Investment Fraud Lawyer Blog

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" »

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.

Continue reading "Structured Notes Will Be "The Next Bubble" According to Former Federal Reserve Official" »

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 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" »

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.

Continue reading "SEC Investigates Sales of So-Called "Principal Protected" Notes" »

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?" »

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.”

Continue reading "Wall Street Intensifies Efforts to Thwart Financial Reform as Greed Trumps Common Sense" »

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" »

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" »

According to a recent article in the Atlanta Journal Constitution, “at least a dozen local governments and other institutions that used derivative deals called swaps to try to lower the cost of bond issues have ended up owing as much as $394 million in fees to the Wall Street investment banks that set up the deals….” AJC, 5/30/10, “Paying a Price for Risky Schemes.” That article looked at how much money a small number of governmental and institutional investors in Georgia have paid to buy their way out of interest rate swaps in the wake of the financial crisis, but it is likely that this is a nationwide phenomenon. The article raised a number of questions—including whether it was appropriate for taxpayer money to be invested in securities with such a high level of risk—but it did not raise the question of whether there are legal remedies that would allow government officials and others to recover the financial losses resulting from such investments.

Continue reading "Local Governments and Non-Profits Have Suffered Catastrophic Losses as a Result of Wall Street's Excesses" »

Bloomberg.com has reported that Goldman Sachs Group Inc.’s $2 billion Hudson Mezzanine collateralized debt obligation, sold in 2006, is now the target of a probe by the SEC.

Continue reading "SEC Expands Investigation of Goldman Sachs CDO Abuses" »

The Financial Crisis Inquiry Commission, a bipartisan commission that was appointed by Congress to investigate and report on the causes of the financial crisis, reported that Goldman Sachs tried to conceal information and obstruct its investigation into the causes of the crisis, according to USA Today’s David Lieberman in his June 8 article, “Goldman accused of trying to thwart probe.”

Continue reading "What Is Goldman Sachs Trying To Hide?" »

In “Paying a price for risky schemes,” Atlanta Journal Constitution reporter Russell Grantham presents an excellent overview of how at least a dozen metro governments and nonprofits that issued debt were whipsawed by the “shadow banking system” – the freezing of the auction rate securities markets and complex derivative contracts called swaps. As a result, they have been forced to pay or owe as much as $394 million that they did not expect to, according to the article, which identifies the borrowers as:

“Atlanta airport, Atlanta water/sewer, Underground Atlanta, Children’s Healthcare of Atlanta, Piedmont Healthcare, Woodruff Arts Center, Georgia Tech, Georgia State University, DeKalb Medical Center, Emory University, Gwinnett Medical Center, Marietta, MARTA, Power South Energy Cooperative, and Cobb County Kennestone Hospital Authority. “

Continue reading "Wall Street Abuses Have Significantly Increased the Economic Problems Currently Faced by State and Local Governments" »

The National Credit Union Administration (“NACUA”) should be considering litigation against Wall Street firms that sold collateralized debt obligations (“CDOs”) to its member firm Eastern Financial Florida Credit Union (“Eastern Financial “), which resulted in losses of nearly $150 million and Eastern Financial’s placement in conservatorship in April 2009, according to a recent New York Times article by Gretchen Morgenson.

Continue reading "Credit Union Joins Long Line of Victims Damaged by Toxic CDOs" »

The answer appears to be a resounding yes. The SEC's recently filed a lawsuit against Goldman Sachs alleging fraud in the sale of mortgage-backed collateralized debt obligations (CDOs). CDOs are a structured finance product in which a large number of mortgages or other debt instruments are pooled in a trust and divided into multiple layers or “tranches” that pay interest to investors based on the risk and priority of each tranche, with the senior tranches paying lower rates because they are safer investments and the junior tranches paying higher returns for comparatively higher risk debt. The SEC alleges that Goldman Sachs created CDOs backed by high-risk subprime mortgages and then took short positions betting that they would fail while simultaneously recommending that some of their customers buy the securities. In other words, some customers were sold CDO securities and told that they were a good long-term investment, while Goldman and other customers shorted them because they were expected to go down in value. If that is true, many investors were defrauded, and they too should have the right to sue or bring an arbitration claim—especially since the SEC action has not requested restitution or recision for investors.

Continue reading "Were Toxic CDO Investments Deliberately Dumped on Unsuspecting Investors?" »

UBS and other brokerage firms took advantage of conservative investors by misrepresenting so-called “100% principal protected” notes as safe investments when they were not. See New York Times article, “’100% Protected’ Isn’t as Safe as It Sounds,” by Gretchen Morgenson. Investors who purchased these notes have suffered billions in losses, she added.

Continue reading "Many Brokerage Firms That Sold "100% Principal Protected Notes" Misled Investors " »

Bloomberg is reporting that Goldman Sachs has broken off negotiations with the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP and says it does not plan to engage another law firm to defend it in the pending action by the Securities and Exchange Commission. Bloomberg reportedly confirmed this decision with Goldman spokesman Lucas van Praag.

Continue reading "Is Goldman Posturing to Settle the SEC's CDO Fraud Claims" »

The extreme risk of reverse convertibles was dramatically demonstrated recently when such a note issued by JPMorgan Chase, which promised 64 percent annualized interest, plummeted in value just three days after being sold, according to Zeke Faux in his May 17th Bllomberg article titled “JP Morgan’s 64 Percent Note Shows Risks of Reverse Convertibles.”

Continue reading "JP Morgan Reverse Convertibles "Knock Out Investors in the First Round"" »

The Financial Industry Regulatory Authority (FINRA) has issued a Regulatory Notice concerning structured products called Reverse Convertibles. The notice is cast a “reminder” to member firms that they have certain “sales practice obligations” in selling such products. Investors should pay attention too, however, as the notice is essentially a warning that Reverse Convertibles and other structured products are complex, high-risk and unsuitable for most individual investors. Indeed, FINRA issued an Investor Alert about these products at about the same time.

Continue reading "Reverse Convertible Notes Can Be Poisonous for Investor Portfolios" »