Investment Fraud Lawyer Blog

In an article on Bloomberg.com, Jody Shenn reported that, contrary to some predictions, many experts believe that the credit crisis is far from over. During a conference hosted by the Securities Industry and Financial Markets Association on June 24, BlackRock president Robert Kapito likened the credit crisis to a baseball game: “Some people think it's in the eighth, I think it's in the fourth inning. Wait until you see the quarterly losses people are going to report this quarter.'' Kapito believes that the losses on positions taken to hedge against souring debt will aid in extending the pain for financial firms.

To date, the world's largest banks and securities firms have reported over $399 billion of write downs and credit losses since the housing market crashed in early 2007. Earlier in June, Lehman Brothers reported a first-quarter net loss of about $700 million on commercial-mortgage holdings and opposite derivative bets. Morgan Stanley reported about $500 million in net losses from hedging meant to offset potential write-downs on high-yield company loans.

Continue reading " Credit Crisis only in "4th Inning" " »

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Posted In: Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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An Associated Press story on MSNBC.com reported that billionaire investor Warren Buffett said that the economy – which he already believed was in a recession – is getting worse. Buffet bases his opinions on data from Buffet’s Berkshire Hathaway subsidiaries showing that the economy is weakening.

Berkshire Hathaway owns a variety of companies in the business of insurance, clothing, furniture, jewelry, candy, restaurants, natural gas and corporate jets. It is also a major investor in companies such as Coca-Cola and Wells Fargo. Buffet thus saw a large cross section of the economy in arriving at his conclusions.

Continue reading " Investors Beware: Warren Buffet Believes "Recession Getting Worse" " »

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Posted In: Market Developments

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If you work on Wall Street, your days of gainful employment may be numbered. Job security on Wall Street is fast becoming a thing of the past. Josh Fineman and Deirdre Bolton of Bloomberg.com reported today that executive recruiters claim that the world’s biggest financial firms may cut as many as 175,000 jobs by this time next year. These firms have already announced cuts of more than 83,000 jobs since July 2007, and recruiters fear that the job losses will exceed those from the technology collapse market slump of 2000 – 2003.

Firms have incurred write-downs of almost $400 billion because of mortgage defaults. Write-downs of this magnitude mean correspondingly large job losses, especially on Wall Street, which has a tendency to over-hire in up markets and over-fire in down markets.

Continue reading " 175,000 Wall Street Jobs May Be Going, Going, Gone " »

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Posted In: Employment Issues

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Federal prosecutors have brought the first criminal case related to the subprime mortgage meltdown. A federal indictment brought by the U.S. Attorney’s Office for the Eastern District of New York which was unsealed on Thursday, June 19, alleges that former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, deceived investors. The two were accused of securities fraud, wire fraud, and conspiracy. In addition, Cioffi was charge with one count of insider trading.

According to the 27-page indictment, when subprime mortgage problems began driving down the value of the Bear Stearns hedge funds the two managed, they not only hid the truth from investors but went as far as to tell investors to put more money into the funds even as they began to sour.

Continue reading " Former Bear Stearns Hedge Fund Managers Indicted " »

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Posted In: Bear Stearns , Bear Stearns Hedge Funds , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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Citigroup, the largest bank in the U.S., is expected to take substantial second quarter write downs for subprime mortgages, leveraged buyout loans and other assets. The bank's chief financial officer Gary Crittenden told investors via phone on Thursday that second quarter markdowns will be smaller than the first quarter, but substantial nonetheless. “The marks in this quarter are unlikely to be of that same magnitude, but again they are still sizable marks,” Crittenden said.

In the first quarter, Citigroup posted a $6 billion loss and the bank wrote down $1.5 billion for exposure to bond insurers.

Costs linked to worsening subprime credits could have a meaningful impact on Citigroup’s results for the rest of the year. “We will continue to have substantial additional marks on our subprime exposure this quarter,” Crittenden said. “We may continue to see the magnitude of the marks decline, as the exposures that we have have declined.”

