Investment Fraud Lawyer Blog

Today the Securities & Exchange Commission and an auction-rate securities task force composed of various state regulators announced that they had entered into a tentative settlement with Wachovia which would require Wachovia to buy-back approximately $9 billion of auction-rate securities. This settlement is closely patterned after an earlier settlement entered into with UBS regarding its sale of auction-rate securities.

Continue reading "Wachovia Joins Auction-Rate Securities Settlement Parade" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Regulatory Developments , UBS , Wachovia

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Today, Morgan Stanley and JP Morgan announced that they were following the precedent set by UBS and Citigroup in order to settle part of their auction-rate securities problems. The tentative agreements which JP Morgan and Morgan Stanley have entered into with regulators which will require that the firms will repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having assets of $10 million or less), reimburse such retail customers for any losses that they sustained in selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay regulatory fines. The tentative agreements also provide that the firms would help their larger institutional clients (those with more than $10 million in assets) sell their holdings.

Continue reading "Morgan Stanley and JP Morgan Get in the Auction-Rate Securities Settlement Line" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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The state auction-rate securities regulators task force continued to pursue financial institutions involved in the auction-rate securities market aggressively. To date, state regulators have subpoenaed approximately 30 financial institutions over their auction-rate securities practices and continue to pursue investigations with all firms that have yet to settle. The states have already tentatively settled auction-rate securities claims against Citigroup and UBS. Moreover, the state task force has identified Morgan Stanley, JP Morgan Chase and Wachovia Securities as current targets of its investigation. In addition, Goldman Sachs, Bank of America, Wells Fargo, Lehman Brothers, RBC Capital Markets, and Raymond James are reported to be additional targets of the state investigations.

Recent reports indicate that the state task force is seeking regulatory settlements from each firm similar to those entered into by Citigroup and UBS. Under such arrangements, the brokerage firms would be required to repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having accounts of $10 million or less), reimburse such retail clients for any losses that they sustained by selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay appropriate regulatory fines.

Under these precedents, the one group that has been largely unprotected is larger corporate, pension and other institutional clients who are essentially being left to fend for themselves. Under announced arrangements, the Wall Street banks are only undertaking to use their “best efforts” to assist such institutions in achieving liquidity for auction-rate securities that they still hold. Since there are no formal requirements on the Wall Street banks to satisfy the claims of institutional investors, such investors are being left to pursue their own remedies to recover damages, if any, that they have sustained.

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Regulatory Developments , UBS , Wachovia

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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 UBS tentatively agreed to buy-back $19.4 billion in auction-rate securities in order to resolve regulatory actions initiated by the Massachusetts Secretary of State, other members of a state auction-rate securities task force and the SEC. In addition, the firm agreed to pay a $150 million fine to settle the regulatory claims. The full details of the settlement will be announced next week.

The regulatory investigation asserted that UBS pressured financial advisors to sell auction-rate securities as cash equivalents that were safe and liquid without disclosing significant risks to investors. At the same time that UBS was engaged in this aggressive sale campaign, the firm, internally, was extremely concerned about the auction-rate securities markets and was exploring exiting the same. Ultimately, investors sustained significant harm when UBS and other securities dealers stopped supporting the auction-rate securities markets and auctions froze. UBS’ legal exposure was particularly severe in light of the fact that various UBS insiders were simultaneously disposing of their own auction-rate securities while the firm was encouraging investors to purchase the same.

Continue reading "UBS Will Buy-Back $19.4 Billion of Auction-Rate Securities to Settle Regulatory Actions" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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Following on the heels of Citigroup’s tentative settlement with federal and state regulators, Merrill Lynch has announced that it will offer to buy-back, at face value, auction-rate securities which were sold to individual investors, charitable institutions and small businesses. Merrill Lynch’s offer will be effective January 15, 2009 and run through January 15, 2010 according to the firm. Merrill has estimated that this offer will cost the firm approximately $10 billion.

Unlike the tentative Citigroup settlement, Merrill’s offer has not been approved by state and federal regulators and may not resolve the firm’s auction-rate securities regulatory issues. In fact, Massachusetts’ Secretary of State, William Galvin, one of the leaders of the state task force investigating the sale of auction-rate securities who recently sued Merrill Lynch over auction-rate securities, stated that “It's not satisfactory from our point of view in terms of the timeliness of redemption. Therefore, clearly, we’ll pursue our complaint.” Among other things, Merrill still must negotiate any regulatory sanctions.

