Investment Fraud Lawyer Blog

An array of recent reports strongly suggest that the economy is in for many months of rough sledding and that the current economic crisis is likely to last well into, if not through, 2009. In fact, the economy seems to be reeling on almost every front.

The real estate industry continues to experience serious setbacks and expectations are that these setbacks will continue for the foreseeable future. The number of bank repossessions and foreclosures has risen dramatically. For example, banks repossessed almost three times as many homes in July of 2008 as they had in July of 2007. Similarly, the number of homes receiving foreclosure notices has jumped 55% from a year earlier. Perhaps, more disturbing, even prime mortgages are starting to default at unusually high rates. For example, delinquency rates on prime mortgages of $417,000 or less are almost twice as high as they were a year ago, while delinquencies on larger prime loans are almost 4 times higher. Homeowners, in general, have much less equity in their homes than previously. As of June 30, 2008, the average homeowner owed 95% of the value of the home to lenders compared with 76% when the loan was made. Zillow.com, an internet-based provider of home valuations, recently reported that 29% of owners who purchased homes in the last five years, now owe more on their mortgages than their homes are worth. According to the S&P/Case-Shiller Home Price Index, the average home has dropped almost 20% from its high water mark in 2006. The projections are for more pain in the future. The Case-Shiller Housing Futures Index, traded on the Chicago Mercantile Exchange, currently anticipates that the average home will ultimately lose 33% of its value from the 2006 high water point. Respected bank analyst, Meredith Whitney, thinks things will be even worse. She projects that the average home price will ultimately drop 40%. None of this is good news for the economy. It does not appear that the real estate decline which lead us into the current credit crisis has come close to running its course.

Continue reading "Economic Forecast: Expect Things to Get Much Worse" »

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Market Developments , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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More and more employees approaching retirement age are being victimized by unscrupulous brokers who are advising them to retire early, invest their retirement funds with the broker and begin withdrawing those retirement funds under IRS Rule 72(t). The result has often been that the brokers end up earning big fees and the employees end up losing their nest egg. In many instances, brokers are approaching employees at their place of employment and offering “free advice” or “free lunch” seminars, often without knowledge or approval of the employer. At these seminars, employees are advised they can retire early, earn large returns on their retirement funds and make large annual withdrawals under IRS Rule 72(t), which allows investors to withdraw retirement funds prior to age 59 ½ if the investors commit to take out the same amount each month for at least five years. These programs often leave the employees penniless. Indeed, in some cases, investors have seen their principal diminish to the point where they have no choice but to go back to work. The Financial Industry Regulatory Authority (FINRA) and other regulatory agencies recognize this as a growing problem and are investigating firms such as Morgan Stanley, InterSecurities, Securities America and Citigroup for inappropriate conduct in this area..

Continue reading "Early Retirement Scams are on the Rise" »

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Posted In: Brokerage Firms , Citigroup/Smith Barney , Common Securities Broker Abuses , Early Retirement Scams , Elder Abuses , Morgan Stanley , Smart Investing Tools

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The subprime and credit crises have resulted in a surge of fraudulent misrepresentation and omission cases against Wall Street firms. A rising stock market concealed many such abuses because values were rising, making fraudulent misrepresentations and omissions hard to identify. Recently, however, many of these misrepresentations and omissions have become apparent. For example, many risk-averse investors with conservative objectives have recently discovered that they have sustained huge losses on investments that were misrepresented to them as being very safe and conservative.

Perhaps even more critical than what was affirmatively misrepresented to investors in these cases is what the firms and their brokers omitted to disclose to investors about these securities. The bedrock principle of the securities laws is the duty of complete and truthful disclosure. Once a broker undertakes to disclose any information about a security to an investor or potential investor, the disclosure must be complete and truthful in all material respects. This is an absolute requirement. It applies to every broker (whether discount or full service), every security, and every person who receives any information about a security (rich or poor, financially sophisticated or not, whether or not that person has an account with the broker). If a broker fails to provide complete and truthful disclosure, and the undisclosed information would have been important in deciding whether or not to invest, the investor has a legal right of action against the broker and the firm to recover resulting losses and damages.

Continue reading "Investor Misrepresentation And Omission Claims Escalate" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Charles Schwab , Citigroup/Smith Barney , Common Securities Broker Abuses , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Keegan , Morgan Keegan Bond Funds , Morgan Stanley , RBC Dain Raucher , Schwab YieldPlus Fund , Smart Investing Tools , SunTrust , UBS , Wachovia

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Many auction rate securities investors are asking whether they should sell their illiquid holdings or should wait in hopes of their auction rate securities being refinanced or redeemed. Unfortunately, there is no one answer that is right for every investor. This article attempts to discuss various factors that investors may wish to consider in making their own decision. Among other things, we discuss the status of the market, describe relevant considerations and discuss the advantages of selling and of waiting. We also provide investors with information on what they can do if they are interested in selling their auction rate securities.

