Investment Fraud Lawyer Blog

According to a recent New York Times article by Gretchen Morgenson and Louise Story titled “Documents Show Goldman Pressure on A.I.G,” Goldman Sachs made a huge bet against AIG in 2008 by purchasing $3 billion of credit default swaps insuring against a possible default by AIG, at the very same time that Goldman was driving AIG to default on its obligations by aggressively demanding cash collateral from AIG pursuant to credit default swaps insuring risky pools of subprime mortgages that Goldman had purchased from AIG.

Continue reading " Goldman Faces Allegations that It Pushed A.I.G. Over the Cliff " »

Historically, municipal bonds have been at the low end of the risk spectrum, but economic realities are changing that assumption. According to a May 28 article in CNNMoney by Sara Behunet titled “Three American cities on the brink of broke,” in 2009, 183 municipal issuers defaulted on $6.4 billion of bond payments – up from 31 defaults on $348 million in 2008. That’s an 1800% increase in dollars and a 590% increase in municipalities in default. This alarming trend is expected to continue, according to the article.

Continue reading " Municipal Bond Defaults Are Increasing " »

It’s crunch time for financial reform, and Wall Street banks are lobbying hard to keep a central pillar of financial reform from becoming law, and, at the same time, are planning ways of getting around whatever financial reform restrictions do become law, according to a recent New York Times article by Eric Dash and Nelson D. Schwart titled “Banking Lobbyists Make a Run at Reform Measures.”

Continue reading " Wall Street Intensifies Efforts to Thwart Financial Reform as Greed Trumps Common Sense " »

For the first time, the Securities and Exchange Commission is seeking to enforce a provision of the 2002 Sarbanes-Oxley Act, enacted in the wake of the Enron and WorldCom scandals, which provides that any CEO or CFO shall pay back any bonuses or incentive-based compensation whenever the company is required to prepare an accounting restatement necessitated by misconduct – but not necessarily the CEO’s or CFO’s own misconduct.

Continue reading " SEC Seeks to "Clawback" Benefits from an "Innocent" CEO " »

Another member of the bewildering zoo of derivative products dreamed up and sold by Wall Street – this time a constant proportion debt obligation (CPDO) named Rembrandt – has imploded wiping out unsuspecting investors, according to a June 21 article on Bllomberg.com by Christine Harper, Shannon D. Harrington and James Sterngold, titled “Failed AAA Rated Rembrandt on Wall Street Spurs Opacity Outcry.” As the title says, Rembrandt was an opaque “black box” whose inner workings could only be modeled by computers, and so, of course, was given the highest investment grade rating of AAA. Rembrandt was reportedly linked to credit-default swaps on investment-grade companies, and lost 93 percent of its value in two years.

Continue reading " "Financial Innovation" Benefits Wall Street at Investors' Expense " »

According to a recent article in InvestmentNews and a recently filed court exhibit, securities regulators were concerned about Medical Capital’s lack of audited financial information five years before Medical Capital Holdings Inc.'s private-placement financings imploded and wiped out $1.1 billion in investors' cash.

Continue reading " Red Flags Concerning Medical Capital Notes Existed as Early as 2004 " »

In recent weeks, two Financial Industry Regulatory Authority (FINRA) arbitration panels have awarded more than $2.2 million to clients of Page Perry, LLC, Maddox, Hargett and Caruso, P.C., and David R. Meyer & Associates in connection with their purchases of MAT municipal arbitrage fund investments. MAT Five and MAT Three were leveraged municipal arbitrage hedge funds offered by Citigroup Fixed Income Alternatives and sold through Smith Barney. Both MAT Five and MAT Three were marketed only to high net worth clients of the firm as fixed income alternatives. In truth the MAT funds were risky investments that exposed investors to a 100 percent or more loss of principal. The funds imploded in early 2008 causing catastrophic losses to investors.

Continue reading " Page Perry Clients Win MAT Municipal Arbitrage Claims Against Citigroup/Smith Barney " »

Default by a municipal bond issuer has been an exceedingly rare occurrence, but a number of signs suggest that the municipal bond market may be on shakier ground than anyone dreamed possible, according to a recent SmartMoney article by Russell Pearlman, “Municipal Bonds: Derailed.”

Continue reading " Risks Grow in the Municipal Bond Markets " »

Sen. Charles Grassley (R., Iowa), the ranking minority member on the Senate Finance Committee, has asked the Securities and Exchange Commission's inspector general, David Kotz, to investigate the SEC's "revolving door," through which many senior SEC officials transition to lucrative positions with the very securities firms regulated by the SEC. See “SEC ‘Revolving Door’ Under Review,” by Tom McGinty, Wall Street Journal, June 16, 2010.

Continue reading " It's Time to Stop the Securities Industry's Efforts to Poach High Level SEC Personnel " »

Catalyst Health Solutions, a provider of pharmacy benefit management services, has won a $9.8 million FINRA arbitration award against Credit Suisse in connection with student loan-backed auction rate securities. This is one of several successful arbitrations brought against Credit Suisse by investors since the auctions for such securities froze in early 2008, leaving thousands of investors holding billions of dollars worth of illiquid securities. The particular securities involved in the Catalyst award were backed by student loans; other awards, including a 2009 $431 million award in favor of STMicroelectronics and a May 2010 award ordering Credit Suisse to buy back the securities it sold to Luby’s Restaurants LP, involving auction rate securities backed by municipal bonds or preferred shares.

