Investment Fraud Lawyer Blog

In perhaps the greatest “knee-jerk” reaction in U.S. history, the Bush Administration, the Treasury Secretary Henry Paulson, and Fed Chairman Ben Bernanke have urged the government to grant a $700 billion blank check to rescue Wall Street firms from their own excesses and abuses. In making this request, the Administration seeks to grant Mr. Paulson unfettered discretion to use taxpayer money as he sees fit. There is no plan in place. Instead, the government asks that the American people trust it because they will “know it [the problem] when they see it.” The proposed plan is foolhardy for various reasons.

Continue reading " Ten Reasons that the $700 Billion Bailout Plan for Wall Street is a Colossal Mistake " »

The Federal Reserve has granted the applications of Goldman Sachs and Morgan Stanley to change their status to become bank holding companies in order to stay in business, AP Economic Writer Martin Crutsinger reported this morning. The change in status will allow Goldman and Morgan to take deposits thereby bolstering their resources. The article hailed it as “the end of an era.” The primary regulator of Goldman and Morgan was formerly the Securities and Exchange Commission. The primary regulator of the new bank holding companies will be the Federal Reserve, according to the article. The shares of Goldman and Morgan had come under pressure in the wake of the Lehman Brothers bankruptcy and the “forced sale” of Merrill Lynch to Bank of America.

Continue reading " Only Yesterday - When Banks and Broker-Dealers Were Combined " »

There have been various developments over the past several weeks which investors may consider relevant in allocating their resources or evaluating alternatives that are available to them. Some of the more significant developments include, but are not limited to, the following:

• Lehman Brothers, the United States’ fourth largest investment bank, filed for bankruptcy protection. Lehman’s filing is the largest bankruptcy in U.S. history.

• Bank of America agreed to acquire Merrill Lynch for approximately $50 billion in Bank of America stock (based on current stock prices).

• Hewlett Packard announced it will reduce its workforce by approximately 25,000 jobs or 7.5% of its total workforce as part of its plans to restructure.

Continue reading " Page Perry's Market Monitor - September 19,2008 " »

It’s time for the American people to demand accountability from Wall Street firms that abused the trust of both their clients and the capital markets and from those regulators responsible for overseeing their conduct. The unprecedented bailouts of U.S. financial institutions and their reckless conduct will have a sweeping impact on the U.S. economy and on American taxpayers for years to come. These bailouts that have involved literally trillions of dollars worth of exposure and risk assumption by U.S. taxpayers have to be paid for at some point in time. Unfortunately, the only source of repayment will ultimately lie with the U.S. taxpayer. It is indeed sad that hardworking Americans will be called upon to pay for Wall Street’s excesses and abuses while many of the culprits remain in ivory towers living off their ill-gotten gains.

Continue reading " Government Bailouts Place Significant Risks on U.S. Economy and Taxpayers " »

Yesterday the Financial Industry Regulatory Authority (“FINRA”) announced auction-rate securities settlements with SunTrust Robinson Humphrey, Comerica Securities, First Southwest, and WaMu Investments, Inc.

Continue reading " FINRA Announces Auction-Rate Securities Settlements with More Firms " »

Where is the end to the Fed’s willingness to bailout faltering businesses by nationalizing them and subjecting taxpayers to extensive risk? Unfortunately, in the current economic environment, there are countless major companies across the American economy whose business plans are faltering. Among those in serious trouble, are most of the airline companies, most of the automobile makers, countless financial institutions, many major retailers, and numerous others. It would be practically impossible and, indeed, foolhardy for the Fed to try to bailout all businesses that are suffering from current economic conditions. Unfortunately, the Fed has gone down a road that may lead to dire consequences in the future.

Continue reading " Fed Bailouts - Where Do They End? " »

Two noted money market funds, Reserve Primary Fund and Reserve International Liquidity Fund LTD, managed by Reserve Management Corporation, have “broken the buck.” “Breaking the buck” means that investors in a money market fund lose their invested principal. Stated another way, the net asset value of money market fund falls below the $1/share price paid by investors to invest in the fund.

This development could have significant ramifications for the entire money market mutual fund industry, which is based on confidence in the complete safety of the “buck.” Jeff Bobroff, mutual-fund consultant in Rhode Island, stated, “This is going to unsettle investors and probably create further runs on other money funds.” Experts fear that investors’ concern about the sanctity of money market funds could result in widespread withdrawals that would further aggravate the global credit crisis. Money market funds are major buyers of short-term debt issued by corporations and financial companies and significant withdrawals from money market funds could severely disrupt that market.

