- Bank of America, along with several other mega-banks, has been sued again--this time, for manipulating foreign-exchange rates.
- Those filing the claim include city and state pension planners, and the case highlights possible illegal practices as far back as 2003.
- Building on several other scandals and billions lost in litigation fees in recent years, we recommend BAC shareholders take some profits before more allegations of fraud arises.
Bank of America (NYSE:BAC), still reeling from a variety of regulatory probes for alleged fraud, has been sued again--this time, along with several other major banks, including Barclays (NYSE:BCS), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), HSBC (NYSE:HSBC), J.P. Morgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS), and others.
The cohort is under attack by a group of investors, who claim the mega-banks rigged foreign-exchange rates.
Prior to the group lawsuit, investors filed their claims individually; now, their claims have been consolidated into a group lawsuit.
The Class Action Lawsuit
U.S. and Caribbean investors, the group, which includes city and state pension planners, filed a class action suit in U.S. District Court in the Southern District of New York on March 31st, 2014. The full list of investors is below.
• Aureus Currency Fund LP, based in Santa Rosa, California
• The Great City of Philadelphia and its board of pensions and retirement
• Employees' Retirement System for the Government of the Virgin Islands
• Employees' Retirement System of Puerto Rico Electric Power Authority
• Fresno County Employees' Retirement Association
• Haverhill Retirement System for the city of Haverhill, Massachusetts
• Oklahoma Firefighters Pension and Retirement System
• Boston Massachusetts Retirement System
• Tiberius OC Fund, which is a Cayman Islands fund
• Value Recovery Fund LLC, which is a Delaware fund that has offices in Connecticut
• Syena Global Emerging Markets Fund LP, which is a hedge fund in Connecticut
• United Food and Commercial Workers Union
The lawsuit accuses the dozen banks of using Internet-based communication channels, including emails, instant messenger and chat room software. These taboo conversations went as far back as 2003.
The following banks are listed in the lawsuit:
• Bank of America Corp.
• BNP Paribas SA,
• Citigroup Inc.,
• Credit Suisse AG
• Deutsche Bank AG
• Goldman Sachs Group Inc.,
• HSBC Holdings
• J.P. Morgan Chase
• Morgan Stanley
• Royal Bank of Scotland Group
• UBS AG
The complaint does not yet specify the total amount of damages the investors are seeking but we expect the amount will be huge when the complaint is amended at a later date.
Suspicious Banking Behavior After Accusations
The response of the big banks has not been to offer alternative explanations to regulators, plausible reasons or even excuses for their misconduct - but to thin the evidence by jettisoning their key traders. In the Forex probes, for instance, 20 traders, mainly in New York and London, were either suspended or fired. In March, 2014, Bank of America and BNP also suspended staff members, related to the probe.
Conspiracy Spelled Out
According to the complaint filed:
1. The foreign-exchange rates were controlled by a small group of traders.
2. These traders formed a closely-knit socioeconomic group, who had worked with each other in prior trading jobs.
3. Many of these traders lived in the same neighborhoods, with the preponderance being in the Essex countryside, which happened to be just northeast of London's famous financial district.
4. These traders not only knew each other because of relationships developed in prior trading positions but also belonged on the boards of the same charity groups, golf clubs, and social clubs.
What Should BAC Shareholders Do Next?
This lawsuit is just one of many legal issues in which the world's megabanks, particularly Bank of America, are embroiled. See our previous article, highlighting recent BAC alleged fraudulent activities here.
Bank of America has not raised dividends meaningfully since 2009 - and the income outlook looks even bleaker in 2014 as the megabank recently settled for billions, facing up to claims of their mishandling mortgage securities. These fines and related legal and accounting expenses significantly reduces the income available to pay dividends to shareholders.
We continue to recommend current BAC shareholders take some modest profits now in their BAC holdings.
No one can accurately predict how many more billions the bank will lose in litigation fees and expenses in 2014 and 2015.
It is a time to be careful with this mega bank stock until it becomes clear that the bank has instituted a better culture of compliance and we have better visibility on the total amounts of fines and expenses associated with their past behavior.