The Wall Street Journal reported on October 20th that California Attorney General Jerry Brown has sued State Street Bank and Trust. Brown is seeking to recover $200 million in illegal overcharges and penalties that the bank misappropriated from two state agencies, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System.
Continue reading "California Sues State Street Bank and Trust" »
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.
Continue reading "Investors Need to be Careful with Target-Date Mutual Funds" »
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.
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 Dow Jones Industrial Average opened the week at 8575 and, on Monday, fell 156 points.
• On Tuesday, the Dow Jones Industrial Average rose 50 points.
• On Wednesday, the Dow Jones Industrial Average fell 184 points.
• On Thursday, the Dow Jones Industrial Average jumped 46 points.
• On Friday, the Dow Jones Industrial Average dropped 62 points and closed the week at 8269.
Continue reading "Page Perry's Market Monitor - May 15, 2009" »
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 Dow Jones Industrial Average opened the week at 8076 and, on Monday, plunged 51 points.
• On Tuesday, the Dow Jones Industrial Average bounced back 128 points.
• On Wednesday, the Dow Jones Industrial Average jumped 169 points.
• On Thursday, the Dow Jones Industrial Average lost 18 points.
• On Friday, the Dow Jones Industrial Average rose 44 points and closed the week at 8212.
Continue reading "Page Perry's Market Monitor - May 1, 2009" »
The New Jersey state pension fund sued top executives and board members of Lehman Brothers for misrepresentations leading to over $118 million losses due to investments in Lehman Brothers. This pension fund provides benefits to approximately 700,000 current and former employees. According to Terrence Dopp’s article published on Bloomberg, the suit is seeking compensatory and punitive damages for violations of state and federal securities laws, negligent misrepresentation, breach of fiduciary duty, fraud, and aiding and abetting.
Continue reading "State Pension Fund Sues Lehman Executives" »
A growing number of corporations around the country are beginning to assert claims against Wall Street investment firms over Wall Street’s misleading and deceptive marketing of complex structured finance products such as auction-rate securities and collateralized debt obligations. Most recently, American Eagle Outfitters has filed claims accusing Citigroup of fraud in connection with the sale of some $258 million of auction-rate securities. Among the allegations made by American Eagle are that Citigroup misrepresented the auction-rate securities as safe and liquid and that Citigroup omitted to disclose various material facts such as the lack of demand for the auction products and the necessity of support by Citigroup.
Compelling pieces of evidence, including sworn statements from Bank of America, have been uncovered indicating that, during recent years, Wall Street brokerage firms conspired to cheat state and local governments and American taxpayers in the municipals markets. Municipal bonds are issued by state and local governments to raise funds for various public projects. Since the proceeds received by the governments are usually not spent all at once, they are invested in various contracts (collectively referred to as Municipal Derivatives) that provide a fixed rate of return or shift the risk of changes in interest rates. The market for Municipal Derivatives is large ($400 billion annually), concentrated among 20 major institutional sellers, and largely unregulated. Before engaging in Municipal Derivatives transactions, governments routinely engage brokers to find the best deals.
With the recent developments in the financial industry and the significant losses incurred by both individual and institutional investors as a result of complicated derivative securities, it is a good time to revisit one of the obligations and duties that brokers owe to their clients.
Even sophisticated investors can be defrauded. M&T Bank Corporation, a bank holding company with a market capitalization of $4.4 billion, is suing Deutsche Bank to recover over $80 million in losses relating to an investment in a a collateralized debt obligation (CDO) called Gemstone, reported Vikas Bajaj in the January 20th edition of the New York Times. The suit alleges that Deutsche Bank misrepresented and omitted to disclose material facts about Gemstone, calling it “fully rock solid,” and “a layup,” when it was actually a piece of “subprime dross,” according to the article. In a nutshell, Gemstone consisted of bonds backed by subprime homes loans (a dubious asset) and credit default swaps (a contingent liability) pursuant to which Gemstone ended up owing millions of dollars to Deutsche Bank when the loans defaulted. The swaps represented a huge conflict of interest for Deutsche Bank, which stood to benefit when things did not go well for Gemstone.
Continue reading "Sophisticated CDO and Structured Finance Investors Have Rights Too" »
Many institutions and corporations who invested significant amounts of money in CDOs (collateralized debt obligations), auction-rate securities and other structured-finance vehicles recently received bad news from the SEC. On December 31, 2008, the SEC announced that it would not suspend the “Fair Value” accounting rules. As a result, corporate and institutional investors must value these exotic securities at their actual market values. Under FAS 157 (the fair-value accounting rule), market value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accordingly, corporations and institutions can no longer blindly accept valuations provided by their brokerage firms or value their holdings based on cost and guesswork. In many cases, institutions and corporations will be required to value these exotic securities at much lower prices than previously reported.
Continue reading "Clock Strikes Midnight for Many CDO and Structured Finance Investors" »
Swiss bank Credit Suisse has announced additional job cuts of 5,300. According to Reuters, the bank also announced a $2.5 billion loss in October and November, primarily in investment banking. The bank blamed the loss on adverse market conditions and risk reduction.
These job cuts represent 11% of Credit Suisse's total headcount of 50,300. They will be implemented "across all divisions throughout the bank" by the end of the second quarter of 2009. The investment banking business will suffer two-thirds of the job cuts as its staff is reduced from 21,300 to 17,500 by the end of 2009. These cuts include the already announced cut of 650 investment banking jobs in Brittan and 170 jobs in Asia.
Continue reading "Additional Job Cuts on Wall Sreet" »
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:
• On Monday, the Dow Jones Industrial Average dropped by 5 points.
• On Tuesday, the Dow Jones Industrial Average jumped 306 points.
• On Wednesday, the Dow Jones Industrial Average lost 486 points.
• On Thursday, the Dow Jones Industrial Average lost another 443 points.
• On Friday, the Dow Jones Industrial Average rose 248 points and closed the week at 8943.
Continue reading "Page Perry's Market Monitor - November 7 , 2008" »
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" »
Thomas P. Fitzgerald, the former Chief Operating Officer of H&R Block Financial Advisors, Inc. of Detroit, Michigan, has been awarded $3.9 million in damages based upon the denial of promised employment compensation by a 3-member panel of arbitrators appointed by the Financial Industry Regulatory Authority (FINRA). Fitzgerald claimed the company refused to pay certain compensation and severance benefits it owed him by contract because he refused to sign a two-year non-compete agreement. The contract was presented to Mr. Fitzgerald as a retention package designed to entice him to remain with the company, then known as OLDE Discount Brokerage, Inc., when it was acquired by H&R Block. Several years later, when H&R Block Financial Advisors attempted to get Mr. Fitzgerald to sign a non-compete agreement, he refused, but continued to work for the company for an additional two-and-a-half years under the existing contract before his employment ended. The company then refused to pay his contractual benefits because he would not sign the proposed noncompete agreement.
The arbitration was held in Southfield, Michigan in November 2007. Page Perry partners J. Boyd Page, J. Steven Parker and James A. Nofi represented Mr. Fitzgerald.
