Investment Fraud Lawyer Blog

Given the array of exotic alternative investments being sold to the public, it’s logical that many investors often don’t understand what they are buying. What is even scarier is that it is likely their professional investment adviser doesn’t understand the alternative investment either. Investment advisers – 75 percent of them – admit they do not understand alternative investments. Notwithstanding their puzzlement, 50 percent of advisers said they intend to increase their use of them in their clients’ accounts this year. They could use some help, however, because of alternative investments are so confusing. (“Alternatives spur anxiety,” InvestmentNews).

Continue reading " Most Financial Advisers Don't Understand Alternative Investments According To John Hancock Survey " »

Wall Street’s favorite defense to investor claims, the “sophisticated investor” defense, isn’t working anymore. In almost every FINRA arbitration brought by an investor, the brokerage firm adopts the mantra that “The claimant is a sophisticated investor.” In essence, the firms argue that the customer was too sophisticated to rely on any alleged misconduct or misrepresentations. In their advertising, brokerage firms say “Trust us.” In arbitration they say, “You were too sophisticated to trust us. Even if we lied, you should never have believed us.” Recently, however, arbitrators haven’t been buying this argument (See “Sophisticated Investor Defense Losing Steam,” Wall Street Journal).

Continue reading " Arbitrators Are Recognizing That 'Sophisticated Investors' Can Be Defrauded " »

Wall Street firms apparently like arbitration when they are being sued by customers but prefer court when they want to sue their former employees. This disconnect speaks volumes.

Continue reading " Wall Street Firms Apparently Like Arbitration Only When They Think It Gives Them An Advantage " »

Financial advisers are winning large arbitration awards against their former firms. During the past three months at least three arbitration panels have ordered financial services firms to pay millions of dollars to financial advisers formerly employed by the firms.

Continue reading " Financial Advisers Winning Big Money from Former Firms " »

While exchange traded funds continue to flood the market, a record number of existing ETFs are failing or in trouble. Last year, 308 new exchange traded funds were launched, but almost 90 percent of them were unable to attract the $30 million regarded as a minimum threshold amount for profitability, according to CNNMoney (See “Is the ETF bubble about to burst?”), citing XTF, a firm that researches and advises exchange traded funds globally.

Continue reading " 20% of Existing Exchange Traded Funds (ETFs) on 'Death Watch' List " »

In connection with the Medical Capital receivership, the SEC Receiver recently filed its “Proposed Plan for Distribution” (the “Plan”). Unfortunately, the Plan contains some disturbing news for those investors who were pro-active and obtained recoveries against third-parties through litigation (including class actions) or arbitration.

Continue reading " SEC Receiver Seeks to Deny Recovery to Many Medical Capital Investors " »

The big four Wall Street wirehouses have lost market share since the financial crisis in part because of their role in the crisis and “customer distrust,” according to Bing Waldert, a director of Cerulli Associates Inc. (See “Wirehouse market share has shriveled since crisis,” InvestmentNews). Merrill Lynch Wealth Management, Morgan Stanley Smith Barney, UBS AG and Wells Fargo & Co. have also lost market share by terminating lower producing brokers. While the wiehouses have tried to focus on high net worth clients, their share of that lucrative market has declined as well.

Continue reading " Are Wall Street Wirehouses 'Killing the Goose that Laid the Golden Egg?' " »

The declining public trust in the financial services industry confirms the serious problems permeating the industry. A recent survey by the public relations firm Edelman revealed that more than half of the educated public distrusts firms in the financial services sector, making it the nation’s least-trusted sector for the second year in a row (See InvestmentNews, “Car salesmen miles ahead of advisers in consumer trust”).

Continue reading " Survey - Financial Service Professionals Less Trusted Than Car Salesmen " »

An increase in corporate borrowing costs and Eastman Kodak’s recent bankruptcy filing have set off a round of speculation about whether it is the start of a growing trend in corporate bankruptcy filings. While Chapter 11 bankruptcy filings have been falling since 2009, George Putnam of BankruptcyData.com is expecting an uptick in corporate bankruptcy filings. (“Are corporate defaults set to rise?” USA Today) "We're going to see more big bankruptcies this year," Putnam was quoted as saying, adding: "We'll see a reasonable number even if the economy is pretty strong."

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The amount of dollars at stake in FINRA securities arbitrations has grown in recent years. Of the 7,000 claims currently pending, approximately 200 involve claims of $10 million or more. “The claims coming in now are substantially larger than what we had a few years ago,” Linda Fienberg, president of FINRA Dispute Resolution, was quoted as saying. (“FINRA flooded with multimillion-dollar cases,” Nate Raymond, The American Lawyer).

