Cornerstone was able to lend money to churches by raising money through the issuance of Cornerstone stocks and bonds. Church-going consumers interested in making altruistic investments in the development of new churches were often the people investing in these stocks and bonds.
It appears that Cornerstone deviated from its core mission and branched out into secular, very speculative real estate ventures at the expense of its investors. Now that Cornerstone has filed for bankruptcy, the values of those stocks and bonds have plummeted, leaving the investors holding the bag.
]]> The question becomes what can investors do to try and recover the losses? The answer is that it will be necessary for investors who suffered investment losses to determine whether any collateral parties can be held liable. These collateral parties may include brokerage firms, investment advisors and the like that were involved in the transactions.It would be wise for anyone who invested and lost money in Cornerstone to take the following steps immediately:
1. Start making a written chronology that touches on the following areas:
- How did you learn about Cornerstone Ministries?
- Did someone recommend the investment to you? If so, who?
- Why did you decide to invest?
- What did you expect the investment to do for you?
- Did you purchase the investment to generate income? If so, how much income did it generate and how important was that income to your overall financial picture?
- How was the investment described to you? Was it described as a safe investment? Risky?
- Were any promises made to you about the performance of the investment?
2. Gather all of the written marketing materials that you received in connection with the investment.
The written chronology is very important because (1) memories fail over time and (2) the document is a “living” document because it can evolve over time when new information is added later. For example, many times an unrelated event such as a TV commercial will trigger a memory about a statement that was made to you about the investment. If you have already created a written chronology, it is easy to add that information.
]]>According to Andrew Ross Sorkin in his Dealbook column in the May 13th edition of The New York Times, Kevin C. Griffin, the founder of the Citadel Investment Group, a twenty million dollar hedge fund, has put it rather bluntly: “We, as an industry, dropped the ball.” Mr. Griffin’s analysis is scathing: The investment banks gambled away money and jobs during the late great credit boom. The same bosses let the young, gung-ho traders take on too much risk and now we are all paying the price. In Mr. Griffin’s view, however, the answer is simple. The entire financial industry needs to change its attitude and perhaps accept greater regulation.
]]> “As an industry, we have a responsibility to manage risk in a way that is prudent,” said Mr. Griffin. He is upset that Bear Stearns has failed. He is upset that key executives took on too much risk and then did nothing as billions of dollars of value vanished from balance sheets. He is worried about high priced finance jobs moving abroad. He has particular scorn for regulators in Washington D.C. who presided over what he called “the great depression on Wall Street.”While speaking at the Milken Institute’s Global Conference in Los Angeles, Mr. Griffin attacked his own peers and trading partners. “When you read that UBS did not even view parts of its mortgage portfolio as having market risk, it becomes very obvious that a number of firms were not dotting the i’s and crossing the t’s when it comes to risk management,” he said during his panel presentation.
In Mr. Griffin’s view, one problem is the inexperience on trading floors that are full of twenty-nine year old “kids.” “The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven’t really seen that much. You have a real lack of wisdom,” said Mr. Griffin.
Additionally, many chief executives of the universal banks or financial supermarkets “only understand a small part of the business,” Mr. Griffin said. He suggested that too many of them come from sales backgrounds. When you put these CEOS together with those young traders, you have the makings of an outright debacle.
Finally, the problem is compounded by weak government oversight. “The unwillingness of the Federal Reserve and the SEC to require working capital” limits, he said, further exacerbates the risk-taking environment. He described the banks as playing the equivalent of no limit poker. “The sad truth of the matter is it didn't have to be this way.”
Mr. Griffin doesn’t just complain; he comes up with solutions as well. First, “the investment banks should either choose to be regulated as banks or should arrange to conduct their affairs to not require the stop-gap support of the Federal Reserve,” according to Mr. Griffin.
He also wants new government oversight of credit default swaps. This business has a notional value and risk of 50 trillion dollars. In fact, it was the interlocking relationships between thousands of investors and banks over credit default swaps that pushed the Federal Reserve to rescue Bear Stearns from its own follies. Mr. Griffin wants the government to require use of exchanges and clearinghouses for credit default swaps and derivatives.
