Investment Fraud Lawyer Blog

A team of state regulators raided Wachovia Securities’ St. Louis headquarters today as part of a broad investigation into sales of auction rate securities to investors. The investigation is apparently focusing on Wachovia Securities’ sales practices in selling auction rate securities as well as Wachovia Securities’ internal activities regarding the auction rate securities market. The raid was apparently necessitated by Wachovia Securities’ refusal to comply with requests for information issued by the state of Missouri.

In addition, Missouri has reportedly served subpoenas on more than twelve Wachovia Securities’ executives and employees as part of the investigation.

Continue reading "States Raid Wachovia Securities Regarding Auction Rate Securities Abuses" »

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

Posted In: Auction Rate Securities , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems , Wachovia

Bookmark:

Washington’s recent decision to permit the Federal Reserve to advance loans to Wall Street banks may have the unintended effect of undermining the SEC’s ability to regulate and protect the investment markets. Simply stated, different agencies of the U.S. government now have an inherent conflict among themselves. On the one hand, the SEC, which is the U.S. agency charged with regulating and protecting the investment markets, has a duty and obligation to take appropriate action to protect those markets, enforce violations of the rules of those markets, and, where appropriate, to take action that would have adverse financial consequences for Wall Street investment banks. On the other hand, the U.S. government is now among the largest creditors, if not the largest creditor, of the very investment banks that the SEC is obligated to regulate. Clearly the question must be posed as to whether the SEC will be willing and able to take appropriate action in situations where its very actions could have a negative impact on the financial wherewithal of the Wall Street banks which, in turn, would adversely impact the U.S. government’s ability to collect on obligations that are owed to it by the Wall Street banks.

Continue reading "Has Washington's Bailout Of Wall Street Banks Compromised The SEC's Ability To Regulate And Protect The U.S. Capital Markets?" »

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

Posted In: Market Developments , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

Bookmark:

Lack of staffing, conflicts of interest and poor business practices are among the reasons the SEC has found caused the three largest credit-rating agencies (Moody’s, S&P and Fitch) to award high credit ratings to questionable structured finance securities. Due to an unprecedented increase in mortgage-backed and structured finance securities between 2002-2007, the big three fought to keep up with volume while maximizing their own market share. In this environment, all three ended up compromising their standards and integrity.

The ratings agencies did not hire enough people when their workload began increasing in 2002. As a result, the SEC concluded that they did not have enough staff, and “sometimes cut corners.” The firms also did not document their processes or decisions in awarding “AAA” ratings (the highest rating) for questionable securities. In certain situations, there was no evidence that any surveillance work was done by the agency.

Continue reading "SEC Finds "Serious Shortcomings" At Credit-Ratings Agencies" »

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

Posted In: Bonds , Market Developments , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

Bookmark:

The subprime and credit crises affecting the economy have revealed an array of suitability abuses by Wall Street investment firms. While a rising stock market hides many abuses by brokerage firms, suitability abuses are more easily identifiable when times are tough. For example, many risk-averse investors with conservative objectives have recently discovered that they have sustained huge losses on unsuitable investments recommended to them as being very safe. Auction rate securities, short-term bond funds, AAA rated debt securities, and mortgage heavy mutual funds provide recent examples of suitability abuses.

Continue reading "Investor Suitability Claims on the Rise" »

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

Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Charles Schwab , Citigroup/Smith Barney , Common Securities Broker Abuses , Credit Suisse , Elder Abuses , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Keegan , Morgan Keegan Bond Funds , Morgan Stanley , RBC Dain Raucher , Raymond James , Schwab YieldPlus Fund , Subprime Mortgage & Collateralized Debt Obligation Problems , SunTrust , UBS , Wachovia

Bookmark:

According to recent reports, Washington’s decisions to open the government’s vault to support Wall Street banks, Freddie Mac, and Fannie Mae, among others, could have the collateral effect of costing the United States government its AAA credit rating. During the last several months, Washington has permitted the Federal Reserve to provide billions of dollars in government funds to an array of financial institutions in order to provide them with needed liquidity. Specifically, Washington has committed to provide financial support to numerous Wall Street banks, Freddie Mac and Fannie Mae. Many of these loans by the government have been secured by complex financial instruments of questionable value. Stated another way, much of the questionable debt associated with the ongoing subprime and credit crisis could become the government’s risk at substantial cost to American taxpayers.

Continue reading "Washington's Bailout Of Financial Firms May Put The United States' AAA Credit Rating At Risk" »

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

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

Bookmark:

Today UBS announced plans to repurchase up to $3.5 billion of auction rate preferred shares issued by tax-exempt closed-end funds. This repurchase will permit some investors to convert their illiquid auction rate preferred shares into cash. These shares have been illiquid since February of this year when UBS and other brokerage firms withdrew their support of the auction rate markets.

UBS was recently sued by the Commonwealth of Massachusetts for urging its sales force to sell auction rate securities as safe, cash equivalents or money market-type investments while UBS insiders were simultaneously dumping their auction rate investments and UBS was planning an exit strategy from the auction rate securities markets. UBS is also alleged to have continue to sell student loan auction rate securities to its customers after it had determined that these securities were a flawed product.

