Investment Fraud Lawyer Blog

In response to recent concerns over high-risk private offerings such as Medical Capital and Provident Royalties, the Financial Industry Regulatory Authority (FINRA) has issued a Notice to Members (NTM-10-22) that reminds brokerage firms of their obligations to investigate private placements before allowing their representatives to sell those investment products. However, FINRA only regulates registered broker-dealers, and many such offerings are recommended or sold by financial advisory firms that are not FINRA-registered.

Continue reading " Problems Involving Private Offerings Escalate " »

The Federal Deposit Insurance Corporation, which insures deposits and manages failed banks placed in receivership, among other things, has received toxic collateralized debt obligations (CDOs) with a “book value” of over $400 million from approximately two dozen failed banks around the country. In this case, “book value” means cost basis. In reality, the CDOs’ values are difficult to ascertain and may be virtually zero. "[A] lot of these things will have little or no market value," said Miguel Browne, assistant director in the FDIC’s division of resolutions and receiverships.

Continue reading " The FDIC Has Been Left Holding Substantial Toxic CDO Debt " »

Liz Ann Sonders, Charles Schwab’s chief investment strategist, is skeptical about bonds and emerging markets and believes that “[i]nvestors are doing what they do well, which is chase past performance,” according to a recent article by Mina Kims posted on CNNMoney.com, “Bond investors are chasing the past.”

Continue reading " Bonds - Is It Time To Be Cautious? " »

The large number of bank failures over the past two years has resulted in big financial losses for investors owning stock in those banks. In most cases, failed banks are taken over by the FDIC, which arranges for the operations to be assumed by another bank -- free of the liabilities of the failed bank. While most account holders’ deposits are safe because they are insured against loss by the FDIC, those who invested in the bank are typically left holding stock that is now worthless. In some cases, shareholders have the option of legal action to recover their losses.

Continue reading " Investors Have Sustained Huge Losses Investing in Small Banks " »

The $2.8 trillion municipal bond market, long considered one of the safest havens for investors, is actually fraught with risk, according to a recent CNBC article titled “More Cities on Brink of Bankruptcy.”

Continue reading " Have Municipal Bonds Become High Risk Securities? " »

The answer appears to be a resounding yes. The SEC's recently filed a lawsuit against Goldman Sachs alleging fraud in the sale of mortgage-backed collateralized debt obligations (CDOs). CDOs are a structured finance product in which a large number of mortgages or other debt instruments are pooled in a trust and divided into multiple layers or “tranches” that pay interest to investors based on the risk and priority of each tranche, with the senior tranches paying lower rates because they are safer investments and the junior tranches paying higher returns for comparatively higher risk debt. The SEC alleges that Goldman Sachs created CDOs backed by high-risk subprime mortgages and then took short positions betting that they would fail while simultaneously recommending that some of their customers buy the securities. In other words, some customers were sold CDO securities and told that they were a good long-term investment, while Goldman and other customers shorted them because they were expected to go down in value. If that is true, many investors were defrauded, and they too should have the right to sue or bring an arbitration claim—especially since the SEC action has not requested restitution or recision for investors.

Continue reading " Were Toxic CDO Investments Deliberately Dumped on Unsuspecting Investors? " »

The bankruptcy estate of Lehman Brothers has filed suit against JP Morgan Chase in U.S. Bankruptcy court, claiming that “unjustified” demands by JP Morgan for billions in additional collateral and its refusal to return that collateral in the final days before Lehman’s bankruptcy, contributed to its demise, according to an article in CNNMoney.com by David Ellis, “Lehman sues JP Morgan over its collapse.”

Continue reading " Lehman Bankruptcy Estate Sues JP Morgan Over Breach of Trust " »

Hundreds of state and local governments are losing big money as a result of interest-rate swaps they made with Wall Street Banks, according to a recent Wall Street Journal article by Aaron Lucchetti.

Continue reading " Interest Rate Swaps Sold by Wall Street Banks Decimate Local Government Resources " »

HighTower Advisors LLC, a high-profile, high-pedigree investment advisory firm, has been dogged by a series of investor and business lawsuits that could threaten its distinguished reputation, according to a recent article by Bruce Kelly in InvestmentNews.

Continue reading " Is HighTower Advisors All That It Claims To Be? " »

UBS and other brokerage firms took advantage of conservative investors by misrepresenting so-called “100% principal protected” notes as safe investments when they were not. See New York Times article, “’100% Protected’ Isn’t as Safe as It Sounds,” by Gretchen Morgenson. Investors who purchased these notes have suffered billions in losses, she added.

Continue reading " Many Brokerage Firms That Sold "100% Principal Protected Notes" Misled Investors " »

Bloomberg is reporting that Goldman Sachs has broken off negotiations with the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP and says it does not plan to engage another law firm to defend it in the pending action by the Securities and Exchange Commission. Bloomberg reportedly confirmed this decision with Goldman spokesman Lucas van Praag.

