Investment Fraud Lawyer Blog

Just days after the Wall Street Journal published an article suggesting that the brokerage firm Ameriprise Financial Services was being investigated by state securities regulators for charging customers hundreds of dollars for financial plans that they never received, the New Hampshire Bureau of Securities Regulation filed a complaint against the firm.  

The complaint alleges that the brokerage company failed to deliver nearly 500 financial plans, conducted unapproved sales contests and intentionally limited compliance oversight.  Additionally, the Minneapolis-based brokerage company was accused of failing to disclose adequately all fraudulent activities to the state of New Hampshire while it was under supervision by the state and by an independent consultant in 2005.

In a press release issued by New Hampshire, the Bureau Director stated, “What we’ve found is an unprecedented and widespread compliance failure on a number of levels within the company as well as an unprofessional workplace environment and attitude that would do little to inspire the trust and confidence of New Hampshire investors… This conduct was a direct result of an Ameriprise sales culture more concerned with sales commissions than compliance.” The regulator said that the company could face penalties and client restitution of up to $10 million.

On the day that the Wall Street Journal article was published, Page Perry, LLC questioned on its website whether the incidents described in that article pointed to a wide spread compliance problem within the firm.  The comments from the Bureau Director above would appear to answer, at least in part, this question.

Page Perry, LLC is a nine lawyer Atlanta-based law firm with over 125 years collective experience representing investors in securities related litigation and arbitration.  While past results are not necessarily indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions.  The firm is currently involved in cases against Ameriprise Financial Services.

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Posted In: Common Securities Broker Abuses , Elder Abuses

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Over recent weeks, the subprime crisis has hit Merrill Lynch hard, resulting in significant financial and legal problems for the firm.  On October 5, 2007, the Wall Street Journal reported that Merrill Lynch projected a third quarter net loss of up to 50 cents per share in connection with a $5.5 billion write-down.  This was followed by a 5.8% decline in the price of Merrill Lynch stock and a downgrade of its credit rating.  The firm pointed to its “valuation adjustments” of subprime collateralized debt obligations (CDOs) and similar products as the reasons for the write-down.  Earlier that week, Merrill terminated its global head of fixed income, the co-head of fixed income for the Americas, and their boss, the former co-head of institutional securities.

On October 24, Merrill Lynch stated that the third quarter write-down was $7.9 billion, 43% greater than the $5.5 it had reported just 19 days before.  The Associated Press pointed out that Merrill suffered its first loss in six years, and its quarterly performance was the worst by far of the Wall Street firms.

One day later, on October 25, Merrill Lynch stated that the write-down was actually $8.4 billion, 13.7% of its market capitalization.  Again, Merrill identified its revaluing of subprime mortgage-backed bonds as a reason for the write-down.  According to the Wall Street Journal, Merrill lost $2.24 billion for the quarter, and Standard & Poors described the write-down as “staggering.”

Merrill Lynch’s legal problems have increased as well.  On October 19, 2007, the Wall Street Journal reported that MetroPCS Communications (“Metro”), a Dallas wireless-phone-service-provider, filed suit against Merrill Lynch for fraud, negligence and breach of fiduciary duty in investing $133.9 million of its cash in high-risk, illiquid CDOs.  Metro’s investment objective was to invest its cash in low-risk, highly liquid assets.  Among other things, the suit alleges that Merrill improperly advised Metro that the securities were “low risk and highly liquid.”  

These developments are somewhat surprising given that Merrill Lynch appears to have had substantial warnings of the impending subprime crisis.  Indeed, on December 5, 2006, the Wall Street Journal reported that a Merrill Lynch analysis found that losses on recent subprime deals could be 6% to 8% if home prices were flat in 2007, and in double digits if home prices fell by 5%.  Merrill’s analysis further found that falling home prices could trigger losses not only in riskier classes of mortgage-backed securities, but also in investment grade bonds, according to the article.