Continue reading " The Number of Very Large Securities Arbitration Cases is on the Rise " »

Federal prosecutors have been putting a full court press on insider trading by hedge funds over the past four years. They recently announced the filing of criminal charges against seven more individuals, including hedge fund executives and portfolio managers, as well as guilty pleas by three cooperating defendants of Level Global Investors LP and mutual fund company Neuberger Berman Group LLC. Prosecutors say the cases show the “culture of greed” that permeates the hedge fund industry. (“Hedge Funds Prove Fertile Hunting Ground For Prosecutors,” Ian Thomas, Law 360).

Continue reading " Insider Trading Charges Reveal Hedge Fund Industry's "Culture of Greed" " »

The Wall Street Journal has reported that financial scams against the elderly are becoming so commonplace that the National Council on Aging calls them the “crime of the 21st century” (“Scams to Watch Out For,” WSJ). It describes investment scams against baby boomers (those over age 50) as being “rampant.” (“Boomers Wearing Bull’s-Eyes,” WSJ, Kelly Greene). The Wall Street Journal has now published a brief but helpful article entitled “Red Flags of Elder Fraud.”

Continue reading " Some Warning Signs of Elder Fraud " »

The dynamics of equity investing are changing and investors need to consider these changes when making investment decisions. Investors have pulled over $400 billion out of equity mutual funds since 2008, resulting assets of some of those funds being cut in half. Money has flowed into bond funds, but even more money (eight times as much) has been deposited into bank accounts, confirming investors’ apprehensions about the stock market. (“Investors to stock funds: Get lost,” USA Today, John Waggoner).

Continue reading " More Investors Avoid Stocks - Demand for Equities Drops " »

Variable annuities are complex financial products designed to transfer the risk of market loss from the investor to an insurance company. Assuming the investor is risk averse (after 2008, who isn’t?), the question is, is it a good deal? The answer, according to MONEY Magazine and most advisers that do not sell variable annuities for a living, is no. (“No Pot of Gold,” Lisa Gibbs, MONEY Magazine). Whether the answer is yes or no, an investor needs to be an actuary as well as a competent, very careful reader of fine print and convoluted legalese to fully understand exactly what he or she is buying, how it is priced and whether or not it is a good deal. Most investors are not up for that job.

Continue reading " MONEY Magazine - Variable Annuities Aren't Worth the Cost " »

Unsophisticated state and local government officials have been sold billions of dollars of flawed financial products by Wall Street banks, leaving taxpayers on the hook for even more. The banks advised the governments to issue auction rate bonds to lower their financing costs and purchase interest rate swaps to protect the governments if the market moved in the wrong direction. The officials did not understand that the market was controlled by the banks and that the banks could impose penalties when the products unraveled, which they did.

Continue reading " Wall Street Professionals Fleece Government Amateurs - Main Street Suffers " »

Junk bond exchange traded funds have ten times more money than they did two years ago, and are causing some of the largest price swings ever. Junk bond price swings were seven times higher in November than in May. This volatility in the junk bond market is similar to the volatility seen in other asset classes caused by exchange traded funds. (See Bloomberg “Exchange Traded Junk Funds Roil Bond Market”).

Continue reading " ETFs Increase Volatility in the Junk Bond Market " »

Brokerage firms that sell nontraded REITs reportedly “cringe” at Investor Alerts posted by the Financial Industry Regulatory Authority (FINRA) warning of the dangers of those products. They know that such alerts cause investors “anxiety and concern,” as they learn about the risks that were not disclosed to them by their brokers. Brokerage firms routinely fail to disclose material risks about the nontraded REITs they sell for two reasons: (i) they failed to inform themselves of the risks by conducting appropriate due diligence, and (ii) they don’t want to cause potential investors any “anxiety and concern,” because that would be bad for sales, which pay hefty commissions to the sellers. (“Non-traded REITs face tough scrutiny,” InvestmentNews).

Continue reading " The News Regarding Nontraded REITs Keeps Getting Worse " »

Ordinarily, the evidence presented in a FINRA arbitration is kept “confidential” and secret from the public. That’s the way the securities industry likes it, because it really does not want the public to see the evidence against it. But in its zeal to try to overturn the largest amount ever awarded to individual investors in a FINRA arbitration, Citigroup inadvertently allowed New York Times columnist Gretchen Morgenson to have a look at the evidence that was presented to the arbitrators in that case. What she found is the subject of her recent article entitled “Secrets of a Sales Machine.”

Continue reading " MAT/ASTA Cases Reveal the Seamy Side of Wall Street " »

MONEY Magazine identifies nontraded REITs as very risky investments that should be avoided. In the last 10 years, the number of nontraded REITs has exploded into a $9 billion dollar market, as yield hunters piled in. Unfortunately, many investors including, most recently, investors in Behringer Harvard Opportunity REIT I have learned about the problems with these investments the hard way.