Continue reading " Money Market Funds "Break the Buck" " »

Late on Tuesday the Fed seized control of American International Group (“AIG”) to prevent a bankruptcy filing by the nation’s biggest insurer. Apparently, the Fed concluded that AIG was “too big to fail” and that its bankruptcy would have had potentially catastrophic impact on the world’s financial systems. In a prepared statement, the Fed said, “A disorderly failure of AIG could add to already significant levels of financial market fragility.”

Continue reading " The Fed Bails Out AIG " »

A settlement, in principle, has been reached between a state auction-rate securities task force and Credit Suisse which would require the investment bank to buy back approximately $550 million in auction-rate securities. In addition, the firm will pay a $15 million fine. The investigation of Credit Suisse was lead by the North Carolina Secretary of State and Securities Commissioner.

Continue reading " Credit Suisse Enters into Auction-Rate Securities Settlement with Regulators " »

Significant drops in the stock market in recent days are likely to reveal a number of suitability abuses by brokerage firms as customers experience losses. While such abuses are sometimes hidden by a rising market, a falling market invites scrutiny that often reveals unsuitable recommendations by brokers.

The law imposes a duty upon securities brokers only to recommend securities that the broker reasonably believes are suitable for the customer. The broker's belief must be based upon a reasonable inquiry concerning the customer's investment objectives, financial situation and needs, tax status, other security holdings, and any other relevant information known by the broker. This suitability duty is based on a "homely truth about investing -- that investment decisions can be made only in light of the goals and needs of the person for whom they are made."

Continue reading " Suitability Claims Expected to Rise as Market Meltdown Continues " »

As more and more firms begin to put realistic valuations on their holdings of mortgage assets and related exotic securities, a tidal wave of losses is starting to move across Wall Street firms and will ultimately affect many of their customers as well. For months, many Wall Street firms have been valuing mortgage securities and related structured financial vehicles based on “fair value” methodologies. They continued to use these values despite the fact that periodic market transactions indicated that the valuations were unduly optimistic.

Continue reading " Realistic Valuations of Subprime Securities Likely to Cause a Tidal Wave of Losses Across Wall Street " »

Lehman Brothers, the U.S.’s fourth largest investment bank, filed a Chapter 11 petition in U.S. Bankruptcy Court in Manhattan today. Lehman, which was the biggest underwriter of mortgage-backed securities during the recent real estate bubble, simply could not survive the resulting credit crunch. Lehman’s recent reports indicated that the firm expected to realize a $3.9 billion loss for the quarter ended August, 2008. Much of this loss was attributable to extensive write downs on the valuation of subprime mortgage securities and other structured finance securities that were “fair valued.” Among other things, Lehman wrote down its “Alt-A” mortgage securities portfolio from 63% of face value to 39% of face value. Similarly, it wrote down the value of its subprime securities and second loan securities portfolios from 55% of face value to 34% of face value. These losses were simply too much for the firm to overcome. Attempts to sell the firm or raise additional capital failed.

Continue reading " Lehman Seeks Bankruptcy Protection " »

The United States’ largest bank, Bank of America Corp., has agreed to acquire Merrill Lynch for approximately $50 billion. Based on current values, the transaction contemplates Bank of America paying approximately $29/share, in stock, for Merrill Lynch. This is a 70% premium above Merrill’s most recent closing price. Under the deal, each share of Merrill stock would be exchanged for .8595 shares of Bank of America stock. The ultimate value to Merrill Lynch shareholders will be dependent upon the price of Bank of America stock when the transaction closes. It is contemplated that the deal will close sometime in early 2009.

Continue reading " Bank of America Acquires Merrill Lynch " »

Both The Wall Street Journal and The New York Times have reported that New York Attorney General Andrew Cuomo’s office has reached an agreement with Fidelity Investments to resolve problems over Fidelity’s marketing of auction-rate securities. According to sources familiar with the negotiations, Fidelity will apparently repurchase approximately $300 million of auction-rate securities from its customers. It is anticipated that the settlement will be similar to other settlements previously entered into and will be limited to small investors (defined as retail customers, charitable organizations and small businesses holding $10 million or less in investments at the firm).

