Investment Fraud Lawyer Blog

A recent article published by AARP aptly describes reverse convertible investments as a “time bomb” involving extreme risks for senior citizens and other investors. John F. Wasik’s article entitled “The Time Bomb in Your Nest Egg,” is a “must read” focusing on reverse convertibles and other structured product investments, which are being marketed to conservative fixed income investors seeking better yields. Sales are rising, and so are losses - $164 billion in the last two years, according to the article. As Mr. Wasik states at the outset, “They’re sold as supersafe investments… [a]nd they’re not to be trusted.”

Continue reading " Investor Alert: Are Reverse Convertible "Time Bombs" in Your Portfolio? " »

The Financial Industry Regulatory Authority (“FINRA”) announced that it is conducting “targeted exams” known as “sweeps” of certain member brokerage firms in order to gather information about their advertising for a group of structured products called reverse convertibles, according to Zeke Faux’s Bloomberg article, “Finra Asks Brokers for Reverse-Convertible Marketing Materials.”

Continue reading " Regulators Begin Investigations of Reverse Convertibles and Other Structured Products " »

Sutherland Asbill & Brennan LLP recently completed a study of cases over a two-year period from October 2008 to September 2010 where the SEC or FINRA charged broker-dealers and individual representatives with violations, according to InvestmentNews.com. Sutherland concluded that, although “the odds are not in your favor” when regulators assert charges against broker-dealers and registered representatives, past results show it may be worthwhile to challenge the charges under certain circumstances.

Continue reading " Regulatory Actions - Is It Better to Fight or Concede? " »

House Republicans have made $5.3 billion in earmark cuts but there are still $4.8 billion in earmarks left untouched, according to Gregory Korte’s USA Today article, “$4 billion in pet projects left intact.” Defense, military construction and veterans affairs projects account for $4.1 billion of the $4.8 billion in earmarks that have so far been spared. Critics seem determined to go after the remaining earmarks.

Continue reading " New Congress Funds Pork Projects but not Investor Protection " »

The Financial Industry Regulatory Authority (FINRA) administers arbitration proceedings to resolve disputes between its member brokerage firms and investors. Arbitrator selection by the parties, like jury selection in a court trial, is a very important part of any arbitration proceeding. Truthful disclosure by arbitrators of facts that could create even the appearance of partiality or bias is critical to both the perceived and actual fairness of arbitrations.

Continue reading " Why Are FINRA's Arbitrator Disclosure Guidelines So Confusing? " »

In a decision “likely to ripple across Germany’s banking sector,” a German court ruled that Deutsche Bank failed to disclose the “real and ruinous” risks and its “gross conflict of interest” in selling interest rate swaps to a business client, according to a Wall Street Journal article entitled “Deutsche Bank Loses Swaps Case” by Laura Stevens and David Crawford. The risks were stacked in Deutsche Bank’s favor, and the bank failed to disclose that the contract’s starting value was less than the purchase price, which would have signaled which way the swap’s risks were stacked, according to the German court.

Continue reading " Investor Wins Interest Rate Swaps Claim Against Deutsche Bank " »

Four of the nation’s largest Wall Street banks are facing threatened lawsuits by the National Credit Union Association (“NCUA”) and, possibly, regulators if they do not refund approximately $50 billion that five “wholesale” or “corporate” credit unions used to purchase bonds backed by risky subprime mortgage loans, according to a Wall Street Journal article by Liz Rappaport called “Banks Hit for Credit Union Ills.” NCUA accuses the banks of misrepresenting the risks associated with the mortgage-backed securities.

Continue reading " Credit Unions Sue Wall Street Banks to Recover Mortgage-Backed Securities' Losses " »

InvestmentNews.com is reporting that the sixth-largest U.S. bank, Morgan Stanley, is being sued by employees of its own company. The plaintiffs claim “their stock-option and retirement saving plans sustained losses in 2008 because the company invested too heavily in its own shares.” In a complaint filed in Manhattan federal court, G. Kenneth Coulter and five other participants in the plan say that its directors “breached their fiduciary duty by failing to manage the plans’ assets and by not providing accurate information.”