Continue reading "Should Investors Sell Their Illiquid Auction Rate Securities?" »

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Smart Investing Tools , SunTrust , UBS , Wachovia

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A recent study of securities arbitration raises some disturbing questions about industry-sponsored arbitration panels. A review of 14,000 NASD and NYSE securities arbitration awards for the period from 1995 through 2004 shows that individual investors are faring worse in cases decided by arbitration panels than they once did. This is particularly true when investors brought their claims against one of the larger brokerage firms. This study, among other complaints, has resulted in challenges to the fairness of securities arbitration, challenges to the inclusion of securities industry arbitrators on panels, and an array of similar issues.

Fortunately for investors, the study does reflect the overall success realized by investors who file securities arbitration claims. As is the case in court proceedings, many arbitration cases (including many of the strongest arbitration cases) are settled by the parties or in mediation. None of these cases or their results are considered in the study. The bottom line is that investors bringing arbitration claims, as a whole, recovered money many more times than the study would suggest.

Continue reading "Securities Arbitration Study Is Disappointing But Does Not Tell The Whole Story About Investor Recoveries" »

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Posted In: Securities Arbitration , Smart Investing Tools

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You are about to entrust a broker and a brokerage firm with a substantial amount of your money. Have you checked them out first?

There are three sources for you to check. First is the Financial Industry Regulatory Authority (FINRA); this is the organization that regulates brokerage firms and their employees. To see the information FINRA makes available on brokers and brokerage firms go to www.finra.org. Once on the website click FINRA BrokerCheck.

You should also check with your state regulator. Some state securities departments provide more information than does FINRA. The North American Securities Administrators Association (NASAA) has on its website, www.nasaa.org, a link for the appropriate regulator in each state. (NOTE: Brokers and brokerage firms are required to be licensed in the state in which they are doing business.)

Continue reading "Check Out Your Broker" »

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Posted In: Smart Investing Tools

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Investors Intelligence reports that writers of securities newsletters are not optimistic about the U.S. stock market. The number of optimists has fallen to 27.4%, the lowest level it has been in 14 years. Meanwhile, the number of writers forecasting a bear market has increased dramatically to 47.3% over the past five weeks. Similarly, the percentage of writers who are predicting a correction (an additional drop in benchmark indexes of 10% or more) has increased to 25.3%.

Continue reading "Securities Newsletters Turn More Pessimistic" »

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Posted In: Market Developments , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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In the July 2008 edition of Money Magazine, a column written under the pen name The Mole, who is identified as Money’s Undercover Financial Planner, provided insight on the importance of knowing the total fees associated with investing.

When you buy investments through an adviser, you pay he or she a fee. A separate set of fees, however, may be incurred with each subsequent purchase and thus eat into the returns on your investments. To get an accurate account of fees associated with all investments, ask your adviser to itemize these four expenses:

• Adviser fees. Usually a percentage of your assets, an hourly fee, a fixed fee, or commissions.

• Mutual fund annual expenses. This may include 12b-1 marketing fees.

• Fund turnover. The transaction costs incurred by a fund in buying and selling stocks. Such fees are not included in a fund’s prospectus. (Annual turnover of a fund’s stocks can is available on morningstar.com and can be used to estimate turnover costs at 0.01% for each 1% of annual turnover.)

• Insurance fees. With annuities and insurance policies, extra fees are charged to cover death benefits, administrative costs and certain riders.

Continue reading "The Hidden Costs of Investment Advice" »

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Common Securities Broker Abuses , Smart Investing Tools

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Scam artists have always followed the headlines. With oil prices setting all-time records, history tells us that con artists are already peddling investments in "alternative energy" resources, such as a company that claims it can burn water as fuel or that is building refineries to harness the energy of animal renderings. Even companies that tout their abilities to render more traditional sources of energy such as oil wells or coal burning plants should be studied scrupulously or avoided altogether as suspicious in the current economic climate, particularly if the investment is represented as anything other than highly speculative. If an investment is hyped as "can't miss," or if high or guaranteed returns are promised, the offer is likely a scam to be avoided.

Securities regulators regularly report an increase in such schemes whenever oil prices are high. For example in March 2001, the date of the last major oil price spike, the California Department of Corporations reported that it was looking into 20 new offerings in the alternative energy field. Within two years of that date regulators in seven states -- Washington, Kentucky, Oklahoma, Texas, Wisconsin, Kansas and Ohio, had taken action against promoters of such schemes. The AARP regularly counsels its members to be on the lookout for oil and gas investment scams when gas prices are high.

