Investment Fraud Lawyer Blog

Some judges are starting to question lenient settlement deals proffered by Wall Street firms and their arguably captive regulator, the SEC, according to an August 19, 2010 article in the Wall Street Journal by David Weidner called “In Search Of Justice for Wall (Street).” Two U.S. District Court Judges, Jed S. Rakoff and Ellen Segal Huvelle, have rejected settlements on the ground that the penalties were too small to be fair to the investing public. Another federal judge, Emmet G. Sullivan, threatened to reject but ultimately accepted a settlement proposed by the SEC and Barclays PLC. Judge Sullivan reportedly had earlier called it a "sweetheart deal."

Continue reading "Judges Begin to Question "Sweetheart" Securities Regulatory Settlements" »

Merrill Lynch hid its toxic subprime exposure inside off-balance sheet “Special Purpose Vehicles” (like one named Pyxis) until autumn of 2007 when CDO specialists at Moody’s figured it out and set off alarm bells that forced Merrill to revise its self-reported subprime exposure from $15.2 billion to $46 billion, according to an August 9, 2010 New York Times article by Louise Story, “Merrill’s Risk Disclosure Dodges Are Unearthed.” And – get this – Merrill’s senior executives supposedly did not know what was going on!

Continue reading "Merrill Lynch Concealed Subprime Risks Using Tricky Tactics" »

White House executive “pay czar” Kenneth Feinberg has decided not to negotiate with 17 Wall Street firms to rescind $1.6 billion in payments to executive that Feinberg himself described as “ill advised” and payments that “[t]hey should not have made,” according to articles in the Atlanta Journal Constitution (“Bank execs get to l]keep $1.6 billion” by Daniel Wagner) and CNNMoney (“Banks paid big $ to execs during crisis” by David Ellis).

Continue reading "Wall Street Executives Get $1.6 Billion, Main Street America Picks Up the Tab" »

Wall Street brokerage firms are being ordered to pay millions to investors who incurred significant losses on what they thought were low-risk investments, but were, in fact, leveraged municipal arbitrage hedge funds, according to a Wall Street Journal article by Randall Smith (“Crisis-Era Munis Haunt Wall Street,” July 27, 2010).

Continue reading "First Republic Municipal Arbitrage Investors Recover Substantial Damages" »

The sale of billion of dollars of Fannie Mae and Freddie Mac preferred stock in 2007 and 2008 was accomplished by fraud on unsuspecting public investors and the complicity of mortgage originators that bought the shares knowing they were poison, according to attorney and professor Seth E. Lipner in his July 7th Forbes article entitled “How Fannie And Freddie Unloaded Their Trash.”

Continue reading "Wall Street's Dump of Freddie Mac and Fannie Mae Preferred Stocks Cost Investors Billions" »

The Securities and Exchange Commission is investigating the sale of $200 million in collateralized debt obligations (CDOs) to several Wisconsin school districts, according to a recent Wall Street Journal article by Meena Thiruvengadam and Kelly Nolan (“SEC Investigates Failed CDOs Sold to Wisconsin Schools”). The schools have also filed a lawsuit alleging that the CDOs were misrepresented and that important risk disclosures were omitted.

Continue reading "Wall Street's Sale of Toxic CDOs Undermines Education and Other Government Services" »

The U.S. Securities and Exchange Commission is investigating misleading marketing by Wall Street banks of so-called “principal protection” notes, according to a recent Bloomberg article by Zeke Faux and Joshua Gallu. The investigation focuses on notes issued by now-bankrupt Lehman Brothers that prominently featured the words “principal protection” or "principal protected" in brochures provided to investors and that were sold as safe investments. Safety-minded investors were shocked when Lehman Brothers went bankrupt and the value of the notes collapsed. Investors had never been told that the notes were really options combined with an unsecured obligation of Lehman Brothers.

Continue reading "SEC Investigates Sales of So-Called "Principal Protected" Notes" »

It’s crunch time for financial reform, and Wall Street banks are lobbying hard to keep a central pillar of financial reform from becoming law, and, at the same time, are planning ways of getting around whatever financial reform restrictions do become law, according to a recent New York Times article by Eric Dash and Nelson D. Schwart titled “Banking Lobbyists Make a Run at Reform Measures.”

Continue reading "Wall Street Intensifies Efforts to Thwart Financial Reform as Greed Trumps Common Sense" »

Merrill Lynch and other Wall Street firms sold the riskiest tranches of collateralized debt obligations (“CDOs”), not just to institutions, but to individual investors, as safe investments, according to a recent Wall Street Journal article by Dan Fitzgerald titled “Didn’t See Risk, and Got Stung.” Now that the CDOs have imploded, and investors are seeking recovery of their losses, Merrill is telling them that risk disclosure documents and the investors’ supposed sophistication mean they cannot recover. Merrill is wrong for a number of reasons.

Continue reading "Wealthy Individuals Have Been Victimized By Wall Street's CDO Fraud" »

According to a recent article in the Atlanta Journal Constitution, “at least a dozen local governments and other institutions that used derivative deals called swaps to try to lower the cost of bond issues have ended up owing as much as $394 million in fees to the Wall Street investment banks that set up the deals….” AJC, 5/30/10, “Paying a Price for Risky Schemes.” That article looked at how much money a small number of governmental and institutional investors in Georgia have paid to buy their way out of interest rate swaps in the wake of the financial crisis, but it is likely that this is a nationwide phenomenon. The article raised a number of questions—including whether it was appropriate for taxpayer money to be invested in securities with such a high level of risk—but it did not raise the question of whether there are legal remedies that would allow government officials and others to recover the financial losses resulting from such investments.

