Investment Fraud Lawyer Blog

Former investment banker and financial writer William Cohan has written a blistering critique of the SEC’s settlement with former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, essentially accusing the SEC of abject surrender to the forces of evil and begging the judge to reject the settlement: “We are all worse off for the SEC’s continued lax enforcement of wrongdoing on Wall Street. If it won’t protect us from charlatans, who will? Judge Block, please deny the proposed pathetic settlement and send the parties back to the negotiating table or, even better, your court room.” (“SEC Surrender Continues With Bear Bankers Deal: William D. Cohan,” Bloomberg).

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The Financial Industry Regulatory Authority has issued a Regulatory Notice (12-03, Jan. 2012) to “remind” its member firms of their sales practice obligations with regard to complex products, and to provide them “guidance” in exercising heightened scrutiny and supervision over marketing and sales of complex products. Complex products are not defined in the Notice, but are described as including a host of alternative investments, such as derivative-based products, nontraded REITs, structured notes, inverse or leveraged exchange traded funds, hedge funds, and securitized products like mortgage-backed securities and asset-backed securities.

Continue reading "Securities Regulators Set High Standards for Firms Selling Complex Investments" »

The Financial Industry Regulatory Authority (FINRA) recently issued a report outlining is its regulatory and examination priorities for 2012. The securities industry regulator is focusing on conduct and products meant to beat the market that are unsuitable investments for many investors.

Continue reading "Securities Regulator Alerts the Public About Dangerous Investments and Investment Strategies" »

Federal prosecutors plan to file criminal actions against four former traders who allegedly overvalued collateralized debt obligations (CDOs) sold by Credit Suisse in order to increase their commissions. The events occurred in 2008 and resulted in a $2.85 billion write down by Credit Suisse. Credit Suisse fired the traders and cooperated with authorities in their investigation. (“Ex-Traders at Credit Suisse Expected to Be Charged With Fraud,” New York Times, Dealbook).

Continue reading "Credit Suisse Traders Face Criminal Charges for Mortgage Investment Fraud" »

Given the array of exotic alternative investments being sold to the public, it’s logical that many investors often don’t understand what they are buying. What is even scarier is that it is likely their professional investment adviser doesn’t understand the alternative investment either. Investment advisers – 75 percent of them – admit they do not understand alternative investments. Notwithstanding their puzzlement, 50 percent of advisers said they intend to increase their use of them in their clients’ accounts this year. They could use some help, however, because of alternative investments are so confusing. (“Alternatives spur anxiety,” InvestmentNews).

Continue reading " Most Financial Advisers Don't Understand Alternative Investments According To John Hancock Survey" »

Judge Jed S. Rakoff stunned the SEC and Citigroup by rejecting their proposed $285 million settlement of a case involving Citigroup’s sale to investors of a CDO that Citigroup allegedly “built to fail” and bet against. The judge’s decision made a dent in the SEC’s longstanding policy (“hallowed by history, but not by reason”) of allowing defendants to settle without admitting to any of the underlying facts. Judge Rakoff ordered the parties to be ready to try the case on July 16, 2012.

Continue reading "Judge Rejects Citi's Efforts to Buy Justice " »

Broker-dealers that sold billions of dollars in fraudulent private placements, such as Medical Capital and Provident Royalties notes, “failed massively in their due diligence responsibilities to investors” according to Gordon Yale, a CPA and expert witness in securities fraud cases. (See “Private-placement due diligence ‘sloppy,’” Investment News). They grossly misrepresented investigations into the investments and issuers they claimed to have performed, and, in fact, merely relied on self-serving representations made by management that were false and fraudulent.

Continue reading "Expert Contends that Brokerage Firms are Failing to Satisfy their Due Diligence Obligations." »

The National Credit Union Administration (NCUA) announced that it has reached settlements with Citigroup and Deutsche Bank regarding potential claims relating to the sale of residential mortgage-backed securities to five failed wholesale credit unions. NCUA said that it is the first regulatory agency to recover losses on behalf of failed financial institutions that resulted from investments in residential mortgage-backed securities.

Continue reading "Citigroup and Deutsche Bank Pay $165 Million to Settle Mortgage Securities Claims" »

When world markets move significantly in apparent response to major macroeconomic news, even supposedly “uncorrelated assets” move in unison with them, according to Jason Zweig’s Wall Street Journal article, “Caging Raging Contagion.” Such a significant move occurred last week when the Italian government and bonds collapsed over its fiscal problems, and everything else fell, too.

