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UBS Investors Dealt Setback Over Puerto Rico Fund Losses

Investors who lost money on UBS Group AG mutual funds stuffed with Puerto Rico government bonds can’t sue as a group, a federal judge said Monday, a setback in their efforts to collect from the Swiss financial services giant, the WSJ Pro Bankruptcy reported. The ruling by Judge Sidney H. Stein of the U.S. District Court in New York means that investors in closed-end mutual funds managed by UBS Financial Services of Puerto Rico Inc. must pursue their claims individually through arbitration, a more difficult path to recouping damages, rather than proceeding as a single, certified class. Investors have claimed that UBS brokers told them their mutual funds were safe when in fact their assets were heavily concentrated in just a few Puerto Rican municipal bonds and the funds had used leverage to improve returns. Judge Stein said the plaintiffs’ circumstances and their decisions to buy and sell were so dissimilar that their claims needed to be adjudicated case-by-case.

We Didn’t Kill Toys ‘R’ Us, Solus Tells Investors

Solus Alternative Asset Management LP didn’t kill Toys “R” Us Inc., the hedge fund said in a letter to its investors after coming under pressure for its investments in the liquidating retailer, Bloomberg News reported. “Solus did not force Toys ‘R’ Us to liquidate,” Chief Investment Officer Christopher Pucillo said in the Sept. 6 letter seen by Bloomberg News. “It was the culmination of a host of factors, including a decade-plus of excessive leverage, mismanagement and the increasing effects of competition from the likes of Amazon and Walmart.” The two-page letter lays out a timeline and narrative to rebut allegations that the refusal of Solus and other creditors to compromise on their investments forced the company to wind down when it could have lived on through a sale. New York-based Solus invested $20 million in a Toys “R” Us loan before its bankruptcy and added stakes in its senior debt after the chapter 1u1 filing, according to the letter. As the company closes its operations, Solus has attracted criticism from worker groups who say they deserve hardship pay after losing their jobs and that Solus and other lenders share the blame for the company’s failure to restructure.

Neiman Marcus’s Transfer of MyTheresa Subsidiary Pressures Bonds

Luxury retailer Neiman Marcus Group Ltd. has transferred shares of its MyTheresa online subsidiary to its parent holding company, a move that pressured the company’s bonds yesterday, WSJ Pro Bankruptcy reported. Before the transfer of MyTheresa to the parent company, Neiman Marcus Group Inc., there was some anticipation that the retailer would use the MyTheresa shares to entice bondholders to swap their debt for bonds with a longer maturity. “Some bondholders may have incorrectly assumed that the company would embark on a distressed debt exchange involving MyTheresa shares as collateral,” said Steven Ruggiero, an analyst at Pressprich & Co. The company has $4.7 billion in debt.

New York Fed Says It Wound Down Crisis Bailout Facility With $2.5 Billion Profi

The Federal Reserve Bank of New York said Tuesday that it had sold off all the remaining holdings of its crisis-era Maiden Lane LLC securities facility. The New York Fed created Maiden Lane in the spring of 2008 as part of its effort to protect the financial system and broader economy in the opening days of the financial crisis, the Wall Street Journal reported. That year, in a bid to get JPMorgan Chase & Co. to buy failing investment bank Bear Stearns Cos., the Fed took on troubled assets from the failed bank and put them in the Maiden Lane facility.Initially, there were broad-based fears that the Fed’s ownership of troubled Bear Stearns assets would lose the central bank money. But the New York Fed said Tuesday that the Maiden Lane portfolio generated a $2.5 billion profit, with $765 million in interest income and the rest from the proceeds of selling the securities. Since the crisis, as the economy improved and the financial system rebounded, the Fed allowed the wind down of Maiden Lane. The New York Fed said the remaining Maiden Lane securities in the portfolio had been sold off over recent months, with the sales completed in the last two weeks.

New York AG Raises Flags over Cryptocurrency Manipulation

The New York State attorney general's office has referred three cryptocurrency exchanges to the state’s financial regulator for possible legal action and raised concerns over price manipulation and conflicts of interest on trading platforms, Politico reported. In a report on virtual currencies released yesterday after months of information gathering, the attorney general said the exchanges — Kraken, Binance and Gate.io — may be operating without the special BitLicense that the New York Department of Financial Services requires for cryptocurrency firms. The report claims they do not have appropriate controls to prevent consumers from using their services in the state, which would violate New York law. Much of the information in the report was collected by directly contacting exchanges. Outside of the three referrals for investigation, the other findings could have a broad impact on the burgeoning industry. The report concludes that “virtual asset trading platforms have yet to implement serious efforts to monitor and stop abusive or manipulative trading.” Read more.

Don't miss the "Cryptocurrency, Blockchain and Other Breaking News" session at ABI's Winter Leadership Conference in December. This panel will discuss the impact of cryptocurrencies on the financial industry and how to litigate the complex issues they bring. Click here to register. 

SEC Commissioner Calls for Regulators to Bolster Market Oversight

A top securities regulator is calling for his agency to beef up its oversight of the nation’s stock exchanges to root out conflicts and curb rising fees that he says are harming investors, the Wall Street Journal reported. In a policy speech to be delivered Wednesday, Robert J. Jackson Jr., a Democratic commissioner at the Securities and Exchange Commission, will allege that the SEC has “stood on the sidelines” as the New York Stock Exchange, Nasdaq Inc. and other market operators have significantly boosted their profits while raising investors’ costs, according to a copy of his remarks. Jackson will call on the SEC to ensure “that the exchanges’ actions do not unduly burden competition and are fair and reasonable.” All of the currently active U.S. stock exchanges are for-profit enterprises, a reversal of the way the stock market operated for nearly two centuries. The NYSE, for instance, was a member-owned nonprofit until 2006 and was later acquired by Intercontinental Exchange Inc., an Atlanta-based global exchange operator. Critics charge that for-profit exchanges exploit their central position in the markets to extract greater fees from traders.
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