This will bring much needed transparency to the market. Investment banks will no longer play matchmaker between parties. Rather, an exchange will do it with strict rules in place, thus eliminating billions of dollars in exposure in creating this transparency. According to Mr. Griffin, this is what should have been done after the collapse of the hedge fund Long-Term Capital Management in 1998. He stated that it “is a very sad commentary on where we are from a regulatory perspective” that, ten years later, this move still has not taken place.
Mr. Griffin has not gone too far off the Wall Street reservation; he did include a warning that he does not want the pendulum to swing too far and erect regulatory regimes that would interfere with the playing field. He is particularly nervous about the drain of finance jobs overseas that could be exacerbated by excessive regulation.
Mr. Griffin’s comments, coupled with the admission by Jamie Dimon of JPMorgan Chase that the country is in a recession, may be the start of a new trend of forthrightness in finance. While we cannot say that Wall Street has uniformly adopted honesty as the best policy, at least a few of its spokesmen appear to be trying it on for size.
]]>Economist Brian Bethune of Global Insight suspects that delinquencies on prime loans have risen further since February. "We're seeing the prime area coming under pressure, with delinquencies moving up," Bethune says.
Prime loans are usually given to those with good credit. February’s data reflects the highest level of delinquency reported for prime borrowers in a decade. A continued rise in the delinquency rate for prime borrowers could prolong the housing crisis.
]]>Lehman Brothers is expected to announce this week that it is eliminating about 5% of its workforce – or 1,425 jobs – on top of a previously announced 5% job cut. By the end of June, Morgan Stanley plans to cut 1,500 more jobs to bring its total layoffs to 4,500 or about 10% of its workforce. UBS announced last week that it will cut 5,500 jobs, including 2,600 investment bankers. Finally, no one knows how many Bear Stearns employees will be laid off once JPMorgan Chase acquires that firm.
In this uncertain climate, employees on Wall Street need to protect themselves. Even if your firm has a reputation of protecting its own, once you are targeted for layoff you are no longer within that circle of protection.
]]> If any dispute arises, documents relating to your employment will be critical and should be preserved. You must keep a copy of all documents relating to your employment status, including offer letters, employment contracts, employee handbooks, codes of conduct, compliance manuals and bulletins, benefit plans, deferred compensation plans, stock options plans, restricted stock plans, performance appraisals, bonus awards, promissory notes, records of payments and/or forgiveness of promissory notes, letters, email communications, and memoranda. Make sure that you have a copy of every document that you have signed. You should also include all documents relating to any sales awards or distinctions the firm has awarded to you, such as, for example, admission to the President's Circle. Finally, it also may help if you save any thank you notes and cards from satisfied customers.There may be instances when a manager makes oral promises or representations to you. If the manager will not confirm them in writing, then you should keep careful notes of such promises or representations at the time that they are made.
These copies should be organized and filed in one place – preferably at home – so that you do not have to worry about grabbing that file in the ten minutes you may have to gather your personal belongings after you are advised that you are being laid off. Although your firm’s Human Resources Department should have copies of all these documents and should turn them over as part of discovery in an arbitration, it will be easier if you already have them before any arbitration is filed.
While you are certainly entitled to keep documents related to your employment, you must be careful not to copy and take documents that contain trade secrets and/or proprietary information of your employer. If you do so – even if it is unintentional – the firm may be able to bring charges against you for improper conduct.
Unless you are laid off at the end of the calendar or fiscal year, you will have worked for several months for which you will not receive your annual bonus. As all who work on Wall Street know, the year-end bonus is an essential and often a large part of your total compensation package. Your soon-to-be former employer may try to tell you that, unfortunately, since you will not be an employee when the bonuses are awarded and paid, you are just out of luck. You should know, however, that ex-employees have successfully sued their former employers in arbitration for the pro-rata portion of their bonus for their final partial year of employment. Of course, each situation is unique, and any recovery will depend upon your particular circumstances.
