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 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, 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 subprime and credit crises have resulted in a surge of fraudulent misrepresentation and omission cases against Wall Street firms. A rising stock market concealed many such abuses because values were rising, making fraudulent misrepresentations and omissions hard to identify. Recently, however, many of these misrepresentations and omissions have become apparent. For example, many risk-averse investors with conservative objectives have recently discovered that they have sustained huge losses on investments that were misrepresented to them as being very safe and conservative.

Perhaps even more critical than what was affirmatively misrepresented to investors in these cases is what the firms and their brokers omitted to disclose to investors about these securities. The bedrock principle of the securities laws is the duty of complete and truthful disclosure. Once a broker undertakes to disclose any information about a security to an investor or potential investor, the disclosure must be complete and truthful in all material respects. This is an absolute requirement. It applies to every broker (whether discount or full service), every security, and every person who receives any information about a security (rich or poor, financially sophisticated or not, whether or not that person has an account with the broker). If a broker fails to provide complete and truthful disclosure, and the undisclosed information would have been important in deciding whether or not to invest, the investor has a legal right of action against the broker and the firm to recover resulting losses and damages.

Continue reading "Investor Misrepresentation And Omission Claims Escalate" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Charles Schwab , Citigroup/Smith Barney , Common Securities Broker Abuses , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Keegan , Morgan Keegan Bond Funds , Morgan Stanley , RBC Dain Raucher , Schwab YieldPlus Fund , Smart Investing Tools , SunTrust , UBS , Wachovia

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Many auction rate securities investors are asking whether they should sell their illiquid holdings or should wait in hopes of their auction rate securities being refinanced or redeemed. Unfortunately, there is no one answer that is right for every investor. This article attempts to discuss various factors that investors may wish to consider in making their own decision. Among other things, we discuss the status of the market, describe relevant considerations and discuss the advantages of selling and of waiting. We also provide investors with information on what they can do if they are interested in selling their auction rate securities.

Continue reading "Should Investors Sell Their Illiquid Auction Rate Securities?" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Smart Investing Tools , SunTrust , 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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The subprime and credit crises affecting the economy have revealed an array of suitability abuses by Wall Street investment firms. While a rising stock market hides many abuses by brokerage firms, suitability abuses are more easily identifiable when times are tough. For example, many risk-averse investors with conservative objectives have recently discovered that they have sustained huge losses on unsuitable investments recommended to them as being very safe. Auction rate securities, short-term bond funds, AAA rated debt securities, and mortgage heavy mutual funds provide recent examples of suitability abuses.

Continue reading "Investor Suitability Claims on the Rise" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Charles Schwab , Citigroup/Smith Barney , Common Securities Broker Abuses , Credit Suisse , Elder Abuses , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Keegan , Morgan Keegan Bond Funds , Morgan Stanley , RBC Dain Raucher , Raymond James , Schwab YieldPlus Fund , Subprime Mortgage & Collateralized Debt Obligation Problems , SunTrust , UBS , Wachovia

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On June 26, Massachusetts securities regulators charged UBS with fraud stating that the major Wall Street firm was pushing its brokers to sell auction-rate securities without making proper disclosures to investors for months after the firm knew the market for auction-rate securities was on the brink of collapse. Other firms that are currently under investigation by a state task force include Wachovia, Merrill Lynch and Bank of America Corp. In addition, the Attorney General for the State of New York, who opted out of the task force, has subpoenaed records from 18 institutions including UBS, Citigroup, Merrill Lynch, J.P. Morgan Chase & Co. and Goldman Sachs Group. Additional firms that have been mentioned in the auction-rate securities market fiasco are Lehman Brothers and Bear Stearns Cos. The SEC and Financial Industry Regulatory Authority are also investigating the sales practices and disclosures firms made to investors with respect to auction-rate securities. UBS was the second largest underwriter of auction-rate securities from 2000 to 2007, second to Citigroup.

