Investment Fraud Lawyer Blog

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" »

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" »

In the Medical Capital Receiver case, the SEC Receiver recently filed the “Receiver’s Proposed Plan for Distribution” (the “Plan”) which contains some disturbing news for those investors who were pro-active and obtained recoveries against third-parties through litigation (including class actions) or arbitration. As proposed in the Plan (set forth on Page 14 section 4) the Receiver would deduct any funds that an investor received from third-parties in arbitration or litigation dollar for dollar against any sums that would be due from the Receiver.

Continue reading "SEC Receiver's Plan is Unfair to Proactive Medical Capital Noteholders" »

Wells Real Estate Funds, a major nontraded REIT seller, has announced that shares of its Wells REIT II, which investors purchased at a share price of $10, are actually worth an estimated $7.47 per share (“Share value of popular Wells REIT sinks,” InvestmentNews). Clients will see the reduction in the estimated account value on their statements next month. In addition, after raising $5.9 billion from investors, the Wells REIT II only invested $4.7 of the proceeds in real estate, the rest going to commissions, fees and other expenses. In other words, right off the bat, the Wells REIT II was worth about $7.97 per share, rather than $10.

Continue reading "Wells REIT II Finally Reports That Share Values Have Dropped More Than 25%" »

Many commentators have noted recently that the Wall Street meltdown of 2007-2008 was not a “black swan” – that is, an unprecedented and therefore unpredictable occurrence. Named for an influential 2007 book titled The Black Swan by investment fund manager Nassim Nicholas Talib, the black swan was used as a metaphor to explain why humans rely too much on the past to predict future events, and it has since been used as a defense by Wall Street to justify its inability to predict the 2008 crash. Talib himself maintains that the 2008 crisis was not a black swan event because, unlike the avian rarity of nature, it was predictable. The crisis was not only predictable, but it was actually predicted by many analysts whose voices were either ignored by the firms that employed them, or drowned out by the exuberant hype of brokers pushing the firms’ latest financial products without regard for their soundness.

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Since the Financial Industry Regulatory Authority (FINRA) amended its rules effective January 31, 2011 to allow investors who file securities arbitration claims to opt for an “all-public” panel with no ties to the securities industry (as FINRA defines “ties”), 77 percent of eligible investors have done so, according to Linda Fienberg, president of FINRA Dispute Resolution, which administers arbitration proceedings.

Continue reading "Investors Prefer All Public Arbitration Panels" »

Reuters blogger Felix Salmon seems to see evidence of the SEC colluding with banks to let them off the hook for most of their “built to fail” synthetic (derivatives-based) CDOs (see “Is the SEC colluding with banks on CDO prosecutions?”). What has raised eyebrows was an email from a Citigroup spokesperson saying that Citigroup has settled all its potential liabilities with the SEC by agreeing to pay $285 million in a case involving a single collateralized debt obligation (CDO) transaction (i.e., Class V Funding III). According to this email, Citigroup believes “the SEC has completed its CDO investigation(s) of Citi” and will not be examining any of the dozens of similar CDO deals.

Continue reading "Is the SEC Selectively Enforcing the Securities Laws?" »

Occupy Wall Street has swept the globe and is generating enormous sympathy and interest in Asia as well as Europe. The spread of Occupy Wall Street to Asia – especially Japan – is further evidence that it is a mistake to dismiss a global groundswell of anger over the flow of money from banks to governments that concentrates wealth in the hands of the 1 percent.

In Japan, the protesters gathered at the swanky Roppongi Hills complex where Goldman Sachs maintains offices. Bloomberg News columnist William Pesek was there, reporting signs saying “No Greed,” “Taxiderm the Rich” and “Stop Vampire Squids,” a reference to Goldman Sachs, which Rolling Stone colorfully characterized as a “great vampire squid wrapped around the face of humanity” (See “The 1 percent meets 2 billion in search of answers,” Daily Report).

Continue reading "Occupy Wall Street As A Global Phenomenon" »

Raymond James affiliates have been ordered to pay $2.1 million in fines and restitution to more than 15,500 of its customers for overcharging them in 27,000 transactions. Raymond James customers paid nearly $1.7 million in excess commissions, according to the Financial Industry Regulatory Authority (FINRA). In addition, FINRA found that Raymond James’ supervisory systems were inadequate. The excessive commissions primarily involved low-priced securities (commonly known as penny stocks).

Continue reading "Raymond James' Affiliates Gouge Investors" »

Just as a low tide near the seashore can reveal shipwrecks, a falling stock market often reveals misconduct by investment advisers. This is particularly true with respect to an investment adviser’s duty to recommend only investments to a customer that are suitable in light of the customer’s investment objectives, status in life and risk tolerance. Unfortunately many investors only learn that their advisers have violated this duty when adverse market conditions develop.