Continue reading " Citi's Write Downs Continue " »

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Posted In: Citigroup/Smith Barney , Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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On June 19, Evergreen Investments, a subsidiary of Wachovia Corporation, announced that it was liquidating the Evergreen Ultra Short Opportunities Fund (EUBAX). The Fund has lost 19.6 percent of its value year to date, including total realized losses of more than $200 million in less than three months since March 31, 2008. Bond funds – traditionally considered safe, conservative investments – have once again proven that they are not immune to the subprime meltdown and may be among the most exposed investments of all.

The Fund, whose objective was to provide current income with preservation of capital and low principal fluctuation, invested 83.25% of its assets in commercial and residential fixed and variable rate mortgage backed securities, including collateralized mortgage obligations.

Continue reading " Investors Lose Big As Wachovia Subsidary Liquidates Evergreen Ultra Short Opportunities Fund " »

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Posted In: Evergreen , Mutual Funds , Securities Class Actions , Subprime Mortgage & Collateralized Debt Obligation Problems , Wachovia

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On June 18, CNBC.com reported that the Royal Bank of Scotland had warned investors in blunt terms that the global stock and credit markets could be on the verge of a steep market sell-off just as central banks have their hands tied by soaring inflation. "A very nasty period is soon to be upon us – be prepared," warned Bob Janjuah, credit strategist at RBS.

According to a report from the bank’s research team, as "all the chickens come home to roost" from over-easy lending practices and other excesses of the global boom period, the S&P 500 index is likely to slump.

Continue reading " Should Investors Switch to Cash in Order to Avoid a "Very Nasty Period"? " »

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Posted In: Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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It is bad enough that broker-dealers sold auction-rate securities (ARS) to their customers as safe, liquid, cash alternatives with full knowledge that they were none of these things. Then, after the “auctions” failed and customer funds were frozen, many of these same firms continued to act against their customers’ best interests by forcing them to remain invested in these illiquid assets.

When the ARS market froze in February, investors were stuck – they could not sell their ARS at auctions, and there was no other mechanism to sell them. A rudimentary secondary market has sprung up in which third parties are willing to buy the ARS – at a discount from face value – from the investors. The discounts range from 5% to 30%.

It would seem to be a solution for investors, albeit an expensive one, but Bank of America, Wachovia, UBS, and other broker-dealers did not permit their customers to sell the ARS on this secondary market. The hypocritical investment banks claimed that they were “protecting” their customers from needless losses of principal on ARS that were sold as liquid, safe cash alternatives.

Continue reading " FINRA To Broker/Dealers - Let The People Sell Their Auction Rate Securities " »

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Posted In: Auction Rate Securities , Bank of America , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems , UBS , Wachovia

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Chief executives of the world's largest financial institutions may have been a bit too optimistic in predicting that the end of the global credit crisis was near, according to a recent story by the Associated Press on MSNBC.com. In April, Morgan Stanley's John Mack, Goldman Sachs' Lloyd Blankfein, Lehman Brothers’ Richard Fuld, and Merrill Lynch's John Thain were upbeat about the financial market. Sports metaphors abounded. Mack said that the credit crisis had reached “maybe the top of the ninth” of a baseball game while Blankfein compared the situation to the “third or fourth quarter" of a football game.

Such predictions of a market turnaround were premature. A wave of consumer anxiety about the financial industry, inflation, and a lull in the economy caused stocks to fall recently.

Continue reading " Wall Street CEOs Too Optimistic? " »

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Posted In: Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Market Developments , Merrill Lynch , Morgan Stanley , Subprime Mortgage & Collateralized Debt Obligation Problems

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The Associated Press reported on June 6th that home equity has “dropped to its lowest level since the end of World War II.” At the end of March, almost 8.5 million homeowners had negative or no equity in their homes, according to Moody's Economy.com chief economist Mark Zandi.

"For most, their home is their key asset. If they have no equity in their home, likely their net worth is negative, too. Their entire balance sheet will be underwater," Zandi advised.