Posted by Page Perry, LLC | Permalink | Email This Post

Posted In: Common Securities Broker Abuses , Smart Investing Tools

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According to a cover story in the May 16, 2008 edition of USA Today, lower stock returns and falling home prices may make it more difficult to retire on a 401(k) or similar retirement account and the equity in your home.

Since the beginning of the year, Patty Stewart, a 49-year old resident of Redland, California , has seen the value of her 401(k) fall about 4 percent. In addition to minimized returns, Stewart was forced to reduce her retirement contributions to offset the rising cost of living expenses. Home prices in Stewart’s neighborhood are off about 25 percent over a two-year period, which means that it is not likely that she can rely on tapping her home equity to supplement retirement income. According to Stewart’s calculations, she will need $1.3 million to $1.5 million for retirement, which she says "doesn't seem like it's something that will ever happen."

Continue reading "How The Ailing Economy May Affect Your Nest Egg" »

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Posted In: Market Developments , Smart Investing Tools

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According to opinion columnist David McPherson writing on ABCnews.go.com, certain unscrupulous financial advisers pitch a scenario to employees of major corporations. The pitch is quite attractive: You can retire early (while in your 50's), cash out your retirement plan, and live off 12 percent annual returns.

These brokers use unrealistic investments projections to convince prospects that they can retire comfortably when they are in their 50's. The brokers earn fees and commissions on millions of dollars simply by convincing employees to collect a single lump-sum payment in lieu of guaranteed monthly pension benefits.

In April, the Financial Industry Regulatory Authority (FINRA) launched an effort to warn employers and employees of early retirement schemes that “promise more they can deliver." Over the last two years, FINRA has disciplined two brokerage firms – Securities America Inc., and Citigroup Capital Markets Inc. – that had targeted employees of Exxon and BellSouth with similar schemes.

Continue reading "FINRA: Beware Early Retirement Scams" »

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Posted In: Common Securities Broker Abuses , Early Retirement Scams , Elder Abuses , Regulatory Developments , Smart Investing Tools

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Many investors are being provided with grossly inflated valuations of their subprime securities holdings because Standard & Poor’s and Moody’s have failed to cut the ratings of many AAA-rated securities even though those securities do not meet the criteria to be classified AAA. The bulk of these securities are believed to be held by banks and insurance companies.

A recent study by Bloomberg concluded that 80 of the AAA securities in the ABX indexes fail to meet S&P’s criteria for AAA-rated securities. The study concluded that, if the ratings standards were accurately applied, at least $120 million in AAA bonds would be downgraded. According to Credit Suisse Group, record home foreclosures have caused AAA debt to fall to 61 cents on the dollar, but those same bonds would be worth only 26 cents if downgraded to AA. If Credit Suisse is correct, investors in just these securities currently rated AAA have an undisclosed loss of at least $42 billion.

Kyle Bass, chief executive officer of Hayman Capital Partners, was blunt about the situation when he said, “The fact that they’ve kept those ratings where they are is laughable. Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.”

Continue reading "Investors Are Being Misled About The Real Values Of Their Subprime Securities Holdings" »

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Posted In: Bonds , Market Developments , Municipal Bonds , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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As more baby boomers approach retirement age, the demand for high-quality financial advice has been on the rise. To meet this demand for competent advice, brokerage firms began touting themselves through advertisements and other marketing mediums as “full service” firms capable of providing sound financial advice on a wide array of issues from retirement planning to tax advice. In recent years, it also seemed like every day a new credential popped up next to the names of these so-called “financial professionals.”

This marketing campaign has served to confuse investors. Experts in the industry have long believed that ordinary investors have no idea that there are different types of financial advisers and, more importantly, that each may owe different legal duties to their clients. Because of the anticipated confusion among consumers, the SEC requested that RAND Corporation conduct a study to examine the public’s understanding between the two main types of financial professionals, brokers and investment advisers.

In a nutshell, according to the RAND study, a broker is defined as someone who conducts transactions in securities on behalf of others, while an investment adviser is someone who provides advice to others regarding investments. According to the RAND study, consumers discern absolutely no difference between the two, believing that both types of financial professionals are acting in their best interest.

Continue reading "Financial Advisors vs. Investment Advisers vs. Brokers: Rand Corporation Study Concludes That Investing Public Sees Them All The Same" »

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Posted In: Brokerage Firms , Common Securities Broker Abuses , Elder Abuses , Smart Investing Tools

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