Investment Fraud Lawyer Blog

"For nothing is hidden that will not become evident, nor anything secret that will not be known and come to light.” Thus hinteth today’s Wall Street Journal article by Suzanne Barlyn entitled “COMPLIANCE WATCH: SEC Warning May Help Unhappy Investors.”

The United States Securities and Exchange Commission (the “SEC”) Staff’s warning that it intends to recommend an enforcement action against Morgan Keegan for possible violations of the federal securities laws may incline more arbitrators to require Morgan Keegan to disclose documents it supplied to the SEC in its investigation, but wants to keep hidden from investors and arbitrators, according to the article. Here is the background.

Continue reading " It's Time for Arbitrators to Grant Investors Access to the SEC Evidence that Morgan Keegan Is Trying to Hide " »

Authorities prosecuting more perpetrators of financial fraud and those convicted face increasingly stiff prison sentences, report Bruce Kelly and Sue Asci in their July 26 article in InvestmentNews entitled “Criminal convictions, jail time on rise for financial fraudsters.” Alabama has obtained felony convictions in 25 cases involving financial fraud with 20 more cases pending, according to Joseph Borg, Director of the Alabama Securities Commission and former President of the North American Securities Administrators Association (NASAA). “Convictions are up, and sentences are also lengthier,” says Denise Voigt Crawford, Texas Securities Commissioner. Texas convicted 13 people of financial crimes in 2008, has convicted 10 so far this year, and expects that number to at least double by year end, added Ms. Crawford.

Continue reading " Elder Fraud Cases Lead to More Criminal Prosecutions " »

UBS, the Swiss banking giant, allegedly duped a 77-year-old Chinese woman, who speaks no English and did not finish primary school, into buying high-risk, leveraged derivatives called “accumulators” that tanked in the global crisis, causing her to lose the equivalent of nearly $26 million, according to the woman’s attorney, as reported by CNBC.com.

Continue reading " Senior Citizen Accuses UBS of $26 Million Fraud " »

Last year, the Securities and Exchange Commission issued a rule that brought Equity Index Annuities within its regulatory jurisdiction and provided greater investor protection. Previously, those insurance products were not considered to be securities subject to SEC regulation. The SEC rule was challenged in court by a group of insurance companies. A federal court of appeals ruled that the SEC does have the authority to regulate Equity Index Annuities, but it ordered the SEC to reconsider the rule’s effect on the economy, reported Sara Hansard in her July 26 article in InvestmentNews entitled “SEC’s EIA rule may resurface.” While it is not under a deadline to do so, some observers expect that the SEC will complete is assessment and reissue the rule pretty quickly, rather than asking the court of appeals to reconsider its ruling.

Continue reading " Insurance Companies Try to Thwart SEC Oversight of Equity Indexed Annuities " »

The Securities Industry and Financial Markets Association, an important Wall Street lobbying group, has decided to support the Obama administration’s proposal to hold brokers to the same standard as a fiduciary when they provide investment advice, according to a recent report in The Wall Street Journal. While investors who sue their brokers have long argued, with considerable success, that a fiduciary duty arises whenever there is a relationship of trust and confidence between broker and investor, that determination is presently made on a case by case basis under laws that vary from state to state. A federal standard, which is more likely to pass now that it has been endorsed by the industry, would make it easier for investors to prevail in claims against brokers.

Continue reading " Wall Street Trade Association Supports Fiduciary Standard " »

Morgan Stanley will pay $500,000 to settle SEC charges that it recommended unapproved money managers to clients without any due diligence review. From 2000 to April 2006, Morgan Stanley made “material misrepresentations about a program through which the firm assigned clients in developing investment objectives and in selecting properly vetted money managers,” according to the SEC. “Morgan Stanley said one thing and did another when recommending managers who had not been approved for participation in the firm’s advisory programs and had not been subject to its due-diligence review,” added Scott W. Friestad, associate director of SEC’s enforcement division. Morgan Stanley, which received brokerage commissions or fees from the unapproved managers, said through a spokesperson that it is “pleased to settle this matter.”