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Preparing for retirement should include preparing for the risk of diminished mental capacity, according to noted financial writer Jane Bryant Quinn (“Losing Your Grip?”). It is an unpleasant fact of life that, as we age, we become less competent to make financial decisions. A 2009 study on financial decision-making found that this ability peaks at age 53 and declines thereafter, according to Ms. Quinn’s article. Another study at Texas Tech University revealed that what we lose 2% of what we used to know about financial matters each year after age 60, but, paradoxically, we gain confidence as we lose this knowledge. All of this makes us vulnerable to serious financial errors and even fraud, according to Ms. Quinn.

Continue reading " AARP Article Urges Seniors to be Vigilant in Watching Out for Financial Scams " »

Investors are advised to take precautions in 2012. The stage is set for the occurrence of extreme results for investors that go far beyond the normal levels of unpredictability, according to PIMCO’s Mohamed A. El-Erian (See “Investing in a ‘Fat Tail’ World”).

Continue reading " Investor Alert - Extreme Caution Advised in 2012 " »

Sixty-five years ago, the Justice Department filed an antitrust suit against 17 investment banks seeking to break them up for creating “an integrated, overall conspiracy and combination … to eliminate competition and monopolize” the investment banking business. It failed. Today, the investment banking business is much larger and more profitable, and much more concentrated than it was back then. Only 6 Wall Street firms monopolize the even richer investment banking business today, according to William D. Cohan’s Bloomberg article (“Cohan: How Wall Street Turned a Crisis Into a Cartel”).

Continue reading " Is Wall Street Evolving into an Illegal Monopoly? " »

British business professor Clive R. Boddy contends that the reckless Wall Street executives who wrecked their firms, the economy and taxpayers are psychopaths – that is, “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.” (See Cohan: “Did Psychopaths Take Over Wall Street?” Bloomberg). Cohan is a former investment banker himself, and the author of “Money and Power: How Goldman Sachs Came to Rule the World.” Boddy’s article is called “Corporate Psychopaths Theory of the Global Financial Crisis,” and was published in the “Journal of Business Ethics.”

Continue reading " Professor Claims That Wall Street Has Been Run By 'Psychopaths' " »

The Securities and Exchange Commission has charged an Illinois-based advisor with selling fictitious securities via social media. Anthony Fields, CPA, doing business as Anthony Fields & Associations and Platinum Securities Brokers offered over $500 billion of phony securities through a variety of social media sites, including using LinkedIn discussions to promote nonexistent “bank guarantees” and “medium-term notes.” Many potential buyers indicated they were interested.

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It is a basic principle of Good Government 101 that when a government issues a contract, it should be subject to competitive bidding rather than being doled out to a crony of some bureaucrat. Yet eighty percent of bond underwriting contracts that are issued by state and local governments to Wall Street banks are not done by competitive bidding. Instead “local governments just hand the bid over to the bank that tosses enough combined hard and soft money at the right politicians,” according to Matt Taibbi (“How Banks Cheat Taxpayers”).

Continue reading " Wall Street Continues to Cheat Main Street " »

The SEC is going after advisory firms and their principals that misrepresent facts that bear on their experience and credentials on form ADVs. Such violations suggest an intent to mislead investors. ("ADV crackdown on, as SEC says firm claimed $200M in AUM, had $3M,” InvestmentNews).

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A year and half after the May 6, 2010 flash crash, which resulted in impossibly rapid price gyrations and scared the daylights out of investors, no one has fully explained what happened. Therefore, it could happen again at any time. “Flash Crash Threatens to Return With A Vengeance,” CNBC.com.

Continue reading " More 'Flash Crashes' on the Horizon? " »

One former Wall Street hedge fund executive has just published a book in which he claims that investors would have done twice as well as hedge fund investors by investing in U.S. Treasuries over the past decade. Twice as well. Simon Lack, whose book is titled “Hedge Fund Mirage,” is a former hedge fund executive at JPMorgan Chase & Co. He now runs SL Advisors in Westfield, N.J.

Continue reading " Are Most Hedge Fund Investors Chasing 'Fools Gold?' " »

To help ring in the new year, the Securities and Exchange Commission has published a list of 10 tips for investors. In so doing, the SEC may be stepping outside of its role as the nations top securities laws enforcer, but that role gives it a special vantage point, so let’s listen. The SEC’s list (presumably in order of priority), with some embellishments of our own, is as follows:

1. Get rid of debt, especially high-interest debt. You may not have needed an SEC tip for that, but it is undoubtedly good advice. Deleveraging is occurring all over the world as big financial institutions and individuals that borrowed to the hilt and beyond during the housing and financial markets bubble, slowly unwind those disastrous positions. Some estimates are that deleveraging will take a decade or more.

Continue reading " The SEC's Investor Tips - 2012 " »