Continue reading "Merrill Lynch Follows Citigroup's Lead- Attempts to Resolve Certain Auction-Rate Securities Claims" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , 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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Wachovia Corp.’s subprime and credit crisis woes appear to be increasing at a rapid rate. Yesterday, the U.S. bank reported a record quarterly loss of $8.9 billion. The loss reflects, among other things, Wachovia’s ill-advised acquisition of Golden West Financial Corp. in 2006. Bloomberg News has reported that the second quarter loss marks the first time, in at least 20 years, that Wachovia has experienced two consecutive quarterly losses. Wachovia’s stock has lost 65% of its value so far this year.

In response to these developments, Wachovia hopes to dispose of certain parts of its business. Last week, reports suggested that the bank might even be willing to part with Wachovia Securities. In addition, Wachovia hopes to pare expenses by $2 billion, has drastically cut its dividend and has announced plans to cut some 6,000 workers. The company also stated its intent not to fill approximately 4,400 positions that are currently open.

Continue reading "Wachovia's Woes Continue" »

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Posted In: Auction Rate Securities , Evergreen , 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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A team of state regulators raided Wachovia Securities’ St. Louis headquarters today as part of a broad investigation into sales of auction rate securities to investors. The investigation is apparently focusing on Wachovia Securities’ sales practices in selling auction rate securities as well as Wachovia Securities’ internal activities regarding the auction rate securities market. The raid was apparently necessitated by Wachovia Securities’ refusal to comply with requests for information issued by the state of Missouri.

In addition, Missouri has reportedly served subpoenas on more than twelve Wachovia Securities’ executives and employees as part of the investigation.

Continue reading "States Raid Wachovia Securities Regarding Auction Rate Securities Abuses" »

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Posted In: Auction Rate Securities , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems , Wachovia

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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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A review of recent market events suggests that there may be far more risk in money market funds than was previously thought. In an article in the Business section of today’s New York Times, Eric Dash reported that, during the last year, many of our country’s largest brokerage firms have been forced to contribute more than $10 billion to prop up money market funds that are threatened by the mortgage crisis. In recent months, the following firms, among others, have taken action to bolster their affiliated money market funds: Legg Mason, Credit Suisse, Bank of America, SunTrust, Morgan Stanley, Lehman Brothers, and Wachovia.

The Big Question is: How long will these firms be willing and able to provide this support? All of these firms have reportedly sustained billions of dollars in financial setbacks over the past twelve months. At some point, will their financials become so tenuous that they cannot afford to continue spending billions to support faltering money market funds? Is there risk associated with this $3.5 trillion market?

Continue reading "Could the Unthinkable Happen- Could Money Market Funds Lose Value?" »

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Posted In: Auction Rate Securities , Bank of America , Credit Suisse , Lehman Brothers , Money Market Funds , Morgan Stanley , Subprime Mortgage & Collateralized Debt Obligation Problems , SunTrust , Wachovia

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On June 19, Evergreen Investments, a subsidiary of Wachovia Corporation, announced that it was liquidating the Evergreen Ultra Short Opportunities Fund (EUBAX). The Fund has lost 19.6 percent of its value year to date, including total realized losses of more than $200 million in less than three months since March 31, 2008. Bond funds – traditionally considered safe, conservative investments – have once again proven that they are not immune to the subprime meltdown and may be among the most exposed investments of all.

The Fund, whose objective was to provide current income with preservation of capital and low principal fluctuation, invested 83.25% of its assets in commercial and residential fixed and variable rate mortgage backed securities, including collateralized mortgage obligations.

Continue reading "Investors Lose Big As Wachovia Subsidary Liquidates Evergreen Ultra Short Opportunities Fund" »

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Posted In: Evergreen , Mutual Funds , Securities Class Actions , Subprime Mortgage & Collateralized Debt Obligation Problems , Wachovia

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It is bad enough that broker-dealers sold auction-rate securities (ARS) to their customers as safe, liquid, cash alternatives with full knowledge that they were none of these things. Then, after the “auctions” failed and customer funds were frozen, many of these same firms continued to act against their customers’ best interests by forcing them to remain invested in these illiquid assets.

When the ARS market froze in February, investors were stuck – they could not sell their ARS at auctions, and there was no other mechanism to sell them. A rudimentary secondary market has sprung up in which third parties are willing to buy the ARS – at a discount from face value – from the investors. The discounts range from 5% to 30%.

It would seem to be a solution for investors, albeit an expensive one, but Bank of America, Wachovia, UBS, and other broker-dealers did not permit their customers to sell the ARS on this secondary market. The hypocritical investment banks claimed that they were “protecting” their customers from needless losses of principal on ARS that were sold as liquid, safe cash alternatives.