Exact(2)
No sooner did the Federal Reserve System's member banks limit their provision of credit to purchasers of securities than non-member banks, insurance companies, and trust companies ramped up their lending, allowing the stock market to race ahead.
The Securities Act of 1933 authorizes claims by purchasers of securities who bought them pursuant to a registration statement (Section 11) and a prospectus (Section 12(a)(2)), two documents that must be filed before a security can be sold for the first time.
Similar(55)
For example, if the S.E.C. were to win a judgment against Citigroup, establishing that it defrauded the purchasers of the securities, then these purchasers could rely on that decision to prove their own individual fraud claims against the bank.
A settlement payment of $90 million will be made for a consolidated class-action lawsuit brought by purchasers of Lehman securities, and another $8.25 million will be paid to the New Jersey Department of the Treasury for its separate fraud claims.
So JPMorgan will be keen to keep any admission about the trades as far away as possible from the claims by shareholders and purchasers of its securities that they were defrauded.
In its 2006 10-K, Citigroup said, "The Company's mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust".
Federal Reserve bank sales or purchases of securities on the open market tend to reduce or increase the size of commercial-bank reserves; e.g., when the Federal Reserve sells securities, the purchasers pay for them with checks drawn on their deposits, thereby reducing the reserves of the banks on which the checks are drawn.
If the default rates turned out to be higher than expected, it was the purchasers of sub-prime securities that stood to lose out, not the loan originators.
Purchasers of the mortgage-related securities in question were hardly neophytes.
That's a return on investment that only the purchasers of subprime mortgage-backed securities could envy.
A twist was to create different classes of securities: some allowed purchasers to get what looked like supersafe investments with interest rates a little bit higher than they could earn on highly rated corporate or government bonds, while others required a lot more risk but offered the opportunity of getting a lot more reward.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com