Continue reading "High Correlations Among Asset Classes Means There's No Place To Hide" »

AIG and other institutional bond investors, which were not part of a proposed $8.5 billion settlement of Bank of America Corp's mortgage-backed securities liability, complained that the proposed settlement was struck in a “shroud of secrecy.” They have objected to the settlement, want to intervene, and want to review negotiations and documents that led to the proposed settlement, according to Reuters (“Investors want ‘secrecy’ lifted in BofA MBS deal,” by Karen Freifeld).

Continue reading "Institutional Investors Challenge Secrecy of Bank of America Settlement Negotiations" »

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.

Continue reading "The 2007-2008 Financial Crisis was not a 'Black Swan' Event" »

U.S. District Court Judge Jed S. Rakoff has been asked by the SEC and Citigroup to approve a settlement of charges that Citigroup misled investors in a $1 billion dollar CDO deal called Class Funding III that was tied to residential mortgage-backed securities. Citigroup would pay a $95 million penalty and not admit fault. The Judge has some tough questions that he wants answered at a hearing before him in his courtroom on November 9.

Continue reading "Judge Challenges 'Cozy' Deal Between the SEC and Citigroup" »

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?" »

Prices and sales in the housing market appear to be grim through 2015 according to economists, builders and others in the industry. The biggest drop already occurred in 2008. Ancillary industries such as landscaping, mortgage lending, and home improvement feel the loss as well.

Continue reading "The Housing Markets Aren't Bouncing Back" »

A Bank of America employee will collect $930,000 from his former employer, Bank of America, for being fired in violation of the whistleblower protections. The employee blew the whistle on fraud at Countrywide Financial Corp. and led internal investigations that found “pervasive wire, mail and bank fraud involving Countrywide employees,” according to the U.S. Department of Labor. He was terminated soon after the bank acquired Countrywide in 2008. In addition, Bank of America must reinstate the whistleblower. He claimed that others who tried to report fraud to Countrywide’s employee-relations department suffered persistent retaliation. The $930,000 includes back wages, interest, compensatory damages and attorney fees.

Continue reading "Whistleblower Problems Add to Bank of America's Woes" »

Many investors, both individuals and corporations, were misled by their brokers and harmed during the credit crisis. For various reasons, however, many such investors have not yet taken action to recover their losses. Some have delayed taking action in order to see whether the misconduct warranted legal action while others just put it off until a later time. Investors need to appreciate that time is running out on their claims, and they should act now or forever hold their peace.

Continue reading "Time Is Running Out On Credit Crisis Legal Claims" »

The SEC is expanding its investigation into Wall Street’s sales practices involving toxic collateralized debt obligations that were linked to subprime mortgages as more and more evidence comes out that the Wall Street banks deliberately defrauded some of their customers.

Continue reading "SEC Expands Investigations into Toxic CDO Deals as the Awful Truth Begins to Come Out" »

Investors who bought toxic mortgage-backed bonds from Bank of America’s Countrywide, and homeowners seeking loan modifications are proposing drastic measures to better enable BofA to deal with the onslaught of their litigation without a bankruptcy or a receivership imposed by the Federal Deposit Insurance Corporation. According to a Reuters/CNBC.com article entitled “Will Bank of America Tale a Play Out of the Asbestos Handbook,” the proposed approaches include an asbestos litigation-style trust to deal with claims and litigation, a so-called “bad bank” managed by federal regulators, or the sale of litigation warrants by which public investors would purchase the right to receive whatever is left in a settlement trust. The bond investor litigants include American International Group (AIG) and the Federal Housing Finance Agency, among others.

Continue reading "Bank of America Must Deal with Exposure of $50-$100 Billion Associated with Toxic Mortgages Securities" »

The National Credit Union Administration (“NCUA”), acting as liquidating agent for failed corporate credit unions, has filed suit in a federal court in Los Angeles against Goldman Sachs. The complaint involves the sale of $1.2 billion of mortgage-backed securities that were "destined to perform poorly."

Continue reading "Credit Unions Sue Goldman Sachs for Misrepresenting Mortgage-Backed Securities" »

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" »