Investment Fraud Lawyer Blog

A recent Bloomberg Markets Magazine article raises troubling questions about investment corruption at the highest levels of government. In July 2008, as market fears mounted, Treasury Secretary Henry Paulson reportedly met with a group of hedge fund managers (five of whom were former officers of Goldman Sachs, where Paulson was CEO), and described a scenario in which the government would put Fannie Mae and Freddie Mac into conservatorship, thereby wiping out the common stockholders of those institutions, according to a fund manager who attended the meeting (“How Paulson Gave Hedge Funds Advance Word,” Bloomberg Markets Magazine, By Richard Teitelbaum). But earlier that morning Paulson had provided a different message to New York Times reporters and editors (i.e., the public): that the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books, and he expected their report would boost market confidence in Fannie and Freddie, according to the article.

Continue reading " Investment Corruption Reportedly Reaches the Highest Levels of Government " »

In another example of brokerage firms catering to retail investors’ worst instincts, supposedly investor-friendly firms like Charles Schwab and TD Ameritrade are focusing on expanding their trading business beyond traditional investment like stocks and bonds into alternative investments like options because the commissions are so high. (“’Easy Money’ Options Pushed by Online Brokers,” Bloomberg).

Continue reading " High Risk Options Trading Is Being Pushed By Some Brokerage Firms " »

Noted professor of economics, Nouriel Roubini, predicts the U.S. economy will slide into recession in 2012 primarily because of the failure to deal with fiscal problems as a result of political gridlock in Washington. Last week, Roubini tweeted: "Super-Committee: Super-Failure, Super-Pathetic, Super-Gridlock, Super-GOP-Lunacy on Taxes, Super-Fiscal Drag in 2012 that ensures double dip."

Continue reading " Dr. Doom Forsees a 2012 Recession " »

The Securities and Exchange Commission reports that it is receiving about seven (7) whistleblowers tips per day, and has received 334 tips in the first 50 days since the program became fully operational on August 12. At the current rate, the program should receive 2,438 tips a year. (“Whistle-Blowers, 7 per Day, Seek SEC Bounties,” Bloomberg).

Continue reading " A New Way to Get Rich on Wall Street - Become a Whistleblower " »

Judge Jed S. Rakoff stunned the SEC and Citigroup by rejecting their proposed $285 million settlement of a case involving Citigroup’s sale to investors of a CDO that Citigroup allegedly “built to fail” and bet against. The judge’s decision made a dent in the SEC’s longstanding policy (“hallowed by history, but not by reason”) of allowing defendants to settle without admitting to any of the underlying facts. Judge Rakoff ordered the parties to be ready to try the case on July 16, 2012.

Continue reading " Judge Rejects Citi's Efforts to Buy Justice " »

LPL Financial LLC was fined $100,000 by the Oregon Department of Consumer and Business Services for unsuitable sales of high-risk oil and gas partnerships to clients, including many who are elderly, in poor health, and incapable of making financial decisions (“LPL fined over sales of risky partnerships to seniors,” InvestmentNews).

Continue reading " LPL Fined for Selling Unsuitable Alternative Investments to Seniors " »

The SEC is scrutinizing mutual funds’ fee arrangements, looking for instances of gouging, and finding plenty of them. Morgan Stanley just agreed to pay $3.3 million for its role facilitating over $1.8 million in payments by a mutual fund to a third party for services the fund did not receive (“Morgan Stanley Settles SEC Case,” Wall Street Journal). Many more such cases are expected in coming months.

Continue reading " Morgan Stanley Fined for Gouging Investors " »

Broker-dealers that sold billions of dollars in fraudulent private placements, such as Medical Capital and Provident Royalties notes, “failed massively in their due diligence responsibilities to investors” according to Gordon Yale, a CPA and expert witness in securities fraud cases. (See “Private-placement due diligence ‘sloppy,’” Investment News). They grossly misrepresented investigations into the investments and issuers they claimed to have performed, and, in fact, merely relied on self-serving representations made by management that were false and fraudulent.

Continue reading " Expert Contends that Brokerage Firms are Failing to Satisfy their Due Diligence Obligations. " »

The Financial Industry Regulatory Authority (FINRA) has fined Wells Investment Securities, Inc. $300,000 for misleading investors about Wells Timberland REIT, Inc., a non-traded Real Estate Investment Trust (REIT). FINRA found that Wells Investment Securities used misleading marketing materials to effect sales of the Wells Timberland REIT.

