Investment Fraud Lawyer Blog

Cornerstone Ministries Investments, Inc., a Georgia-based company in the business of lending money to fund churches and/or faith-based organizations, filed for Chapter 11 bankruptcy on February 10, 2008 after apparently investing in speculative secular real estate ventures.

Cornerstone was able to lend money to churches by raising money through the issuance of Cornerstone stocks and bonds. Church-going consumers interested in making altruistic investments in the development of new churches were often the people investing in these stocks and bonds.

It appears that Cornerstone deviated from its core mission and branched out into secular, very speculative real estate ventures at the expense of its investors. Now that Cornerstone has filed for bankruptcy, the values of those stocks and bonds have plummeted, leaving the investors holding the bag.

Continue reading " Cornerstone Ministries Investors May Have Legal Claims Against Brokerage Firms Or Financial Advisors " »

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Posted In: Common Securities Broker Abuses , Elder Abuses

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In the face of the myriad of problems affecting the financial world, Wall Street is embarking on a bold, and for it a mostly unprecedented, tactic. It is telling the truth.

According to Andrew Ross Sorkin in his Dealbook column in the May 13th edition of The New York Times, Kevin C. Griffin, the founder of the Citadel Investment Group, a twenty million dollar hedge fund, has put it rather bluntly: “We, as an industry, dropped the ball.” Mr. Griffin’s analysis is scathing: The investment banks gambled away money and jobs during the late great credit boom. The same bosses let the young, gung-ho traders take on too much risk and now we are all paying the price. In Mr. Griffin’s view, however, the answer is simple. The entire financial industry needs to change its attitude and perhaps accept greater regulation.

Continue reading " Fixing Wall Street? " »

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Posted In: Common Securities Broker Abuses , Subprime Mortgage & Collateralized Debt Obligation Problems

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Although the figures remain relatively small, mortgage delinquencies have now spread beyond subprime borrowers to prime borrowers, according to a front-page article in the May 9 -11 edition of USA Today.

According to data from FirstAmerican CoreLogic LoanPerformance, approximately 2.3 percent of prime loans were 60 days past due in February, up from 1.4 percent a year ago. The foreclosure rate for prime borrowers is also up. Mortgage Bankers Association says that the rate of foreclosure filings for prime ARMS (adjustable-rate mortgages) rose from 0.41 percent to 1.06 percent. Prime ARMS constitute 15% of loans outstanding and 20% of foreclosure filings.

Continue reading " Mortgage Crisis Hits Prime Loans " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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Wall Street continues to shed jobs at breakneck speed, and financial firm employees cannot help but wonder how many heads will ultimately roll. The number of announced layoffs increases weekly. According to an article in The Wall Street Journal on May 10, more than 23,000 financial job cuts were announced in April. That brings the total announced job cuts for the first four months of 2008 to 49,825 –- nearly as many as the job cuts announced in all of 2007.

Lehman Brothers is expected to announce this week that it is eliminating about 5% of its workforce – or 1,425 jobs – on top of a previously announced 5% job cut. By the end of June, Morgan Stanley plans to cut 1,500 more jobs to bring its total layoffs to 4,500 or about 10% of its workforce. UBS announced last week that it will cut 5,500 jobs, including 2,600 investment bankers. Finally, no one knows how many Bear Stearns employees will be laid off once JPMorgan Chase acquires that firm.

In this uncertain climate, employees on Wall Street need to protect themselves. Even if your firm has a reputation of protecting its own, once you are targeted for layoff you are no longer within that circle of protection.

Continue reading " With 50,000 Layoffs So Far This Year, Wall Street Employees Must Protect Themselves " »

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Posted In: Employment Issues

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UBS AG will pay approximately $35 million to approximately 20 Massachusetts towns and cities that invested in the auction rate securities market. As reported by Forbes.com, the Swiss banking giant confirmed that it has entered into an agreement with the State of Massachusetts to return the amount of the investments. Massachusetts had been investigating UBS for misleading towns, cities, and other municipal entities by representing that auction rate securities were permissible investments under state law. That investigation began in February 2008.

The 20 or so municipalities that will be receiving the $35 million back from UBS invested from their general fund, which is regulated by a state municipal finance law that strictly prescribes what kind of investments can be made. According to Massachusetts Attorney General Martha Coakley, UBS misled the municipalities by representing that the securities were permissible investments under state law when in fact they were not.

