Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. The firm also has an active practice in representing individuals in employment disputes with brokerage firms. The firm is currently involved in representing several brokers in such disputes. In the past two years, the firm has won arbitration award for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact www.pageperry.com.
]]>While it is too early to predict the chances that this legislation will succeed, it would appear that there is a movement in Congress to make arbitration of securities and investment disputes optional rather than mandatory. If investors had the option to bring claims in Court, it is likely that small claims would continue to be addressed by arbitration simply because litigation costs would make those claims economically non-viable. According to attorney Craig T. Jones of the Atlanta law firm of Page Perry, which practices primarily in the investment fraud arena, “arbitration can be a useful and efficient way of handling many claims, but where the stakes are high on both sides there is no substitute for full discovery, a fair trial on the merits, and a right to appeal with all of the rules and safeguards built into the process.”
Now that the Democrats control the White House and both houses of Congress, the votes to enact pro-consumer arbitration reform are there if there is the political will to do so. Curiously, the White House has moved slowly on this issue, and rather than advocating an outright ban, the Obama administration has so far only proposed giving the SEC the regulatory authority to study and prohibit mandatory arbitration clauses in investment contracts. According to the Treasury Department’s Financial Regulatory Reform blueprint that was released on June 17, 2009, “although arbitration may be a reasonable option for many consumers to accept after a dispute arises, mandating a particular venue and up-front method of adjudicating disputes—and eliminating access to the courts—may unjustifiably undermine investor interests.” The blueprint recommends that the SEC “conduct a study on the use of mandatory arbitration clauses in [investor] contracts” and “consider whether investors are harmed by being unable to obtain effective redress of legitimate grievances, as well as whether changes to arbitration are appropriate,” while also giving the SEC “clear authority to prohibit mandatory arbitration clauses in broker-dealer and investment advisory accounts with retail customers.” (U.S. Department of Treasury, “A New Foundation: Rebuilding Financial Supervision and Regulation,” p. 72). It is not clear whether this reflects a measured response or a lack of political commitment to this issue by the Administration. But with financial regulatory reform being so high on the President’s agenda, one would think that any proposed change—regulatory or legislative—that would broaden the options for those who fell victim to the very abuses that reform is aimed at would be a political priority.
“We are always ready to represent investors who have been wronged by their brokers and advisers,” says Jones, “whether it is in court or arbitration. If arbitration ever becomes optional, we will decide on a case-by-case basis whether it is best for that particular client to sue or go to arbitration.” Page Perry’s lawyers are experienced at both litigation and arbitration, and says Jones, “we would love to have the freedom to choose.”
How is that possible? “Funds with the same target date in their names can be structured, and thus perform, very differently,” says Mary Shapiro, Chairperson of the Securities and Exchange Commission. Target-Date funds have been fond to vary wildly in their allocations of stocks and bonds. The percentage of stocks in funds called Target 2010, which are aimed at people hoping to retire in the year 2010, ranged from a relatively conservative 21% to a much higher-risk 79%, according Ms. Shapiro. The average 2010 fund had more than 45% of its holdings in stocks in 2008.
Why is this a big problem? In 2006, Congress passed legislation that enabled employers to route employees who did not specify their investments into target-date funds. Consequently, money flowed into such funds in unprecedented amounts. Before that, the default choice was generally a money market or “stable value” fund. The SEC is considering whether putting a date in a fund’s name should be prohibited, as well as whether the risks have been adequately disclosed and whether the funds were properly structured.
Representative Rob Andrews, Democrat from New Jersey, is concerned that mutual fund companies are not making adequate disclosures or offering other choices to 401(k) plans, such as low-cost index funds. Mutual fund companies often create target-date funds by bundling existing funds, which enables the fund companies to collect more fees than investors understand they are paying. “I’m not saying that pensions are being pillaged by greedy mutual fund companies,” said Representative Andrews, “but I am saying that that people should know how much they are paying and that investment advice should be in the best interest of the investor, not the advisor.”
If regulators do not act, Congress says it will. Senator Herb Kohl, Democrat from Wisconsin and Chairman of the Special Committee on Aging, has criticized aspects of target-date retirement funds. “At the end of the day, consumers need to know what they’re getting into,” Senator Kohl said. “We’d like to see regulation, whether it’s a standardization of target-date composition, or increased clarification of information made available about the plans.”
Trustees and other fiduciaries of plans established under The Employment Retirement Income Security Act of 1974 (ERISA), such as 401(k) plans, must protect plan assets “with the care, skill, prudence, and diligence … that a prudent man acting in a like capacity and familiar with such matters would use….” In other words, ERISA fiduciaries must not merely act like prudent person, but instead like prudent experts. This applies to smaller ERISA plans as well as larger ones. If ERISA trustees do not possess the requisite expertise, it behooves them to retain experts to advise them.