Continue reading "Market Turmoil Expected to Precipitate an Avalanche of Suitability Claims" »

The recent political and economic instability reminds us that while there are some “black swan” risks that are out of an investor’s control, portfolios can and should be managed based on an investor’s risk tolerance. See Paul Sullivan’s recent New York Times article entitled “Managing an Investment Portfolio for Risks, Not Only Returns.”

Continue reading "Investors Should Focus on Risk Tolerance during Turbulent Times" »

Morgan Keegan & Company and Morgan Asset Management have agreed to pay $200 million to settle fraud charges related to proprietary bond mutual funds that were both mispriced and loaded with risky subprime mortgage-backed securities. Approximately 39,000 investors lost $1.5 billion in the RMK bond funds (later renamed Helios) that were the focus of the charges.

Continue reading "Investors to Receive Some Compensation from Morgan Keegan Regulatory Settlements" »

Morgan Keegan & Company and Morgan Asset Management have agreed to pay $200 million to settle fraud charges related to bond funds that invested in subprime mortgage-backed securities. The charges were filed by the Securities and Exchange Commission, state regulators from Alabama, Kentucky, Mississippi, Tennessee and South Carolina, and the Financial Industry Regulatory Authority (FINRA). Former RMK bond fund portfolio manager James C. Kelsoe Jr., and comptroller Joseph Thompson Weller also agreed to pay penalties for their misconduct. Kelsoe is now barred from the securities industry.

Continue reading "Morgan Keegan Fined $200 Million for Fraud Involving Toxic Bond Funds" »

Investors in non-traded real estate investment trusts known as Apple REITs, which invest in hotels, have filed a class action suit against David Lerner Associates (“DLA”) to recover alleged losses of more than $6.8 billion, claiming the firm acted negligently in sales and underwriting of the REIT, according to an InvestmentNews article entitled “David Lerner Associates sued over $6.8B in REITs.”

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Wall Street’s pay practices place financial advisors’ personal interests in direct conflict with the interest of their clients. This is one of many reasons that Wall Street firms oppose the adoption of a fiduciary standard that would require financial advisors to put their clients interest first.

Continue reading "How Wall Street's Pay Practices Create Conflicts with Investors" »

In one of the largest dollar awards to date in a Lehman note case against UBS Financial Services Inc., a Financial Industry Regulatory Authority (FINRA) arbitration panel “walloped” UBS, ordering it to pay former Philadelphia 76ers President Pat Croce more than $2 million for losses in so-called “100% Principal Protected” Lehman notes that were sold to him weeks before Lehman’s September 15, 2008 bankruptcy filing. See Samuel Howard’s Law360 article entitled “UBS Told To Pay 76ers Prez $2M Over Lehman Notes.”

Continue reading "Improper Sales of '100% Principal Protected Notes' Wallop UBS Again" »

Unlisted, private REITs have been the subject of many abuses and investors face losing their shirts in these investments. The recent demise of Apple REIT investments underscore the dangers. “Owning hotels is anything but a safe, volatility-free way to invest money,” but that is not what broker-dealer David Lerner Associates (“DLA”) told its clients, according to articles by Floyd Norris entitled “Statements Skip Over REIT’s Woes” (NY Times) and in InvestmentNews entitled “Bad tip from Poppy? Finra files complaint against David Lerner Associates.”

Continue reading "Investing in a Nontraded REIT is Buying an Expensive "Pig in a Poke"" »

The number one rated analyst covering brokerage firms, Brad Hintz, is telling his clients that if Goldman Sachs committed any crimes by misleading its clients about mortgage-backed securities, the firm will will be offered a “slap on the wrist” deal called “deferred prosecution” because it is viewed as “too big to fail,” according to Christine Harper’s Bloomberg article entitled “Goldman Sachs ‘Too Big’ to Face Criminal Prosecution, Hintz Says.” In other words, if a brokerage firm is going to be bad, it pays to be very big and very bad.

Continue reading "Is an Organization "Too Big to Fail" Above the Law?" »

The U.S. Securities and Exchange Commission is forming a small-business committee to review securities offering rules that would make it easier for small private firms to raise capital but might also make it easier for fraudsters to operate, according to a series of recent Wall Street Journal articles (“SEC to Form Small-Business Committee”, “’Startup America’ Embraces Crowd-funding,” and “SEC Boots Up for Internet Age,” by Jean Eaglesham and Jessica Holzer).

Continue reading "Will Small Business Capital Raising Exemptions Lead to Increased Investment Fraud?" »

The Texas securities commissioner has issued an emergency cease-and-desist order against Insignia Energy Group Inc., its affiliate IEG Permian Basin LLC, Martin D. Lewis, president of both firms, and salesman Jarvis Wayne Willis, arising out of findings of fact by the commissioner that they made misrepresentations and omissions of material facts about an oil and gas limited partnership called the Sabine Partnership that was sold to teachers and school employees, according to an InvestmentNews article by Darla Mercado entitled "Hot Air? Oil and gas company allegedly misled teachers."

Continue reading "School Teachers Scammed in Oil and Gas Deals" »