Investment Fraud Lawyer Blog

Affinity fraud is a big problem and it is growing. The affinity aspect of it refers generally to the fraudster’s standing as an insider among a group of people who share a common interest. This standing as a member of the group, so to speak, makes the fraudster presumptively trustworthy. Unfortunately, affinity settings are breeding grounds for investment fraud.

Continue reading "Affinity Fraud Hits Close to Home" »

The Financial Industry Regulatory Authority (FINRA) recently issued a report outlining is its regulatory and examination priorities for 2012. The securities industry regulator is focusing on conduct and products meant to beat the market that are unsuitable investments for many investors.

Continue reading "Securities Regulator Alerts the Public About Dangerous Investments and Investment Strategies" »

Federal prosecutors plan to file criminal actions against four former traders who allegedly overvalued collateralized debt obligations (CDOs) sold by Credit Suisse in order to increase their commissions. The events occurred in 2008 and resulted in a $2.85 billion write down by Credit Suisse. Credit Suisse fired the traders and cooperated with authorities in their investigation. (“Ex-Traders at Credit Suisse Expected to Be Charged With Fraud,” New York Times, Dealbook).

Continue reading "Credit Suisse Traders Face Criminal Charges for Mortgage Investment Fraud" »

Given the array of exotic alternative investments being sold to the public, it’s logical that many investors often don’t understand what they are buying. What is even scarier is that it is likely their professional investment adviser doesn’t understand the alternative investment either. Investment advisers – 75 percent of them – admit they do not understand alternative investments. Notwithstanding their puzzlement, 50 percent of advisers said they intend to increase their use of them in their clients’ accounts this year. They could use some help, however, because of alternative investments are so confusing. (“Alternatives spur anxiety,” InvestmentNews).

Continue reading " Most Financial Advisers Don't Understand Alternative Investments According To John Hancock Survey" »

Wall Street’s favorite defense to investor claims, the “sophisticated investor” defense, isn’t working anymore. In almost every FINRA arbitration brought by an investor, the brokerage firm adopts the mantra that “The claimant is a sophisticated investor.” In essence, the firms argue that the customer was too sophisticated to rely on any alleged misconduct or misrepresentations. In their advertising, brokerage firms say “Trust us.” In arbitration they say, “You were too sophisticated to trust us. Even if we lied, you should never have believed us.” Recently, however, arbitrators haven’t been buying this argument (See “Sophisticated Investor Defense Losing Steam,” Wall Street Journal).

Continue reading "Arbitrators Are Recognizing That 'Sophisticated Investors' Can Be Defrauded" »

Financial advisers are winning large arbitration awards against their former firms. During the past three months at least three arbitration panels have ordered financial services firms to pay millions of dollars to financial advisers formerly employed by the firms.

Continue reading "Financial Advisers Winning Big Money from Former Firms" »

While exchange traded funds continue to flood the market, a record number of existing ETFs are failing or in trouble. Last year, 308 new exchange traded funds were launched, but almost 90 percent of them were unable to attract the $30 million regarded as a minimum threshold amount for profitability, according to CNNMoney (See “Is the ETF bubble about to burst?”), citing XTF, a firm that researches and advises exchange traded funds globally.

Continue reading "20% of Existing Exchange Traded Funds (ETFs) on 'Death Watch' List" »

In connection with the Medical Capital receivership, the SEC Receiver recently filed its “Proposed Plan for Distribution” (the “Plan”). Unfortunately, the Plan contains some disturbing news for those investors who were pro-active and obtained recoveries against third-parties through litigation (including class actions) or arbitration.

Continue reading "SEC Receiver Seeks to Deny Recovery to Many Medical Capital Investors" »

The amount of dollars at stake in FINRA securities arbitrations has grown in recent years. Of the 7,000 claims currently pending, approximately 200 involve claims of $10 million or more. “The claims coming in now are substantially larger than what we had a few years ago,” Linda Fienberg, president of FINRA Dispute Resolution, was quoted as saying. (“FINRA flooded with multimillion-dollar cases,” Nate Raymond, The American Lawyer).

Continue reading "The Number of Very Large Securities Arbitration Cases is on the Rise" »

The Wall Street Journal has reported that financial scams against the elderly are becoming so commonplace that the National Council on Aging calls them the “crime of the 21st century” (“Scams to Watch Out For,” WSJ). It describes investment scams against baby boomers (those over age 50) as being “rampant.” (“Boomers Wearing Bull’s-Eyes,” WSJ, Kelly Greene). The Wall Street Journal has now published a brief but helpful article entitled “Red Flags of Elder Fraud.”

Continue reading "Some Warning Signs of Elder Fraud" »

Unsophisticated state and local government officials have been sold billions of dollars of flawed financial products by Wall Street banks, leaving taxpayers on the hook for even more. The banks advised the governments to issue auction rate bonds to lower their financing costs and purchase interest rate swaps to protect the governments if the market moved in the wrong direction. The officials did not understand that the market was controlled by the banks and that the banks could impose penalties when the products unraveled, which they did.