Continue reading "UBS Plans to Repurchase $3.5 Billion of Auction Rate Preferred Shares" »

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

Posted In: Auction Rate Securities , Subprime Mortgage & Collateralized Debt Obligation Problems , UBS

Bookmark:

Over recent months, Wall Street’s reckless speculations, improprieties, and, yes, even possible criminal acts, have been reported in the news media almost daily –- Washington’s reaction has been to open the doors to the Fed to support such conduct thereby implicitly endorsing the excesses that have created many of our current economic problems. While the SEC and various regulators have announced countless investigations of Wall Street banks involving things such as questionable valuations of securities, mismarketing of auction rate securities, failure to make adequate disclosures to investors, rampant speculation in the derivatives markets, and an array of other situations, Washington’s actions speak louder than its words. Notwithstanding these “investigations,” Washington seems bent on trying to “sweep the problem under the rug” by opening the doors of the Federal Reserve to enable the Wall Street firms to sell securities of questionable value to the Fed in order to maintain adequate liquidity to continue the same old activities. Apparently, in Washington’s eyes, misconduct and excessive speculations do in fact pay.

Continue reading "Washington Opens The Vault For Wall Street Firms, Slams The Door On Main Street America" »

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

Posted In: Brokerage Firms , Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

Bookmark:

On Friday, July 11, IndyMac Bank was shut down by federal regulators and its assets were turned over to the Federal Deposit Insurance Corp. The entity reopened on Monday as IndyMac Federal FSB under the control of the FDIC. The Office of Thrift Supervision took action because it did not think the bank could meet its depositors demands. It is estimated that bank customers could lose as much as $500 million in uninsured deposits and that the failure could cost the Deposit Insurance Fund between $4 and $8 billion. IndyMac, based in Pasadena, CA, is the nations’ largest regulated thrift to fail and the second largest financial institution to close in U.S. history. IndyMac is the fifth bank to close this year and FDIC officials are expecting an increase in bank failures.

Continue reading "IndyMac Fails Amid Mortgage Problems - FBI Investigates" »

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

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

Bookmark:

The activities of two former Credit Suisse brokers in the $300 billion auction rate securities market has become the focus of a federal criminal investigation. For many years, auction rate securities were sold as cash equivalents or money market alternatives. The auction rate securities market allowed companies to issue long-term debt obligations while paying short-term interest rates (which are historically lower). Earlier this year, the auction rate securities market virtually ceased to exist when all of the major brokerage firms simultaneously withdrew their support for such markets and auctions failed. As a result, auction rate securities were rendered illiquid and thousands of investors have lost money. Recently, serious questions have been raised about whether enough information was disclosed to investors about the risks and possible consequences of investment in these securities.

Continue reading "Federal Prosecutors Target Auction Rate Securities Abuses" »

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

Posted In: Auction Rate Securities , Credit Suisse , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

Bookmark:

A review of recent market events suggests that there may be far more risk in money market funds than was previously thought. In an article in the Business section of today’s New York Times, Eric Dash reported that, during the last year, many of our country’s largest brokerage firms have been forced to contribute more than $10 billion to prop up money market funds that are threatened by the mortgage crisis. In recent months, the following firms, among others, have taken action to bolster their affiliated money market funds: Legg Mason, Credit Suisse, Bank of America, SunTrust, Morgan Stanley, Lehman Brothers, and Wachovia.

The Big Question is: How long will these firms be willing and able to provide this support? All of these firms have reportedly sustained billions of dollars in financial setbacks over the past twelve months. At some point, will their financials become so tenuous that they cannot afford to continue spending billions to support faltering money market funds? Is there risk associated with this $3.5 trillion market?

Continue reading "Could the Unthinkable Happen- Could Money Market Funds Lose Value?" »

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

Posted In: Auction Rate Securities , Bank of America , Credit Suisse , Lehman Brothers , Money Market Funds , Morgan Stanley , Subprime Mortgage & Collateralized Debt Obligation Problems , SunTrust , Wachovia

Bookmark:

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" »

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

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

Bookmark:

At present, 75% of Americans believe our economy is in a recession with no signs of recovery. There is no question that our economy is going through very tough times. More than 324,000 people have lost their jobs already in 2008. The economy is still in the midst of a mortgage and credit crisis. Rising food prices and energy prices have stretched peoples’ finances. The stock market is currently in a bear market stage. Collectively, these events have undermined consumer confidence and made people become much less confident in the future.

CNN recently quoted Mark Vitner, a Wachovia economist, as saying “From a consumer’s perspective, the economy is bad, and the enviroment is going to be tough for a while… That’s pretty accurate.”

Continue reading "Main Street America Believes We Are in a Recession" »

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

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

Bookmark:

The housing market is getting worse as a result of declining house prices, increased foreclosures, higher unemployment, and troubled credit markets. Unfortunately, the situation is likely to get worse as the economy falls deeper into a recession. It appears that the market is in a tailspin with no relief in sight.

