Investment Fraud Lawyer Blog

One of the worst and most unsuitable investments we have ever come across is the reverse convertible. Like the Devil himself, they have so many names, and are not easy to recognize on brokerage statements. UBS calls them “Yield Optimization Securities.” They are also known as “revertibles,” “revertible notes,” “reverse exchangeable securities,” and so on. And they are devilishly popular – brokerage firms sell a lot of them to elderly, retired, and on-the-brink of retired investors who need a way to generate sufficient income to live on without undue risk to their principal. The problem is that these investments are essentially put option contracts that do jeopardize principal, and brokers do not explain that critical fact.

Continue reading "Investor Alert: Reverse Convertibles Can Be Extremely Toxic" »

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" »

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" »

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" »

The answer appears to be a resounding yes. The SEC's recently filed a lawsuit against Goldman Sachs alleging fraud in the sale of mortgage-backed collateralized debt obligations (CDOs). CDOs are a structured finance product in which a large number of mortgages or other debt instruments are pooled in a trust and divided into multiple layers or “tranches” that pay interest to investors based on the risk and priority of each tranche, with the senior tranches paying lower rates because they are safer investments and the junior tranches paying higher returns for comparatively higher risk debt. The SEC alleges that Goldman Sachs created CDOs backed by high-risk subprime mortgages and then took short positions betting that they would fail while simultaneously recommending that some of their customers buy the securities. In other words, some customers were sold CDO securities and told that they were a good long-term investment, while Goldman and other customers shorted them because they were expected to go down in value. If that is true, many investors were defrauded, and they too should have the right to sue or bring an arbitration claim—especially since the SEC action has not requested restitution or recision for investors.

Continue reading "Were Toxic CDO Investments Deliberately Dumped on Unsuspecting Investors?" »

The bankruptcy estate of Lehman Brothers has filed suit against JP Morgan Chase in U.S. Bankruptcy court, claiming that “unjustified” demands by JP Morgan for billions in additional collateral and its refusal to return that collateral in the final days before Lehman’s bankruptcy, contributed to its demise, according to an article in CNNMoney.com by David Ellis, “Lehman sues JP Morgan over its collapse.”

Continue reading "Lehman Bankruptcy Estate Sues JP Morgan Over Breach of Trust" »

HighTower Advisors LLC, a high-profile, high-pedigree investment advisory firm, has been dogged by a series of investor and business lawsuits that could threaten its distinguished reputation, according to a recent article by Bruce Kelly in InvestmentNews.

Continue reading "Is HighTower Advisors All That It Claims To Be?" »

The extreme risk of reverse convertibles was dramatically demonstrated recently when such a note issued by JPMorgan Chase, which promised 64 percent annualized interest, plummeted in value just three days after being sold, according to Zeke Faux in his May 17th Bllomberg article titled “JP Morgan’s 64 Percent Note Shows Risks of Reverse Convertibles.”

Continue reading "JP Morgan Reverse Convertibles "Knock Out Investors in the First Round"" »

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" »

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?" »

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" »

Cellular South Inc. has filed a federal lawsuit in Mississippi against JP Morgan Securities for misrepresenting the risk and liquidity of auction rate securities, leaving $4 million in securities that it cannot liquidate. Auction rate securities are fixed-income debt instruments – typically municipal bonds, preferred shares of closed end mutual funds, or asset-backed securities collateralized by student loans or mortgages – for which the interest rate is regularly reset through an auction process. Auction rate securities were once routinely marketed as safe, cash equivalents that were highly liquid, but the broker-dealers who sold them failed to disclose that liquidity was entirely dependent upon the success of the auction process, which was being artificially supported by the undisclosed participation of brokers bidding in auctions where they had an interest. The Cellular South suit alleges that JP Morgan manipulated the market by failing to disclose that it was supporting the auctions, thereby creating the false appearance of stability and liquidity in the auction rate securities market.

Continue reading "JP Morgan Sued For Auction Rate Securities 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 markets were closed on Monday for Martin Luther King Day.

• On Tuesday, the Dow Jones Industrial Average opened at 10,610 and soared 116 points.

• On Wednesday, the Dow Jones Industrial Average dropped 122 points.

• On Thursday, the Dow Jones Industrial Average fell 213 points.

• On Friday, the Dow Jones Industrial Average plunged 216 points and closed the week at 10,173.

Continue reading "Page Perry's Market Monitor - January 22, 2010" »