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Written by: Editor

Published: 02 April 2016

SAN FRANCISCO - Attorney General Kamala D. Harris today filed a lawsuit against investment bank Morgan Stanley for misrepresentations about complex investments such as residential mortgage-backed securities, in which large pools of home loans were packaged together and sold to investors. 

These misrepresentations contributed to the global financial crisis and to major losses by investors including California's public pension funds, which are responsible for the retirement security of California peace officers, firefighters, teachers, and other public employees.

The complaint, filed in San Francisco Superior Court, alleges that Morgan Stanley violated the False Claims Act, the California Securities Law and other state laws by concealing or understating the risks of intricate investments involving large numbers of underlying loans or other assets.

In addition to residential mortgage-backed securities, the complaint also focuses on "structured investment vehicle" investments, which involved not just packages of residential mortgage loans but also other types of debt of individuals and corporations.

“Morgan Stanley’s conduct in this case evidenced a culture of greed and deception that helped create a devastating economic crisis and crippled California’s budget,” said Attorney General Harris. “This lawsuit is necessary in order to hold Morgan Stanley accountable for the destruction it caused to California, our people, and our pension funds.”

Specifically, the complaint alleges that, from 2004 to 2007, Morgan Stanley assembled and sold billions of dollars in mortgage-backed securities, many of which contained risky loans made by Morgan Stanley subsidiary Saxon, or by New Century, a mortgage lender which received crucial funding from Morgan Stanley. 

Morgan Stanley purchased and bundled high-risk loans from subprime lenders like New Century into seemingly safe investments, even though it knew the lenders were “not [using] a lot of common sense” when approving the loans, the complaint alleges.

Additionally, the complaint alleges that Morgan Stanley did not disclose the risks because it did not want its concerns about loan quality to become a “relationship killer” that would cause it to lose its lucrative business with companies making the risky loans.

Among other things, Morgan Stanley's offering documents, which were required to fully and accurately inform investors about the risks, actually misrepresented the quality of the loans contained in the investment packages, by failing to disclose that many of them were underwater (the mortgage was more than the property was worth) and by failing to disclose the number of delinquent loans.

They also used exaggerated appraisals which overstated the value of the properties securing the loans, and knowingly presented incorrect data concerning owner occupancy and loan purpose, which tended to understate the riskiness of the loans.  

The complaint goes on to allege that Morgan Stanley sometimes even took loans that it had already decided not to include in its investment packages because they were too risky, and then included them in later investment packages, despite knowing the problems with the loans, and doing nothing to fix them.

The complaint alleges that the lack of disclosure prompted a Morgan Stanley employee to observe to his co-workers that someone “could probably retire by shorting these upcoming . . . deals,” “someone needs to benefit from this mess.”

The complaint also alleges that Morgan Stanley played a central role in crafting the Cheyne structured investment vehicle, which sold supposedly safe short-term investments based on mortgage-backed securities and other complex investments.

Investors were particularly reliant on accurate disclosure of the risks because of the complicated nature of these investments. 

The complaint alleges, however, that while Morgan Stanley knew of significant risks, it nevertheless worked to portray the investments as extremely safe. 

In fact, Morgan Stanley managed to procure extremely high credit ratings, in some cases the same ratings as the very safest investments such as U.S. government bonds, for investments in Cheyne notes.

Morgan Stanley bragged that it “shaped rating agency technology” to “get . . . the rating we wanted in the end,” prompting a SIV manager to observe, “it is an amazing set of feats to move the rating agencies so far.”  Unfortunately, the result of Morgan Stanley's success was huge losses to investors when the SIV failed.    

The California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) – two of the nation's largest institutional investors – lost hundred of millions of dollars on these Morgan Stanley investments.

CalPERS provides retirement security and health plans to more than 1.6 million California firefighters, peace officers, and other public employees.  CalSTRS provides retirement, disability, and survivor benefits for over 850,000 of California’s pre-kindergarten through community college educators and their families.

The lawsuit arises from a multiyear investigation into the issuance and rating of mortgage-backed securities by Attorney General Harris's California Mortgage Fraud Strike Force.

The Attorney General’s Mortgage Fraud Strike Force was created in May 2011 to comprehensively investigate misconduct in the mortgage industry.

As a result of that investigation, Attorney General Harris has to date recovered over $900 million for California’s public pension funds in settlements with three banks and a credit rating agency over misrepresentations in connection with structured finance investments sold to CalPERS and CalSTRS.

