Investment Fraud Lawyer Blog

Wall Street banks have created the “next investment bubble” by creating and selling complex, opaque structured notes to income oriented investors, according to an August 9, 2010 Bloomberg article by Zeke Faux and Jody Shenn, “Structured Notes Are ‘Next Bubble,’ Whalen Says.” In fact, Christopher Whalen, a former Federal Reserve Bank of New York official and managing director of Institutional Risk Analytics, claims that Wall Street “firms are busily creating the next investment bubble on Wall Street -- this time focused on structured assets based upon corporate debt, Treasury bonds or nothing at all -- that is, pure derivatives.” Mr. Whalen’s words carry great weight, since he predicted the collapse of the mortgage backed securities market in March 2007.

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It is no surprise that retirees are often the targets of investment scams. But it is a surprise that the scammers are often empathy-challenged senior citizens themselves, and that is surprising. Attorneys and advocates for the elderly are reporting an increase in the number of elder scams perpetrated people their age, according to an article in Bloomberg BusinessWeek, “Senior Swindlers: A Sucker Retires Every Minute.”

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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" »

Scams will always be with us but they are especially plentiful when traditional investments like stocks and bonds are not doing well, according to John Waggoner of USAToday in his August 5, 2010 article, “Investment Scams Thriving.”
"It's pretty bad out there," Texas Securities Commissioner Denise Voigt Crawford was quoted as saying. The primary victims are those trying to make up losses in their 401(k) plans and stock portfolios, she added.

Continue reading "Regulators Report that Investment Scams are on the Rise" »

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered UBS AG to pay $80.8 million to a Maryland cellphone marketer for lost profits when its cash was frozen in auction-rate securities in early 2008, according to an August 4, 2010 Wall Street Journal article by Randall Smith, “UBS to Pay $80 Million in Auction-Rate Case.”

Continue reading "Arbitration Panel Renders an $80 Million Award Against UBS for Improper Sales of Auction Rate Securities" »

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.

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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?" »

UBS and other brokerage firms took advantage of conservative investors by misrepresenting so-called “100% principal protected” notes as safe investments when they were not. See New York Times article, “’100% Protected’ Isn’t as Safe as It Sounds,” by Gretchen Morgenson. Investors who purchased these notes have suffered billions in losses, she added.

Continue reading "Many Brokerage Firms That Sold "100% Principal Protected Notes" Misled Investors " »

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" »

Federal prosecutors are assessing whether Morgan Stanley defrauded investors in mortgage-derivatives collateralized debt obligations (“CDOs”) that it helped create and then bet against, according to reports in the Wall Street Journal and Bloomberg. The Securities and Exchange Commission is also investigating. Several rounds of subpoenas have reportedly been issued. Investigators are evaluating whether Morgan Stanley, like others, misrepresented their true roles and conflicting interests in CDO deals sold to investors.

Continue reading "Federal Prosecutors Target Morgan Stanley in CDO Fraud Investigation" »

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" »

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 "Goldman - Like CDO Abuses Were Prevalent Across Wall Street" »

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"" »

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded damages to the Marcus family and their affiliated profit sharing and retirement plans as a result of losses sustained in so-called Lehman principal protected structured notes sold to them by UBS Financial Services, Inc. The panel awarded $432,000.00 in compensatory damages, which is 100% of the amount of compensatory damages claimed, plus an additional $53,000.00 in attorney’s fees, plus another $5,610.00 as reimbursement for expert witness fees.

Continue reading "Arbitrators Hammer UBS for Improper Sales of Lehman Principal Protected Notes" »