Investment Fraud Lawyer Blog

Affinity fraud is a big problem and it is growing. The affinity aspect of it refers generally to the fraudster’s standing as an insider among a group of people who share a common interest. This standing as a member of the group, so to speak, makes the fraudster presumptively trustworthy. Unfortunately, affinity settings are breeding grounds for investment fraud.

Continue reading "Affinity Fraud Hits Close to Home" »

The London investment company, Centaur, which launched its Galileo fund to provide investors with the opportunity to generate returns through none other than sports betting has collapsed resulting in what is reported to be a 100% loss with investors holding the bag for about $2.5 million.

Continue reading "Hedge Fund Formed to Bet on Sports Collapses" »

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" »

U.S. investors have poured money into single-country exchange traded funds with encouragement from Wall Street, but that can be a dangerous strategy. Such a strategy often leads to dangerous over concentrations, which, like leverage, can amplify both gains and losses. (See SmartMoney Magazine, “Wilting ETF Returns”).

Continue reading "Currency Risk Haunts Single-Country Exchange Traded Funds (ETFs)" »

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" »

Wall Street’s favorite defense to investor claims, the “sophisticated investor” defense, isn’t working anymore. In almost every FINRA arbitration brought by an investor, the brokerage firm adopts the mantra that “The claimant is a sophisticated investor.” In essence, the firms argue that the customer was too sophisticated to rely on any alleged misconduct or misrepresentations. In their advertising, brokerage firms say “Trust us.” In arbitration they say, “You were too sophisticated to trust us. Even if we lied, you should never have believed us.” Recently, however, arbitrators haven’t been buying this argument (See “Sophisticated Investor Defense Losing Steam,” Wall Street Journal).

Continue reading "Arbitrators Are Recognizing That 'Sophisticated Investors' Can Be Defrauded" »

Wall Street firms apparently like arbitration when they are being sued by customers but prefer court when they want to sue their former employees. This disconnect speaks volumes.

Continue reading "Wall Street Firms Apparently Like Arbitration Only When They Think It Gives Them An Advantage" »

While exchange traded funds continue to flood the market, a record number of existing ETFs are failing or in trouble. Last year, 308 new exchange traded funds were launched, but almost 90 percent of them were unable to attract the $30 million regarded as a minimum threshold amount for profitability, according to CNNMoney (See “Is the ETF bubble about to burst?”), citing XTF, a firm that researches and advises exchange traded funds globally.

Continue reading "20% of Existing Exchange Traded Funds (ETFs) on 'Death Watch' List" »

In connection with the Medical Capital receivership, the SEC Receiver recently filed its “Proposed Plan for Distribution” (the “Plan”). Unfortunately, the Plan contains some disturbing news for those investors who were pro-active and obtained recoveries against third-parties through litigation (including class actions) or arbitration.

Continue reading "SEC Receiver Seeks to Deny Recovery to Many Medical Capital Investors" »

The big four Wall Street wirehouses have lost market share since the financial crisis in part because of their role in the crisis and “customer distrust,” according to Bing Waldert, a director of Cerulli Associates Inc. (See “Wirehouse market share has shriveled since crisis,” InvestmentNews). Merrill Lynch Wealth Management, Morgan Stanley Smith Barney, UBS AG and Wells Fargo & Co. have also lost market share by terminating lower producing brokers. While the wiehouses have tried to focus on high net worth clients, their share of that lucrative market has declined as well.

Continue reading "Are Wall Street Wirehouses 'Killing the Goose that Laid the Golden Egg?'" »

The declining public trust in the financial services industry confirms the serious problems permeating the industry. A recent survey by the public relations firm Edelman revealed that more than half of the educated public distrusts firms in the financial services sector, making it the nation’s least-trusted sector for the second year in a row (See InvestmentNews, “Car salesmen miles ahead of advisers in consumer trust”).

Continue reading "Survey - Financial Service Professionals Less Trusted Than Car Salesmen" »

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 amount of dollars at stake in FINRA securities arbitrations has grown in recent years. Of the 7,000 claims currently pending, approximately 200 involve claims of $10 million or more. “The claims coming in now are substantially larger than what we had a few years ago,” Linda Fienberg, president of FINRA Dispute Resolution, was quoted as saying. (“FINRA flooded with multimillion-dollar cases,” Nate Raymond, The American Lawyer).

Continue reading "The Number of Very Large Securities Arbitration Cases is on the Rise" »

The Wall Street Journal has reported that financial scams against the elderly are becoming so commonplace that the National Council on Aging calls them the “crime of the 21st century” (“Scams to Watch Out For,” WSJ). It describes investment scams against baby boomers (those over age 50) as being “rampant.” (“Boomers Wearing Bull’s-Eyes,” WSJ, Kelly Greene). The Wall Street Journal has now published a brief but helpful article entitled “Red Flags of Elder Fraud.”

Continue reading "Some Warning Signs of Elder Fraud" »

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" »

Variable annuities are complex financial products designed to transfer the risk of market loss from the investor to an insurance company. Assuming the investor is risk averse (after 2008, who isn’t?), the question is, is it a good deal? The answer, according to MONEY Magazine and most advisers that do not sell variable annuities for a living, is no. (“No Pot of Gold,” Lisa Gibbs, MONEY Magazine). Whether the answer is yes or no, an investor needs to be an actuary as well as a competent, very careful reader of fine print and convoluted legalese to fully understand exactly what he or she is buying, how it is priced and whether or not it is a good deal. Most investors are not up for that job.

Continue reading "MONEY Magazine - Variable Annuities Aren't Worth the Cost" »

Unsophisticated state and local government officials have been sold billions of dollars of flawed financial products by Wall Street banks, leaving taxpayers on the hook for even more. The banks advised the governments to issue auction rate bonds to lower their financing costs and purchase interest rate swaps to protect the governments if the market moved in the wrong direction. The officials did not understand that the market was controlled by the banks and that the banks could impose penalties when the products unraveled, which they did.

Continue reading "Wall Street Professionals Fleece Government Amateurs - Main Street Suffers" »

Junk bond exchange traded funds have ten times more money than they did two years ago, and are causing some of the largest price swings ever. Junk bond price swings were seven times higher in November than in May. This volatility in the junk bond market is similar to the volatility seen in other asset classes caused by exchange traded funds. (See Bloomberg “Exchange Traded Junk Funds Roil Bond Market”).

Continue reading "ETFs Increase Volatility in the Junk Bond Market" »

Brokerage firms that sell nontraded REITs reportedly “cringe” at Investor Alerts posted by the Financial Industry Regulatory Authority (FINRA) warning of the dangers of those products. They know that such alerts cause investors “anxiety and concern,” as they learn about the risks that were not disclosed to them by their brokers. Brokerage firms routinely fail to disclose material risks about the nontraded REITs they sell for two reasons: (i) they failed to inform themselves of the risks by conducting appropriate due diligence, and (ii) they don’t want to cause potential investors any “anxiety and concern,” because that would be bad for sales, which pay hefty commissions to the sellers. (“Non-traded REITs face tough scrutiny,” InvestmentNews).

Continue reading "The News Regarding Nontraded REITs Keeps Getting Worse" »