Page Perry, LLC is a nine lawyer Atlanta-based law firm with over 125 years collective experience representing investors in securities related litigation and arbitration.  While past results are not necessarily indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions.  Page Perry attorneys have successfully handled complex CMO, CDO and mortgage backed securities cases for over 20 years.  The firm is currently involved in various subprime mortgage cases around the country.

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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On October 25, 2007, the Financial Industry Regulatory Authority (FINRA) censured and fined the brokerage firm UBS Financial Services $370,000 for failing to report critical information about its brokers, including customer complaints, regulatory actions and criminal disclosures, on FINRA’s Central Registration Depository (CRD).  

The CRD is very important to investor protection because the system is designed to keep track of an individual broker’s and brokerage firm’s disciplinary history.  Through the CRD system, investors have the ability to assess the background of brokers and make a more informed decision about whether to hire or retain them to manage their money.  To find out more information about your broker, visit the Broker Check link on FINRA’s homepage, www.finra.org.  

Page Perry’s experience with FINRA’s Broker Check feature is that the CRD reports generated are not as complete as the CRD reports that are also available through state securities regulators.  To obtain a copy of a CRD Snapshot report from your state regulator, visit the North American Securities Administrators Association’s (NASAA) website, www.nasaa.org, to obtain your state securities regulator’s contact information.  The NASAA website also has helpful information in the Senior Investor Resource Center section on how to avoid becoming a victim of investment fraud.

Page Perry, LLC has also represented investors against brokerage firms for failing to report accurately the reasons that a broker departs from a firm.  For example, in many instances, an unscrupulous broker will get fired from Firm A for defrauding his or her customers. Firm A, however, falsely reports the broker’s departure as “voluntary.”  The unscrupulous broker is then able to get hired at Firm B where he or she defrauds more customers. In fact, in many cases, customers who have already been defrauded at Firm A will unknowingly follow the unscrupulous broker to Firm B because of the trust relationship that exists between the customer and the broker.  In this circumstance, Firm A may be able to be held liable for the losses at Firm B because the unscrupulous broker would never have been hired at Firm B had the truth been disclosed about his departure from Firm A.

As stated in FINRA’s press release, "Investors, regulators and others rely heavily on the accuracy and completeness of the information in the CRD public reporting system - and, in turn, the integrity of that system depends on timely and accurate reporting by firms," said Susan Merrill, FINRA Executive Vice President and Chief of Enforcement.
    

 

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Posted In: Common Securities Broker Abuses , Elder Abuses

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The news only appears to be getting worse for Bear Stearns and investors in its two failed hedge funds, the High-Grade Structured Credit Strategies Enhanced Leverage Fund (the “Enhanced Fund”) and the High-Grade Structured Credit Fund (the “High-Grade Fund”).   

Last May, when investors tried to get out of the funds after learning that losses  far exceeded the amounts that had been reported earlier, Bear Stearns abruptly halted redemptions.  In June, Bear Stearns told clients that the High-Grade fund was down 91% and the Enhanced Fund also had suffered a sharp decline.  Two months later, in a July letter to investors, Bear Stearns acknowledged that “there is effectively no value left” in the Enhanced Fund and “very little value left” in the High-Grade Fund.  Much to their dismay, investors learned that the two funds -- that had an estimated value of $1.5 billion at the end of 2006 -- were essentially worthless.

Industry observers blamed the demise of Bear Stearns’ once high-flying hedge funds on the subprime mortgage crisis that began last spring.  The firm’s letter to investors stated that “unprecedented declines in the valuations of a number of highly rated (AA and AAA) securities,” contributed to the funds’ devastating losses.  The real reason for the funds’ failure, however, appears to be their large investments in risky mortgages and the collapse of the market for collateralized debt obligations, or CDOs.
          