Continue reading " Regulators Fine Atlanta-Based Wells Investment Securities for Misleading Investors " »

Concerns have developed that certain stock brokerage firms have misused “senior” designations in a manner that is misleading to investors. In fact, the Financial Industry Regulatory Authority Inc. (FINRA ) is warning Wall Street brokerage firms about the use of special “senior” designations when marketing investments products.

Continue reading " Regulator Warns Brokerage Firms About Misleading Seniors " »

Fitch Ratings issued a report on November 16 on the U.S. banking sector saying that “the risks of a negative shock are rising” if the effects of European debt crisis keep spreading. (“Fitch’s Warning Spooks Investors, “ Wall Street Journal).

Continue reading " Concerns Rise Regarding Wall Street Banks " »

Members of Congress are repeatedly using their positions to personally profit at the expense of other investors as described in Hoover Institute fellow Peter Schweizer’s recently published a book entitled “Throw Them All Out.” Among other things, it details insider trading by Congressmen that would be clearly illegal if done by anyone else. Last Sunday, a 60-Minutes report featured Schweizer, his book and a number of Congressmen, throwing a harsh light on this practice (“It’s time to ban insider trading by Congress,” Roger Parloff, CNNMoney).

Continue reading " Investment Corruption Runs Deep in Congress " »

Laurence D. Fink, chief executive officer of BlackRock Inc., blasted sellers of synthetic (derivatives-based) exchange traded funds as damaging to the industry, according to InvestmentNews (“BlackRock’s general, Societe Generale in ETF ‘street brawl’”). BlackRock is the world's largest ETF provider and one of the world’s largest money managers.

Continue reading " Are Certain ETFs Socially Irresponsible? " »

It’s getting rough and rowdy as Occupy Wall Street protesters attempt to shut Wall Street down and police try to clear them out. Protesters marched from their former home in Zuccotti Park and blocked intersections near the New York Stock Exchange. Police hit and shoved some of them, and reporters saw one woman pinned to the ground by police, bleeding from her mouth. (“Protesters Disrupt Business Around Wall Street,” Wall Street Journal).

Continue reading " Occupy Wall Street Protests Expand in the Face of Repression " »

Morgan Stanley’s motion to dismiss a class action involving “built to fail” structured products has been denied as to the fraud claims against it, and the case will go forward. The plaintiffs – a group of Singapore retail investors – allege that Morgan Stanley committed fraud in selling them sold them $154.7 million of Pinnacle Notes. The notes, which lost almost 100 per cent of their value during the financial crisis, were linked to synthetic (i.e., derivatives-linked) collateralized debt obligations (CDOs) in 2006 and 2007.

Continue reading " Morgan Stanley Bitten by 'Built to Fail' Structured Products " »

JP Morgan Chase and Goldman Sachs have sold credit default swaps that put them on the hook for $5 trillion of debt – but they won’t say whose debt they are on the hook for. That leaves investors worried that it may be debt issued by Greece, Italy, Ireland, Portugal and/or Spain. Greece and Italy are insolvent, and the others are not very creditworthy, according to experts.

Continue reading " Wall Street Firms Refuse to Disclose Exposure to European Debt " »

Citigroup plans to cut 3,000 or more jobs, about 1 percent of employees, and BNP Paribas plans to cut about 1,400 jobs, or 7 percent of its employees, according to the New York Times (“Citi to Shed 1% of Its Workers; BNP Paribas Plans to Cut 7%”). The NY Times was told unofficially that one third of the cuts at Citigroup will come from its securities and banking unit, but the timing is uncertain.

Continue reading " Wall Street's Job Cuts Continue " »

Forty percent of hedge fund investors are dissatisfied with their returns, and eighty percent are considering changing fund managers, but 38% plan to increase the amount of their hedge fund investments over the next year, according to the Wall Street Journal (“Investors Disappointed with Hedge Funds, But Sticking With Them”), citing a recent survey.

Continue reading " Hedge Fund Performance Disappoints Investors " »

The National Credit Union Administration (NCUA) announced that it has reached settlements with Citigroup and Deutsche Bank regarding potential claims relating to the sale of residential mortgage-backed securities to five failed wholesale credit unions. NCUA said that it is the first regulatory agency to recover losses on behalf of failed financial institutions that resulted from investments in residential mortgage-backed securities.

