Investment Fraud Lawyer Blog

Investors in Charles Schwab’s YieldPlus Fund need to be aware of their options in light of the recent certification of a class action brought by YieldPlus investors against Schwab. Most importantly, YieldPlus investors who are class members need to request exclusion from the class if they wish to maintain individual claims against Charles Schwab (even if those claims are already filed). Requests for exclusion must be properly filed and received by the claims administrator no later than Monday, December 28, 2009.

Continue reading "Schwab YieldPlus Investors Should Consider Their Options" »

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Posted In: Bonds , Brokerage Firms , Charles Schwab , Common Securities Broker Abuses , Mutual Funds , Regulatory Developments , Schwab YieldPlus Fund , Securities Arbitration , Securities Class Actions

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Roche International has sued Credit Suisse for over $270 million in losses that the drug company incurred after the bank’s brokers invested $545 million of its money in auction rate securities. Roche’s Credit Suisse relationship managers were Julian Tzolov and Eric Butler, who are now serving federal prison sentences for securities fraud in connection with auction rate securities. In its lawsuit, Roche alleges that it was among Tzolov and Butler’s victims, accusing them of investing the company’s money in risky auction rate securities while claiming it was invested in highly liquid, government-backed student loan securities.

Continue reading "Credit Suisse Sued Again over Auction Rate Securities Abuses" »

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Posted In: Auction Rate Securities , Bonds , Brokerage Firms , Common Securities Broker Abuses , Credit Suisse , Regulatory Developments , Securities Arbitration , Securities Litigation

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A federal judge in Atlanta recently dismissed a class action lawsuit brought against SunTrust for fraud in the sale of auction rate securities. The case was not dismissed on the merits of investors’ claims against SunTrust, but based on technical legal requirements about what it takes to plead a claim. Those requirements are strict in securities fraud cases that get filed in federal court, especially class actions, but they do not apply to cases that get filed in arbitration.

Continue reading "Arbitration or Class Action - Which is Better for Investors?" »

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Posted In: Auction Rate Securities , Bonds , Brokerage Firms , Securities Arbitration , Securities Class Actions , SunTrust

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The threatened SEC enforcement action against The Charles Schwab Corp. relating to sales of its YieldPlus Fund increases the likelihood that Schwab will need to settle a class action and FINRA arbitrations involving the YieldPlus Fund, according to industry analysts, as reported by Bruce Kelly on October 18 in InvestmentNews. On October 14, Schwab disclosed that it had received a Wells notice from the staff of the U.S. Securities and Exchange Commission that the staff intends to recommend the filing of a civil enforcement action against Schwab Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the president of the funds for possible violations of the securities laws with respect to the Schwab YieldPlus Fund and the Schwab Total Bond Market Fund.

Continue reading "SEC Threatens Action Over Schwab YieldPlus Fund" »

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Posted In: Bonds , Brokerage Firms , Charles Schwab , Common Securities Broker Abuses , Investment Advisers , Mutual Funds , Regulatory Developments , Schwab YieldPlus Fund , Securities Arbitration , Securities Class Actions

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Congress is finally working on legislation to regulate the $592 Trillion market for over-the-counter-derivatives, according to a recent article in USA Today by Paul Wiseman and Pallavi Gogoi. Derivatives include futures contracts to take delivery of an underlying asset, such as oil, at an agreed price on a certain date. These contracts are used by dealers in the underlying assets to manage the risk of price variations. They are also used by speculators to place bets on the direction of the price. Speculators provide the liquidity needed to have a market in which some derivatives are bought and sold.

Continue reading "Congress Considers Regulation of OTC Derivatives" »

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Posted In: Bonds , Brokerage Firms , Derivatives , Investment Advisers , Market Developments , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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Citigroup Global Market, Inc. has filed a motion to dismiss an action against it by KV Pharmaceuticals Co. arising out of sales of auction rate securities, according to an August 25 article in Law360 by Christine Caufield entitled "Citigroup Argues KV Pharma Knew ARS Risks." The case is pending in the United States District Court for the Eastern District of Missouri. Citigroup appears to following the playbook of other Wall Street firms, arguing that KV was a "sophisticated investor" that knew the risks of ARS, that KV failed to identify any material misrepresentations by Citigroup, failed to allege it relied on any Citigroup statements in deciding to invest, failed to establish any actual loss, and failed to file suit before the statute of limitations ran out.