Continue reading " Morgan Stanley Sanctioned for Misleading Investors about Money Managers " »

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:

• The Dow Jones Industrial Average opened the week at 8744 and, on Monday, jumped 104 points.

• On Tuesday, the Dow Jones Industrial Average rose another 68 points.

• On Wednesday, the Dow Jones Industrial Average dropped 35 points.

• On Thursday, the Dow Jones Industrial Average soared 188 points and closed above 9000 for the first time since January.

• On Friday, the Dow Jones Industrial Average rose another 24 points and closed the week at 9093.

Continue reading " Page Perry's Market Monitor - July 24, 2009 " »

Exchange-traded funds (ETFs) that use leverage or perform inversely (opposite) to an index or benchmark they track are growing in number and popularity. The controversy and danger surrounding these products was featured in recent articles in the Wall Street Journal (“FINRA Urges Caution on Leveraged Funds,” by Daisy Maxey), and InvestmentNews (“Leveraged ETFs: Handle with care”), and in Regulatory Notice 09-31 published by the Financial Industry Regulatory Authority (FINRA). FINRA and others are concerned that leveraged and inverse ETFs are being inappropriately marketed and sold to retail investors for whom they are unsuitable without an adequate explanation of the risks.

Continue reading " Leveraged and Inverse Exchange-Traded Funds (ETFs) Are Dangerous to Investors Financial Health " »

On July 21, 2009, the Securities and Exchange Commission (“SEC”) filed a Complaint against Morgan Keegan & Company, Inc. in the United States District Court for the Northern District of Georgia for misleading investors about the liquidity risks of auction rate securities that it sold. Morgan Keegan sold approximately $925 million of auction rate securities between November 1, 2007 and March 20, 2008 after it knew the market for such securities was deteriorating and it had decided to stop supporting the market, according to the SEC. The Complaint alleges that Morgan Keegan’s sales practices violated the anti-fraud provisions of the United States securities laws, and seeks an order directing Morgan Keegan to stop violating those laws, repurchase all auction rate securities it sold before March 20, 2008, disgorge all ill-gotten gains or unjust enrichment it has enjoyed as a result of its unlawful activities, and pay civil monetary penalties pursuant to federal statutes.

Continue reading " SEC Charges Morgan Keegan with Fraud in the Sale of Auction Rate Securities " »

New York Attorney General Andrew Cuomo has sent a letter to Charles Schwab & Co. giving notice of his intent to bring a civil fraud suit against the brokerage firm for its sales practices in connection with auction rate securities. Auction rate securities are variable rate instruments in which the rates are determined through periodic auctions, but since the auction markets collapsed in February 2008 the investors holding such securities have been unable to liquidate their investments. In an enforcement letter dated July 17, 2009, Cuomo’s office contends that Schwab misrepresented to its customers that auction rate securities were a safe, liquid cash equivalent without disclosing that the liquidity of the securities was completely dependent upon the success or failure of the auction process, which was subject to manipulation by the broker-dealers who sold the securities and ran the auctions.

Continue reading " New York Attorney General Notifies Schwab of Intent to Sue over Auction Rate Securities Fraud " »

On July 9, 2009, Morgan Keegan & Company, Inc. (“Morgan Keegan”) (a wholly-owned subsidiary of Regions Financial Corporation), Morgan Asset Management, Inc. and three employees, each received a “Wells” notice from the Staff of the Atlanta Regional Office of the United States Securities and Exchange Commission (the “SEC”) stating that the SEC Staff intends to recommend that the SEC bring enforcement actions for possible violations of the federal securities laws. The potential actions relate to the SEC’s investigation of certain mutual funds formerly managed by Morgan Keegan and Morgan Asset Management. Morgan Keegan received another Wells Notice earlier this year related to its unlawful sales practices in connection with sales of auction rate securities.