Continue reading "Wall Street Professionals Fleece Government Amateurs - Main Street Suffers" »

Brokerage firms that sell nontraded REITs reportedly “cringe” at Investor Alerts posted by the Financial Industry Regulatory Authority (FINRA) warning of the dangers of those products. They know that such alerts cause investors “anxiety and concern,” as they learn about the risks that were not disclosed to them by their brokers. Brokerage firms routinely fail to disclose material risks about the nontraded REITs they sell for two reasons: (i) they failed to inform themselves of the risks by conducting appropriate due diligence, and (ii) they don’t want to cause potential investors any “anxiety and concern,” because that would be bad for sales, which pay hefty commissions to the sellers. (“Non-traded REITs face tough scrutiny,” InvestmentNews).

Continue reading "The News Regarding Nontraded REITs Keeps Getting Worse" »

Ordinarily, the evidence presented in a FINRA arbitration is kept “confidential” and secret from the public. That’s the way the securities industry likes it, because it really does not want the public to see the evidence against it. But in its zeal to try to overturn the largest amount ever awarded to individual investors in a FINRA arbitration, Citigroup inadvertently allowed New York Times columnist Gretchen Morgenson to have a look at the evidence that was presented to the arbitrators in that case. What she found is the subject of her recent article entitled “Secrets of a Sales Machine.”

Continue reading "MAT/ASTA Cases Reveal the Seamy Side of Wall Street" »

MONEY Magazine identifies nontraded REITs as very risky investments that should be avoided. In the last 10 years, the number of nontraded REITs has exploded into a $9 billion dollar market, as yield hunters piled in. Unfortunately, many investors including, most recently, investors in Behringer Harvard Opportunity REIT I have learned about the problems with these investments the hard way.

Continue reading "MONEY Magazine - Avoid Nontraded REITs" »

Preparing for retirement should include preparing for the risk of diminished mental capacity, according to noted financial writer Jane Bryant Quinn (“Losing Your Grip?”). It is an unpleasant fact of life that, as we age, we become less competent to make financial decisions. A 2009 study on financial decision-making found that this ability peaks at age 53 and declines thereafter, according to Ms. Quinn’s article. Another study at Texas Tech University revealed that what we lose 2% of what we used to know about financial matters each year after age 60, but, paradoxically, we gain confidence as we lose this knowledge. All of this makes us vulnerable to serious financial errors and even fraud, according to Ms. Quinn.

Continue reading "AARP Article Urges Seniors to be Vigilant in Watching Out for Financial Scams" »

Sixty-five years ago, the Justice Department filed an antitrust suit against 17 investment banks seeking to break them up for creating “an integrated, overall conspiracy and combination … to eliminate competition and monopolize” the investment banking business. It failed. Today, the investment banking business is much larger and more profitable, and much more concentrated than it was back then. Only 6 Wall Street firms monopolize the even richer investment banking business today, according to William D. Cohan’s Bloomberg article (“Cohan: How Wall Street Turned a Crisis Into a Cartel”).

Continue reading "Is Wall Street Evolving into an Illegal Monopoly?" »

British business professor Clive R. Boddy contends that the reckless Wall Street executives who wrecked their firms, the economy and taxpayers are psychopaths – that is, “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.” (See Cohan: “Did Psychopaths Take Over Wall Street?” Bloomberg). Cohan is a former investment banker himself, and the author of “Money and Power: How Goldman Sachs Came to Rule the World.” Boddy’s article is called “Corporate Psychopaths Theory of the Global Financial Crisis,” and was published in the “Journal of Business Ethics.”

Continue reading "Professor Claims That Wall Street Has Been Run By 'Psychopaths'" »

The Securities and Exchange Commission has charged an Illinois-based advisor with selling fictitious securities via social media. Anthony Fields, CPA, doing business as Anthony Fields & Associations and Platinum Securities Brokers offered over $500 billion of phony securities through a variety of social media sites, including using LinkedIn discussions to promote nonexistent “bank guarantees” and “medium-term notes.” Many potential buyers indicated they were interested.

Continue reading "Beware Social Media Scams" »

It is a basic principle of Good Government 101 that when a government issues a contract, it should be subject to competitive bidding rather than being doled out to a crony of some bureaucrat. Yet eighty percent of bond underwriting contracts that are issued by state and local governments to Wall Street banks are not done by competitive bidding. Instead “local governments just hand the bid over to the bank that tosses enough combined hard and soft money at the right politicians,” according to Matt Taibbi (“How Banks Cheat Taxpayers”).

Continue reading "Wall Street Continues to Cheat Main Street" »

The SEC is going after advisory firms and their principals that misrepresent facts that bear on their experience and credentials on form ADVs. Such violations suggest an intent to mislead investors. ("ADV crackdown on, as SEC says firm claimed $200M in AUM, had $3M,” InvestmentNews).

Continue reading "Financial Advisers Sued for Misrepresenting Credentials and Qualifications" »