Massachusetts securities regulators are now investigating charges that Bear Stearns engaged in improper trading in the funds and in so doing caused investors to incur additional losses.  The regulators are examining whether Bear Stearns traded mortgage-backed securities for its own account with the two hedge funds without first notifying the funds’ independent directors. Federal securities law requires that any investment adviser whose affiliates engage in principal trading with clients must obtain their written consent in advance. Investment companies have long recognized the importance of giving advance disclosure of principal trades so that, from the fund’s perspective, it has assurances of fair dealing.  If the investigation reveals that Bear Stearns failed to give this proper disclosure and engaged in conflicted trading, the funds may be accused of breaching their fiduciary duty to investors.

Federal prosecutors and the Securities and Exchange Commission are conducting their own investigations of the Enhanced Fund and High-Grade Fund, focusing on the circumstances that led to their implosion. 

The intense scrutiny the funds now face may be only the beginning of legal problems for Bear Stearns.  A recent Business Week analysis (October 22, 2007) reveals that the funds were “virtually guaranteed to implode if market conditions turned south,” as they did earlier this year.  The funds not only used enormous amounts of leverage, or borrowed money, they also relied on accounting practices that allowed them to base the value of securities in their portfolios on “fair value,” or estimated value, rather than the true market price. Because the value of the assets on which the funds’ returns were based was arguably questionable at best, the high returns the funds initially earned were bound to plummet as defaults on subprime mortgage loans increased.

Continue reading " Bear Stearns' Hedge Fund Problems Worsen " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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According to an October 17, 2007 article in the Wall Street Journal, several states, including New Hampshire and Alabama, are investigating allegations that large numbers of Ameriprise customers are paying hundreds of dollars for financial plans that they never received.  Instead, advisors are allegedly forging customer names to make it appear that investors received these expensive plans.

According to the article, Ameriprise spokesman Benjamin Pratt minimized the alleged problem by describing these as “isolated incidents.”  But are they really so isolated?

Page Perry's experience suggests otherwise.  In March 2007, Page Perry filed an arbitration against Ameriprise Financial Services, Inc. for failure to deliver written financial plans paid for by the client.  The client's financial advisor, operating out of Ameriprise's Chattanooga, Tennessee branch office, also forged the client's signature to a number of documents to make it appear as though the client had agreed to pay for the financial plan and had in fact received it.  This arbitration is still pending.

Recent history also suggests that these problems are not isolated incidents.  Consider, for example, that this past July, a federal judge in New York approved a $100 million class action settlement by investors who alleged that American Express Financial Advisors’ (Ameriprise’s predecessor company) financial plans were generic and were designed as a way to steer clients into proprietary American Express insurance and investment products.  According to the class action complaint, the firm imposed sales quotas on its advisors to sell financial plans and proprietary products.  Page Perry’s experience suggests that firm-wide quotas lead to firm-wide compliance and suitability problems for customers who are often unsophisticated and looking for an advisor to trust.

In addition, even though not mentioned in the Wall Street Journal article, Ameriprise agreed in October 2007 to pay $225,000 in penalties to Georgia Secretary of State’s office to settle consumer complaints stemming from a fraud and forgery case.  As part of the settlement, Ameriprise also agreed to a two-year reporting and monitoring period.  According to a recent article in the Atlanta Journal-Constitution, the settlement followed an investigation launched by the Georgia Secretary of State’s office in which investigators found that the company failed to discover forgeries of customer signatures on financial documents.

According to the Wall Street Journal article, the Alabama Securities Commissioner Joseph Borg “believes more than 200 Ameriprise plans weren’t delivered to customers in Alabama.”  He also stated that Ameriprise was cooperating with his investigation and has “already made a bunch of refunds” to customers who did not receive a plan.  Also, Page Perry’s investigation efforts have uncovered information suggesting that customers in North Carolina may be victims of forgery in connection with the sale of these financial plans. 

Page Perry, LLC represents investors across the nation seeking to recover losses from financial professionals and their firms for engaging in unlawful conduct.

