Investment Fraud Lawyer Blog

Target-Date mutual funds are not always what they appear to be, reports Leslie Wayne in her June 25, 2009 article in the New York Times entitled “Target-Date Mutual Funds May Miss Their Mark.” Target-Date mutual funds are supposed increase the allocation of bonds over time in order to reduce volatility as an investor approaches retirement. Stocks are generally more volatile than bonds, and investors generally increase the percentage of bonds to add the stability to a portfolio of investments.

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Certain states have recently proposed legislation requiring additional penalties for financial firms/advisors targeting seniors in scams. In addition, some states are staging undercover “stings,” sending investigators to the “free lunch seminars” that seem to be a breeding ground for scams. These seminars are often billed as “educational;” however, in many cases, seniors may experience a “hard sell” of investments which are inappropriate for their individual needs, or be given misleading information about an investment’s merit.

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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.

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All around the country local franchises are closing their doors due to lack of sales. This has led to a proliferation of franchise lawsuits and arbitrations filed by franchisees claiming they were promised support, equipment, and in some cases guaranteed revenue, which never materialized.

A number of federal and state laws carefully regulate the franchisor-franchisee relationship. Both federal and state law generally prohibit fraud. Federal law also prohibits franchisors from predicting future earnings to perspective or actual franchisees. Despite the legal framework in place, the Federal Trade Commission, however, rarely takes action against franchisors for abuses.

Continue reading "Franchise Fraud Claims Increase as Economy Deteriorates" »

Desperate people often resort to desperate measures to meet their needs. In many cases, however, these situations become catastrophic for trusting investors who give custody of their money to criminals, reports Russell Grantham of the Atlanta Journal-Constitution, Sunday, April 12, 2009, Business, in an article entitled “Desperation Feeds Rising Rates of Fraud.”

Continue reading "Financial Scams Are Becoming More Common as the Economy Deteriorates" »

Foreign currency trading scams have always occurred in the investment markets, but, recently, enhanced scrutiny of the financial services industries has resulted in a dramatic increase of enforcement activity in the area of commodities fraud. Just as the Madoff fiasco has led the SEC to announce prosecution of operators of Ponzi schemes, the Commodity Futures Trading Commission, or CFTC, has ramped up prosecutions for commodities fraud.

Continue reading "Investors Beware: Commodities Scams are on the Rise" »

Ameriprise Financial Services, formerly known as American Express Financial Advisers, has been cited and fined by regulators extensively in recent months for so-called "selling-away violations." Selling-away occurs when a financial adviser sells a client an investment product that has not been vetted and approved by the brokerage firm. Because they have not been subjected to a rigorous investigation, these products often turn out to be highly risky and sometimes outright scams like ponzi schemes. Regulators have fined Ameriprise for failing to properly supervise the activity of sales persons who have sold the unapproved products. The firm also faces significant exposure to defrauded investors as a result of these situations.

Continue reading "Unapproved Investments Cause Ameriprise Big Problems" »

Investors owning variable annuities should carefully review their investments from several perspectives. Investors should evaluate the risks that they have been exposed to in the past and consider whether they wish to continue being exposed to such risks in the future. This is particularly important for variable annuity investors, many of whom sought a relatively safe haven from market volatility.

Continue reading "Variable Annuities Warrant Close Scrutiny" »

Recently many investors in variable annuities have experienced unanticipated losses. Since some people purchase variable annuities based on the assumption that they are immune to market fluctuations, many have learned the hard way that, like mutual funds, variable annuities invested in equity "sub-accounts" can lose significant value. However, if a variable annuity is sold to a customer with a promise of safety or without adequate disclosure of risk, the customer may have valid legal claims for fraud or misrepresentation.

Continue reading "Is Your Variable Annuity Safe ?" »

Trustees and other fiduciaries of plans established under The Employment Retirement Income Security Act of 1974 (ERISA) must protect plan assets “with the care, skill, prudence, and diligence … that a prudent man acting in a like capacity and familiar with such matters would use….” In other words, ERISA fiduciaries must not merely act like prudent person, but instead like prudent experts. This applies to smaller ERISA plans as well as larger ones. If ERISA trustees do not possess the requisite expertise, it behooves them to retain experts to advise them.

Continue reading "ERISA Fiduciaries May Have Obligations to Seek Recovery of Portfolio Losses" »

“If a financial plan is the roadmap, then asset allocation is the road itself,” said E. Stanley O’Neil, Former CEO, Merrill Lynch in The Top Five Wealth Management Needs of Investors, June 15, 2001. The basic investment principle of asset allocation was conveniently forgotten by the financial services industry during the technology bubble that caused the 2000 market downturn. Failure to use reasonable asset allocation strategies remains a problem today. This year billions of dollars have been lost due to incompetent investment advice that has ignored the importance of asset allocation.