Continue reading " SEC Notifies Morgan Keegan of Intent to Recommend Enforcement Action Involving Toxic Mutual Funds " »

According to a July 20, 2009 article in the Wall Street Journal, TD Ameritrade Inc. agreed to buy back $456 million of auction rate securities from its clients as part of a settlement with NY Attorney General Andrew Cuomo, the SEC, and Pennsylvania regulators. Investors around the country, including individuals, charities, nonprofit entities and businesses will be entitled to monetary returns. TD Ameritrade said it may need until June 30, 2010 to complete the buybacks.

Continue reading " Regulators Settle Auction Rate Securities Claims Against TD Ameritrade " »

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:

• The Dow Jones Industrial Average opened the week at 8146 and, on Monday, jumped 185 points.

• On Tuesday, the Dow Jones Industrial Average rose 28 points.

• On Wednesday, the Dow Jones Industrial Average soared 257 points.

• On Thursday, the Dow Jones Industrial Average went up 96 points.

• On Friday, the Dow Jones Industrial Average rose another 32 points and closed the week at 8744.

Continue reading " Page Perry's Market Monitor - July 17, 2009 " »

The Financial Industry Regulatory Authority (“FINRA”) is requesting information from brokerage firms involved in several recent municipal bond problems, according to a July 1 article by Leslie Wayne in the New York Times. FINRA says that it is conducting these information “sweeps” with an eye toward possible investigations and disciplinary actions.

Continue reading " Regulators Investigate Fraud in the Municipal Bond Market " »

Here they go again. In the wake of the trillion dollar write downs of toxic structured finance products, the frozen credit markets, and the global financial crisis, Wall Street banks are re-packaging downgraded collateralized debt obligations (CDOs) and other structured finance products for sale as new debt investments with top AAA ratings, Bloomberg.com reported recently. The article, by Pierre Paulden, Caroline Salas and Sarah Mulholland, flows from marketing documents obtained by Bloomberg and focuses on Morgan Stanley’s plans to sell downgraded loan CDOs as AAA rated bonds, even though they should not be rated as AAA.

Continue reading " Wall Street Firms Still Don't Get It - They Continue to Sell Toxic Securities as AAA Investments " »

Ameriprise Financial Services has agreed to pay over $17 million to settle Securities and Exchange Commission charges that it sold investments without disclosing that it was being paid by the investment company to sell the investment, according to a July 11 article by the Associated Press published in the New York Times. Between 2000 and 2004, Ameriprise sold millions of dollars of real estate investment trusts (REITs) in exchange for which it received approximately $30.8 million of compensation that it did not disclose to the purchasers of such REITs, according to the SEC. The receipt of undisclosed compensation constituted a clear conflict of interest and violated applicable securities laws.

Continue reading " Ameriprise Pays $17 Million to Resolve Conflicts of Interest Claims " »

UBS is said to favor a shake-up of management rather than a sale of its U.S. wealth management business, according to the Financial Times. UBS’s U.S. wealth management business consists largely of Paine Webber, which it acquired in 2000. UBS, reportedly considering the sale of Paine Webber to raise capital, discussed a possible sale with Morgan Stanley late last year. Those talks were unsuccessful.

Continue reading " UBS Will Retain Its Wealth Management Business For The Time Being " »

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:

• The Dow Jones Industrial Average opened the week at 8290 and, on Monday, jumped 44 points.

• On Tuesday, the Dow Jones Industrial Average fell 161 points.

• On Wednesday, the Dow Jones Industrial Average rose 15 points.

• On Thursday, the Dow Jones Industrial Average went up 5 points.

• On Friday, the Dow Jones Industrial Average fell 47 points and closed the week at 8146.