Continue reading " Morgan Stanley Sued for Mishandling Retirement Plan " »

According to an article from InvestmentNews.com, the Financial Industry Regulatory Authority (FINRA) has ordered Southwest Securities Inc to pay $650,000 to “resolve claims over improper short sales.” FINRA said that the improper sale caused a $6.3 million loss for the firm.

Continue reading " FINRA Sanctions Southwest Securities " »

According to an article in Investment News, a website has been launched, www.shareowners.org, in order to allow the average investor can voice opposition to the proposed budgets cuts of the Securities and Exchange Commission and the Commodity Futures Trading Commission. "Visitors to the portal will be able to send messages to their senators and congressional representatives." A bill being pushed by Republicans in the House, if passed, would "reduce current SEC funding by $25 million for the rest for the rest of the year and chop $189 million out of President Barack Obama's fiscal year 2011 request for the agency." They are also trying to slow down the implementation of the Dodd-Frank Act, which passed last summer.

Continue reading " Special Interest Groups Seek to Undermine Investor Protection " »

Sid Kirchheimer (author of Scam-Proof Your Life, AARP Books) explains that senior citizens get scammed for other reasons besides memory loss, loneliness and a more trusting nature. Research suggests that subtle mental changes provide unexpected opportunities for scammers to prey on seniors. See AARP.org, Bulletin, “Brain Games,” “Scam Alert – Why Older People are more prone to cons.”

Continue reading " Senior Citizens are More Vulnerable to being Victims of Scams and Investment Fraud " »

Jane J. Kim advises high yield or junk bond investors to be cautious in her Wall Street Journal article, “Trouble Lurks in ‘Junk’ Bonds.”

Continue reading " Experts Wave Caution Flags Regarding Junk Bonds " »

A suit filed in federal court in Atlanta by a former SunTrust Bank employee and 401(k) plan participant alleges that SunTrust violated federal retirement plan laws by selecting its own high-fee, poorly performing mutual funds for its 401(k) plan. See J. Scott Trubey’s article in the Atlanta Journal Constitution entitled “SunTrust faces suit over operation of 401(k).” The violations enriched SunTrust but cost plan participants more than $100 million dollars, according to the complaint.

Continue reading " SunTrust Sued For Alleged 401(k) Abuses " »

The Securities and Exchange Commission recently charged three senior executives at Akron, Ohio-based Fair Finance Company with running a $230 million Ponzi scheme on more than 5,000 investors, many of them elderly.

Continue reading " Ohio Ponzi Scheme Targeted Elderly Investors " »

A federal judge has refused to approve a proposed class action settlement between Securities America and a class of people who purchased hundreds of millions of fraudulent securities issued by Medical Capital and Provident Royalties, that were sold by Securities America. See Dan Levine’s and Joseph Giannone’s article in Reuters captioned, “Judge rejects settlement with Ameriprise unit,” and Bruce Kelly’s InvestmentNews article, “CFO: Securities America on the brink without legal settlement.”

Continue reading " Judge Rejects Securities America's Attempts to Settle Class Actions Involving Medical Capital Notes and Provident Royalties Securities " »

The Lehman Brothers Holdings bankruptcy trustee has sued Citibank to recover more than $1.3 billion, according to Dena Aubin’s March 18, 2011 article in Reuters. The $1.3 billion includes a $1 billion deposit demanded by Citibank to continue providing foreign exchange settlement services to Lehman’s broker subsidiary (LBI) after the bankruptcy filing. Citigroup also froze more than $300 million in additional deposits, and could face up to $3 billion in claims from Lehman's bankruptcy proceedings, according to the article.

Continue reading " Lehman Bankruptcy Trustee Sues Citibank to Recover $1.3 Billion " »

According to a recent article in Bloomberg.com, the current financial situation presents ideal conditions for crooks and schemers in the financial industry. As quoted in the article, Joseph Borg, a 16-year securities regulator who runs the Alabama Securities Commission, “This is a perfect time to be a crook.”

