Investment Fraud Lawyer Blog

Some judges are starting to question lenient settlement deals proffered by Wall Street firms and their arguably captive regulator, the SEC, according to an August 19, 2010 article in the Wall Street Journal by David Weidner called “In Search Of Justice for Wall (Street).” Two U.S. District Court Judges, Jed S. Rakoff and Ellen Segal Huvelle, have rejected settlements on the ground that the penalties were too small to be fair to the investing public. Another federal judge, Emmet G. Sullivan, threatened to reject but ultimately accepted a settlement proposed by the SEC and Barclays PLC. Judge Sullivan reportedly had earlier called it a "sweetheart deal."

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Bloomberg is reporting that the SEC’s recent fraud action against the State of New Jersey may be the first of many such suits targeting public officials who raised money in the $2.8 trillion municipal bond market. New Jersey agreed to settle the fraud charges on August 18, 2010, the same day they were filed by the SEC.

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Under the new Dodd-Frank financial reform law, hedge funds with $100 million or less under management will be overseen by state regulators. While state securities regulators have done a remarkable job of enforcement given their limited funds, is Congress asking too much of them? The answer may be a resounding “yes” since the budget cuts in many states have resulted in a lack the funds and staff to do the job, according to an August 19, 2010 Wall Street Journal article by Kara Scannell, “States Will Be Hedge-Fund Police.” If that is the case, a major piece of financial reform may turn out to be illusory. That is because a disproportionate amount of fraud tends to be committed by these thousands of mid-sized and smaller hedge funds that will now be policed by the states.

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Sales pitches often misrepresent and fail to disclose important facts about equity-indexed annuities, according to Mel Lindauer in his August 13, 2010 Forbes article, “The Truth About Equity-Indexed Annuities.”

Despite claims that they are simple, equity-indexed annuities are so complex that most people who sell them have an insufficient understanding of how they operate, according to the article.

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The State of New Jersey has the dubious honor of being the first U.S. state ever to be charged with violating federal securities laws, according to an article in CNNMoney by Ben Rooney, “SEC sues New Jersey for fraud.” The state agreed to settle the fraud charges on August 18, 2010, the same day they were filed by the SEC.

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The Financial Industry Regulatory Authority (FINRA) is investigating possible sales practice violations (e.g., misrepresentations and omissions) by Morgan Stanley, Barclays, and Credit Suisse in pitching collateralized debt obligation securities (CDOs) to institutional investors, according to a July 23, 2010 Reuters article by Steve Eder and Leslie Gevirtz, “FINRA probes M Stanley, Barclays, Credit Suisse.”

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The Financial Industry Regulatory Authority on Tuesday said it ordered Morgan Stanley to pay $800,000 for failing to disclose conflicts of interests in thousands of equity-research reports and public appearances of its research analysts since 2006.

Continue reading "Morgan Stanley's Research Abuses Continue - The Beat Goes On" »

Buried in the 2,300 pages of the new Dodd-Frank Financial Reform Act is a provision called Section 922 that provides for substantial financial rewards for any person who provides “original information” to the SEC that leads to a successful enforcement action relating to the violation of federal securities laws. The whistleblower may be an investor, an employee or other industry insider, or any other member of the public not employed by a law enforcement or regulatory agency. If the whistleblower’s tip leads to a monetary sanction of over $1 million, the whistleblower will be entitled to between 10% and 30% of the amount recovered by the SEC. The new law also provides whistleblowers with legal protection from retaliation, giving them the right to sue for damages if they lose their jobs or are blackballed by the industry. Together, these new provisions provide a powerful incentive for investors and financial professionals to report misconduct in the securities industry, which will hopefully have the long-term effect of deterring fraud and other abuses.

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Faced with proposed new regulations for mortgage-backed securities designed to prevent another financial crisis, some Wall Street banks are saying that they should have no responsibility “to undertake any sort of credit analysis” when creating and selling mortgage-backed securities, and that they have no ability to do that, according to Floyd Norris, a commentator on finance and economics, in his August 5, 2010 New York Times article, “Caveat Emptor, Continued.”

Continue reading "Wall Street Banks Seek to Avoid Responsibilty for Checking Out Mortgage Securities They Sell to the Public" »

It is no surprise that retirees are often the targets of investment scams. But it is a surprise that the scammers are often empathy-challenged senior citizens themselves, and that is surprising. Attorneys and advocates for the elderly are reporting an increase in the number of elder scams perpetrated people their age, according to an article in Bloomberg BusinessWeek, “Senior Swindlers: A Sucker Retires Every Minute.”

Continue reading "Senior Citizens are Increasingly Targeted by Swindlers Who are Often Senior Citizens" »

One good thing that might come out of the Dodd-Frank financial reform act is better self-policing by Wall Street. Not that Wall Street has changed its unscrupulous ways. But the Securities and Exchange Commission is expecting a big increase in tips from senior employees and third parties because of whistleblowing incentives in the new law that can reach seven-figures, as reported by CNBC in an August 9, 2010 article entitled “Wall Street Rewards to Trigger a Surge in Informants.”