Continue reading " UBS Will Pay $35 Million To Redeem Auction-Rate Securities Sold To Massachusetts' Cities " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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Jim Rogers, a co-founder with George Soros of the Quantum Fund, has contradicted his old partner and most Wall Street firms with his prediction that the global credit squeeze caused by US housing loan delinquencies is not nearing its end. According to Bei Hu writing on Bloomberg.com on May 8, Rogers, the chair of Rogers Holdings, said at a press conference in Singapore, “I doubt that we’re half way through the financial crisis. We certainly haven't hit the bottom as far as I'm concerned.”

“Most of the European banks and Asian banks haven't taken a huge write-off yet,” Rogers commented. “I suspect there are more write-offs to come in Europe and Asia,” he advised.

Continue reading " Jim Rogers Contradicts Wall Street -- The Worst Is Yet To Come " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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Wachovia has announced that its securities unit has received subpoenas from the SEC and various state regulators regarding its auction-rate securities practices.

In April, the SEC requested auction-rate securities information from various brokerage firms after many of the auction-rate markets froze, denying investors access to their funds. Recently, state securities regulators have also began focusing on the auction-rate problem and are coordinating their efforts to help investors “who can’t access funds that their brokers placed in these complex investment products,” according to an article by Kevin Kingsbury in The Wall Street Journal. North Dakota Securities Commissioner Karen Tyler, the president of the North American Securities Administrators Association, said “If violations are uncovered, then state securities regulators will seek appropriate remedies, including a much stronger commitment from Wall Street to provide their retail clients with an acceptable solution.”

Continue reading " Wachovia Receives Auction-Rate Securities Subpoenas " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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According to Jody Shenn of Bloomberg.com, Barclays Capital has reported that about half of subprime and Alt-A borrowers will soon either have little equity in their homes or will actually owe more on their mortgages than their homes are worth. This will put an additional $800 million of debt at greater risk of default.

New York-based analysts Ajay Rajadhyaksha and Derek Chen wrote, “Mortgage loans are moving underwater at a very sharp pace, far more than suggested by aggregate home price data.”

Continue reading " More Subprime And Alt-A Mortgages Heading Underwater " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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In an April 25 interview with CNBC, Nobel Prize Laureate Professor Joseph Stiglitz of Columbia University provided a bleak long-term outlook for the U.S. economy. "This is going to be one of the worst economic downturns since the Great Depression," Stiglitz advised. Stiglitz’s analysis is directly contrary to recent claims of Wall Street executives who contend that the worst is behind us. Of course, many Wall Street executives made similar claims last October when the firms recognized billions of dollars in losses.

According to Stiglitz, the primary cause of the recession is historically unique and thus perplexing those responsible for finding solutions. Previous recessions were caused either by excessive inventories or inflation. This downturn is caused by "badly impaired" banks and financial entities that will or cannot lend capital. Even borrowers who usually drive the country back to vitality remain uncertain as to what to do.

Continue reading " Internationally Famous Economist Disputes Wall Street's Claim That "The Worst Is Over" " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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According to a published report in Bloomberg.com, Morgan Stanley plans to lay off up to five percent of its work force during the remainder of 2008. These layoffs were driven by Morgan Stanley's recently announced quarterly losses, which were the first in its history as of a publicly-traded company. Morgan Stanley posted a $3.6 billion loss in the quarter ending March 31, 2008. The firm has already laid off 3,000 workers since October 2006.

Morgan Stanley CEO John Mack predicted in April that the credit crisis caused by the subprime mortgage and real estate market collapse would last "a couple of quarters" longer and that it was going to be "a difficult year for the Street."

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As reported by Reuters, Ken Okada, a former stockbroker with Bear Stearns, was sentenced on Tuesday to three years probation, a year of home confinement, and fined $300,000 for his role in an insider-trading scheme.

Okada was one of 13 people charged in 2007 in what authorities have called the most pervasive insider trading rings since the 1980s.

Okada used information from UBS AG research reports, before the reports were made public, to execute hundreds of trades totaling $17.5 million.

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Posted In: Common Securities Broker Abuses

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After experiencing $17.3 billion in losses in the first quarter from its investment-banking unit, UBS announced on May 6 that it plans to cut 5,500 jobs, approximately half of which will come from its securities division. According to a report on Bloomberg.com, UBS said that its clients withdrew 12.2 billion dollars in assets more than they deposited in UBS's wealth management and asset management divisions during the most recent quarter. The most recent UBS job cuts are on top of approximately 48,000 other layoffs announced by the world's biggest banks and securities firms in the past year, mostly resulting from write downs and losses from the US subprime crisis.