Continue reading "Wall Street's Defense Tactics Confirm Betrayal of Corporate Clients" »

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Posted In: Auction Rate Securities , Bonds , Brokerage Firms , Charles Schwab , Citigroup/Smith Barney , Common Securities Broker Abuses , Securities Litigation

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The Receiver for Medical Capital Holdings Inc. issued his Second Report on September 7, 2009. According to the Report the estimate for the amount of money raised through the six offerings is $1.778 billion with $268 million in administrative fees taken and a staggering $1.079 billion still due investors. On July 16, the SEC charged Medical Capital Holdings Inc. with fraud related to the sale of $77 million of private securities in the form of notes.

Continue reading "Medical Capital Holdings Update: Receiver Estimates Over $1 Billion Due Investors" »

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Posted In: Bonds , Brokerage Firms , Common Securities Broker Abuses , Investment Advisers , Regulatory Developments , Securities Arbitration , Securities Litigation

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Eric Kolchinsky, a former Moody’s analyst who oversaw ratings given to the toxic debt that brought our financial system to its knees, is scheduled to testify before Congress today, according to yesterday’s Wall Street Journal article “Congress Takes On Credit Ratings,” by Serena Ng and Aaron Luccheti. His testimony will be taken before the House Committee on Oversight and Government Reform, chaired by Representative Edolphus Towns, who represents the 10th Congressional District of New York. Testimony will also be provided by an attorney representing Standard and Poors.

Continue reading "Moody's Whistleblower to Testify before Congress on Ratings Fraud" »

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Posted In: Bonds , Brokerage Firms , Derivatives , Investment Advisers , Regulatory Developments , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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The Wall Street Journal recently reported on a federal district court decision that could pave the way for future lawsuits by investors against credit rating firms such as Moody's, Standard & Poors and Fitch, whose ratings of junk investments as investment grade have come under fire by Congress. The September 4th article by Nathan Koppel, Andrew Edwards and Chad Bray, entitled "Judge Limits Credit Firms' 1st-Amendment Defense," describes an Opinion and Order ("Order") issued by Judge Shira A. Scheindlin in a class action brought by two institutional investors, Abu Dhabi Commercial Bank, King County, Washington, against Moody's Investors Service, Inc. and its affiliates, and The McGraw Hill Companies, Inc. and its affiliates, including its wholly owned and controlled business division, Standard and Poors Ratings Services (collectivley, "the Rating Agency Defendants"), and others. The case is pending in the U.S. District Court for the Southern District of New York.

Continue reading "Court Ruling Paves Way for Legal Claims against Credit Ratings Firms" »

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Posted In: Bonds , Brokerage Firms , Derivatives , Investment Advisers , Securities Arbitration , Securities Class Actions , Securities Litigation , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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A Nevada based Financial Industry Regulatory Authority (FINRA) arbitration panel awarded damages to a Nevada couple as a result of losses sustained in the Charles Schwab YieldPlus Fund. The panel awarded the Raymond and Elsie Kelly 100 percent of their net out of pocket losses of $74,430.77 plus interest at the rate of 3.25% per annum from July 8, 2008 through August 26, 2009, plus an additional $25,650.00 designated as attorney’s fees, and assessed the entire cost of the arbitration proceeding against Charles Schwab (SCHW).

Continue reading "Investors Recover Damages Plus Attorneys Fees from Schwab in Schwab YieldPlus Case" »

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Posted In: Bonds , Brokerage Firms , Charles Schwab , Common Securities Broker Abuses , Mutual Funds , Schwab YieldPlus Fund , Securities Arbitration , Securities Class Actions

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A California federal court has issued an order allowing a Schwab YieldPlus Fund lawsuit filed against Charles Schwab to proceed as class action. The Fund is also the subject of numerous FINRA arbitrations as well as this class action. The order, filed on August 21, 2009, certified three classes, consisting of two federal classes of investors with claims under Sections 11 and 12 of the Federal Securities Act, and a single class of California investors with an unfair competition claim alleging that the fund changed its investment policies regarding asset concentration without a required shareholder vote.