When a plan suffers a significant loss (realized or unrealized), ERISA trustees must weight the potential benefits and burdens of various possible courses of action, and make informed decisions. Once a loss is identified, the need to make such decisions is ongoing, and the number and complexity of such decisions can be overwhelming. Among the many decisions that confront ERISA trustees are:
• Whether the plan has a viable cause of action to recover a loss;
• Identification of the potential defendants and likelihood of recovery from each;
• Whether to participate in an already-filed lawsuit or initiate a lawsuit;
• Whether opt out of in a securities class action and seek a larger recovery in a separate direct action or actions;
• Whether to apply to be lead plaintiff in a securities class action;
• Whether to remain a passive class member in a securities class action; and
• Whether to object to a settlement negotiated by a lead plaintiff in a securities class action.
In order to protect the Plan and themselves, ERISA trustees should retain an experienced securities litigation law firm to monitor the plan’s portfolio, identify losses that resulted from possible securities law violations, and evaluate potential claims. While general counsel could serve as monitoring and evaluation counsel, the better practice is to engage a firm with the proper experience and credentials. Once retained, monitoring and evaluation counsel can coordinate with the trustees, custodian, and investment managers to ensure that needed actions are taken.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing institutional and individual investors in securities-related litigation and arbitration. Page Perry partners also have an active practice representing ERISA plans and beneficiaries, including monitoring plan portfolios and evaluating potential claims. For further information, please contact us.
Any investor who believes that he or she has suffered significant losses due to portfolio mismanagement should consult a lawyer who regularly handles investment fraud matters. Depending upon the circumstances and the law of the state involved, there may be a claim for unsuitability, breach of fiduciary duty, or even fraud. Page Perry is based in Atlanta but represents investors in lawsuits and arbitrations all over the country.
]]>Like Western Digital Corp. and Ceradyne, many institutional investors have been devastated by the purchase of auction-rate securities. In February of 2008, the auction-rate securities market collapsed when the firms underwriting the issues ceased supporting the auctions, causing the periodic auctions to fail. As a result, the securities that were sold in the marketplace as a cash equivalent became completely illiquid and the holders of the securities could not sell them at the auctions.
While many small investors have recouped all of their losses in auction-rate securities as part of settlements between Wall Street firms and regulators, hundreds of corporations and institutions have been left holding the toxic securities. Many institutional investors who were misled about auction-rate securities in the same way as individual investors and are now realizing that they will have to initiate legal action to recover their losses.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in auction-rate securities cases. For further information, please contact us.
• The Dow Jones Industrial Average opened the week at 8540 and, on Monday, plunged 201 points.
• On Tuesday, the Dow Jones Industrial Average fell 16 points.
• On Wednesday, the Dow Jones Industrial Average dropped 23 more points.
• On Thursday, the Dow Jones Industrial Average surged 173 points.
• On Friday, the Dow Jones Industrial Average lost 34 points and closed the week at 8438.
]]> • The Securities & Exchange Commission and Commodity Futures Trading Commission are seeking “unimpeded” oversight of the $592 trillion over-the-counter derivatives market.• Approximately 25% of U.S. employers either have cut or are planning to cut matching contributions to employees’ 401(k) plans.
• Verified Identity Pass, which offered Clear paid security lines at airports, has shut down its operations.
• MySpace is eliminating 300 overseas jobs in addition to the 400 domestic jobs it eliminated last week.
• The seed maker Monsanto will cut approximately 4% of its work force. This action is expected to impact 900 employees.
• Chicago has offered city workers several options. Workers can either accept 16 days of unpaid furloughs or it will eliminate 1,500 jobs.
• Kimberly-Clark, the maker of Kleenex tissues and Huggies diapers among other products, announced that it was eliminating 1,600 jobs.
• General Motors announced the elimination of 4,000 white-collar jobs.
• British Airways announced that 7,000 employees have voluntarily agreed to take pay cuts.
• Goodyear Tire & Rubber cut almost 25% of the work force at its Union City, Tennessee plant. Approximately 500 workers will be affected.
• Sales of existing homes rose 2.4% in May. Approximately one-third of these home sales involved a foreclosed or distressed property.
• Both UBS and Morgan Stanley are expected to post second quarter losses.
• CNN Money reports that 19 states have yet to pass balanced budgets for fiscal 2010 that begins in most states on July 1. Many states face the prospect of shutting down services if quick action is not taken.
