crisis, strengthen Delaware’s communities and alleviate other harm caused by the financial crisis.

The Delaware settlement resolved a joint investigation by Biden’s Fraud Division and Massachusetts Attorney General Martha Coakley’s Insurance and Financial Services Division that examined JPMorgan’s conduct when issuing mortgage-backed securities. The federal investigation was led by the U.S. Department of Justice’s Residential Mortgage-Backed Securities Working Group, under the leadership of Associate U.S. Attorney General Tony West and New York Attorney General Eric Schneiderman. Biden, also a member of the RMBS Working Group, thanked West and Schneiderman for their leadership.

Tuesday’s settlement is Biden’s latest enforcement action in response to the mortgage foreclosure crisis. His office has been a national leader in seeking accountability for the crisis and helping homeowners.

“As a prosecutor and a consumer protector, I have an obligation to hold those responsible for causing the crisis accountable – and that work is not done,” Biden said.

Recent actions by Biden and his office include:

• In February 2012, Biden, 48 of his colleagues and the federal government signed a $25 billion settlement with the nation’s five largest mortgage-servicing banks (including JPMorgan). That settlement brought $11.7 million to the State and has, so far, meant $75 million in financial benefits to 3,000 Delawareans. It also included important new protections for America’s military personnel that Biden fought to include in the settlement.

• In July 2012, Biden secured important operational reforms from MERS – a national shadow mortgage registry at the heart of the mortgage crisis – in a settlement of a lawsuit he filed the year before. MERS’ inaccurate and unreliable records made it difficult if not impossible for homeowners to determine which financial institution owned their mortgage.

• In October 2012, Biden announced that an investigation by his office into allegations of “robo-signing” and other improper mortgage services provided by subsidiaries of Lender Processing Services, Inc. (LPS) led to the Florida-based company paying $250,000 to the State of Delaware.

• In January 2013, Biden, 12 of his colleagues and the federal government filed separate suits against Standard & Poor’s, charging the rating agency with violating state law by misrepresenting that its evaluations of mortgage-backed securities were fair and impartial when actually S&P made decisions based on its own financial interests. That suit is still pending.

This matter was handled for Delaware by Fraud Division Director Matthew Lintner, Investor Protection Director Owen Lefkon, Assistant Attorney General David Casler, and Paralegal Debra Szymurski.

# # #

Delaware – Attorney General Beau Biden announced today that RBC Capital Markets, LLC has paid the Delaware Department of Justice $33,520.17 as part of a settlement with the Attorney General’s Investor Protection Unit. The settlement concludes a multi-state investigation which found that RBC allowed its client associates to sell securities without being properly registered. State law requires all who sell stocks and securities to Delaware investors to register with the DOJ’s Investor Protection Unit.

“We will continue to ensure that the securities market in Delaware adequately protects investors,” said Attorney General Biden. “This settlement holds RBC accountable for its failures to keep track of its employees who sell investments to Delawareans.”

The states’ investigation found that RBC client associates were able to accept trade orders from clients, an act that requires registration in both the client associate’s home state and the client’s state. The investigation found that not all client associates were properly registered, and that RBC’s systems were not reasonably designed to prevent this from happening.  As part of the settlement, RBC has agreed to establish and maintain systems that require client associates to be properly registered in Delaware and other states.

The multi-state task force investigating this matter consists of state securities regulators from Delaware, Colorado, Missouri, New Hampshire, New Jersey, Texas, and Vermont. State securities regulators, including DOJ’s Investor Protection Unit, continue to investigate similar misconduct by other firms.

The Investor Protection Unit, formerly known as the Securities Division, enforces the Delaware Securities Act and seeks to protect the public from potentially fraudulent, unscrupulous, or overreaching practices of those offering investments or investment services within Delaware. Investors who believe they have been the victims of such practices should immediately contact the Investor Protection Unit Hotline at (302) 577-8841.

Delaware’s participation in the multistate investigation that led to the settlement was handled by Investor Protection Director Owen Lefkon and Assistant Attorney General David Casler.