The Attorney General's additional efforts to investigate the mortgage crisis include securing an estimated $18 billion for California in the National Mortgage Settlement and sponsoring the California Homeowner Bill of Rights, a package of laws instituting permanent mortgage-related reforms.

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Written by: Editor

Published: 31 March 2016

SAN FRANCISCO – Attorney General Kamala D. Harris on Wednesday announced a preliminary approval of settlements resolving allegations that LG, Hitachi, Panasonic, Toshiba, and Samsung, companies all based in Japan or Korea, fixed prices on critical components of televisions and computer monitors from 1995 to 2007.

Those critical components, known as Cathode Ray Tubes or CRTs, were used to display images on computer monitors and televisions screens before they were replaced by flat screens. The court has approved the settlement pending valid objections submitted within 60 days. 

The companies’ price fixing scheme caused damage to California consumers and government entities that overpaid for their televisions and computers. The announced settlement has led to legally enforceable judgments against these foreign companies.

“LG, Hitachi, Panasonic, Toshiba, and Samsung deliberately targeted the U.S. market to raise prices for televisions and computers worldwide,” said Attorney General Harris. “These settlements bring justice and relief to California consumers and end the malicious practice of price-fixing by these companies.”

The settlements, which were filed in San Francisco Superior Court, require all five companies to pay a total of $4.95 million to settle claims of overcharges paid by California government entities, general damages suffered by the State’s economy, and civil penalties.

The settlements require that the companies pay back the illegally obtained profits to those affected by their actions. In addition, the settlements include injunctive relief, which requires that each company engage in company-wide antitrust compliance training and reporting that involves products in addition to CRTs and extends to foreign companies and subsidiaries.

Finally, the settlements include requirements, enforceable by the court via fines and imprisonment, to prevent future violations of antitrust law.

In 2011, after the Office of Attorney General Harris conducted a confidential investigation into price-fixing involving CRTs, Attorney General Harris filed complaints against these companies for having entered into a price-fixing conspiracy of critical components of television and computer screens.

That conspiracy involved top-level meetings of key executive decision-makers in Asia and Europe to set prices and outputs of CRTs. It also involved worldwide meetings among lower-level executives to exchange confidential information.

Californian subsidiaries of these companies were involved in this conspiracy and took on the role of monitoring the prices of televisions and computers in California stores.

This case, filed by Attorney General Harris, requested the court award damages to California consumers. A parallel case filed by private counsel in federal court, known as the Indirect Purchaser Plaintiffs, also requested damages on behalf of Californians, and Attorney General Harris and the Indirect Purchaser Plaintiffs coordinated their discovery and settlement efforts.

Due to these coordinated efforts, California consumers or sole proprietorships that purchased at least one television or computer between 1995 and 2007 can make a claim, with a guaranteed minimum check of $25.

All eligible California consumers and sole proprietorships can file claims for reimbursement at https://www.crtclaims.com/. The new deadline for filing those claims is June 30, 2016.

In December 2015, Attorney General Harris announced a settlement resolving allegations that Pratibha Syntex Ltd., a company based in India, gained an unfair competitive advantage over American-based companies by using pirated software in the production of clothing imported and sold in California.

The settlement, which was filed in Los Angeles Superior Court, required Pratibha Syntex to pay $100,000 in restitution, prohibited Pratibha Syntex from using unlicensed software or reproducing any part of a copyrighted software program without the permission of the legitimate copyright holder, and required the company to perform four complete audits of the software on their computers and fix any violations within 45 days.

That case marked the first time a state has secured a legally enforceable judgment against an international company for these types of violations.

Copies of the complaint, memorandum in support of preliminary approval, and the order granting preliminary approval, are all available at www.oag.ca.gov/news . Further details also can be found at http://oag.ca.gov/consumers/crt_notice .

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Written by: Elizabeth Larson

Published: 17 March 2016

The Pacific Fishery Management Council on Sunday adopted three public review alternatives for the 2016 salmon season off the West Coast of the United States.

The council will select a final alternative at their next meeting in Vancouver, Wash., April 9 to 14.

Detailed information about season starting dates, areas open and catch limits for all three alternatives are available on the council’s Web site at www.pcouncil.org or http://tinyurl.com/salmon2016 .

“The mix of salmon runs this year is unusual,” said outgoing Executive Director Donald McIsaac. “In the north, the return of fall Chinook to the Columbia River is forecast to be exceptionally high again, but expectations for wild coho runs to the Washington Coast and Puget Sound areas can only be described as disastrous.  In the south, the Sacramento River fall Chinook are healthy, but Klamath River fall Chinook are so poor that the Council’s policy calls for a low ‘de minimis’ catch in ocean fisheries.”