Continue reading "Regulators Expect a Huge Volume of New Securities Fraud Cases Because of Whistlerblower Incentives" »

One of the worst and most unsuitable investments we have ever come across is the reverse convertible. Like the Devil himself, they have so many names, and are not easy to recognize on brokerage statements. UBS calls them “Yield Optimization Securities.” They are also known as “revertibles,” “revertible notes,” “reverse exchangeable securities,” and so on. And they are devilishly popular – brokerage firms sell a lot of them to elderly, retired, and on-the-brink of retired investors who need a way to generate sufficient income to live on without undue risk to their principal. The problem is that these investments are essentially put option contracts that do jeopardize principal, and brokers do not explain that critical fact.

Continue reading "Investor Alert: Reverse Convertibles Can Be Extremely Toxic" »

A recent USA today article highlights the fact that investment scams usually increase when there is an economic downturn. The article refers to The North American Securities Administrators Association’s recently released list of Top 10 Investor Traps: The list and discussion points, which are located at http://www.nasaa.org/nasaa_newsroom/current_nasaa_headlines/13048.cfm are as follows:

Continue reading "NASAA's Top Ten Investment Scams for 2010" »

Scams will always be with us but they are especially plentiful when traditional investments like stocks and bonds are not doing well, according to John Waggoner of USAToday in his August 5, 2010 article, “Investment Scams Thriving.”
"It's pretty bad out there," Texas Securities Commissioner Denise Voigt Crawford was quoted as saying. The primary victims are those trying to make up losses in their 401(k) plans and stock portfolios, she added.

Continue reading "Regulators Report that Investment Scams are on the Rise" »

Citigroup has consented to charges by the Securities and Exchange Commission that it misled public investors about the extent of its exposure to sub-prime mortgage-related assets during 2007. Citigroup will pay $75 million to settle the charges, as widely reported in the financial press.

Continue reading "Citi Pays a Cheap Price for Lying to the Public - When is the SEC Going to get Serious about Fraud?" »

Investors in the MAT Municipal Arbitrage Funds sold by Citigroup/Smith Barney recently won a total of $2.1 million in separate arbitration proceedings and these awards may just be the tip of the iceberg. In fact, Wall Street brokerage firms are being ordered to pay millions to investors who incurred significant losses on what they thought were low-risk investments, but were, in fact, leveraged municipal arbitrage hedge funds, according to a Wall Street Journal article by Randall Smith (“Crisis-Era Munis Haunt Wall Street,” July 27, 2010).

Continue reading "Investors Are Winning MAT/ASTA Claims Against Citigroup/Smith Barney" »

Wall Street brokerage firms are being ordered to pay millions to investors who incurred significant losses on what they thought were low-risk investments, but were, in fact, leveraged municipal arbitrage hedge funds, according to a Wall Street Journal article by Randall Smith (“Crisis-Era Munis Haunt Wall Street,” July 27, 2010).

Continue reading "First Republic Municipal Arbitrage Investors Recover Substantial Damages" »

The Financial Industry Regulatory Authority (FINRA) has ordered SunTrust Investment Services, Inc. of Atlanta, GA (“SunTrust”), to pay $1.44 million in fines and restitution for misconduct arising out of unsuitable recommendations and churning the accounts of 17 mostly elderly customers, according to an article by J. Scott Tinsley in the Atlanta Journal Constitution (“SunTrust unit fined for improper trades”). $900,000 of that amount is a fine, which includes nearly $224,000 in disgorgement of commissions flowing from the unsuitable trades. The remaining $540,000 will serve as restitution to the customers who incurred losses.

Continue reading "SunTrust Burns Elderly Victims" »

Mainstream USAToday editors expressed amazement over the “just say no” partisanship of the Republican party and the unnecessarily long and contentious battle to pass the financial reform package (“Mindless partisanship mars passage of banking reform,” July 16, 2010). The editors had though that “the worst financial meltdown since the Depression” would have provided sufficient motivation to rise above the partisan excess that was unfortunately displayed. For instance, they thought that the “chastened banks” would accept change. “But that’s not quite how things worked out. After a few weeks of remorse, Wall Street got its swagger back and fought like mad to preserve its profits.”

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Goldman, Sachs & Co. has agreed to pay $550 million and reform its business practices to settle SEC charges that it misled investors in a subprime mortgage CDO known as ABACUS 2007-AC1, which collapsed, according to multiple articles in the Wall Street Journal, CNBC.com, and others. In so doing, Goldman admitted it made a “mistake” in failing to disclose the fact that the CDO’s investments were selected in part by a hedge fund manager who was betting on the CDO to fail. The SEC had charged Goldman and its vice president, Fabrice Tourre, with fraud. At this time, the SEC's litigation will continue against Tourre.

Continue reading "Is Goldman Getting Off Too Easy in its SEC Settlement?" »