Investment Fraud Lawyer Blog

A recent study has concluded that investments that have higher volatility generate lower returns for investors. For many years, it has been a basic precept of modern portfolio theory that the price of opting for lower risk is lower reward. That is bunk, according to Robert Haugen, a former professor of finance at the University of Wisconsin and current president of a firm that produces quantitative investment research for subscribers. “We found that in every one of the world's markets, higher volatility equals lower returns,” Mr. Haugen was quoted as saying, adding: “Does this fly in the face of modern portfolio theory? You're damn right it does.” (See “Less risk offers more reward, study finds,” InvestmentNews).

Continue reading "Greater Volatility Equals Lower Returns" »

The North American Securities Administrators Association (NASAA), an organization comprised of the 50 state securities regulators, believes that the crowd funding provisions of the so-called JOBS Act are just another “Regulation D-like rip-off,” according to InvestmentNews (“Crowd funding draws scorn from NASAA,” by Mark Schoff Jr.). Regulation D provides a registration exemption for certain investments that are privately offered – i.e., not offered by means of a general solicitation to the public at large.

Continue reading "Regulators Warn Investors about the Dangers of Crowd Funding Investments" »

The Securities and Exchange Commission and regulators in the United Kingdom have been investigating exchange traded funds for some time. Part of those investigations are now reportedly focusing on a situation called “settlement fails,” which occurs when trades are not completed on time. Although most exchange traded fund trades have seven days to clear or settle, and the NSCC, which clears all of the trades, guarantees delivery of the shares, a failure to settle in four days is considered as a “fail” by regulators. (“Exclusive: SEC widens probe of exchange-traded funds,” Reuters).

Continue reading "Regulators Remain Concerned about the Impact of ETFs on Market Volatility" »

An increase in corporate borrowing costs and Eastman Kodak’s recent bankruptcy filing have set off a round of speculation about whether it is the start of a growing trend in corporate bankruptcy filings. While Chapter 11 bankruptcy filings have been falling since 2009, George Putnam of BankruptcyData.com is expecting an uptick in corporate bankruptcy filings. (“Are corporate defaults set to rise?” USA Today) "We're going to see more big bankruptcies this year," Putnam was quoted as saying, adding: "We'll see a reasonable number even if the economy is pretty strong."

Continue reading "Corporate Bankruptcies Expected to Increase" »

The dynamics of equity investing are changing and investors need to consider these changes when making investment decisions. Investors have pulled over $400 billion out of equity mutual funds since 2008, resulting assets of some of those funds being cut in half. Money has flowed into bond funds, but even more money (eight times as much) has been deposited into bank accounts, confirming investors’ apprehensions about the stock market. (“Investors to stock funds: Get lost,” USA Today, John Waggoner).

Continue reading "More Investors Avoid Stocks - Demand for Equities Drops" »

A report issued by the McKinsey Global Institute forecasts that investor allocation to equities worldwide will drop from 28 percent in 2010 to 22 percent in 2020. (“Equities Losing Appeal in Global Financial System,” InvestmentNews).

Continue reading "Investor Demand for Equities is Waning" »

A recent Bloomberg Markets Magazine article raises troubling questions about investment corruption at the highest levels of government. In July 2008, as market fears mounted, Treasury Secretary Henry Paulson reportedly met with a group of hedge fund managers (five of whom were former officers of Goldman Sachs, where Paulson was CEO), and described a scenario in which the government would put Fannie Mae and Freddie Mac into conservatorship, thereby wiping out the common stockholders of those institutions, according to a fund manager who attended the meeting (“How Paulson Gave Hedge Funds Advance Word,” Bloomberg Markets Magazine, By Richard Teitelbaum). But earlier that morning Paulson had provided a different message to New York Times reporters and editors (i.e., the public): that the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books, and he expected their report would boost market confidence in Fannie and Freddie, according to the article.

Continue reading "Investment Corruption Reportedly Reaches the Highest Levels of Government" »

Fitch Ratings issued a report on November 16 on the U.S. banking sector saying that “the risks of a negative shock are rising” if the effects of European debt crisis keep spreading. (“Fitch’s Warning Spooks Investors, “ Wall Street Journal).

Continue reading "Concerns Rise Regarding Wall Street Banks" »

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" »

“[I]nvestors face a perfect storm – risky assets priced to achieve dismal long-term returns (except in comparison to equally dismal alternatives), coupled with the risk of an oncoming recession,” according to John Hussman (“John Hussman: Nearly every asset class set for ‘miserably low’ returns,” InvestmentNews).

Continue reading "Investors Have Few Attractive Investment Opportunities at Present" »

Major accounting firms that are supposed to perform audits on big banks and other public companies may have played a role in creating the credit crisis. The Public Company Accounting Oversight Board (the “Board”) found evidence that at least one of the Big Four firms routinely performed flawed audits on banks. According to a harshly critical report by the Board, Deloitte & Touche failed to check assumptions and was overly reliant on bank management’s assertions of what was proper. The Board’s report stated in part that Deloitte’s audit flaws were the result of “a firm culture that allows, or tolerates, audit approaches that do not consistently emphasize the need for an appropriate level of critical analysis analysis and collection of objective evidence, and that rely largely on management representations.” See “Audit Flaws Revealed, At Long Last,” by Floyd Norris (New York Times).

Continue reading "Audit Problems Finally Come to Light - Who Can You Trust?" »

The herd mentality of brokerage firm analysts often plays a substantial obstacle to successful investing according to neuroeconomist and behavioral finance presenter Barry Ritholz, CEO of Fusion IQ and author of The Big Picture blog.

Continue reading "Wall Street - Still Putting Lipstick on Pigs" »

Most investors would obviously like to be out of a stock BEFORE a fraud hits the fan. John Waggoner’s recent article entitled “Audit fees can serve as [an] early red flag—If they’re sky-high, that could mean stock trouble” provides a valuable tip that may allow investors to unload a stock before it tanks. He is almost certainly correct in saying that by the time investors read about an auditor’s “substantial doubt about [the company’s] ability to continue as a going concern,” it is probably too late to sell.

Continue reading "High Audit Fees May Be Indicative of Big Problems" »