Continue reading " Citigroup and Deutsche Bank Pay $165 Million to Settle Mortgage Securities Claims " »

The Securities and Exchange Commission says it has stepped up its enforcement activities during the 2011 fiscal year ended September 30, filing a record 735 enforcement actions resulting in disgorgements and penalties totaling $2.806 billion, according to InvestmentNews (“SEC sets record in crackdown on advisers, B-Ds”). It reportedly filed 146 enforcement actions against investment advisers and investment companies in 2011, a 30% increase over last year and 200% more than 2002 when the SEC filed 52 cases. With regard to broker-dealers, the SEC says it filed 112 enforcement actions, a 60% increase over 2010.

Continue reading " Securities Violations Increase " »

When world markets move significantly in apparent response to major macroeconomic news, even supposedly “uncorrelated assets” move in unison with them, according to Jason Zweig’s Wall Street Journal article, “Caging Raging Contagion.” Such a significant move occurred last week when the Italian government and bonds collapsed over its fiscal problems, and everything else fell, too.

Continue reading " High Correlations Among Asset Classes Means There's No Place To Hide " »

Nassim Taleb, author of “The Black Swan: The Impact of the Highly Improbable,” says the solution to the problem of bankers who take risks that threaten the general public is simple: Eliminate bonuses. (“End Bonuses for Bankers,” New York Times). He cites as the latest example of the excessive risk taking problem MF Global and its CEO Jon Corzine. MF Global filed for bankruptcy after Corzine made risky investments in European bonds. There has been no taxpayer funded bailout of MF Global, but Taleb warns it is only a matter of time before private risk-taking leads to another one.

Continue reading " Stop Wall Street's Excessive Risk Taking - Eliminate Bonuses " »

The aging baby boom population necessarily means that the numbers of investors who suffer from diminished mental capacity or dementia, such as Alzheimer’s disease, are increasing. Cognitively impaired individuals are at higher risk for financial exploitation. Most investment professionals realize that diminished capacity presents problems that need to be dealt with.

Continue reading " More Investment Protection Needed for Vulnerable Senior Citizens " »

Italy, Europe’s third largest economy, is not merely facing a liquidity crisis; it is insolvent, according to Matthew Lynn, CEO of London-based consulting firm Strategy Economics. (“Italy is bust; it’s just a question of when,” MartketWatch). It is only ironic that Italy’s government debt has been stable for a decade (but at a high level) and its population is relatively wealthy, because the country faces three big problems, which, Lynn believes, are insurmountable.

Continue reading " Italy's Insolvency Threatens the World's Economy " »

Mike Mayo, a banking analyst who has worked at six Wall Street firms and has a reputation for independence from the banks he covers,recently published a book that reveals the fundamental unreliability of Wall Street research recommendations. When Mayo started out on Wall Street, he says he called them as he saw them. But when his analysis was negative on a firm the firm cut back on business with his bank, and Mayo was penalized. In 1999, Mayo made a controversial call to sell bank stocks. Even though he was proven correct, he was fired by Credit Suisse in 2000. In 2002, he testified before Congressional committees about the conflicts of interest on Wall Street, and took his message to the media, but nothing changed. Ten big Banks paid over $1 billion to settlement analyst fraud charges in 2003. Then Wall Street returned to business as usual, and the system is still riddled with conflicts.

Continue reading " New Book Reveals How Wall Street Firms are 'Gaming' the Capital Markets " »

The socialism versus capitalism rhetoric abundant in our current political debates continues to keep our economy at a near standstill. President Obama rails about the “haves” and “have-nots” looking to the wealthiest to pay their “fair share”. Then John Boehner, Republican Speaker of the House, counters with charges of “class warfare” refusing to consider new revenue sources, only entitlement cuts. Meanwhile income disparities between the top 1% and the other 99% continue to increase. The implications of such a divide are very real and can already be seen in society.

Continue reading " The Current Income Gap Poses Serious Threat to Economic Recovery " »

Investors in Europe withdrew $1.9 billion from synthetic (i.e., derivative-based) exchange-traded funds last month, according to Bloomberg (“Synthetic ETFs Lose $1.9B in Europe”). On the other hand, physically backed funds had inflows $3.11 billion.