When you receive a lay-off notice, you will most likely also be advised of the terms of the firm’s proposed severance package. These usually include some money based on the formula of one or two weeks’ salary for each full year of service. Firms often take the opportunity offered by a severance package to try and get the employee to agree to burdens and obligations that the firm could not impose any other way. These severance packages may also include an agreement not to compete, which would prevent you form soliciting your own customers, and an agreement not to solicit other employees to keep you from trying to lure away other brokers to your new employer. You will also likely lose any unvested stock and options in your deferred compensation plan.
Firms usually take a hard line with the severance package, and it can be extremely difficult to negotiate for more money, for early vesting of stock and/or options, and for relief from some of the obligations the firms may seek to impose. It is worth consulting a lawyer experienced in both securities and employment areas to explore these possibilities. Even if no concessions can be negotiated, counsel can explain to you exactly what you are agreeing to in any severance agreement and what your rights are under the law.
If you owe money to your employer on a promissory note, your firm will most likely demand repayment. Very few promissory notes have a provision that forgives the remainder of the note when there is a termination without cause. You must be ready to document all repayments made on the note and all amounts that have been forgiven by the firm. Firms take a hard line in seeking to collect on such notes and the assistance of an attorney is often essential. Many arbitrators view a termination without cause as a justification for forgiveness of such a loan. Again, the result in your situation will depend upon your particular circumstances.
Finally, if you do negotiate a severance agreement with your employer, you should ask for copies of the standard severance package and certain other documents to ensure that you are receiving at least the standard severance package. You must also be prepared to monitor your ex-employer’s compliance with the terms of any severance agreement. Our firm represented an experienced broker who signed a severance contract, and his former employer wasted no time in violating it. Last year, a FINRA arbitration panel found that the ex-employer had violated the severance agreement and awarded that broker nearly $1.7 million dollars.
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 year, 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 us.
]]>The 20 or so municipalities that will be receiving the $35 million back from UBS invested from their general fund, which is regulated by a state municipal finance law that strictly prescribes what kind of investments can be made. According to Massachusetts Attorney General Martha Coakley, UBS misled the municipalities by representing that the securities were permissible investments under state law when in fact they were not.
]]> An auction rate security is a debt, such as a bond, whose interest rate or dividend is reset during an auction. Auction rate securities have been frozen over the last several months due to lack of market liquidity resulting from the fact that the auctions are no longer occurring. Therefore, holders of auction rate securities have no place to sell them, and instead must hold them until maturity in order to avoid losses. The agreement between Massachusetts and UBS will allow the municipalities to recover their invested funds without continuing to hold the securities. Essentially, UBS agreed to repurchase the principal investments at par value.UBS has already had to write down over $37 billion since the beginning of the US subprime mortgage crisis. In its most recent quarter, it posted a loss of $11.5 billion Swiss francs. UBS has also stated that it plans to exit the tax-exempt bond business.
]]>“Most of the European banks and Asian banks haven't taken a huge write-off yet,” Rogers commented. “I suspect there are more write-offs to come in Europe and Asia,” he advised.
]]> This contradicts Quantum Fund co-founder, George Soros, who said that the "acute phase" of the financial crisis was nearing an end even as the U.S. economy was just beginning to feel the effect.Rogers' comments also contradict recent comments by Wall Street CEOs. On April 16, JPMorgan CEO Jamie Dimon said that the credit-market freeze is more than half over. Close to a week later, Citigroup CEO Vikram Pandit noted that the credit market contraction is abating. Other CEOs offering similar comments include Richard Fuld of Lehman Brothers, Lloyd Blankfein of Goldman Sachs, and John Mack of Morgan Stanley.
Since the beginning of 2007, the world's largest banks and securities firms have posted $319 billion of asset writedowns and credit losses. In the past 10 months, 65,000 jobs were cut.
For now, Rogers has said that he is not buying financial stocks and expects an additional drop in the share prices of U.S. investment banks, Fannie Mae, and home builders as the credit crisis reduces investor demand for all but the safest assets such as US Treasury debt.