Continue reading " "A Perfect Time to be a Crook" " »

Bloomberg columnist Susan Antilla says Wall Street scoffs at the Securities and Exchange Commission, and she tells us why in her article entitled, “Four People Who Get Why Wall Street Can Scoff.” One reason seems to have something to do with money and self-interest.

Continue reading " Article Raises Concerns Regarding SEC's Effectiveness " »

According to a recent article in the Wall Street Journal, the SEC is looking into United States banks that have restructured troubled loans in order to make them appear healthier than they actually are. The SEC is looking into practices such as “extend and pretend” or “amend and pretend” in which a bank gives a borrower more time to repay a loan.

Continue reading " Questions Raised about How Major Financial Institutions are Treating Troubled Loans " »

Rumors persist that Wells Fargo & Co. is in discussions with UBS AG about acquiring its retail-wealth-management operations in the U.S., according to Andrew Osterland’s InvestmentNews article, “Wells Fargo and UBS at the table again?” The rumors seem to be supported by Wells Fargo CEO John Stumpf, who was quoted as saying: “In the wealth and retirement business we are suboptimized. If we could jump a curve with the right deal, that's great.”

Continue reading " Is UBS Wealth Management for Sale? " »

The Securities and Exchange Commission and the Justice Department are investigating whether Bank of America Corp., Citigroup Inc., UBS AG, and other banks submitted inaccurate data in an attempt to manipulate the London Interbank Offered Rate (LIBOR), according to a Wall Street Journal article by David Enrich and Jean Eaglesham called “U.S. LIBOR Probe Includes BofA, Citi, UBS.” The U.S. Commodity Futures Trading Commission, as well as British and Japanese regulators, are also investigating possible LIBOR manipulation, according to the article.

Continue reading " Did Big Banks Manipulate LIBOR Rates? " »

John F. Wasik’s article in the March | April 2011 edition of AARP Magazine, entitled “The Time Bomb in Your Nest Egg,” is a “must read” as it focuses on a hot group of investment products called Structured Products, which are being marketed to conservative fixed income investors seeking better yields. Sales are rising, and they are dangerous. As Mr. Wasik states at the outset, “They’re sold as supersafe investments. They promise higher returns than any CD. And they’re not to be trusted.”

Continue reading " AARP Issues Warnings about Principal Protected Notes and Other Structured Product Investments " »

Expecting licensed professionals who provide investment advice to act in their clients’ best interests “should be a basic tenet of the business,” but brokerage firms and their brokers don’t want that fiduciary yoke, says Karen Blumenthal in her InvestmentNews article, “When Your Adviser Can’t Be Trusted.” Moreover, they don’t want the public to know that they don’t want to be held to a fiduciary standard. So, while brokerage firms profess to be trusted advisers or like a member of a client’s family in their advertising, their lobbyists are working hard to persuade the SEC to weaken the “devil in the details” definition of the term “fiduciary” for purposes of governing brokers’ relationships with customers.

Continue reading " Are Brokerage Firms Really the Trusted Financial Advisers that Their Advertisements Claim that They Are? " »

Professor Seth E. Lipner has a regular column in Forbes called “Intelligent Investing” that is always a worthwhile and interesting read. His column titled “Don’t Count On The Government To Save You From The Sharks” is a good example. The subject is a group of structured products known as reverse convertibles. Reverse convertibles are complex structured products with embedded options linked to a “reference asset” like a stock or index. If the price of the reference asset falls below a predetermined level, at maturity, a “put” option kicks in and the investor receives the depressed asset instead of his principal. Investors usually don’t know when that happens because it has not been explained to them. That would be bad for sales.