Continue reading "Court Certifies Schwab YieldPlus Class Action but Leaves Many YieldPlus Investors "Out in the Cold"" »

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Posted In: Bonds , Brokerage Firms , Common Securities Broker Abuses , Mutual Funds , Schwab YieldPlus Fund , Securities Arbitration , Securities Class Actions

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Eighteen months after the auction rate securities markets collapsed when Wall Street withdrew its support, companies like Bristol-Myers Squibb Co., Texas Instruments, Corning, and Teva Pharmaceuticals are still suffering from the Wall Street debacle. They have written down their auction rate securities by $4.8 billion, according to an August 28 article on Bloomberg.com by Duncan McNichol called "Wall Street Betrayal Seen in $4.8 Billion Company Debt Losses." The brokerage firms selling auction rate securities led their corporate clients to believe that auction rate securities were a lot like a money market funds while, at the same time, the they knew that auction rate securities faced grave problems and were being misrepresented as being safe and liquid. Similarly, many of the risks and problems in the auction rate securities markets went undisclosed to corporate buyers. Of 449 publicly trade companies holding $22 billion of auction rate securities, all but 45 have written down the value of their ARS holdings.

Continue reading "Auction Rate Securities Debacle Reveals Wall Street's Betrayal of Corporate Investors" »

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Posted In: Auction Rate Securities , Bonds , Brokerage Firms , Common Securities Broker Abuses , Regulatory Developments , Securities Arbitration , Securities Litigation

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One of the causes of the financial meltdown has reappeared, according to a recent MSNBC.com/AP article entitled “Wall Street’s new old idea: Mortgage securities.” The problem to be solved is what to do about the hundreds of billions of dollars of enigmatic, high-risk securitized mortgage pools that threatened (and some say still threaten) to bring down the global economy. The solution being developed by Wall Street is something called “resecuritization of real estate mortgage investment conduits” or “Re-REMIC” for short. If this remedy sounds a bit like “the hair of the dog that bit you,” it is.

Continue reading "More Toxic Structured Finance Securities are on the Way to Market" »

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Posted In: Bonds , Brokerage Firms , Common Securities Broker Abuses , Derivatives , Investment Advisers , Market Developments , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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The SEC's inspector general, David Kotz, released a report last Friday finding that the SEC failed to properly do its job of overseeing credit rating firms. However, based on an August 29 Wall Street Journal article ("SEC Criticized on Raters") by Sarah N. Lynch, Mr. Kotz's report apparently focused on the applications of smaller firms, not the big three agencies - Moody's, Fitch, and Standard & Poors - whose ratings are primarily relied upon by the investing public. The big three were criticized for assigning toxic mortgage securities their highest ratings after the housing price bubble began to burst in the summer of 2006 and being paid by the issuers for their ratings. (For background, see our November 3, 2008 blog called "Are Credit Rating Agencies Just a Bunch of Bull?").

Continue reading "Inspector General Criticizes SEC Oversight of Credit Ratings Firms" »

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Posted In: Bonds , Brokerage Firms , Derivatives , Investment Advisers , Market Developments , Regulatory Developments , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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Smaller securities firms that trade their own capital are recruiting the risk-takers that major Wall Street firms are letting go, according to an August 11 article in the Wall Street Journal by Aaron Lucchetti. These firms received no government bailout money and are not subject to tougher regulation and compensation oversight reserved for the major firms that pose a “systemic risk.” We are “a recipient of the purge,” according to one such firm.

Continue reading "Small Brokerage Firms Are Attracting Big Firm Traders" »

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Posted In: Bonds , Brokerage Firms , Derivatives , Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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The Bankruptcy Estate of Terra Securities ASA and seven Norwegian municipalities have filed a securities fraud action against Citigroup Global Markets, Inc. and related entities, as reported in the Wall Street Journal and news wires. The complaint contends that, in 2007, Citigroup fraudulently induced Terra and the municipalities into purchasing notes linked to a "tender option bond" (or TOB) fund managed by Citigroup. TOB funds hold leveraged positions in U. S. municipal bonds. The municipalities lost approximately $90 million and Terra, a Norwegian securities firm, experienced additional losses when it was forced into bankruptcy. The case was filed in the United States District Court for the Southern District of New York.