Continue reading "Massachusetts Hits UBS with Fraud Charges Over Auction-Rate Securities" »

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

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Federal prosecutors have brought the first criminal case related to the subprime mortgage meltdown. A federal indictment brought by the U.S. Attorney’s Office for the Eastern District of New York which was unsealed on Thursday, June 19, alleges that former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, deceived investors. The two were accused of securities fraud, wire fraud, and conspiracy. In addition, Cioffi was charge with one count of insider trading.

According to the 27-page indictment, when subprime mortgage problems began driving down the value of the Bear Stearns hedge funds the two managed, they not only hid the truth from investors but went as far as to tell investors to put more money into the funds even as they began to sour.

Continue reading "Former Bear Stearns Hedge Fund Managers Indicted" »

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Posted In: Bear Stearns , Bear Stearns Hedge Funds , Regulatory 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 the May 16th New York Times.

At Citigroup, Goldman Sachs and Morgan Stanley, the first clue that someone is gone can be the return of an email message from a former colleague’s inactivated corporate e-mail address.

Since last summer, banks worldwide have announced plans to cut 65,000 jobs. Exactly how many employees have been or will be eliminated, however, remains unclear. In the past, Wall Street typically made sharp reductions in their workforce all at once. After the 1987 stock market crash, for example, employees were herded into conference rooms and dismissed as a group. Today, companies are making many small cuts over the course of weeks and even months. Employees who have lost jobs and others vying to hold them say that banks are keeping employees in the dark about the size and timing of layoffs.

Continue reading "Stealth Layoffs Hit Wall Street" »

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Posted In: Bank of America , Bear Stearns , Brokerage Firms , Citigroup/Smith Barney , Employment Issues , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley

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As reported by Reuters, Ken Okada, a former stockbroker with Bear Stearns, was sentenced on Tuesday to three years probation, a year of home confinement, and fined $300,000 for his role in an insider-trading scheme.

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.

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Posted In: Bear Stearns , Common Securities Broker Abuses

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Ralph R. Cioffi, the former manager of the two Bear Stearns hedge funds whose collapse last year triggered the credit crisis, is the prime suspect in investigations by the Justice Department and the SEC as reported recently by BusinessWeek.com.

The investigations are proceeding on two fronts: first, whether Cioffi and his team deliberately misled investors about the funds' health; and second, whether Cioffi and his team placed false values on collateralized debt obligations (CDOs).

The issue of CDO valuation – valuation based on internal models rather than actual market values – had been controversial ever since the CDO market collapsed in 2007. The BusinessWeek.com article contained the following quote: "If the valuations become a criminal issue [for] Bear Stearns, it would send a warning shot across the bow of every firm that marketed these exotic products," said Steven B. Caruso, an attorney representing several Bear investors who is part of the coalition representing subprime investors in which Page Perry participates.

Continue reading "Former Bear Stearns Manager Is The Prime Subprime Suspect" »

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Posted In: Bear Stearns , Bear Stearns Hedge Funds , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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On April 23, The Wall Street Journal reported that the Securities and Exchange Commission has refused a congressional request to disclose why the investigation into Bear Stearns was dropped. The purpose of that investigation was to determine if the firm harmed investors by improperly valuing complex debt securities.

In a letter dated April 2, the ranking member of the Senate Finance Committee, Senator Charles Grassley, requested details from the SEC about the circumstances surrounding the Bear Stearns probe. The SEC cited confidentiality in refusing to provide any details about its decision regarding the investigation. "The Commission does not disclose the existence or nonexistence of an investigation or information generated in any investigation unless made a matter of public record in proceedings brought before the Commission or the courts," SEC chairman Christopher Cox explained.

Continue reading "Bear Stearns Probe Abruptly Ended By SEC" »

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Posted In: Bear Stearns , Bear Stearns Hedge Funds , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

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As a result of the subprime securities crisis and the ensuing credit crunch, a “run on the bank” at Bear Stearns forced the company to sellout to J.P. Morgan for just $10 a share, far below its reported book value. Once the country's fifth-largest investment bank, the sudden collapse of Bear is the latest sign that America’s financial system has overheated.