Continue reading " Page Perry's Market Monitor - July 10, 2009 " »

San Francisco-based Bank of the West has accused UBS of manipulating rights associated with collateralized debt obligations (CDOs) in a manner that defrauded Bank of the West and caused it to lose $95 million. Specifically, Bank of the West alleges that the Swiss banking giant secretly purchased and retained the senior controlling notes of approximately $1.3 billion in collateralized debt obligations (CDOs) and then entered into credit default swaps with another collateralized debt obligation UBS had created called "TABS 2007-7." According to the complaint, this maneuver gave UBS a dual role as credit default swap counterparty and owner of the senior notes and gave UBS a financial incentive to demand liquidation of TABS, thereby forcing TABS to pay UBS as the credit default swap counterparty. After establishing this "scheme" in which Bank of the West invested over $95 million, UBS relied on a “highly questionable” event of default to liquidate the CDO at what Bank of the West contends were low prices and to seize Bank of the West's $95 million investment and over $900 million that others had invested in TABS.

Continue reading " UBS Sued For CDO Scam " »

Minnesota-based Woodbury Financial Services, Inc. recently advised its registered representatives that it has adopted several very controversial personnel policies. First, Woodbury has told its representatives that they will be required to submit records concerning their own private financial background and investments, as well as those of their wives, husbands, and significant others, to review by Woodbury's Compliance Department. Second, Woodbury has also required its representatives to agree to ongoing credit and criminal-background checks. These moves are widely seen as being in response to recent SEC enforcement action against Royal Alliance Securities involving that firm's failure to establish reasonable and adequate procedures to supervise satellite offices whose rogue brokers took advantage of their clients.

Continue reading " How Far Should Brokerage Firms Be Permitted To Go In Investigating Employees? " »

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:

• The Dow Jones Industrial Average opened the week at 8438 and, on Monday, jumped 91 points.

• On Tuesday, the Dow Jones Industrial Average fell 82 points.

• On Wednesday, the Dow Jones Industrial Average rose 57 points.

• On Thursday, the Dow Jones Industrial Average plunged 214 points and closed the week at 8290.

• On Friday, the markets were closed in celebration of the July 4th holiday.

Continue reading " Page Perry's Market Monitor - July 3, 2009 " »

Since the middle of March, Smith Barney has lost at least 650 of its approximately 14,000 financial advisors, according to Discovery Database, an industry research firm. The reasons for the Smith Barney departures have been many. First, advisors producing less than $400,000 per year received a pay cut this year and were not offered the same type of retention package that Smith Barney offered to its higher-producing brokers, according to a Wall Street Journal article dated June 15, 2009 by Annie Gasparro and Brett Philbin. Another reason for the departures is that brokers are unwilling to endure the uncertainty of the new Smith Barney joint venture with Morgan Stanley. Still other advisors left in favor of new positions with competitors who offered signing bonuses. Alois Pirker, a brokerage analyst with AITE Group, a research firm, is quoted in the Journal article as citing "possible power struggles, a change in products and potential over wrap," which "opened the door for breaking away." Many anticipate that additional Smith Barney brokers will leave as the dust starts settling from the Morgan Stanley/Smith Barney joint venture.

Continue reading " Broker Defections from Major Wall Street Firms on the Rise " »

Investors who have been defrauded by their brokers and financial advisers are almost universally required to bring their claims through arbitration rather than lawsuits, but that may be about to change. Bills have been introduced in both houses of Congress that, if passed, would put an end to mandatory arbitration clauses in contracts, giving wronged investors the option of going to court if they want to. Both bills are titled The Arbitration Fairness Act of 2009.

Continue reading " Pending Legislation to End Mandatory Securities Arbitration? " »

Target-Date mutual funds are not always what they appear to be, reports Leslie Wayne in her June 25, 2009 article in the New York Times entitled “Target-Date Mutual Funds May Miss Their Mark.” Target-Date mutual funds are supposed increase the allocation of bonds over time in order to reduce volatility as an investor approaches retirement. Stocks are generally more volatile than bonds, and investors generally increase the percentage of bonds to add the stability to a portfolio of investments.

Continue reading " Investors Need to be Careful with Target-Date Mutual Funds " »