]]>In April, the SEC requested auction-rate securities information from various brokerage firms after many of the auction-rate markets froze, denying investors access to their funds. Recently, state securities regulators have also began focusing on the auction-rate problem and are coordinating their efforts to help investors “who can’t access funds that their brokers placed in these complex investment products,” according to an article by Kevin Kingsbury in The Wall Street Journal. North Dakota Securities Commissioner Karen Tyler, the president of the North American Securities Administrators Association, said “If violations are uncovered, then state securities regulators will seek appropriate remedies, including a much stronger commitment from Wall Street to provide their retail clients with an acceptable solution.”
]]> State investigations are being handled by each state individually but are being coordinated through a task force headed by Bryan Lantagne, the head of the Massachusetts Securities Division. The other states involved include Florida, Georgia, Illinois, Missouri, New Hampshire, New Jersey, Texas, and Washington.According to Tyler, “Our focus is to determine what conduct took place at the point of sale – what was potentially misrepresented and omitted – and our goal is securing for investors access to their cash as requested. If the product was represented to be a cash equivalent going in, it must be treated as a cash equivalent coming out.”
No one knows whether these efforts by the SEC and the states will force broker-dealers to inject needed liquidity into the auction-rate markets or otherwise correct the rampant abuses that were associated with the sales of these securities.
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 counseling institutional and individual investors regarding their auction-rate securities investment problems. For further information, please contact us.
]]>New York-based analysts Ajay Rajadhyaksha and Derek Chen wrote, “Mortgage loans are moving underwater at a very sharp pace, far more than suggested by aggregate home price data.”
]]> Among Alt-A mortgages that are underwater, 33 percent are at least 60 days late. The delinquency rate for equivalent underwater subprime loans is 58 percent. As more borrowers slide underwater, about 26 percent of subprime loans will have equity of less than 10 percent by midyear.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 counseling institutional and individual investors regarding their subprime investment problems. For further information, please contact us.
]]>According to Stiglitz, the primary cause of the recession is historically unique and thus perplexing those responsible for finding solutions. Previous recessions were caused either by excessive inventories or inflation. This downturn is caused by "badly impaired" banks and financial entities that will or cannot lend capital. Even borrowers who usually drive the country back to vitality remain uncertain as to what to do.
]]> Although inflation was not the primary cause for the recession, it remains a menace according to Stiglitz. Stiglitz addressed the danger of high oil prices coupled with rising food prices that harm businesses and scare consumers. "Oil is particularly bad," because it means that more dollars "will be going abroad," Stiglitz said.The housing downturn is feeding into a prolonged recession. During the real estate bubble, Americans were able to withdraw billions of dollars by way of home equity loans. That money, however, was usually consumed rather than invested. Falling home values have dried up a viable spending source and left homeowners with little or no equity to tap.
"The Bush Administration's [economic stimulus package] is too little, too late and very badly designed," Stiglitz stated. Compared to the money being held back as well as siphoned out, the tax rebate checks will only be a "drop in the bucket."
"If you really wanted to stimulate the economy, increase unemployment insurance," Stiglitz suggests. “The President is telling people to go out and get jobs – and there are no jobs for them.”
]]>Morgan Stanley CEO John Mack predicted in April that the credit crisis caused by the subprime mortgage and real estate market collapse would last "a couple of quarters" longer and that it was going to be "a difficult year for the Street."
]]>Okada was one of 13 people charged in 2007 in what authorities have called the most pervasive insider trading rings since the 1980s.
Okada used information from UBS AG research reports, before the reports were made public, to execute hundreds of trades totaling $17.5 million.
]]>UBS had already eliminated 1,500 jobs in its investment banking unit at the end of 2007. In connection with the latest round of job cuts, the bank also announced that it was planning to exit the municipal bond business and would sell approximately $15 billion in distressed assets to a newly-created fund managed by BlackRock, Inc.
Sharga estimates that there will be over a million bank-owned homes in the market by year-end. There are about four million properties listed on the Multiple Listing Service (MLS) so about 25 % of the inventory would be bank-owned. While lenders claim that programs have been set up to help borrowers in default and that refinancings or work-outs are available, the growing number of homes going back to the banks raises questions of the effectiveness of such programs and workouts.
A RealtyTrac report noted that Nevada has the worst foreclosure rate, followed by California and Arizona. One in 54 Nevada households received a foreclosure notice in the first quarter, which is 3.6 times the national average.