• Forty-five banks have failed in the U.S. this year. Georgia is the state with the most bank failures. Nine Georgia banks have failed this year.
• Home prices are currently hovering around 2003 price levels.
• General Motors’ creditors that do not have “critical vendor” status may go unpaid for the foreseeable future. The list includes various utilities and media- buying firms.
• The New York Times reports that U.S. savings are at the highest point in 15 years.
• According to the Center for Disease Control, the number of new swine flu cases continues to grow. There were 6,300 new cases reported during the past week. This bodes ill for the fall/winter flu season.
• Fifteen states have depleted their unemployment insurance reserves and are borrowing from the U.S. Treasury in order to pay benefits. More states are expected to seek federal support in the coming months.
• Consumer confidence in the U.S. has risen for the fourth month in a row.
• China is advocating the adoption of a new global currency.
• Pursuant to an agreement with the Obama administration, General Motors will remain responsible for product liability claims involving its vehicles even after it emerges from bankruptcy.
• Even if Congress passes the proposed plan to overhaul financial regulation, it may not be enough to avoid putting U.S. firms at a competitive disadvantage. The problem is that European policymakers are adopting even harsher rules in an effort to restore integrity to European financial markets. Unfortunately, the U.S. may lose its position as the world’s best regulated, most trustworthy marketplace.
Page Perry’s Market Monitor is published periodically to give investors an overview of certain recent developments impacting the economy and/or the investment markets.
]]>Last week, New Hampshire regulators ordered UBS to cease and desist from selling structured products and charged it with engaging in sales and supervisory violations. I addition, investors have filed arbitration claims against UBS to recover their losses. The claims allege, among other things, that UBS did not provide any analysis of Lehman’s creditworthiness or the relevance of its creditworthiness, and did not disclose that the notes were merely unsecured claims on Lehman’s assets. Whether or not Lehman’s demise was predictable is not the point, as the article pointed out; UBS’s representations of “100% principal protection” were false and misleading. “It all seemed designed to deceive,” according to one claimant.
In its answer to one arbitration complaint read by Ms. Antilla, UBS reportedly contends it provided a “clear” description of the risks by stating in the prospectus: “Lehman Brothers Holdings Inc. [are] notes linked to a global index basket” and “the notes are not deposit liabilities of Lehman Brothers Holdings Inc. and are not FDIC insured.” Ms. Antilla’s reaction to that is: Does Mr. Average Investor focus on the nuances of “notes linked to a global index basket” as having some ominous implications when the rest of the document is screaming ‘100 percent’ protection? (Four times on the first page, but who’s counting?)”
Securities firms sold approximately $50 billion of structured products in 2005, $70 billion in 2006, and $120 billion in 2007, almost 50% of the sales being to individual investors. Some Lehman structured products are now being purchased for less than 10 cents on the dollar, according to SecondMarket, Inc., which specializes in purchasing illiquid assets.
Many investors are retirees or on the verge of retirement, or were defensive on the market, and were attracted by promises of higher yields plus principal protection, according to the article. J. Boyd Page, senior partner at Page Perry, LLC in Atlanta, observed “This is one of the more outrageous situations we have seen recently. Questions regarding Lehman’s financial viability have been known for months. How anyone could sell Lehman securities as ‘safe money’ is simply appalling.”
Investors who were sold structured products issued by Lehman Brothers, Freddie Mac or Fannie Mae by UBS or other brokerage firms based on representations that they were conservative investments have compelling claims to recoup their losses.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing individual and institutional investors regarding their investments in Lehman notes and similar structured products. For further information, please contact us.
All of this is happening in an extremely bad time for investors. Virtually every type of collateral backing these commercial mortgage-backed securities is losing value. Hotels continue to suffer as fewer people are traveling and businesses are cutting back on travel allowances. Shopping centers and retail complexes are suffering as more and more retailers are going out of business and restaurants experience tough times. According to recent statistics, office vacancies in the United States are currently running at approximately 15.5%, vacancies are expected to climb higher as more firms shut their doors or pare back operations and rents are dropping.
All of these factors suggest that there is a significant risk that commercial mortgage-backed securities investors are facing a scenerio similar to that which decimated residential mortgage-backed securities over the past two and one-half years.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing investors regarding their securities problems. For further information, please contact us.
]]>The securities industry is expected to fight to keep their built-in advantage against investors who file arbitration claims against them. Arbitration is mandatory for most investors. Arbitrators are supposed to be fair and impartial in both appearance and fact. PIABA believes that securities arbitrations should be decided by arbitrators who are not aligned with one party or the other.