Continue reading " Fidelity Reaches Auction-Rate Securities Settlement " »

There have been an array of developments over the past several weeks which investors may consider relevant in allocating their resources or evaluating alternatives that are available to them. Some of the more significant developments include, but are not limited to, the following:

• The Federal government has taken control of mortgage giants, Fannie Mae and Freddie Mac, and placed them under conservatorship. The companies collectively own or guarantee approximately $5 trillion in home loans. Thus, this move thrusts trillions of dollars of risk directly onto the shoulders of American taxpayers.

• The U.S. government seizure of Fannie Mae and Freddie Mac has triggered one of the largest defaults in the history of the $62 billion credit derivatives market.

• Mortgage rates have dropped since the federal bailout of Fannie Mae and Freddie Mac. The average rate on a 30 year fixed rate mortgage has dropped from 6.26% to 5.88%.

Continue reading " Page Perry's Market Monitor - September 12, 2008 " »

Bank of America has agreed in principle to buy back auction-rate securities which it sold to certain of its clients as part of a settlement with Massachusetts Secretary of State William Galvin. Under the agreement, Bank of America is expected to redeem approximately $4.8 billion of auction-rate securities.

Continue reading " Bank of America Announces Settlement of Auction-Rate Securities Probe " »

There will be some scary times for Wall Street firms in the months ahead according to Business Week writers David Henry’s and Mathew Goldstein’s September 8, 2008 article “More Trash Than Cash.” The writers portray a scenario that could result in tremendous chaos for both Wall Street firms and the capital markets. Christopher Whalen of Institutional Risk Analytics (a consulting firm) summarized the situation saying, “It’s really an ugly time, and it’s only going to get worse.”

Continue reading " Wall Street Firms Expected to Face Doom and Gloom in the Months Ahead " »

In a recent SEC filing, SunTrust Banks announced that it was in talks with regulators in an effort to settle regulatory investigations regarding the firm’s auction-rate securities activities. Regulators have been investigating SunTrust regarding its sales practices in selling auction-rate securities and the adequacy of disclosures it made concerning these instruments.

Continue reading " SunTrust Considers Settling Auction-Rate Securities Investigations " »

Penny stock firms that proliferated so abundantly in the 1980s are now one fewer. Yesterday, FINRA recently expelled broker-dealer Barron Moore and disciplined 7 individuals for violations arising from the illegal sale of unregistered penny stocks. The individuals include 5 registered representatives formerly associated with 3 different firms – Barron Moore, Midas Securities and Milestone Group Management.

Continue reading " Something Old is New Again- Penny Stocks in the News " »

There have been various developments over the past several weeks which investors may consider relevant in allocating their resources or evaluating alternatives that are available to them. Some of the more significant developments include, but are not limited to, the following:

• Business bankruptcies rose 17% in the quarter ended June 30, 2008 the sharpest rise in two years.
• Five of the six largest credit unions in the United States have reported mortgage related losses totaling $5.7 billion.
• Gasoline prices have fallen to $3.674 per gallon on average, down approximately 10% from July 17’s record high of $4.114.
• Detroit’s Big Three car makers have begun lobbying Congress for up to $50 billion in federally guaranteed loans.

Continue reading " Page Perry's Market Monitor - September 5, 2008 " »

Corporate investors have begun filing lawsuits against major brokerage firms, including Merrill Lynch and Credit Suisse, seeking to recover losses sustained in auction-rate securities issued by CDOs and other structured finance vehicles, reported Elinor Comlay of Reuters on Wednesday, September 3, 2008. “I can assure you that more suits are going to be brought,” said J. Boyd Page, a senior partner at the Atlanta law firm of Page Perry, LLC. Corporate and institutional investors are likely to sue for losses, as well as consequential damages, added Mr. Page.

Continue reading " Brokerage Firms Face Suits Over Auction-Rate Securities Issued by CDOs and Other Structured Finance Vehicles " »

While regulators have announced tentative settlements with major Wall Street firms (Merrill Lynch, UBS, JP Morgan, Goldman Sachs, Morgan Stanley, Wachovia, Citigroup, and Deutsche Bank) that underwrote auction-rate securities, these settlements have not addressed the situation of thousands of investors that purchased auction-rate securities through smaller brokerage firms. Most of these smaller brokerage firms were primarily “distributors” of auction-rate securities as opposed to underwriters of the securities. They have not yet settled with regulators and have taken no apparent action to address their customers’ auction-rate securities complaints. Such firms include Oppenheimer, Fidelity Investments, Northern Trust, H&R Block Financial Advisors, SunTrust, Comerica, Stifel Nicolaus, Raymond James, and Wells Fargo.