Analysts expect an increase in foreclosures in the coming months that will further depress prices. In order to move home inventory off their balance sheets, banks are cutting prices, which forces home sellers who owe on their homes more than their homes are worth to drop prices further.
"There's no sense of stabilization. The foreclosures are causing a vicious cycle, and the job market is weakening. This doesn't feel therapeutic anymore. This is undermining the economy," says Mark Zandi, chief economist at Moody's Economy.com.
Experts advise that the real estate market can recover when foreclosure filings fade. Until then, the arrival of a “bottom” is welcomed. The sooner prices hit bottom, the sooner home sales can be revived by buyers, said Joel Naroff of Naroff Economic Advisors. “We’re beginning to get massive price declines, and we need that to clear this market.”
]]>In April, the Securities and Exchange Commission (SEC) launched the “PAUSE” program to provide investors with regularly updated factual information, derived from investor complaints and other sources, about questionable email or telephone solicitations from securities firms. This program will shed light on a dark corner of the financial world attracted by Atlanta’s decade-long economic boom.
]]> Fraudulent securities companies tend to group themselves in economic centers, especially those cities such as Atlanta with a large influx of population. Additionally, the money management industry has exploded in Atlanta with firms that manage billions of dollars in private wealth. These legitimate firms tend to attract fraudulent ones. “These people go where the money and the people are and Atlanta is a money management town,” said Conrad Ciccotello, Georgia State University’s director of personal finance.As of April 23, the SEC’s online service listed four unregistered soliciting entities in Atlanta and two fictitious regulatory agencies. Fraud still occurs as many companies use an Atlanta address to establish a false local presence when they are actually located elsewhere, including overseas. “The Internet has made it much more difficult for regulators to catch these kinds of scams,” says Bob Terry, director of Georgia’s Securities Division.
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 counseling institutional and individual investors regarding their investment problems relating to fraudulent activity . For further information, please contact us.
After weeks of intense internal debate, Citigroup is offering to cover some of the losses. This offer is tantamount to an admission that the hedge funds were misrepresented to investors.
Falcon invested in municipal bonds, mortgage-backed securities, bank loans and other debt instruments; ASTA/MAT emphasized municipal bonds. Each consisted of different funds that were launched periodically. Last year, as it geared up to launch new Falcon and ASTA/MAT funds, Citigroup encouraged the brokers at Smith Barney and Citigroup’s private bankers to pitch the funds to their best customers. Of course, they told none of these customers that one reason for the push was that Falcon had declined more than 10% and Citigroup wanted to stabilize it with new cash.
]]> By September 2007, the new Falcon fund had raised $71 million and the new ASTA/MAT fund had raised $800 million. Both funds were heavily sold to retail investors. The brokers and fund managers assured prospective investors that the new hedge funds were low-risk. Falcon was pitched as being likely to post losses of no more than 5% a year in a worst-case scenario.By March 31, 2008, the new Falcon fund was worth just 25% of its initial value; the new ASTA/MAT fund had declined to less than 10% of its original value by February 29, 2008. Behind the scenes, Sallie Krawcheck, the head of global wealth-management at Citigroup, waged a “battle royale” to get Citibank to help investors – who were among Smith Barney’s’ best clients – recover at least some losses.
Under a compromise, Citigroup's wealth-management group will spend $250 million to allow Falcon investors to sell their positions without absorbing the full fund losses, if they agree to forfeit all legal claims against the funds. A similar offer will be made to some ASTA/MAT investors.
Citigroup is offering these investors a complex arrangement that is designed to enable it to settle these claims on the cheap. Under Citigroup’s convoluted proposal, the customer would receive approximately 25 cents for each dollar invested plus the promise of a vague upside on a limited liability company in exchange for a general release of all claims against Citigroup. Since the losses amount to approximately 80 cents on the dollar, the settlement proposal compensates the investor for only 28% of the losses. Even some Smith Barney brokers are complaining that Citigroup seems to be compensating customers “just enough so they don’t sue us.”
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 counseling institutional and individual investors regarding their subprime investment problems. For further information, please contact us.
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