It is inherently unfair to have an industry arbitrator on a panel, especially in cases that involve allegations of industry-wide misconduct. The potential bias is just too great and obvious. Moreover, given today’s high unemployment, and particularly unemployed brokers, industry arbitrators may see the Respondent firm in an arbitration as a potential employer – as long as he or she does not sign off on a large award against that firm.
Put another way, if a used car dealer sold you a lemon, would it be fair to require that your grievance be heard in a forum sponsored by an association of used car dealers with one of the three arbitrators being a used car salesman? Of course not. It is no less unfair to require investors to file their claims in a forum sponsored by the brokerage firms’ trade organization (which until recently was called the National Association of Securities Dealers) with one of the arbitrators being a used securities salesman.
If both parties wish to have an industry arbitrator on the panel, they should be allowed to do so. But we should not force investors to submit their claims to panels of arbitrators that are, in appearance and fact, not neutral.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing investors in securities cases. For further information, please contact us.
]]>Notwithstanding the damage that reverse convertibles inflicted on many investors last year, some Wall Street firms continue to hawk these products to conservative investors. Investors are urged to be very careful if a broker recommends this product to them.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing investors in securities cases. For further information, please contact us.
One of the targets of the new wave of suits by “left out” investors is UBS Securities LLC, the New York-based subsidiary of Swiss giant UBS AG. The allegations focus on manipulation of auction prices by UBS traders, according to the article.
Other individual investors, who purchased auction rate securities through big banks (like UBS) but were left out of the regulatory settlement because they transferred their auction rate securities to another firm, are filing arbitration claims – some in large groups for cost and other advantages.
In addition, an increasing number of larger institutional investors, who were carved out of the redemption settlements, are filing lawsuits against the big banks to protect their shareholders’ interests.
Of the $330 billion in auction rate securities that were outstanding when the auctions began collapsing in February 2008 after the big banks stopped supporting them $160 billion remain outstanding. The securities that were sold in the marketplace as cash equivalent investment became completely illiquid. J. Boyd Page, senior partner of the Atlanta law firm of Page Perry LLC, says “Anyone who invested in auction rate securities potentially has a lawsuit given the misrepresentations that were made across the board to investors.”
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing investors in auction-rate securities cases. For further information, please contact us.
]]>• The Dow Jones Industrial Average opened the week at 8799 and, on Monday, plunged 187 points.
• On Tuesday, the Dow Jones Industrial Average dropped 107 points.
• On Wednesday, the Dow Jones Industrial Average fell 7 points.
• On Thursday, the Dow Jones Industrial Average jumped 58 points.
• On Friday, the Dow Jones Industrial Average fell another 16 points and closed the week at 8540.
]]> • Extended Stay Hotels, the operator of a chain of 680 hotels in the mid-priced market, filed for bankruptcy.• Retailer Eddie Bauer filed for bankruptcy. According to reports, it expects to sell most of its assets to a private equity firm.
• The Original Equipment Suppliers Association predicted widespread bankruptcy filings by struggling auto parts suppliers after the government denied their request for additional federal loan guarantees.
• MySpace is eliminating approximately 30% of its workforce.
• May’s unemployment statistics remained dismal. Unemployment increased in 48 states. Michigan continues to have the largest percentage of workers unemployed at 14.1%. Unemployment rates are greater than 10% in 13 states.
• S&P cut the credit ratings of 22 U.S. banks. Among the banks downgraded were Wells Fargo, PNC Financial, Capital One, Regions, BB&T, U.S. Bancorp., and Synovus.
• Moody’s Investors Services cut the credit rating on $9.6 billion of debt issued by the state of Ohio.
• Moody’s Investor Services announced that it may cut California’s credit rating further. California already has the lowest credit rating among the states.
• Some states are considering substantial cuts to academic grants and scholarships for thousands of low- and middle-income college students. This could have a significant impact on colleges which are already facing tough times as endowments and charitable contributions are reportedly off by as much as 25% for many institutions.
• Manufacturing reports from the New York region of the country show that both sales and inventory are declining and suggest that economic recovery is still months away.
• Industrial production in the U.S. fell 1.1% in May. The recession continues to hurt demand for a wide range of manufactured goods.
• Employers are facing a 9% increase in health care costs in 2010 according to Pricewaterhouse-Coopers.
• President Obama’s financial regulatory reform plan seeks to reduce reliance on credit-ratings agencies. Moody’s, Standard &Poor’s and Fitch are the agencies that would be most affected by this plan.