Continue reading " Investors Flee From Synthetic ETFs " »

AIG and other institutional bond investors, which were not part of a proposed $8.5 billion settlement of Bank of America Corp's mortgage-backed securities liability, complained that the proposed settlement was struck in a “shroud of secrecy.” They have objected to the settlement, want to intervene, and want to review negotiations and documents that led to the proposed settlement, according to Reuters (“Investors want ‘secrecy’ lifted in BofA MBS deal,” by Karen Freifeld).

Continue reading " Institutional Investors Challenge Secrecy of Bank of America Settlement Negotiations " »

“[I]nvestors face a perfect storm – risky assets priced to achieve dismal long-term returns (except in comparison to equally dismal alternatives), coupled with the risk of an oncoming recession,” according to John Hussman (“John Hussman: Nearly every asset class set for ‘miserably low’ returns,” InvestmentNews).

Continue reading " Investors Have Few Attractive Investment Opportunities at Present " »

Wells Real Estate Funds, a major nontraded REIT seller, has announced that shares of its Wells REIT II, which investors purchased at a share price of $10, are actually worth an estimated $7.47 per share (“Share value of popular Wells REIT sinks,” InvestmentNews). Clients will see the reduction in the estimated account value on their statements next month. In addition, after raising $5.9 billion from investors, the Wells REIT II only invested $4.7 of the proceeds in real estate, the rest going to commissions, fees and other expenses. In other words, right off the bat, the Wells REIT II was worth about $7.97 per share, rather than $10.

Continue reading " Wells REIT II Finally Reports That Share Values Have Dropped More Than 25% " »

Morningstar reportedly will begin covering nontraded real estate investment trusts (REITs) next year, according to InvestmentNews. Morningstar has not decided whether to use its star-ratings system, but said it is a “strong possibility.” The independent research giant for mutual funds is expected to bring some transparency to what it described as an opaque and chaotic industry. The question is whether most nontraded REITs can “withstand the light of day?”

Continue reading " Nontraded REIT Investors Face a Reality Check " »

Global liquidity is about to dry up, and “the effect on the real economy will soon be felt,” according to Mark Carney, Chairman of the G-20 Summit’s Financial Stability Board and Governor of the Bank of Canada. European banks are afraid to lend to one another because they do not know the extent of their counterparty’s exposure to weak European sovereign debt. Lack of transparency of banks’ holdings and financials is a global problem.

Continue reading " Liquidity Crisis Looms " »

The Securities and Exchange Commission improperly destroyed internal documents and the explanation it gave to the National Archives was “inaccurate or misleading,” according to David S. Hilzenrath’s Washington Post article entitled “SEC misled Archives on destroying records, inspector general finds,” citing the Inspector General’s report on the subject.

Continue reading " Inspector General Confirms that SEC Improperly Destroyed Documents " »

MarketWatch’s Chuck Jaffe describes nontraded REITs as the “Stupid Investment of the Week.” He came to that conclusion after a big industry meeting promoting alternative investments, including nontraded real estate investment trusts, to financial advisors and money managers. The main disadvantage of nontraded REITs, according to Jaffee, is illiquidity, which flows from the absence of a ready market and restrictions on when and how they can be sold.

Continue reading " Nontraded Real Estate Investment Trusts (REITs) - One Stupid Investment " »

Many target-date funds label their retirement-stage funds as “retirement income” funds, but that is misleading because these funds aren’t designed to generate income even though their names suggest otherwise.. See Tom Lauricella’s Wall Street Journal article entitled “’Target-Date’ Funds Shortchanging Retirees

Continue reading " Many 'Retirement Income' Funds Aren't What They Appear To Be " »

Hedge funds are winning the fight against transparency. While hedge funds with more than $1.5 billion in assets will be required to report certain information to the Securities and Exchange Commission under new rules, after intense lobbying, no hedge funds will be required to report “position information,” or details on individual investment holdings; they will not bear the penalty of perjury for misleading reports; the reports will not be public (only regulators will have access to them). All of this assumes the rule, which was approved by the SEC, is also approved by the Commodities Futures Trading Commission, as expected.