Continue reading " UBS Will Cut 5500 More Jobs " »

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Posted In: Employment Issues

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According to a story by Stephanie Armour in USA Today on April 29, the most severe real estate recession in decades is far from over – the pace of foreclosures is rising, the fall of home prices is accelerating, and the pain is spreading to almost every major city.

The Standard & Poor's/Case Shiller home composite index of 20 cities fell by 12.7 percent in February compared with last year. This was the largest decline since the index was created in 2001. Nearly every major U.S. city was affected; all but one of the 20 cities – Charlotte – saw price declines. In fact, seventeen of those 20 metropolitan areas reported record annual declines. David Blitzer, the chair of the index committee at S&P, said. “There is no sign of a bottom in the numbers.”

Continue reading " Foreclosures Rising And Home Prices Falling At Unprecedented Rates " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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In addition to being the financial center of the South, Atlanta now has the dubious distinction of ranking second only to New York as a hotbed for investment fraud, according to a front page story in the April 25 – May 1, 2008 issue of the Atlanta Business Chronicle.

In April, the Securities and Exchange Commission (SEC) launched the “PAUSE” program to provide investors with regularly updated factual information, derived from investor complaints and other sources, about questionable email or telephone solicitations from securities firms. This program will shed light on a dark corner of the financial world attracted by Atlanta’s decade-long economic boom.

Continue reading " SEC: Atlanta As A Hotbed Of Investment Fraud " »

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Posted In: Common Securities Broker Abuses

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Hedge funds marketed by Citigroup as “ideal investments for conservative retirees” have now lost 75% or more of their value. Citigroup’s Smith Barney brokerage unit raised hundreds of millions of dollars for those hedge funds – called Falcon and ASTA/MAT – from retail clients who were told that the fixed income funds were safe places to stash money. Now Citigroup is facing a huge outcry from injured customers and their brokers.

After weeks of intense internal debate, Citigroup is offering to cover some of the losses. This offer is tantamount to an admission that the hedge funds were misrepresented to investors.

Falcon invested in municipal bonds, mortgage-backed securities, bank loans and other debt instruments; ASTA/MAT emphasized municipal bonds. Each consisted of different funds that were launched periodically. Last year, as it geared up to launch new Falcon and ASTA/MAT funds, Citigroup encouraged the brokers at Smith Barney and Citigroup’s private bankers to pitch the funds to their best customers. Of course, they told none of these customers that one reason for the push was that Falcon had declined more than 10% and Citigroup wanted to stabilize it with new cash.

Continue reading " Citigroup Mismarketed Internal Hedge Funds " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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On April 23, Washington Post staff writer Dina ElBoghdady reported that “seven out of 10 troubled mortgage borrowers remain without a plan to work out their loans despite increased industry efforts to help them” according to a report released by a coalition of state attorneys general and banking regulators. The coalition represents 11 attorneys general, two state banking departments and the Conference of State Bank Supervisors.

The group collected data from 13 of the largest subprime lenders from October 2007 through January 2008 and found that lenders are being overwhelmed by their workload and are unable to keep pace with borrowers who fall behind on their payments. Even though 50,000 more loans were modified in January 2008 than in October 2007, 90,000 additional loans have since became delinquent.

"There still seems to be a disconnect between homeowners and their mortgage servicers," says North Carolina's deputy commissioner of banks Mark E. Pearce.

Continue reading " Borrowers Still Struggle To Deal With Delinquent Mortgages " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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More than $9 billion in auction-rate bonds issued by student loan agencies have left investors with bonds that pay less than the 0.76 percent interest rate of the one-month Treasury bill, reported Bloomberg.com on April 25. “It's hard to explain, to conceptualize or even understand how someone can borrow money and not pay you interest,”' said Mike Saunders, manager of student-loan bonds for Acton.

The problem materialized because of a formula designed to ensure that borrowers do not pay more interest on their debt than they receive from student-loan clients. The formula is based on a 12-month average of benchmark money market yields, which have fallen drastically as the Federal Reserve slashed its target rate for overnight loans between banks in September 2007.

Auction-rate bonds are long-term securities whose rates are determined through bidding run by dealers every 7, 28 or 35 days. When a sufficient number of buyers fail to bid, the auction fails and the rate resets to a level set out in the original terms under which the auction-rate securities were sold.

Continue reading " Adding Insult To Injury: Auction-Rate Bond Investors Get Almost 0% Interest On Securities They Cannot Sell " »

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Posted In: Subprime Mortgage & Collateralized Debt Obligation Problems

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