Continue reading " Is Goldman Posturing to Settle the SEC's CDO Fraud Claims " »

The extreme risk of reverse convertibles was dramatically demonstrated recently when such a note issued by JPMorgan Chase, which promised 64 percent annualized interest, plummeted in value just three days after being sold, according to Zeke Faux in his May 17th Bllomberg article titled “JP Morgan’s 64 Percent Note Shows Risks of Reverse Convertibles.”

Continue reading " JP Morgan Reverse Convertibles "Knock Out Investors in the First Round" " »

“As the U.S. Senate prepares to vote as early as this week on legislation rewriting the rules for Wall Street, the financial industry is holding fundraisers for lawmakers at a rate of almost one every business day this month,” according to a May 17th Bloomberg article by Jonathan D. Salant.

Continue reading " Wall Street Special Interest Groups Are Spending Huge Sums to Thwart Financial Reform " »

The Financial Industry Regulatory Authority (FINRA) has issued a Regulatory Notice concerning structured products called Reverse Convertibles. The notice is cast a “reminder” to member firms that they have certain “sales practice obligations” in selling such products. Investors should pay attention too, however, as the notice is essentially a warning that Reverse Convertibles and other structured products are complex, high-risk and unsuitable for most individual investors. Indeed, FINRA issued an Investor Alert about these products at about the same time.

Continue reading " Reverse Convertible Notes Can Be Poisonous for Investor Portfolios " »

In 2006, Morgan Stanley created a “cluster of investments doomed to fail even if default rates stayed low -- then bet against its concoction.” according to a recent article by Jody Shenn and Michael J. Moore of Bloomeberg.com.

Continue reading " Morgan Stanley's Baldwin CDOs - Doomed to Fail? " »

Federal prosecutors are conducting a criminal probe into whether multiple major Wall Street banks defrauded investors in selling investments called collateralized debt obligations, or CDOs, that were created, sold and shorted, or bet against, by the banks and certain favored clients. See “Wall Street Probe Widens,” by Susan Pulliam, Kara Scannell, Aaron Lucchetti and Serena Ng, Wall Street Journal, May 12, 2010, and “Wall Street said to face new investigations,” CNNMoney.com, May 13, 2010.

Continue reading " CDO Fraud Probes Explode Across Wall Street " »

Federal prosecutors are assessing whether Morgan Stanley defrauded investors in mortgage-derivatives collateralized debt obligations (“CDOs”) that it helped create and then bet against, according to reports in the Wall Street Journal and Bloomberg. The Securities and Exchange Commission is also investigating. Several rounds of subpoenas have reportedly been issued. Investigators are evaluating whether Morgan Stanley, like others, misrepresented their true roles and conflicting interests in CDO deals sold to investors.

Continue reading " Federal Prosecutors Target Morgan Stanley in CDO Fraud Investigation " »

Securities and Exchange Commission (SEC) Commissioner Luis Aguilar has consistently stated that Congress should mandate that all providers of investment advice, including broker-dealers, should be subject to the fiduciary standards imposed by the Investment Advisers Act of 1940 (Advisers Act). He said so again recently in a speech at the Investment Adviser Association Annual Conference, reported by Bloomberglaw.com. Commissioner Aguilar added that he is “a staunch advocate for regulatory reform that is oriented toward investors … [i.e.], that would strengthen the investor protection regime that currently exists and that results in enhanced protections and flexible authority to regulate an unforeseeable future.”

Continue reading " Broker-Dealers Must Be Held to a Real Fiduciary Standard " »

Just days after the announcement of a federal criminal probe, Goldman Sachs is exploring a settlement with the Securities and Exchange Commission (“Goldman Talks Settlement With SEC,” by Susan Pulliam and Susanne Craig, May 7, 2010, Wall Street Journal). According to the WSJ, this signals a scaling back of Goldman’s initially combative response to the SEC charges and unsettled shareholders.

Continue reading " Goldman Sachs and SEC Reportedly Talk Settlement " »

Mainstream USA Today recently published its opinion on the financial reform package currently pending in Congress. Lawmakers should pay attention.

I. WHY THE OBAMA FINANCIAL REFORM PROPOSAL SHOULD PASS

USA Today starts out by observing that “[n]o economic downturn in the past century — not even the Great Depression — can be so directly attributed to pernicious behavior by financiers,” which “exposed a bonus-crazed banking culture that amplified risk on a colossal scale.”

Continue reading " USA Today: Why Financial Reform is Needed " »

Sixty-five percent of Americans support tougher financial regulation, according to a recent ABC News poll and a recent article by Jonathan Berry of Daily Finance, “Organized Labor Puts a Bull’s-Eye on Wall Street.”

Continue reading " Two-Thirds of Americans Want Tougher Financial Regulation of Wall Street " »

One hundred twenty Morgan Stanley offices are expected to be closed throughout the United States, according to a recent article by Michael J. Moore in Bloomberg.com, “Morgan Stanley Smith Barney to Close 120 ‘Overlap’ U.S. Offices.” The firm is reportedly seeking to eliminate “overlap” created by the merger of Morgan Stanley and Smith Barney.

Continue reading " Morgan Stanley Smith Barney Plans to Close 120 Offices - Impact on Current Employees Unknown " »