In a desperate attempt to get the financial markets humming again, the Federal Reserve is trying to stabilize the credit market before a failure of confidence contaminates the entire financial system. Otherwise, further economic decline could spread to other banks and beyond.

Steve East, chief economist for FBR Capital Markets says, "As far as Wall Street securities houses go, Bear Stearns wasn't too big to fail. It was too interconnected to fail."

Continue reading "Bear Stearns' Collapse Affects Main Street America" »

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Posted In: Bear Stearns , Subprime Mortgage & Collateralized Debt Obligation Problems

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Last week when J.P. Morgan announced a Fed-supported acquisition of Bear Stearns for the fire sale price of $236 million (roughly $2/share), it unleashed a frenzy of activity in various corners of the financial markets which will play out over the coming months. The transaction has already resulted in strong dissention from shareholders, in legal claims against Bear Stearns, in government investigations, and in competition over how Bear Stearns’ carcass will be devoured.

The background of Bear Stearns’ demise has been well publicized. Beginning at least as early as late 2006 and continuing through 2007 Bear Stearns experienced an array of problems arising out of the subprime securities crisis that lead to the ensuing credit crunch. Throughout this period, Bear Stearns consistently maintained that its finances and liquidity were more than adequate to sustain its business. As recently as the week of March 10 2008, Bear Stearns maintained that its book value remained at approximately $84/share. At the same time Bear Stearns CEO Alan Schwartz appeared on CNBC and stated “we don’t see any pressure on our liquidity, let alone a liquidity crisis.” Bear Stearns’ stock was trading at around $60/share. Several days later, Bear Stearns needed money to sustain operations. Still the value of Bear Stearns shares only dropped to about $26/share. Then came the announcement that J.P. Morgan, with support from the Fed, had agreed to buy Bear Stearns for $2/share.

Continue reading "Bear Stearns Fire Sale Creates a Frenzy in the Financial Markets" »

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Posted In: Bear Stearns , J. P. Morgan Chase , Subprime Mortgage & Collateralized Debt Obligation Problems

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Bear Stearns' pending acquisition by J P Morgan Chase has caused investors to question how Bear, which had nearly $400 billion in assets and $12 billion in shareholder equity, went from normalcy to near bankruptcy in seven days.

Some experts blame Bear's fall on opaque assets, derivatives exposure and liquidity demands. The fact however remains that a “run on the bank” led to the company’s sudden demise.

"If the market is driven by an irrational fear, then it's very difficult to come up with a strategy that can quell that," says Kris Niswander of SNL Financial.

Continue reading "Can Other Firms Avoid Bear Stearns' Fate?" »

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Posted In: Bear Stearns , Brokerage Firms

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Wall Street brokerage firms and investment banks are desperately struggling to raise large amounts of cash to stabilize their operations after the recent adverse events relating to the subprime meltdown and the resulting credit crunch.

Many banks are selling loans, especially leveraged buyout loans, at deep discounts. Such actions raise cash and remove these loan liabilities from the firm’s balance sheet. The banks’ holdings of LBO loans have dropped from $163 to $129 billion since the beginning of the year. Banks are breaking ranks from their lending groups and offering their portions of the LBO loans for a fraction of their face value. Goldman Sachs, for example, is selling its piece of the Chrysler $7 billion in loans for as little as 72 cents on the dollar.

In addition to selling loans, some banks are selling off business. Citigroup is reported to be selling its Australian retail brokerage unit. It is also reported that Citi will close branches in Taiwan and merge others in Singapore and Hong Kong. UBS AG, the large Swiss bank, is also reported to be considering selling business units to raise cash. To date, UBS has denied reports that it is selling its PaineWebber brokerage unit in the United States.

Continue reading "Wall Street Firms Scramble To Raise Cash And Stabilize Operations" »