Continue reading "Local Governments and Non-Profits Have Suffered Catastrophic Losses as a Result of Wall Street's Excesses" »

In “Paying a price for risky schemes,” Atlanta Journal Constitution reporter Russell Grantham presents an excellent overview of how at least a dozen metro governments and nonprofits that issued debt were whipsawed by the “shadow banking system” – the freezing of the auction rate securities markets and complex derivative contracts called swaps. As a result, they have been forced to pay or owe as much as $394 million that they did not expect to, according to the article, which identifies the borrowers as:

“Atlanta airport, Atlanta water/sewer, Underground Atlanta, Children’s Healthcare of Atlanta, Piedmont Healthcare, Woodruff Arts Center, Georgia Tech, Georgia State University, DeKalb Medical Center, Emory University, Gwinnett Medical Center, Marietta, MARTA, Power South Energy Cooperative, and Cobb County Kennestone Hospital Authority. “

Continue reading "Wall Street Abuses Have Significantly Increased the Economic Problems Currently Faced by State and Local Governments" »

“As the U.S. Senate prepares to vote as early as this week on legislation rewriting the rules for Wall Street, the financial industry is holding fundraisers for lawmakers at a rate of almost one every business day this month,” according to a May 17th Bloomberg article by Jonathan D. Salant.

Continue reading "Wall Street Special Interest Groups Are Spending Huge Sums to Thwart Financial Reform" »

Federal prosecutors are conducting a criminal probe into whether multiple major Wall Street banks defrauded investors in selling investments called collateralized debt obligations, or CDOs, that were created, sold and shorted, or bet against, by the banks and certain favored clients. See “Wall Street Probe Widens,” by Susan Pulliam, Kara Scannell, Aaron Lucchetti and Serena Ng, Wall Street Journal, May 12, 2010, and “Wall Street said to face new investigations,” CNNMoney.com, May 13, 2010.

Continue reading "CDO Fraud Probes Explode Across Wall Street" »

Mainstream USA Today recently published its opinion on the financial reform package currently pending in Congress. Lawmakers should pay attention.

I. WHY THE OBAMA FINANCIAL REFORM PROPOSAL SHOULD PASS

USA Today starts out by observing that “[n]o economic downturn in the past century — not even the Great Depression — can be so directly attributed to pernicious behavior by financiers,” which “exposed a bonus-crazed banking culture that amplified risk on a colossal scale.”

Continue reading "USA Today: Why Financial Reform is Needed" »

In the wake of suing Goldman Sachs for fraud in the creation and sale of mortgage-backed derivatives, the Securities and Exchange Commission said it will look closely at other similar transactions by other big Wall Street banks, according to a recent Wall Street Journal article by Carrick Mollencamp, Serena Ng, Gregory Zuckerman and Scott Patterson (Note: the WSJ appears to have double the usual number of reporters on this story).

Continue reading "Wall Street's "Moral Corruption" Goes Far Beyond Goldman Sachs" »

Paulson, the hedge fund manager who shorted the Goldman Sachs CDO that is the subject of the SEC’s enforcement action, and the other "shorts" were “driven by disgust and indignation … against Wall Street and its corrupt system designed to generate undeserved bonuses,” according to USAToday’s article entitled “Goldman case shows what’s the matter with Wall Street.”

Continue reading "USAToday Observes that Wall Street Banks "Are No Longer in the Game for Their Clients but for Themselves"" »

Bloomberg writer Mark Gilbert says that the trouble with collateralized debt obligations (CDOs), which slice bundles of asset-backed securities into different risk-reward classes, is that no one has a clear idea of how risky any given slice is or any sense of how to quantify and value that risk.

Continue reading "Many Wall Street Banks Disguised CDO Scraps as Tasty Morsels" »

Brokerage firms’ advertising portrays brokers as trusted members of the family, writes Tara Siegel Bernard in her New York Times article, “Trusted Adviser or Stock Pusher? Finance Bill May Not Settle It.” Anyone who has tried to hold a broker to a fiduciary standard of conduct, however, hears a very different response: “We are mere order takers. You never should have trusted us.”

Continue reading "Is Your Financial Adviser Acting in Your Best Interest?" »

Uncertainty about the corporate stock and bond markets is fueling growth in exchange traded funds, particularly bond exchange traded funds, according to a recent CNBC.com post by Jeff Cox. High-yield corporate bond funds comprise 10 percent of the total exchange traded fund market, up from 1 percent two years ago, while high-grade bond funds comprise 15 percent, up from 6 percent in 2008, according to the article (citing BofA Merrill Lynch Global Research).

Continue reading "More Concerns Arise Regarding Bond Exchange Traded Funds (ETFs)" »

According to a recent Bloomberg National Poll, more than 50% of Americans despise Wall Street and favor punishment of the bankers who caused the worst financial crisis since the Great Depression. The majority of poll participants -- 56 percent -- say big financial companies are more interested in enriching themselves at the expense of ordinary people.

Continue reading "It's Official - Most Americans Despise Wall Street" »