Continue reading "Brokers' Failures to Recommend Reasonable Asset Allocation Strategies Have Caused Huge Losses" »

More and more employees approaching retirement age are being victimized by unscrupulous brokers who are advising them to retire early, invest their retirement funds with the broker and begin withdrawing those retirement funds under IRS Rule 72(t). The result has often been that the brokers end up earning big fees and the employees end up losing their nest egg. In many instances, brokers are approaching employees at their place of employment and offering “free advice” or “free lunch” seminars, often without knowledge or approval of the employer. At these seminars, employees are advised they can retire early, earn large returns on their retirement funds and make large annual withdrawals under IRS Rule 72(t), which allows investors to withdraw retirement funds prior to age 59 ½ if the investors commit to take out the same amount each month for at least five years. These programs often leave the employees penniless. Indeed, in some cases, investors have seen their principal diminish to the point where they have no choice but to go back to work. The Financial Industry Regulatory Authority (FINRA) and other regulatory agencies recognize this as a growing problem and are investigating firms such as Morgan Stanley, InterSecurities, Securities America and Citigroup for inappropriate conduct in this area..

Continue reading "Early Retirement Scams are on the Rise" »

At 78 million strong, baby boomers have always been a targeted demographic. Dubbed by the Social Security Administration as a “silver tsunami,” the baby boomers are an attractive opportunity for the financial services industry.

The financial services industry launched advertising campaigns geared towards boomers early. Many such firms have counted on the baby boomers to fuel growth in new products, from target-date mutual funds to investment funds that buy retirement businesses to expanded offerings form leisure industries. The experts, however, were wrong. For at least the next 25 years, as reported in the May 22, 2008 issue of Business Week, the retirement market will be much smaller than the often-cited 78 million. In fact, the growth rate will be less than four percent annually or may even be zero.

Continue reading "Retiring Baby Boomers: Fewer Than Expected" »

According to opinion columnist David McPherson writing on ABCnews.go.com, certain unscrupulous financial advisers pitch a scenario to employees of major corporations. The pitch is quite attractive: You can retire early (while in your 50's), cash out your retirement plan, and live off 12 percent annual returns.

These brokers use unrealistic investments projections to convince prospects that they can retire comfortably when they are in their 50's. The brokers earn fees and commissions on millions of dollars simply by convincing employees to collect a single lump-sum payment in lieu of guaranteed monthly pension benefits.

In April, the Financial Industry Regulatory Authority (FINRA) launched an effort to warn employers and employees of early retirement schemes that “promise more they can deliver." Over the last two years, FINRA has disciplined two brokerage firms – Securities America Inc., and Citigroup Capital Markets Inc. – that had targeted employees of Exxon and BellSouth with similar schemes.

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Investors who are approaching retirement are often targeted by brokers and invited to free investment seminars. In some cases, the broker encourages investors to take one or more of the following actions:

• Retire earlier than they might otherwise have done;
• Opt out of the company's retirement plan or 401(k) plan and take a lump-sum payment;
• Open a traditional IRS at the broker's firm;
• Invest in variable annuities, equity-based annuities, Class B mutual funds, and exchange traded funds that are substantially riskier than the fixed benefit pension they gave up.

These recommendations are often coupled with the broker's false promises that the investor can receive higher monthly retirement income and can grow the investment with little or no risk. As a result of this bad advice, many individuals have lost their entire "next egg." Page Perry has found that, in many cases, the client's financial professional misled them about their investments by locking them into excessive withdrawal rates and exposing their portfolios to huge risk without adequate disclosure. Even worse, most retirees do not understand that they were misled or that they may have legal rights to recover the losses that they sustained.

Federal and state regulators are investigating a widespread practice of brokers targeting seniors at “free lunch” seminars.  Regulators warn that such seminars are among the top investment scams for 2007.  Seniors and persons who may or may not be contemplating retirement are lured by complimentary meals, often at upscale hotels, restaurants, golf courses and retirement communities, and promised “educational” information with no sales pitches.  All too often, however, the brokers use the occasion to pitch unsuitable investments and retirement strategies, including cashing in their pensions, reinvesting the proceeds, retiring early, and living on the substitute paycheck from their investments that never materializes.

This is “a problem that can have absolutely devastating consequences for a large proportion of our population,” said Mary Shapiro, Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA), and Chairman of the FINRA Investor Education Foundation, in an interview.

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Most retired investors trust and rely on a financial professional to manage their retirement assets. Many people do not know that, because of this trust relationship, financial professionals owe their customers a fiduciary duty to act in their best interest and to recommend investments that are appropriate for their investment needs. If financial professionals breach their fiduciary obligations by giving inappropriate financial advice, they and their firm may be held liable to their customers for the damages caused by the bad advice.

In recent years, many telephone company retirees have elected to take the lump sum payout option over the traditional pension. Many retirees elected the lump sum option based on the advice of trusted financial professionals who recommended the lump sum because it purportedly would provide the retiree with higher monthly retirement income and the opportunity to grow the investment with little or no risk. In truth, in many cases, the financial professional improperly recommended the lump sum option solely because it was the only way that his or her firm could gain control of the retirement assets and generate commissions.

Continue reading "Attention AT&T, Verizon, Bell Atlantic, BellSouth Employees and Retirees: Telephone Company Employees Are Targets For Unscrupulous Brokers" »