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Posted In: Common Securities Broker Abuses , Elder Abuses

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On October 10, 2007, a panel of federal judges denied a motion to centralize five Allianz class action lawsuits currently pending against Allianz related to its deferred annuity sales practices.  Plaintiffs’ counsel in two of the five cases filed the motion in the Judicial Panel on Multidistrict Litigation (“MDL Panel”).  Allianz, along with plaintiffs’ counsel in the other three actions, opposed the motion.  Page Perry, LLC, Chestnut & Cambronne, P.C. and the Nygaard Law Firm, co-lead counsel in the largest of the five class actions, opposed centralization on behalf of the certified class action pending in Minnesota.  Page Perry name partner Alan Perry argued before the MDL Panel on behalf of the Minnesota class in New York City on September 27, 2007.

In its Order denying transfer, the MDL Panel stated that it was not persuaded that centralization would serve the convenience of the parties or further the efficient conduct of the overall litigation.  The Panel pointed out that four of the five actions “are at a significantly advanced stage.  Classes have been certified in those four actions, and fact discovery has been completed (or is nearing completion) in three of them.”  The Panel went on to state that the “proponents of centralization have failed to convince us that any remaining and unresolved common questions of fact among these five actions are sufficiently complex and/or numerous to justify Section 1407 transfer at this time.”

Alan Perry stated, “We are pleased that the Panel recognized that centralization would not promote the efficient resolution of these different and advanced cases.” 

Also significant to some Allianz policyholders, the Minnesota Attorney General Lori Swanson this week reached a settlement with Allianz Life that provides the opportunity for Minnesota purchasers of Allianz deferred annuities age 65 or older to receive refunds.  

According to the terms of the settlement, Minnesotans age 65 or older who purchased an Allianz deferred annuity between January 1, 2001 and the present will receive a letter from AG Swanson giving them the opportunity to submit a claim for a refund without penalty.  For more information visit the Minnesota Attorney General’s website at www.ag.state.mn.us.

Similar to the complaint filed by Page Perry, LLC and co-counsel in early 2006, the Attorney General’s office alleged in a complaint filed in January 2007 that Allianz offered false promises of immediate bonuses to lure investors into purchasing its deferred annuities that locked their money up, in some cases, past the policyholders’ life expectancy. The Minnesota Attorney General’s settlement does not affect any of the five class actions mentioned above.

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Posted In: Variable Annuities and Equity-Indexed Annuities

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Gregory A. Fisher, a former Senior Managing Director at Bear Stearns office in Atlanta, Georgia, has been awarded $1.625 million in damages based on a breach by Bear Stearns of its severance agreement with Fisher. A three-member panel of arbitrators appointed by the Financial industry Regulatory Authority (FINRA) issued the award.

Fisher claimed that Bear Stearns forced him out in March 2005 because it was no longer interested in servicing his clients, which included financial institutions in the Caribbean and Latin America. As part of the severance agreement it negotiated with Fisher, Bear Stearns agreed not to solicit certain of fisher’s clients. Upon Fisher's departure, however, Bear Stearns immediately reassigned some of Fisher’s largest accounts and began soliciting their business.

Continue reading " FINRA Arbitration Panel Awards Broker $1.6 Million For Breach Of Severance Agreement " »

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Gregory A. Fisher, a former Senior Managing Director at Bear Stearns office in Atlanta, Georgia, has been awarded $1.625 million in damages based on a Bear Stearns’ breach of its severance agreement with Fisher by a three-member panel of arbitrators appointed by the Financial industry Regulatory Authority (FINRA).

Fisher claimed that Bear Stearns forced him out in March 2005 because it was no longer interested in servicing his clients, which included financial institutions in the Caribbean and Latin America. As part of the severance agreement it negotiated with Fisher, Bear Stearns agreed not to solicit certain of fisher’s clients. Upon Fisher's, departure, however, Bear Stearns immediately reassigned some of Fisher’s largest accounts and began soliciting their business.

Continue reading " FINRA Arbitration Panel Awards Broker $1.6 Million for Breach of Severance Agreement " »

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Posted In: Employment Issues

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