Continue reading "Norwegian Cities Sue Citigroup to Recover Losses in Tender Option Bond Funds" »

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Posted In: Bonds , Brokerage Firms , Citigroup Hedge Funds , Citigroup/Smith Barney , Securities Arbitration , Securities Litigation

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Raymond James “long-suffering clients remain frozen in auction-rate securities hell,” says Gretchen Morgenson in her August 2 article in the New York Times called “Investors Without a Lifeline.” Raymond James misrepresented auction rate securities to retail investors as safe and liquid, just like many larger Wall Street firms that have settled with the regulators and agreed to buy them back. But Raymond James is refusing to buy back auction rate securities it sold to investors on the ground that it did not underwrite them, it just sold them. In its most recent quarterly filing, Raymond James further indicated that it lacks sufficient regulatory capital and borrowing power to buy back the securities, and says, if it were forced to do so, that “could adversely affect the results of operations,” according to the article.

Continue reading "Raymond James Ignores Customers to Whom it Sold Auction Rate Securities" »

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Posted In: Auction Rate Securities , Bonds , Brokerage Firms , Common Securities Broker Abuses , Investment Advisers , Raymond James , Regulatory Developments , Securities Arbitration , Smart Investing Tools

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The recent settlement between regulators and broker-dealers that sold auction rate securities are not good news for large and institutional investors, reports Law360 in a July 30 article entitled “Will Their Be An Onslaught of ARS Litigation?” The settlements typically require the defendant firms to by back auction rate securities from individual investors, nonprofits and small companies with less than $10 million in assets at the firm. On the other hand, the brokerage firms are only required to use their “best efforts” or “work with” large investors in addressing their liquidity problems. Armed with this knowledge, and the knowledge that the government will not assist them, a number of institutional investors have gone the self-help route by taking legal action. Among them are Ashland Inc. ($194 million), Braintree Laboratories ($33 million) and Texas Instruments ($524 million), Ocwen Financial Corp. and Bankruptcy Management Solutions Inc. More large companies are expected to do the same.

Continue reading "Large Investors Are Pursuing Auction Rate Securities Claims" »

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Posted In: Auction Rate Securities , Bonds , Brokerage Firms , Securities Arbitration , Securities Litigation

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"For nothing is hidden that will not become evident, nor anything secret that will not be known and come to light.” Thus hinteth today’s Wall Street Journal article by Suzanne Barlyn entitled “COMPLIANCE WATCH: SEC Warning May Help Unhappy Investors.”

The United States Securities and Exchange Commission (the “SEC”) Staff’s warning that it intends to recommend an enforcement action against Morgan Keegan for possible violations of the federal securities laws may incline more arbitrators to require Morgan Keegan to disclose documents it supplied to the SEC in its investigation, but wants to keep hidden from investors and arbitrators, according to the article. Here is the background.

Continue reading "It's Time for Arbitrators to Grant Investors Access to the SEC Evidence that Morgan Keegan Is Trying to Hide" »

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Posted In: Bonds , Brokerage Firms , Common Securities Broker Abuses , Derivatives , Morgan Keegan , Morgan Keegan Bond Funds , Mutual Funds , Regulatory Developments , Securities Arbitration , Subprime Mortgage & Collateralized Debt Obligation Problems

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On July 21, 2009, the Securities and Exchange Commission (“SEC”) filed a Complaint against Morgan Keegan & Company, Inc. in the United States District Court for the Northern District of Georgia for misleading investors about the liquidity risks of auction rate securities that it sold. Morgan Keegan sold approximately $925 million of auction rate securities between November 1, 2007 and March 20, 2008 after it knew the market for such securities was deteriorating and it had decided to stop supporting the market, according to the SEC. The Complaint alleges that Morgan Keegan’s sales practices violated the anti-fraud provisions of the United States securities laws, and seeks an order directing Morgan Keegan to stop violating those laws, repurchase all auction rate securities it sold before March 20, 2008, disgorge all ill-gotten gains or unjust enrichment it has enjoyed as a result of its unlawful activities, and pay civil monetary penalties pursuant to federal statutes.

Continue reading "SEC Charges Morgan Keegan with Fraud in the Sale of Auction Rate Securities" »

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Posted In: Auction Rate Securities , Bonds , Brokerage Firms , Common Securities Broker Abuses , Morgan Keegan , Regulatory Developments

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