Continue reading " Arbitrators Hammer Credit Suisse Again for Improper Sales of Auction Rate Securities " »

Merrill Lynch and other Wall Street firms sold the riskiest tranches of collateralized debt obligations (“CDOs”), not just to institutions, but to individual investors, as safe investments, according to a recent Wall Street Journal article by Dan Fitzgerald titled “Didn’t See Risk, and Got Stung.” Now that the CDOs have imploded, and investors are seeking recovery of their losses, Merrill is telling them that risk disclosure documents and the investors’ supposed sophistication mean they cannot recover. Merrill is wrong for a number of reasons.

Continue reading " Wealthy Individuals Have Been Victimized By Wall Street's CDO Fraud " »

According to a recent article in the Atlanta Journal Constitution, “at least a dozen local governments and other institutions that used derivative deals called swaps to try to lower the cost of bond issues have ended up owing as much as $394 million in fees to the Wall Street investment banks that set up the deals….” AJC, 5/30/10, “Paying a Price for Risky Schemes.” That article looked at how much money a small number of governmental and institutional investors in Georgia have paid to buy their way out of interest rate swaps in the wake of the financial crisis, but it is likely that this is a nationwide phenomenon. The article raised a number of questions—including whether it was appropriate for taxpayer money to be invested in securities with such a high level of risk—but it did not raise the question of whether there are legal remedies that would allow government officials and others to recover the financial losses resulting from such investments.

Continue reading " Local Governments and Non-Profits Have Suffered Catastrophic Losses as a Result of Wall Street's Excesses " »

Bloomberg.com has reported that Goldman Sachs Group Inc.’s $2 billion Hudson Mezzanine collateralized debt obligation, sold in 2006, is now the target of a probe by the SEC.

Continue reading " SEC Expands Investigation of Goldman Sachs CDO Abuses " »

The Financial Crisis Inquiry Commission, a bipartisan commission that was appointed by Congress to investigate and report on the causes of the financial crisis, reported that Goldman Sachs tried to conceal information and obstruct its investigation into the causes of the crisis, according to USA Today’s David Lieberman in his June 8 article, “Goldman accused of trying to thwart probe.”

Continue reading " What Is Goldman Sachs Trying To Hide? " »

In “Paying a price for risky schemes,” Atlanta Journal Constitution reporter Russell Grantham presents an excellent overview of how at least a dozen metro governments and nonprofits that issued debt were whipsawed by the “shadow banking system” – the freezing of the auction rate securities markets and complex derivative contracts called swaps. As a result, they have been forced to pay or owe as much as $394 million that they did not expect to, according to the article, which identifies the borrowers as:

“Atlanta airport, Atlanta water/sewer, Underground Atlanta, Children’s Healthcare of Atlanta, Piedmont Healthcare, Woodruff Arts Center, Georgia Tech, Georgia State University, DeKalb Medical Center, Emory University, Gwinnett Medical Center, Marietta, MARTA, Power South Energy Cooperative, and Cobb County Kennestone Hospital Authority. “

Continue reading " Wall Street Abuses Have Significantly Increased the Economic Problems Currently Faced by State and Local Governments " »

You may have read recently how the Securities and Exchange Commission, with the help of hedge fund managers, uncovered and foiled an insider trading scheme by two Disney employees.

Here is a “Disney World” synopsis of what happened, written by a friend of this firm:
 
“Goofy and Dopey send letters to 20 hedge funds offering to give them an advance look at Disney’s quarterly earnings for a fee.  Hedge fund compliance officers Mickey Mouse and Tinkerbell smell a rat so they immediately notify Winnie the Pooh at the SEC.  Winnie the Pooh and FBI Agent Buzz Lightyear set up a sting operation leading to the arrest of Goofy and Dopey.   
 
Captain Hook and Cruella DaVille will be representing Goofy and Dopey at their arraignment.”
 
Here is a “real world” synopsis:

Continue reading " On A Lighter Note... " »

The National Credit Union Administration (“NACUA”) should be considering litigation against Wall Street firms that sold collateralized debt obligations (“CDOs”) to its member firm Eastern Financial Florida Credit Union (“Eastern Financial “), which resulted in losses of nearly $150 million and Eastern Financial’s placement in conservatorship in April 2009, according to a recent New York Times article by Gretchen Morgenson.

Continue reading " Credit Union Joins Long Line of Victims Damaged by Toxic CDOs " »

Two recent Wall Street Journal articles may cause investors to reconsider their assumptions about the supposed benefits of exchange traded funds: “Flash Crash May Prove Blemish for ETFs,” by Ian Salisbury (May 13, 2010), and “Danger: Falling ETFs,” by Eleanor Laise (May 29, 2010).

Continue reading " Exchange Traded Funds (ETFs) Were Far More Volatile than Stocks in the Recent Flash Crash " »