Continue reading " Hedge Funds Continue to 'Hide the Ball' from Investors " »

Banking analyst Mike Mayo is an outlier because Wall Street’s intimidation apparently does not work on him. Mayo has written a book describing, among other things, what it was like for him to break the taboo against issuing a “Sell” recommendation on Wall Street. The title of his book, “Exile on Wall Street,” is a hint.

Continue reading " Wall Street Banks Use Threats and Intimidation to Generate Positive Recommendations " »

Unfortunately, many investors are experiencing first hand the truism that hedge fund managers rarely outperform the market on consistent basis.

John Paulson, the hedge fund manager who made a killing when Goldman Sachs let him select bad CDO assets, which he turned around and bet against, is having a tough time in 2011. His hedge fund has declined nearly 50% this year as a result of a massive positions in Bank of America, which had lost half of its value by October, Rupert Murdoch’s scandal-plagued News Corp., which owns Fox News, and Sino-Forest Corp., which imploded after an accounting scandal.

Continue reading " Hedge Fund Heroes Getting Battered " »

Bloomberg reports that Citigroup invested approximately $800 million of shareholder’s equity in its own private equity and hedge funds during the third quarter, despite knowing that regulators are busy drafting the Volcker rule, which would curtail the practice. Citigroup reportedly classified the $800 million as Level 3 assets, which are illiquid assets that are valued by in-house models.

Continue reading " More Hedge Fund Problems at Citi? " »

As recently reported by InvestmentNews, The Securities and Exchange Commission (“SEC”) and the North American Securities Administrators Association, Inc. (“NASAA”) jointly issued an investor alert warning about risks associated with self-directed IRAs. These IRAs differ from traditional IRAs in that they allow owners to invest their retirement savings in a number of unusual and sometimes risky investment vehicles, including real estate, life settlements, limited partnerships and private placements.

Continue reading " Risky Investments Flood Self Directed IRAs " »

The Middle Class is rapidly becoming a thing of the past, squeezed out by the 21st century oil and railroad barons now known as hedge fund managers and financial magnates. Early in the 20th century, the Rockefellers, Carnegies and J.P. Morgans controlled the economy and politics with their monopoly on oil and the railroads. They were the super-rich in a time called the “Gilded Age” when the dazzle of the few with money and power overshadowed the massive unemployment and poverty in the rest of society. Today the lucrative monopoly is in the financial sector of our economy. Two-thirds of net private assets in our country are held by only 5% of Americans. Put another way, the 400 wealthiest Americans own more than the “lower” 150 million Americans put together.

Continue reading " Middle Class Facing A New Gilded Age? " »

The House Financial Services Committee has approved a so-called “crowd funding” bill that would allow entrepreneurs and promoters to solicit up to $1 million of investor capital over the internet without any disclosure requirements, or $2 million if they file audited financials. Individual investments would be made through social media websites and limited to $10,000 or 10% of income. The bill is being criticized by state regulators and other experts who have seen it all and see the internet fraud coming.

Continue reading " 'Crowd Funding' - Has Congress Lost Its Mind? " »

MF Global Holdings, Ltd. (“MF Global”) filed the eighth largest bankruptcy petition in U.S. history on Monday November 1, seeking to reorganize its debt structure and continue to operate. MF Global, the broker-dealer unit, faces liquidation. The filings occurred after a potential buyer of MF Global’s assets, Interactive Brokers Group, “bolted over a discrepancy of hundreds of millions of dollars in the beleaguered securities firm’s books,” according to the Wall Street Journal (“MF Global Collapses as Books Questioned”).

Continue reading " Everything is not 'Fine' at MF Global Holdings " »

Many commentators have noted recently that the Wall Street meltdown of 2007-2008 was not a “black swan” – that is, an unprecedented and therefore unpredictable occurrence. Named for an influential 2007 book titled The Black Swan by investment fund manager Nassim Nicholas Talib, the black swan was used as a metaphor to explain why humans rely too much on the past to predict future events, and it has since been used as a defense by Wall Street to justify its inability to predict the 2008 crash. Talib himself maintains that the 2008 crisis was not a black swan event because, unlike the avian rarity of nature, it was predictable. The crisis was not only predictable, but it was actually predicted by many analysts whose voices were either ignored by the firms that employed them, or drowned out by the exuberant hype of brokers pushing the firms’ latest financial products without regard for their soundness.

Continue reading " The 2007-2008 Financial Crisis was not a 'Black Swan' Event " »