Continue reading " Home Equity Falls To Lowest Level Since World War II " »

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Posted In: Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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In 2007, worldwide earnings for Dutch insurer Aegon NV dropped 20 percent. Profit in the Americas, however, rose 12 percent because of the firm’s little known division, World Financial Group Inc., whose agents sell life insurance, annuities and mutual funds from other Aegon units, as reported by Seth Lubove in a May 28th Bloomberg.com article.

According to the company’s marketing materials, what sets World Financial Group apart from traditional sales forces is its structure. The pyramid-like, multilevel sales organization produces hefty compensation for its agents but not from the sales of products as much as the recruitment of new agents. Agents who garner promotions also get a portion of the commissions earned by new agents they recruit.

World Financial has been accused by securities regulators in Missouri and Utah of misrepresenting investment returns and making unsuitable sales of variable annuities. This annuity controversy has also received attention from state securities officials in Alabama, Iowa, and Minnesota.

Continue reading " Have Things Changed At World Financial Group? " »

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Posted In: Common Securities Broker Abuses , Elder Abuses , Variable Annuities and Equity-Indexed Annuities

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They say that desperate times call for desperate measures. As reported by Peter S. Green on Bloomberg.com, the Long Island Bus Foreclosure Tour is the latest gimmick by lenders that are desperate to sell foreclosed properties. With a mortgage broker, general contractor, home inspector and attorney in tow, prospective buyers paid $75 to ride a bus and visit eight foreclosed homes in the New York City suburb of Long Island last month.

The foreclosure tour is the brainchild of Re/Max Village Properties saleswoman, Sheri Cambareri and broker, Dave Farrell. According to Eric Prusan, the lawyer who spoke on the tour, with some buyers ready to purchase the same day, the tours make for a “win-win situation for everybody.” “All you got to do is decide if you want to spend the money. We'll help you buy the house.” Prusan said.

Continue reading " Sign Of The Times: Foreclosure Bus Tour " »

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Posted In: Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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U.S. Treasury Secretary Henry Paulson had on his conomic cheerleader costume when he said it would only take “months” before turmoil in the financial markets ends. “We're talking about months and there will continue to be bumps in the road,” Paulson said during Q&A after giving a speech in Abu Dhabi, as reported by John Brinsley on Bloomberg.com on June 2.

Paulson responded to heightened concern about the weakness of the dollar, which has fallen 14 percent against the Euro. “Markets respond to economic fundamentals,” Paulson said. “Every economy is going to have its ups and downs and the U.S. is going through a tough period. I believe the long-term economic fundamentals will be reflected in our currency,” Paulson advised.

Continue reading " Paulson: Financial Turmoil Will End In "Months" " »

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Posted In: Citigroup/Smith Barney , Market Developments , Merrill Lynch , Morgan Stanley , Subprime Mortgage & Collateralized Debt Obligation Problems

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As reported by Christine Harper on Bloomberg.com and Kathy Shwiff at The Wall Street Journal on June 2, Standard & Poor’s (S&P) cut credit ratings for three investment banks, Lehman Brothers, Merrill Lynch, and Morgan Stanley. As a result, the firms say that they may have to book more write-downs on devalued assets.

Morgan Stanley, which is the second largest U.S. securities firm by market value, experienced a credit rating cut to A+ from AA-. Merrill Lynch, the third-biggest firm, was cut to A from A+, as was the nation’s fourth-biggest securities firm, Lehman Brothers. The credit rating of Goldman Sachs, the largest U.S. securities firm by market value, was stated at AA-.

S&P says that the “outlooks on the large financial institutions sector in the U.S. are now predominantly negative.” To date, the firms have raised about $270 billion of new capital. This capital, however, is considered to be of lower quality because much of it is comprised of hybrid securities, exceeding the S&P limits on the amount of hybrids permitted in the capital structure.

Continue reading " S&P Slashes Ratings Of Wall Street Banks " »

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Posted In: Bank of America , Citigroup/Smith Barney , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , Subprime Mortgage & Collateralized Debt Obligation Problems , Wachovia

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