Continue reading " Reverse Convertibles are Toxic Securities for Safety Conscious Investors " »

The U.S. government is trying to recruit new talent with “Wall Street experience and retool antiquated surveillance systems,” according to Rachelle Younglai of Reuters. In the past the SEC and other government regulators have been unable to attract the top talent because they could not match the high salaries of top Wall Street firms. The gap between Wall Street and government regulators could become closer with the help of the Dodd-Frank reform law. However, because of a “congressional budget standoff depriving promised funding increases to the SEC and Commodity Futures Trading Commission,” their ability to better regulate the financial industry is being compromised.

Continue reading " The New Congress Appears Determined to Undermine the Integrity of the U.S. Capital Markets " »

Zeke Faux’s Bloomberg article, “Indexed Annuities Can Yield Surprises,” focuses on complexity of the contracts that obscure high fees and long lock-up periods, and the fact that investors do not understand these products.

Continue reading " Buyer Beware of Equity Indexed Annuities " »

According to a recent article in Investment News, under a rule proposed Wednesday by The Securities and Exchange Commission (“SEC”), large investment advisors and broker dealers would have to end compensation programs that foster excessive risk taking. The proposed rule provides requires advisory firms and broker dealers who have more than one than $1 billion in assets to disclose to the SEC their incentive based compensation plans. According to the article, under the proposed rule, regulators could then prohibit a plan if they find it “encourages inappropriate risk or that it appears it could lead to substantial financial losses by offering excessive compensation.”

Continue reading " SEC Proposes Rule Aimed at Reducing Excessive Risk Taking by Brokerage Firms and Investment Advisers " »

The Securities and Exchange Commission is charged with overseeing self-regulatory organizations (SROs) like the Financial Industry Regulatory Authority (FINRA), which is in turn charged with policing sales practice abuses by its member brokerage firms. The SEC, however, lacks sufficient information about FINRA to properly oversee it, according to Dan Jamieson’s InvestmentNews article, “SEC should step up scrutiny of Finra: Report.”

Continue reading " Study Concludes that the SEC Needs More Oversight of the Financial Industry Regulatory Authority " »

A federal judge has ruled that an institutional investor that lost over $200 million in auction rate securities sold by brokerage firm Deutsche Bank Securities can also bring a claim against that firm’s parent company, Deutsche Bank AG, according to a recent BNA article entitled “Deutsch Bank Loses Bid to Dismiss Control Person Claims by ARS Investor.”

Continue reading " Institutional Investor in Auction Rate Securities Allowed to Proceed with $200 Million Claim Against Deutsche Bank " »

The government’s failure to convict two minor Bear Stearns executives, whose hedge fund collapsed in 2007, may have caused it to shy away from prosecuting high-profile executives whose actions contributed to the financial crisis, according to Joe Nocera’s recent New York Times article, “Biggest Fish Face Little Risk of Being Caught.” In addition, proving criminal wrongdoing in financial matters is hard, and, as Mr. Nocera put it: “Delusion is an iron-clad defense” to fraud.

Continue reading " Why No Major Indictment in Connection with the Financial Crisis? " »

The Massachusetts securities division filed two Administrative Complaints against unregistered broker-dealers that allegedly perpetrated foreign-exchange investment scams, according to Liz Moyer’s recent Wall Street Journal article, “Massachusetts Charges Two Firms in Forex Schemes.”

The cases are: (1) In the Matter of Eagle Trades, Ltd., Eagle Trades Ltd., LLC, and Terrance William Osberger, Docket E-2010-0005, and (2) In the Matter of Osiris FX, Evan Andersen, Glenn Anthony Manterfield, Alberto Sciola Jr., and FX Capital Services, Docket E-2010-0077.

Continue reading " Another Cautionary Tale of Investors Seeking Higher Yields Falling Prey to Fraudsters? " »

In February of 2008, about three months after Citigroup disclosed that the value of its subprime securities had fallen by $8 to 11 billion since September 30, the Office of the Comptroller of the Currency informed Citigroup CEO Vikram Pandit by letter that its bank examiners had found that Citigroup lacked a reliable method for valuing subprime mortgage bonds, according to Jonathan Weil’s recent Bloomberg.com article entitled, “What Vikram Pandit Knew, and When He Knew It.”

