Investors who purchased MAT/ASTA municipal arbitrage funds between 2002 through 2005 may mistakenly believe that they have waited too long and it is too late to pursue a claim for damages against Citigroup. Fortunately, this is not the case.
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.”
Citigroup was “negative” on subprime mortgages at least as early as 2006. Despite that, Citigroup continued to originate subprime mortgages and underwrite subprime mortgage-backed securities in large quantities. In 2007, Citigroup originated $19.7 billion in subprime mortgages and underwrote $13.4 billion in subprime mortgage-backed securities. Senior management says it did not have a clue what was going on. See April 8, 2010 article in the Huffington Post by Shahien Nasiripour, “Citi ‘Negative On Subprime mortgages As Early As 2006, Yet Firm Continued to Pump Out Subprime Mortgage Products.”
Continue reading "Citi Knew of Subprime Problems and Risks in 2006" »
Merrill Lynch hid its toxic subprime exposure inside off-balance sheet “Special Purpose Vehicles” (like one named Pyxis) until autumn of 2007 when CDO specialists at Moody’s figured it out and set off alarm bells that forced Merrill to revise its self-reported subprime exposure from $15.2 billion to $46 billion, according to an August 9, 2010 New York Times article by Louise Story, “Merrill’s Risk Disclosure Dodges Are Unearthed.” And – get this – Merrill’s senior executives supposedly did not know what was going on!
Continue reading "Merrill Lynch Concealed Subprime Risks Using Tricky Tactics" »
Wall Street banks have created the “next investment bubble” by creating and selling complex, opaque structured notes to income oriented investors, according to an August 9, 2010 Bloomberg article by Zeke Faux and Jody Shenn, “Structured Notes Are ‘Next Bubble,’ Whalen Says.” In fact, Christopher Whalen, a former Federal Reserve Bank of New York official and managing director of Institutional Risk Analytics, claims that Wall Street “firms are busily creating the next investment bubble on Wall Street -- this time focused on structured assets based upon corporate debt, Treasury bonds or nothing at all -- that is, pure derivatives.” Mr. Whalen’s words carry great weight, since he predicted the collapse of the mortgage backed securities market in March 2007.
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.”
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" »
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.
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).
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?" »
The Securities and Exchange Commission is investigating the sale of $200 million in collateralized debt obligations (CDOs) to several Wisconsin school districts, according to a recent Wall Street Journal article by Meena Thiruvengadam and Kelly Nolan (“SEC Investigates Failed CDOs Sold to Wisconsin Schools”). The schools have also filed a lawsuit alleging that the CDOs were misrepresented and that important risk disclosures were omitted.
The U.S. Securities and Exchange Commission is investigating misleading marketing by Wall Street banks of so-called “principal protection” notes, according to a recent Bloomberg article by Zeke Faux and Joshua Gallu. The investigation focuses on notes issued by now-bankrupt Lehman Brothers that prominently featured the words “principal protection” or "principal protected" in brochures provided to investors and that were sold as safe investments. Safety-minded investors were shocked when Lehman Brothers went bankrupt and the value of the notes collapsed. Investors had never been told that the notes were really options combined with an unsecured obligation of Lehman Brothers.
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Billionaire investor George Soros recently told Bloomberg: “The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.” See article by Zoe Schneeweiss and Andrew MacAskill (“Soros Say ‘We Have Just Entered Act II’ of Crisis”).
Continue reading "Billionaire Investor Believes that the Economy is Still in the Danger Zone" »
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?" »
According to a recent New York Times article by Gretchen Morgenson and Louise Story titled “Documents Show Goldman Pressure on A.I.G,” Goldman Sachs made a huge bet against AIG in 2008 by purchasing $3 billion of credit default swaps insuring against a possible default by AIG, at the very same time that Goldman was driving AIG to default on its obligations by aggressively demanding cash collateral from AIG pursuant to credit default swaps insuring risky pools of subprime mortgages that Goldman had purchased from AIG.
Continue reading "Goldman Faces Allegations that It Pushed A.I.G. Over the Cliff" »
It’s crunch time for financial reform, and Wall Street banks are lobbying hard to keep a central pillar of financial reform from becoming law, and, at the same time, are planning ways of getting around whatever financial reform restrictions do become law, according to a recent New York Times article by Eric Dash and Nelson D. Schwart titled “Banking Lobbyists Make a Run at Reform Measures.”
Another member of the bewildering zoo of derivative products dreamed up and sold by Wall Street – this time a constant proportion debt obligation (CPDO) named Rembrandt – has imploded wiping out unsuspecting investors, according to a June 21 article on Bllomberg.com by Christine Harper, Shannon D. Harrington and James Sterngold, titled “Failed AAA Rated Rembrandt on Wall Street Spurs Opacity Outcry.” As the title says, Rembrandt was an opaque “black box” whose inner workings could only be modeled by computers, and so, of course, was given the highest investment grade rating of AAA. Rembrandt was reportedly linked to credit-default swaps on investment-grade companies, and lost 93 percent of its value in two years.
Continue reading ""Financial Innovation" Benefits Wall Street at Investors' Expense" »
In recent weeks, two Financial Industry Regulatory Authority (FINRA) arbitration panels have awarded more than $2.2 million to clients of Page Perry, LLC, Maddox, Hargett and Caruso, P.C., and David R. Meyer & Associates in connection with their purchases of MAT municipal arbitrage fund investments. MAT Five and MAT Three were leveraged municipal arbitrage hedge funds offered by Citigroup Fixed Income Alternatives and sold through Smith Barney. Both MAT Five and MAT Three were marketed only to high net worth clients of the firm as fixed income alternatives. In truth the MAT funds were risky investments that exposed investors to a 100 percent or more loss of principal. The funds imploded in early 2008 causing catastrophic losses to investors.
Merrill Lynch and other Wall Street firms sold the riskiest tranches of collateralized debt obligations (“CDOs”), not just to institutions, but to individual investors, as safe investments, according to a recent Wall Street Journal article by Dan Fitzgerald titled “Didn’t See Risk, and Got Stung.” Now that the CDOs have imploded, and investors are seeking recovery of their losses, Merrill is telling them that risk disclosure documents and the investors’ supposed sophistication mean they cannot recover. Merrill is wrong for a number of reasons.
Continue reading "Wealthy Individuals Have Been Victimized By Wall Street's CDO Fraud" »
