Both risk averse and yield-hungry investors who have created a bubble in the market for bonds – including both US Treasuries and corporate junk bonds – are in for a rude awakening if things do not go just right, according to an August 22, 2010 InvestmentNews article, “The dangers of the growing bond bubble.”
Continue reading "Bubbles in the Bond Markets?" »
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.”
A United States District Court judge has ruled that a class action may proceed against Citigroup and others for making an array of material misrepresentations and omissions in public offering materials associated with bonds purchased by the plaintiffs (Reuters, “Judge Rules Bondholders Can Pursue Citigroup Suit,” July 12, 2010).
CIT Group Inc., GMAC Inc., Prudential Financial Inc., and over a dozen other financial institutions sold their bonds to individual investors after being spurned by their sophisticated institutional counterparties, according to an article by Zeke Faux titled “CIT Debt Sold to Widows Has Fine Print Pimco Resists,” Bloomberg. CIT, a commercial lender, filed a Chapter 11 bankruptcy petition in November 2009. As of August 21, 2009, CIT’s debentures that were sold to individuals traded as low as 44 cents on the dollar, according to the article.
Continue reading "Brokers Dump Low Quality Securities on Elderly Investors" »
The bond market is a bubble about to burst, investor Jim Rogers told CNBC on Thursday. Rogers also said he sees rising inflation in this country right now – anyone who shops sees it, he says. He says some governments – notably the U.S. and the U.K. – are “lying” about inflation for political reasons, because signs of inflation would make the massive government stimulus and bailout spending (bailing out Fannie and Freddie alone is expected to cost $1 trillion) seem unwise. Other countries – Rogers identifies Australia, China and Norway – acknowledge the existence of inflation and are tightening their monetary policies to fight it.
Continue reading "A Bubble in the Bond Market?" »
Liz Ann Sonders, Charles Schwab’s chief investment strategist, is skeptical about bonds and emerging markets and believes that “[i]nvestors are doing what they do well, which is chase past performance,” according to a recent article by Mina Kims posted on CNNMoney.com, “Bond investors are chasing the past.”
Continue reading "Bonds - Is It Time To Be Cautious?" »
A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded damages to the Gale family as a result of losses sustained in Lehman-backed Main Street Natural Gas Bonds sold to them by their broker. The panel granted rescission, which is to say it ordered the brokerage firm to take back the bonds and reimburse the Gales the purchase price they paid for the bonds. On top of that, the panel awarded $11,000 as “compensatory damages” (which probably represented interest on the purchase price) and $300 for reimbursement of the non-refundable portion of the FINRA filing fee.
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Last week, in an almost unprecedented manner, three groups of securities regulators – the SEC, the Financial Industry Regulatory Authority (FINRA), and various state regulators – almost simultaneously filed enforcement actions against Morgan Keegan for fraud arising out of its sales of 6 toxic bond funds. The regulatory investigations had been going on for several years. The allegations in the regulatory actions are quite serious and sound in egregious fraud.
The Securities and Exchange Commission has charged Morgan Keegan and its touted managing director, James Kelsoe, with securities fraud for deliberately inflating the value of subprime securities in order to hide losses in Morgan Keegan’s proprietary toxic bond mutual funds. See Joe Bel Bruno’s recent Wall Street Journal article, “Morgan Keegan and Its Onetime Star Kelsoe Charged by SEC.”
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Goldman Sachs, among other Wall Street banks, and certain of favored hedge fund clients that were tipped off by the banks, reaped huge profits by shorting (betting against) “synthetic” collateralized debt obligations (CDOs) linked to residential mortgages, which the banks created and sold to other clients, according to Gretchen Morgenson and Louise Story in their New Times article, “Banks Bundled Bad Debt, Bet Against It and Won.”
McClatchy Newpapers has reported that Goldman Sachs sold more than $57 billion of risky, mortgage-backed securities in fourteen months in 2006 and 2007. The bank unloaded its unwanted exposure on unsuspecting foreign investors and avoided major losses that plagued many of its competitors during the financial crisis.
Municipalities and states are finally beginning to take legal action to protect taxpayers. Many local governments sustained huge investment losses in the recent market turmoil. In certain cases, relatively unsophisticated government servants were induced to make toxic investments by savvy Wall Street financial advisers. As a result of relying on these advisers, state and local governments have ended up owning some of the riskiest junk imaginable and have sustained critical losses.
Continue reading "Municipalities Are Beginning to Understand that They Were Duped by Wall Street" »
Uncertainty about the corporate stock and bond markets is fueling growth in exchange traded funds, particularly bond exchange traded funds, according to a recent CNBC.com post by Jeff Cox. High-yield corporate bond funds comprise 10 percent of the total exchange traded fund market, up from 1 percent two years ago, while high-grade bond funds comprise 15 percent, up from 6 percent in 2008, according to the article (citing BofA Merrill Lynch Global Research).
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Private placement offerings (also known as Reg D offerings), such as Medical Capital Holdings Inc. and Provident Royalties LLC, have devastated unsuspecting investors. Such offerings, as well as the unscrupulous broker-dealers who pushed them, have wound up in the crosshairs of state securities regulators. See “Cracking Down on ‘Private Placement’ Investments,” March 27, 2010, Wall Street Journal, by Jane J. Kim.
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In two recently decided arbitrations against Morgan Keegan related to its collapsed bond funds, the investors were awarded over $3.6 million, according to an article by Christopher Sheffield in the Memphis Business Journal, “Morgan Keegan pays out $3.6 million in February.”
Bond exchange traded funds carry hidden risks. In a recent Wall Street Journal article, Sam Mamudi cautioned investors seeking safety in bond exchange traded funds to be aware of hidden risks that can magnify the losses and limit the gains in such investments. See “Bond ETF Buyers Must Stay on Guard for Hidden Risks,” March 1, 2010.
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Morgan Keegan has been aggressively fighting an array of regulatory actions and investor claims. As a result of these "hardball" defense tactics, Morgan Keegan's legal costs have doubled and are consuming a significant chunk of the firm's revenue as a result of investigations by securities regulators and legal actions by aggrieved investors, according to an Feb. 25 article in InvestmentNews by Bruce Kelly.
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The State Street Corporation’s recent settlement with the SEC provides a startling example of how large Wall Street firms abused their customers’ trust during the recent debacle in the financial markets. Simply stated, State Street hid important facts from most investors while secretly taking action to protect its own interests and those of a few select clients. Specifically, State Street told a few preferred investors in 2007 that one of its bond funds was almost entirely invested in subprime mortgage securities, allowing them to get out before the fund blew up. Simultaneously, other State Street customers were kept in the dark, costing them hundreds of millions of dollars.
Investors have been moving out of money-market funds into short-term bond funds, and while short-term bond funds are considered to be relatively safe, beware, says Tom Lauricella in his recent article in the Wall Street Journal, “Short-Term Bonds May Disappoint Investors This Year.”
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In an encouraging sign to those who despair about investors receiving full justice in a compulsory arbitration process financed by the brokerage industry, a California FINRA panel last month (December 2009) awarded compensatory damages of $319,798 to a 96-year old investor as well as treble damages of $959,394 under the California Elder Abuse Act.
Continue reading "FINRA Arbitration Panel Metes Out Harsh Punishment for Elder Fraud" »