Continue reading " Did Citigroup Knowingly Sweep Subprime Losses Under the Rug? " »

Securities America, Inc., the Ameriprise Financial affiliate that sold hundreds of millions of dollars of fraudulent private placements issued by Medical Capital Corp. and Provident Royalties LLC, is trying to force a class action settlement in connection with investors who purchased Medical Capital Notes though Securities America. The proposed settlement would protect millions of dollars of its assets from defrauded investors and allow it to stay in business, according to InvestmentNews articles by Bruce Kelly entitled “Lawsuits suck air out of Securities America’s cash cushion,” and “Ameriprise reaches $27M settlement over private placements: Attorney.”

Continue reading " Ameriprise and its Securities America Affiliate Seek to Use a Legal Loophole to Avoid Hundreds of Millions of Dollars in Legal Exposure " »

The SEC defines “churning” as “the excessive buying and selling of securities in your account by your broker, for the purpose of generating commissions and without regard to your investment objectives.” If your broker has been aggressively trading your account (or urging you to trade your account) directing a high volume of trades that make money for him but not for you, there is a good chance that he is guilty of churning the account.

Continue reading " Is Your Broker or Financial Adviser "Churning" Your Account? " »

The asset-backed securities market – “the Wall Street credit machine that helped set off the financial crisis” – has come back to life, according to a New York Times article called “Wall Street Securitization Machine Back Into Gear?” Securities backed by commercial real estate, which apparently did not reach expected lows, are leading the pack. Bankers are calling the resurgence C.M.B.S. 2.0, referring to new versions of commercial mortgage-backed securities. But securities backed by bundles of car loans and collateralized loan obligations are also on the upswing.

Continue reading " Wall Street is Back Up to its Old Tricks - Sales of Risky Asset Backed Securities Return " »

Page Perry has recently represented several clients who were told that their money was being invested in a “system” that was designed to minimize their exposure to downward movements in the market while maximizing their share of market gains. In one case against a major Wall Street firm, our clients were told that they would experience most of the upside of favorable market movements and only a small part of any downside. Unfortunately, when the market tanked in 2008 the clients’ portfolio did the same. According to Page Perry partner Craig T. Jones, “if you are being sold something that sounds too good to be true, it probably is.”

Continue reading " Beware of Brokers Selling Foolproof Systems " »

Just as unscrupulous teachers manipulate student performance to increase their own fortunes, so some mutual fund managers are over-pricing their bond portfolios to attract investors. Bond values are not easy to determine in the current atmosphere of state and municipal budget shortfalls and fewer tax receipts. Generally traders and portfolio managers prefer to rely on comparables for proper bond values but that is not always possible. The Securities and Exchange Commission has noticed the problem and started an investigation into how bond funds price risk in their portfolios.

Continue reading " Some Municipal Bond Funds May Be Fudging Their Net Asset Values " »

Sophisticated institutional investors are bringing claims in waves against Wall Street financial institutions for fraud in the sale of mortgage backed securities, CDOs and related exotic investments. Most recently, Charles Schwab Corp. is among a group of financial institutions suing Goldman Sachs for making material misrepresentations and omissions in connection with the offer and sale of mortgage-related securities, according to Liz Moyer and Brett Philbin in their Wall Street Journal article, “Goldman Tallies Possible Litigation Losses.”

Continue reading " Sophisticated Institutional Investors "Jump on the Bandwagon" - Sue to Recoup Losses in Mortgage-Backed Securities and CDOs " »

The Securities and Exchange Commission charged Rajat K. Gupta, former director of Goldman Sachs and Proctor & Gamble, and former head of McKinsey & Co., with insider trading, according to a Wall Street Journal article by Chad Bray entitled “SEC Sues Ex-Goldman Director in Insider-Trading Case.”

Continue reading " Former Goldman Sachs Director Charged with Insider Trading " »