Continue reading " Many Auction-Rate Securities Investors May Be Left to Fend for Themselves " »

Recent reports have noted that Lehman Brothers is shopping its highly regarded Neuberger Berman investment management unit and trying to offload billions of dollars in real estate loans which it holds in what may be a desperate attempt to survive. There have been serious concerns about Lehman’s viability since at least March, 2008. Lehman, the fourth largest U.S. brokerage firm, is not only smaller than its competitors, it was also a big player in the mortgage market which has been at the center of the current credit crisis. Concerns were heightened in June, 2008, when Lehman announced a quarterly loss of $2.8 billion, its first quarterly loss since going public.

Continue reading " Will Lehman Brothers Survive? " »

A senior Morgan Stanley has joined the chorus in warning that tough economic times lie ahead for the U.S. economy. Steven Roach, Morgan Stanley’s Asian Chairman, told Bloomberg Television that “We’re in the early stages of a downturn in the U.S. and global business cycles.” According to Roach, “There’s more to this macro event than just the credit-market contagion itself...Maybe two thirds of that is behind us, but the impacts on the real side of the U.S. economy and global economy are at an early stage.”

Continue reading " Morgan Stanley Executive: Economic Pain Just Beginning " »

Massachusetts Secretary of State William Galvin has informed Bank of America that it must settle its pending auction-rate securities problems with Massachusetts or face legal action similar to those filed against UBS and Merrill Lynch in July. Galvin, who is part of a 12 state auction-rate securities task force, has told the bank that ”Time is running out for discussions.” Bank of America had previously resolved certain issues with Massachusetts and Galvin when it agreed to redeem approximately $43 million of auction-rate securities sold to two Massachusetts state agencies.

Continue reading " Bank of America Told to Settle its Auction-Rate Securities Problems or Else " »

The SEC has filed civil charges against two former Credit Suisse brokers for fraudulently selling auction-rate securities to foreign corporate customers. Among other things, the SEC accused the brokers of telling customers that the auction-rate securities which they were selling were safe and liquid alternatives to bank deposits or money market funds and were backed by insured student loans. In reality, the auction-rate securities sold to those customers were issued by structured finance vehicles backed by subprime mortgages, collateralized debt obligations and other risky collateral. The brokers allegedly sold more than $1 billion of these auction-rate securities to clients in an effort to generate higher commissions.

Continue reading " SEC Charges Credit Suisse Brokers in Auction-Rate Securities Fraud Scheme " »

After a rush of activity in the first three weeks of August, there has been almost a deathly silence about auction-rate securities investigations and settlements over the past several weeks leaving investors to question what’s going on. No settlements have been formalized, no new settlements have been reached and no additional actions have been taken. Just where do things stand?

Continue reading " What's Going On With Auction-Rate Securities Investigations? " »

Late last Friday, Jefferson County announced that it had entered into a standstill agreement with its lenders thus avoiding a threatened bankruptcy filing. The standstill agreement delays any immediate default on Jefferson County’s debt obligations until at least September 30, 2008 and permits negotiations with its lenders to continue.

Last week, Jefferson County presented a proposal to restructure its existing bond debt at lower fixed interest rates over a longer period. Jefferson County’s lenders apparently agreed to the standstill agreement in order to give themselves adequate time to consider the county’s proposal. Two of Jefferson County’s largest lenders, Bank of America and JP Morgan, declined to comment on the status of discussions.

Continue reading " Jefferson County, Alabama Staves Off Bankruptcy " »

The dismissal of a federal class action securities lawsuit does not mean that investors are necessarily barred from seeking recovery of losses that they have sustained as a result of inappropriate conduct. For example, as often happens, a federal appeals court this week dismissed a class action lawsuit against auto parts supplier Visteon Corp. and its executives in which the investors accused the defendants of defrauding them out of billions of dollars. The court held that the class action plaintiffs failed establish that material facts had not been adequately disclosed in a class action lawsuit based upon company's prospectus, financial reports, or other communications to investors.

Continue reading " Visteon Investor Claims May Not Be Barred by Dismissal of Class Action " »