• A recent study by Pricewaterhouse-Coopers concludes that consumer spending on cable, satellite and phone video services should remain strong over the next four years. The recession is expected to bolster spending in these areas as consumers stay home more often and seek more alternatives for home entertainment.
• USA Today reports that the current recession is having perhaps its most significant impact on the “baby boomer” generation. Many baby boomers have suffered devastating losses on their investments and homes. Moreover, many have been impacted by the country’s record unemployment. As a result, baby boomers are now expected to work longer, retire later, and spend less once they retire.
• Steve Jobs, the mastermind behind Apple Computer, recently had a liver transplant.
Page Perry’s Market Monitor is published periodically to give investors an overview of certain recent developments impacting the economy and/or the investment markets.
]]>Whether by agreement, advertising, promises, or undertaking to act, brokerage firms and broker representatives increasingly offer an ongoing advisory and monitoring component in exchange for compensation. As Commissioner Aguilar points out, that brings those firms and representatives within the Investment Advisors Act of 1940, which imposes a fiduciary duty on such advice providers.
The big change will come when more arbitrators get serious about holding brokers to their fiduciary duties. "If a fiduciary violates his duty--that is, gives advice which is contaminated by self-interest--he could be sued not only for damages that have been caused for this advice but could also be sued for punitive damages," says Tamar Frankel, an expert on fiduciary law at Boston University School of Law. President Obama's proposal clarifying those fiduciary duties would help formalize the standard of care that Wall Street firms owe their customers.
J. Boyd Page, senior partner of Page Perry LLC in Atlanta, noted “this proposal would make it clear to arbitrators, jurors, courts and regulators that brokers must satisfy a high duty of care in dealings with their customers. They would be held to the high standards required of other professionals. Unfortunately, in far too many cases, brokers have avoided legal responsibility for their actions by arguing that they do not owe affirmative duties to their customers.”
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing investors in securities cases. For further information, please contact us.
This position is certainly debatable depending on which side of the coin one is. For the small investor, arbitration can be a relatively prompt and a moderately inexpensive means of resolving complicated disputes, especially when contrasted with litigation before a court. Alternatively, others argue investors have lost the right to bring their claims before a jury of their peers and instead are forced to seek relief in an industry- prejudiced forum. The proposal requires that, before the SEC prohibits arbitration clauses, a study would need to be conducted on the use of mandatory arbitration clauses in these contracts to consider whether investors are harmed by being unable to obtain effective relief for justifiable grievances and whether changes to arbitration are appropriate.
The proposal, however, leaves unanswered significant questions. Would such a prohibition be the end of all arbitration in broker-dealer and investment advisory disputes? Would individuals still have the option to choose arbitration in their investor disputes if it’s a reasonable option for them? It will be interesting to see what the SEC study reveal’s if the reform proposal is passed.
Click here for access to the government’s reform plan. http://www.financialstability.gov/docs/regs/FinalReport_web.pdf
1.
A claim recently filed against Schwab by a retired Florida couple recounts how they were sold tow of these supposedly principal-protected investments. They were reportedly solicited by Schwab’s “Strategic Trading Group.” In telephone calls and emails, Schwab recommended the Lehman Brothers principal-protected notes as safe investments, and advised the couple that the worst that could happen was they would get their money back. The falsity of such assertion was revealed when Lehman Brothers filed bankruptcy in September 2008. Like UBS, Schwab apparently did not disclose that the investments were nothing more than unsecured claims on Lehman’s assets that could 100% vanish.
Last week, New Hampshire regulators ordered UBS to cease and desist from selling structured products and charged it with engaging in sales and supervisory violations. In addition, investors have filed arbitration claims against UBS to recover their losses. The claims allege, among other things, that UBS did not provide any analysis of Lehman’s creditworthiness or the relevance of its creditworthiness, and did not disclose that the notes were merely unsecured claims on Lehman’s assets. It now appears that Charles Schwab & Co. engaged in similar acts.
Many investors are retirees or on the verge of retirement, or were defensive on the market, and were attracted by promises of higher yields plus principal protection, according to the article. J. Boyd Page, senior partner at Page Perry, LLC in Atlanta, observed “This is one of the more outrageous situations we have seen recently. Questions regarding Lehman’s financial viability have been known for months. How anyone could sell Lehman securities as ‘safe money’ is simply appalling.”
Investors who were sold structured products issued by Lehman Brothers, Freddie Mac or Fannie Mae by UBS or other brokerage firms based on representations that they were conservative investments have compelling claims to recoup their losses.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing individual and institutional investors regarding their investments in Lehman notes and similar structured products. For further information, please contact us.