Recent reports from industry observers confirm that home prices are continuing to dwindle amidst a worsening economy. Reuters quoted Tom Zimmerman, an analyst with UBS Securities, as saying, “The housing market has been in a recession for the past year, and once the overall economy slips into a recession, which it probably will, the housing market will probably be in a depression… The housing market, in terms of housing finance, is really in a disaster right now and I see no change in that very quickly.”

Continue reading "The Housing Market Continues to Spiral Downward" »

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

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

Bookmark:

Amidst concern about high oil prices, further fallout from the credit crisis, and a slowing economy, U.S. stock prices continued to fall and pushed the Dow Jones industrial Average to the brink of a bear market. The Dow has retreated nearly 360 points from its all-time high in October. This decline is almost equal to 20 percent – the traditional threshold for a bear market. Other indices also suffered declines. During the last week of June the S&P 500 dropped 3.1 percent and the NASDAQ fell 4 percent.

These events will also be accompanied by slump in earnings according to Michael Patterson of Bloomberg.com. “This week the news on earnings is that the second quarter is probably going to be worse than we thought,'' said Ron Sweet, vice president of equity investments at USAA Investment Management Co., which oversees $100 billion in San Antonio. “The old news keeps sticking around. It's energy prices, it's write-offs at banks, it's the slow economy.” The losses are spread over large portions of the economy – including financial firms, consumer companies, bond insurers, homebuilders, and manufacturers of high tech components

Continue reading "Bear Market Ahead!" »

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

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

Bookmark:

In an article on Bloomberg.com, Jody Shenn reported that, contrary to some predictions, many experts believe that the credit crisis is far from over. During a conference hosted by the Securities Industry and Financial Markets Association on June 24, BlackRock president Robert Kapito likened the credit crisis to a baseball game: “Some people think it's in the eighth, I think it's in the fourth inning. Wait until you see the quarterly losses people are going to report this quarter.'' Kapito believes that the losses on positions taken to hedge against souring debt will aid in extending the pain for financial firms.

To date, the world's largest banks and securities firms have reported over $399 billion of write downs and credit losses since the housing market crashed in early 2007. Earlier in June, Lehman Brothers reported a first-quarter net loss of about $700 million on commercial-mortgage holdings and opposite derivative bets. Morgan Stanley reported about $500 million in net losses from hedging meant to offset potential write-downs on high-yield company loans.

Continue reading "Credit Crisis only in "4th Inning"" »

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

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

Bookmark:

Federal prosecutors have brought the first criminal case related to the subprime mortgage meltdown. A federal indictment brought by the U.S. Attorney’s Office for the Eastern District of New York which was unsealed on Thursday, June 19, alleges that former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, deceived investors. The two were accused of securities fraud, wire fraud, and conspiracy. In addition, Cioffi was charge with one count of insider trading.

According to the 27-page indictment, when subprime mortgage problems began driving down the value of the Bear Stearns hedge funds the two managed, they not only hid the truth from investors but went as far as to tell investors to put more money into the funds even as they began to sour.

Continue reading "Former Bear Stearns Hedge Fund Managers Indicted" »

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

Posted In: Bear Stearns , Bear Stearns Hedge Funds , Regulatory Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

Bookmark:

Citigroup, the largest bank in the U.S., is expected to take substantial second quarter write downs for subprime mortgages, leveraged buyout loans and other assets. The bank's chief financial officer Gary Crittenden told investors via phone on Thursday that second quarter markdowns will be smaller than the first quarter, but substantial nonetheless. “The marks in this quarter are unlikely to be of that same magnitude, but again they are still sizable marks,” Crittenden said.

In the first quarter, Citigroup posted a $6 billion loss and the bank wrote down $1.5 billion for exposure to bond insurers.

Costs linked to worsening subprime credits could have a meaningful impact on Citigroup’s results for the rest of the year. “We will continue to have substantial additional marks on our subprime exposure this quarter,” Crittenden said. “We may continue to see the magnitude of the marks decline, as the exposures that we have have declined.”

Continue reading "Citi's Write Downs Continue" »

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

Posted In: Citigroup/Smith Barney , Market Developments , Subprime Mortgage & Collateralized Debt Obligation Problems

Bookmark:

On June 19, Evergreen Investments, a subsidiary of Wachovia Corporation, announced that it was liquidating the Evergreen Ultra Short Opportunities Fund (EUBAX). The Fund has lost 19.6 percent of its value year to date, including total realized losses of more than $200 million in less than three months since March 31, 2008. Bond funds – traditionally considered safe, conservative investments – have once again proven that they are not immune to the subprime meltdown and may be among the most exposed investments of all.

The Fund, whose objective was to provide current income with preservation of capital and low principal fluctuation, invested 83.25% of its assets in commercial and residential fixed and variable rate mortgage backed securities, including collateralized mortgage obligations.

Continue reading "Investors Lose Big As Wachovia Subsidary Liquidates Evergreen Ultra Short Opportunities Fund" »

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

Posted In: Evergreen , Mutual Funds , Securities Class Actions , Subprime Mortgage & Collateralized Debt Obligation Problems , Wachovia

Bookmark: