Investment Fraud Lawyer Blog

Today, Beth Healy of the Boston Globe reported that Bank of America warned the State of California about problems in the auction-rate securities markets late in 2007 while the firm was still marketing auction-rate securities to individuals and other investors without disclosing such risks. Among other things, Bank of America warned the State of California that there had been “significant dislocation” in the auction-rate securities marketplace, that demand for auction-rate securities was dropping, that many corporate clients were selling auction-rate securities, and that there was significant uncertainty in various parts of the auction-rate market. Reportedly, Bank of America also warned the State of California that it was “in a defensive position, facing capital constraints,” due, in part, to its high inventory of auction-rate securities.

Continue reading "Bank of America Withheld Important Information about Auction-Rate Securities from Investors" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Brokerage Firms , Citigroup/Smith Barney , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley

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Today the Securities & Exchange Commission and an auction-rate securities task force composed of various state regulators announced that they had entered into a tentative settlement with Wachovia which would require Wachovia to buy-back approximately $9 billion of auction-rate securities. This settlement is closely patterned after an earlier settlement entered into with UBS regarding its sale of auction-rate securities.

Continue reading "Wachovia Joins Auction-Rate Securities Settlement Parade" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Regulatory Developments , UBS , Wachovia

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Today, Morgan Stanley and JP Morgan announced that they were following the precedent set by UBS and Citigroup in order to settle part of their auction-rate securities problems. The tentative agreements which JP Morgan and Morgan Stanley have entered into with regulators which will require that the firms will repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having assets of $10 million or less), reimburse such retail customers for any losses that they sustained in selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay regulatory fines. The tentative agreements also provide that the firms would help their larger institutional clients (those with more than $10 million in assets) sell their holdings.

Continue reading "Morgan Stanley and JP Morgan Get in the Auction-Rate Securities Settlement Line" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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The state auction-rate securities regulators task force continued to pursue financial institutions involved in the auction-rate securities market aggressively. To date, state regulators have subpoenaed approximately 30 financial institutions over their auction-rate securities practices and continue to pursue investigations with all firms that have yet to settle. The states have already tentatively settled auction-rate securities claims against Citigroup and UBS. Moreover, the state task force has identified Morgan Stanley, JP Morgan Chase and Wachovia Securities as current targets of its investigation. In addition, Goldman Sachs, Bank of America, Wells Fargo, Lehman Brothers, RBC Capital Markets, and Raymond James are reported to be additional targets of the state investigations.

Recent reports indicate that the state task force is seeking regulatory settlements from each firm similar to those entered into by Citigroup and UBS. Under such arrangements, the brokerage firms would be required to repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having accounts of $10 million or less), reimburse such retail clients for any losses that they sustained by selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay appropriate regulatory fines.

Under these precedents, the one group that has been largely unprotected is larger corporate, pension and other institutional clients who are essentially being left to fend for themselves. Under announced arrangements, the Wall Street banks are only undertaking to use their “best efforts” to assist such institutions in achieving liquidity for auction-rate securities that they still hold. Since there are no formal requirements on the Wall Street banks to satisfy the claims of institutional investors, such investors are being left to pursue their own remedies to recover damages, if any, that they have sustained.

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Regulatory Developments , UBS , Wachovia

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Late yesterday, Morgan Stanley announced its intent to settle auction-rate securities claims with retail clients (identified as individual customers, charitable organizations and small businesses with accounts of $10 million or less) who purchased auction-rate securities from Morgan Stanley. Under Morgan Stanley’s proposal, beginning no later than September 30, 2008, it will repurchase auction-rate securities that it sold before February 13, 2008 at par value. In addition, Morgan Stanley will reimburse retail clients for any losses that they sustained from selling auction-rate securities. Morgan Stanley also vaguely announced that it will seek solutions for larger institutional investors prior to December 31, 2009.

State regulators responded quickly, saying that Morgan Stanley’s announcement was a positive first step but was not sufficient to resolve the regulators’ claims against Morgan Stanley. Previous actions by the regulators indicate that the regulators are demanding that all major firms follow the precedents set by UBS and Citigroup in resolving claims. These precedents would require remaining Wall Street banks to repurchase auction-rate securities from individual retail customers, charities, and small businesses, reimburse such clients for any losses that they sustained by selling after February 12, 2008, set up a resolution process for customers who sustained unusual damages, and pay significant fines for their misconduct.

Continue reading "Morgan Stanley’s Auction-Rate Securities Proposal – “Too Little, Too Late”" »

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Posted In: Auction Rate Securities , Brokerage Firms , Citigroup/Smith Barney , Morgan Stanley , Regulatory Developments , UBS

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Yesterday, Bloomberg News reported that Wall Street banks may be permitted to fund their auction-rate securities settlements with federal and state regulators using monies provided by the Fed. According to published reports, Wall Street banks may borrow as much as $100 billion from the Fed in order to fund settlements for their allegedly fraudulent activities in selling auction-rate securities.

Continue reading "The Fed's Plan to Fund Wall Street's Corruption" »

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Posted In: Auction Rate Securities , Brokerage Firms , Market Developments , Regulatory Developments

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Today New York Attorney General Andrew Cuomo urged JP Morgan Chase, Morgan Stanley and Wachovia Securities to take immediate steps to settle their auction-rate securities problems. According to reports, Cuomo’s office has sent a letter to each of these firms strongly suggesting that they enter into settlements with regulators resolving their auction-rate securities problems on terms similar to those previously agreed to by Citigroup and UBS.

Under such proposal, it appears that regulators are seeking to compel JP Morgan, Wachovia and Morgan Stanley to buy-back securities held by individual customers, charities and small businesses, reimburse those clients for any damages which they sustained in selling auction-rate securities, use best efforts to assist larger institutional customers in disposing of their auction-rate securities and pay fines.

Continue reading "More Auction-Rate Securities Settlements Ahead?" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Brokerage Firms , Citigroup/Smith Barney , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , SunTrust , UBS , Wachovia

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Today UBS tentatively agreed to buy-back $19.4 billion in auction-rate securities in order to resolve regulatory actions initiated by the Massachusetts Secretary of State, other members of a state auction-rate securities task force and the SEC. In addition, the firm agreed to pay a $150 million fine to settle the regulatory claims. The full details of the settlement will be announced next week.

The regulatory investigation asserted that UBS pressured financial advisors to sell auction-rate securities as cash equivalents that were safe and liquid without disclosing significant risks to investors. At the same time that UBS was engaged in this aggressive sale campaign, the firm, internally, was extremely concerned about the auction-rate securities markets and was exploring exiting the same. Ultimately, investors sustained significant harm when UBS and other securities dealers stopped supporting the auction-rate securities markets and auctions froze. UBS’ legal exposure was particularly severe in light of the fact that various UBS insiders were simultaneously disposing of their own auction-rate securities while the firm was encouraging investors to purchase the same.

Continue reading "UBS Will Buy-Back $19.4 Billion of Auction-Rate Securities to Settle Regulatory Actions" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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Following on the heels of Citigroup’s tentative settlement with federal and state regulators, Merrill Lynch has announced that it will offer to buy-back, at face value, auction-rate securities which were sold to individual investors, charitable institutions and small businesses. Merrill Lynch’s offer will be effective January 15, 2009 and run through January 15, 2010 according to the firm. Merrill has estimated that this offer will cost the firm approximately $10 billion.

Unlike the tentative Citigroup settlement, Merrill’s offer has not been approved by state and federal regulators and may not resolve the firm’s auction-rate securities regulatory issues. In fact, Massachusetts’ Secretary of State, William Galvin, one of the leaders of the state task force investigating the sale of auction-rate securities who recently sued Merrill Lynch over auction-rate securities, stated that “It's not satisfactory from our point of view in terms of the timeliness of redemption. Therefore, clearly, we’ll pursue our complaint.” Among other things, Merrill still must negotiate any regulatory sanctions.

Continue reading "Merrill Lynch Follows Citigroup's Lead- Attempts to Resolve Certain Auction-Rate Securities Claims" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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Today a task force of state securities regulators, the Securities and Exchange Commission and Citigroup announced a settlement, in principle, related to auction-rate securities marketed and sold by Citigroup. Under the settlement, Citigroup has offered to repurchase, for face value, all auction-rate securities that it sold to individual investors, small businesses (defined as institutions having brokerage accounts of $10 million or less), and charities. In addition, Citigroup has agreed to make whole any individual investors, small businesses and charitable organizations that sustained losses on auction-rate securities that they purchased prior to February 11, 2008 and sold after February 11, 2008. It is estimated that this resolution will cost Citigroup approximately $7.5 billion. This settlement is to be effected by November 5, 2008.

Continue reading "Citigroup Reaches Agreement, in Principle, to Settle Certain Auction-Rate Securities Claims" »

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Posted In: Auction Rate Securities , Brokerage Firms , Citigroup/Smith Barney , Regulatory Developments

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Today Morgan Stanley agreed to buy-back, at face value, $1.5 million in auction-rate securities from the city of New Bedford, Massachusetts and the town of Hopkinton, Massachusetts. This buy-back is tantamount to an admission that the auction-rate securities were improperly sold to the municipalities.

Morgan Stanley is the third major brokerage firm to repurchase auction-rate securities sold to municipalities in the Commonwealth of Massachusetts. In January, 2008 Merrill Lynch agreed to repurchase $13.7 million of auction-rate securities from Springfield, Massachusetts. Last month, UBS agreed to buy back $3.4 million in auction-rate securities from various municipalities and state agencies in Massachusetts.

Continue reading "Morgan Stanley Admits it Mismarketed Auction-Rate Securities to Massachusetts' Municipalities" »

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Posted In: Auction Rate Securities , Brokerage Firms , Merrill Lynch , Morgan Stanley , Regulatory Developments , UBS

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More and more employees approaching retirement age are being victimized by unscrupulous brokers who are advising them to retire early, invest their retirement funds with the broker and begin withdrawing those retirement funds under IRS Rule 72(t). The result has often been that the brokers end up earning big fees and the employees end up losing their nest egg. In many instances, brokers are approaching employees at their place of employment and offering “free advice” or “free lunch” seminars, often without knowledge or approval of the employer. At these seminars, employees are advised they can retire early, earn large returns on their retirement funds and make large annual withdrawals under IRS Rule 72(t), which allows investors to withdraw retirement funds prior to age 59 ½ if the investors commit to take out the same amount each month for at least five years. These programs often leave the employees penniless. Indeed, in some cases, investors have seen their principal diminish to the point where they have no choice but to go back to work. The Financial Industry Regulatory Authority (FINRA) and other regulatory agencies recognize this as a growing problem and are investigating firms such as Morgan Stanley, InterSecurities, Securities America and Citigroup for inappropriate conduct in this area..

Continue reading "Early Retirement Scams are on the Rise" »

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Posted In: Brokerage Firms , Citigroup/Smith Barney , Common Securities Broker Abuses , Early Retirement Scams , Elder Abuses , Morgan Stanley , Smart Investing Tools

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Today, Massachusetts securities regulators charged Merrill Lynch with fraud in the sale of auction-rate securities. The State’s complaint asserts that the major Wall Street firm was pushing its brokers to sell auction-rate securities without making the proper disclosures to investors for months after the firm knew that the market for auction-rate securities was on the brink of collapse. The states of Massachusetts, New York and Texas had previously filed similar claims against UBS.

Continue reading "State Sues Merrill Lynch For Fraud In The Sale Of Auction-Rate Securities" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , Regulatory Developments , UBS , Wachovia

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The Boston Globe has reported that, in addition to UBS Financial Services, other major Wall Street firms expected the failure of the auction-rate securities markets prior to the collapse in February of this year, yet failed to warn investors of the impending disaster. In the months leading up to the collapse, JP Morgan Securities, Inc., Lehman Brothers, Morgan Stanley, Bear Stearns Cos. and Merrill Lynch & Co. warned the Commonwealth of Massachusetts that the auction-rate markets were in trouble and that the state should consider refinancing some of its debt. Unfortunately, this information was not shared with smaller state entities or individual investors.

Previous reports had revealed that, as early as last summer, UBS, Citigroup and Bank of America, among others, had been advising issuers of student loan auction rate securities that their auctions were going to fail unless the issuers agreed to waive caps on the amount of interest they could pay. This information was also withheld from individual investors.

Continue reading "Wall Street Firms Knew That Failure of the Auction Rate Securities Market Was Imminent" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Brokerage Firms , Citigroup/Smith Barney , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , Regulatory Developments , UBS

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Over recent months, Wall Street’s reckless speculations, improprieties, and, yes, even possible criminal acts, have been reported in the news media almost daily –- Washington’s reaction has been to open the doors to the Fed to support such conduct thereby implicitly endorsing the excesses that have created many of our current economic problems. While the SEC and various regulators have announced countless investigations of Wall Street banks involving things such as questionable valuations of securities, mismarketing of auction rate securities, failure to make adequate disclosures to investors, rampant speculation in the derivatives markets, and an array of other situations, Washington’s actions speak louder than its words. Notwithstanding these “investigations,” Washington seems bent on trying to “sweep the problem under the rug” by opening the doors of the Federal Reserve to enable the Wall Street firms to sell securities of questionable value to the Fed in order to maintain adequate liquidity to continue the same old activities. Apparently, in Washington’s eyes, misconduct and excessive speculations do in fact pay.

Continue reading "Washington Opens The Vault For Wall Street Firms, Slams The Door On Main Street America" »

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

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Layoffs in the financial industry come with almost every downturn. The latest round of such layoffs, however, is different. In fact, it is eerily quiet as some bosses now hardly say a word after people are fired, according to an article by reporters Louise Story and Eric Dash in t