Investment Fraud Lawyer Blog

Best-selling “Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led To Economic Armegeddon,” by Gretchen Morgenson and Joshua Rosner, “calls out greedy guys behind mortgage mess,” according to a USA Today book review by Kathryn Caravan. See also “Home Truths,” by James Freeman of the Wall Street Journal. Both reviews provide examples of how the book peels back layer after layer of a bad onion to reveal how a nice-sounding idea (home ownership for all) turned into a house of cards that was doomed to collapse, after being propped up by private greed and public corruption.

Continue reading "The Subprime Mortgage Mess: How the American Dream Turned into a Nightmare" »

Underwriters Goldman Sachs, UBS, and Bear Stearns (now owned by JP Morgan) allegedly sold more than $175 million of mortgage-backed securities to insurance giant Mass Mutual without disclosing that they were composed of troubled loans, which made the securities “junk” worth only $40 million, according to a Law 360 article, citing a civil action filed by Mass Mutual. Many similar actions have been filed by major institutional investors against “the architects of the subprime implosion,” according to the article.

Continue reading "Mass Mutual Sues Goldman, UBS and JP Morgan Over Soured Mortgage-Backed Securities Deals" »

The government’s failure to convict two minor Bear Stearns executives, whose hedge fund collapsed in 2007, may have caused it to shy away from prosecuting high-profile executives whose actions contributed to the financial crisis, according to Joe Nocera’s recent New York Times article, “Biggest Fish Face Little Risk of Being Caught.” In addition, proving criminal wrongdoing in financial matters is hard, and, as Mr. Nocera put it: “Delusion is an iron-clad defense” to fraud.

Continue reading "Why No Major Indictment in Connection with the Financial Crisis?" »

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" »

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" »

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" »

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" »

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" »

The Federal Home Loan Bank of Seattle has filed 11 lawsuits against an array of Wall Street banks, seeking rescind $4 billion of mortgage-backed securities with interest, according to a Feb. 16 Wall Street Journal article by Nick Timiraos, “Home Loan Bank Sues Wall Street Firm.” The lawsuits were filed in late December in King County Superior Court in Washington. A spokeswoman for The Federal Home Loan Bank of Seattle said the institution had "a responsibility to its member shareholders to enforce its rights."

Continue reading "Federal Home Loan Bank Sues Securities Firms to Recover Subprime Losses" »

There have been various developments over the past several weeks which investors may consider relevant in allocating their resources or evaluating alternatives that are available to them. Some of the more significant developments include, but are not limited to, the following:

• The Dow Jones Industrial Average opened the week at 10,023 and, on Monday, the market soared 204 points.

• On Tuesday, the Dow Jones Industrial Average rose 20 points.

• On Wednesday, the Dow Jones Industrial Average climbed 44 more points.

• On Thursday, the Dow Jones Industrial Average fell 94 points.

• On Friday, the Dow Jones Industrial Average rebounded 73 points and closed the week at 10,270.

Continue reading "Page Perry's Market Monitor - November 13, 2009" »

Wachovia Bank, JPMorgan and other major financial institutions have filed their second motion to dismiss a complaint brought against them by more than a dozen state and local governments alleging price-fixing and bid-rigging of municipal derivatives markets. This according to a recent article by Erin Fuchs in Law360 entitled “Banks Shoot To Kill Municipal Bond Antitrust MDL.” The MDL action, captioned In re: Municipal Derivatives Antitrust Litigation, case number 1:08-md-01950, is pending in the U. S. District Court for the Southern District of New York.

Continue reading "Wall Street Firms Want a "Free Pass" for Ripping Off State and Municipal Governments" »

Investors are bringing an increasing number of legal claims against brokerage firms as a result of inappropriate sales of preferred stocks issued by financial institutions. For example, Merrill Lynch has been hit with an arbitration claim filed by an elderly couple that lost $650,000 in the preferred stocks of financial companies according to Sue Asci in her August 16 article in InvestmentNews called “Merrill Lynch confronts arbitration claim involving financials’ preferred stock.” The claim, filed with FINRA, alleges that Merrill engaged in fraudulent sales practices, including self-dealing (more on that below).

Continue reading "More Investor Claims Focus on Sales of Preferred Stocks Issued by Financial Institutions" »

The Securities Industry and Financial Markets Association, an important Wall Street lobbying group, has decided to support the Obama administration’s proposal to hold brokers to the same standard as a fiduciary when they provide investment advice, according to a recent report in The Wall Street Journal. While investors who sue their brokers have long argued, with considerable success, that a fiduciary duty arises whenever there is a relationship of trust and confidence between broker and investor, that determination is presently made on a case by case basis under laws that vary from state to state. A federal standard, which is more likely to pass now that it has been endorsed by the industry, would make it easier for investors to prevail in claims against brokers.

Continue reading "Wall Street Trade Association Supports Fiduciary Standard" »

Citigroup and the U. S. Securities and Exchange Commission (SEC) are discussing possible settlement of an investigation into whether Citigroup overvalued billions of dollars of subprime mortgage-backed securities on its books in the latter part of 2007, according Susan Pulliam and Randall Smith of the Wall Street Journal in a May 28, 209 article entitled “Citi, SEC Are in Talks to Settle Probe.” The investigation followed a series of events that led to the resignation of CEO Charles Prince and the reporting of approximately $50 billion in overall losses, mostly due to its subprime mortgage-backed holdings. In October 2007, Citigroup reported a $1.83 billion loss of value in its subprime mortgage-backed securities. Weeks later, Citigroup reported that the loss of value was more like $8 to $11 billion, and also that it held far more subprime mortgage-backed securities than it had previously reported. The investigation centers on the validity of Citigroup’s valuation methods and whether it misled the investing public when there was no market to set prices for these non-conventional and complex assets.

Continue reading "Addressing Recent Wall Street Misconduct Requires The SEC to Adopt Creative Approaches" »

According to recent surveys, the public now views the U.S. Securities and Exchange Commission more unfavorably than the “always hated Internal Revenue Service,” reported Bruce Canton in his column called “Enforcement Action,” published on complianceweek.com. In its National Juror Survey, Litigation PostScript found that 55% of the respondents expressed an unfavorable opinion of the SEC compared with a 46% unfavorable rating for the IRS.

Continue reading "Public Confidence in SEC Sinks to New Low" »

On May 13, 2009, the U.S. Securities and Exchange Commission (“SEC”) approved a rule change that requires brokers to disclose alleged sales practice violations made by a customer against a securities broker in the body of a civil lawsuit or arbitration claim, even if that broker is not named as a defendant or respondent. The SEC received a total of 1,654 comment letters on the proposed rule change. Approximately 1,451 of the letters were “form letters” from financial advisors and insurance agents (who sell insurance products such as variable annuities) opposing the change.

Continue reading "Regulators Require Financial Firms to Provide More Public Disclosure Regarding Customer Complaints" »

Many investors suffered losses in 2008 because they owned Tobacco Settlement Bonds. These bonds, which are tax exempt, were sometimes marketed by brokers as “municipal bonds”. They lost up to 50% of their value as a result of Wall Street’s self-induced credit crisis.

Other than their "tax-exempt" status, Tobacco Settlement Bonds have absolutely nothing in common with traditional municipal bonds.

Continue reading "Tobacco Settlement Bonds Give Rise to Legal Claims" »