“This will be a challenging year for salmon fisheries. Several key stocks are less abundant than usual due to environmental conditions like the California drought and El Niño, which have affected ocean abundance for some stocks. However, there are alternatives that provide opportunities for both commercial and recreational salmon fishing coastwide,” said Council Vice-Chair Herb Pollard.

Northern Oregon and Washington (north of Cape Falcon)

Sport season alternatives

Ocean sport fishery options north of Cape Falcon in Oregon and off the Washington coast are focused on Chinook salmon this year, with mark-selective Chinook fishing alternatives for June; and July-August fisheries, which are not mark-selective. Chinook recreational quotas range from 30,000 to 58,600. 

For coho, one alternative allows modest coastwide opportunity for 37,800 hatchery coho in July and August. 

One alternative permits limited coho fishing only in the Columbia River area between Cape Falcon and Leadbetter Point, with a coho quota of 14,700 hatchery coho that starts in late June and runs into September. 

One alternative is closed to all non-Indian recreational and commercial fishing north of Cape Falcon in response to concerns over extremely low forecasts. 

In a year like this, it is appropriate to see the effects of complete protection for key Washington coastal and Puget Sound wild coho stocks.

Commercial season options

Non-Indian ocean commercial fishery alternatives north of Cape Falcon include traditional Chinook seasons between May and September.

Chinook quotas for all areas and times range from 30,000 to 56,000, compared to 67,000 in 2015. Only one commercial fishery alternative allows retention of coho, with a quota of 7,200 marked coho (compared to 19,200 in 2015).
   
Tribal ocean fisheries north of Cape Falcon

Alternative Chinook and coho quotas for tribal ocean fisheries range from quotas of 30,000 to 50,000 for Chinook salmon, while coho quotas range from 0 to 40,000. 

Seasons open May 1 and run through August or September 15. The zero coho quota alternative for the tribal ocean fishery reflects concern over the very low forecasts for key Washington coastal and Puget Sound wild coho stocks.

California and southern Oregon (south of Cape Falcon)

Sport season options

California ocean sport fishing alternatives provide seasons that range from fairly continuous traditional seasons to more conservative alternatives with mid-season closures or shortened seasons to protect Klamath River fall Chinook or Sacramento River winter Chinook.

Chinook directed Klamath Management Zone alternatives (Humbug Mt., Oregon to Horse Mt., California) generally open in May and run through Labor Day (except that one alternative closes August 31), and all alternatives have closed periods to reduce impacts on Klamath River fall Chinook.

Alternatives for Oregon Chinook fishing in the Tillamook, Newport, and Coos Bay areas all open March 15 and run either continuously through Oct. 31 or are closed May through August.

Oregon ocean recreational alternatives include mark-selective coho fishing seasons starting in June or July and run through July or into early August in the area between Cape Falcon and the Oregon/California border. Quotas range from 15,000 to 30,000 marked coho.

In addition, non-mark-selective fisheries are proposed for the area between Cape Falcon and Humbug Mt. in September with quotas ranging from 6,000 to 10,000 coho.

Commercial season options

From the north, commercial Chinook salmon season alternatives in the Tillamook, Newport and Coos Bay area open April 8 and run through September or October but have several closed periods.

Oregon season alternatives in the Brookings area of the Klamath Management Zone are generally open for Chinook most of April and May, and one alternative includes small quota fisheries in June, July, and August.

California commercial season alternatives in the Klamath Management Zone north of the Humboldt South Jetty include two small quota (3,000 and 1,000) fisheries in September, and one alternative with no fishing.

Commercial season alternatives south of the Klamath Management Zone are generally closed in July to protect Klamath fall Chinook.

Open periods are all or part of May, and depending on the area, all or parts of June, August, and September, with fewer open periods to the south to protect Sacramento River winter Chinook.

Management process

Public hearings to receive input on the options are scheduled for March 28 in Westport, Washington and Coos Bay, Oregon; and for March 29 in Fort Bragg, Calif.

The council will consult with scientists, hear public comment, and revise preliminary decisions until it chooses a final option at its April meeting in Vancouver. It will narrow these options to a single season recommendation to be forwarded to National Marine Fisheries Service (NMFS) for their final approval before May 1.

All council meetings are open to the public.

The Pacific Fishery Management Council is one of eight regional fishery management councils established by the Magnuson Fishery Conservation and Management Act of 1976 for the purpose of managing fisheries 3-200 miles offshore of the United States of America coastline.

The Pacific Council recommends management measures for fisheries off the coasts of California, Oregon and Washington.