The verdict for Eric Butler is five years in prison for fraudulently selling risky auction-rate securities that ended up costing investors more than $1.1 billion in losses. The ex-Credit Suisse broker also was fined $5 million.

Butler was convicted of securities fraud and conspiracy to commit securities fraud back in August. At the time, prosecutors were seeking a 15-year prison sentence.

One month earlier, Butler’s partner - Julian Tzolov - pleaded guilty to fraud, conspiracy charges and bail-jumping after previously fleeing the country. His sentencing is set for April 27, 2010.

Prosecutors in the case accused Butler and Tzolov of trying to take in bigger commissions by convincing clients they were investing in safe, conservative securities backed by federally guaranteed student loans. The scheme began to backfire in the fall of 2007 as auctions for the investments started to fail.

Institutional investors in particular suffered millions of dollars in losses as a result of the former brokers’ actions. Among the companies affected: STMicroelectronics NV (which later sued Credit Suisse and was awarded $406 million by the Financial Industry Regulatory Authority), Potash Corp of Saskatchewan Inc. and Roche Holding AG.

The case against Butler marks one of the first criminal prosecutions related to the credit crisis.

It’s bonus time on Wall Street, and individual and institutional investors of auction rate securities (ARS) should be up in arms. While the financial press reports that some of the nation’s biggest banks - including Goldman Sachs, Bank of America, JP Morgan Chase and Citigroup - have set aside billions of dollars in bonuses for 2009, untold numbers of ARS investors are still in dire financial straits. And they have been since February 2008, when the market for auction rate securities came to an abrupt standstill.

Today, investors  of auction rate securities are left with little recourse to recover their now-illiquid investments. They can attempt to unload the instruments, albeit at a loss, on the secondary market or file a complaint with the Financial Industry Regulatory Authority (FINRA.)

Either way, the same investment firms and banks that were taken to task by state and federal regulators for allegedly failing to disclose the risks associated with auction-rate securities are now patting themselves on the back with outrageous bonus packages.

When the auction rate market collapsed in February 2008, investors were hit hard. They couldn’t access their supposedly liquid investment, leaving many forced to postpone plans for retirement or pay other expenses.

Eventually, the ARS meltdown led many financial firms to reach settlements with state regulators to buy back auction rate securities from retail clients and some smaller businesses.

Larger institutional ARS investors, however, were not so lucky. They still hold billions of dollars worth of auction rate securities that can’t be sold or are sharply reduced in value.

Meanwhile, in letters sent Jan. 11 to eight major banks - Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo - New York Attorney General Andrew Cuomo is requesting a slew of information about Wall Street’s 2009 bonuses. The banks have until Feb. 8 to respond.

Investors should pay close attention to their responses.

Our affiliation of lawyers is actively advising individual and institutional investors and evaluating their legal options concerning auction rate securities. Tell us about your investment losses; leaving a message in the Comment Box below or via the Contact Us form.

Auction rate securities continue to create financial havoc for many institutional investors, with businesses across the country fighting an uphill battle to recover billions of dollars that are still frozen in the instruments. As reported Jan. 2 by the Wall Street Journal, some 400 companies hold more than $20 billion of auction rate securities that can’t be sold or are sharply reduced in value.

As a result, those companies are pulling back their spending which, in turn, creates yet another drain in an already-depressed economy.

It was in February 2008 that the $330 billion market for auction rate securities met its demise. Investors were left without the liquidity they had been promised and, instead, faced a new reality altogether: To access their money, they could only sell their investments on the secondary market at a steep discount or hold onto the securities until they matured - a process that could take 20 years or more.

Since then, individual and institutional ARS investors accuse the investment firms and banks that sold them auction rate securities of misrepresenting the safety and liquidity of the products. The complaints eventually prompted a series of investigations by both state regulators and the Securities and Exchange Commission (SEC), which resulted in a number of settlements last year. Under the settlements, many of Wall Street’s major brokerage houses agreed to buy back auction rate securities from individual investors and small businesses. For the most part, however, larger institutional investors were left out of the buy-back deals.

One of those institutional investors is Abercrombie & Fitch. According to the WSJ article, the company has $230 million, or 33%, of its cash on hand tied up in the auction-rate securities it purchased from several banks, including UBS AG and Bank of America.

“If we had more cash, we’d be running different [business] models, with more stores and more inventory,” said Abercrombie & Fitch treasurer Everett Gallagher, in the WSJ story.

For other companies, lack of access to short-term cash means employee cutbacks. Nanophase, an Illinois business that provides molecular technology for floor coatings and sunscreens, has let go 12 of its 54 employees. The company says that auction-rate securities have tied up about half of its $8 million, money it needs for corporate expenses.

According to the Wall Street Journal, Nanophase survived 2009 in part by selling some of its auction-rate securities for 87 cents on the dollar.

Another ARS investor who is hurting is Bob Bridgeman. When Bridgeman sold a small New Jersey oil-change and car-wash business, he put his money into LandAmerica 1031 Exchange Services. The company enables small business owners to invest their cash tax-free. It turns out that LandAmerica invested its entire pool of about $200 million in auction rate securities. In November 2008, LandAmerica was forced to close its doors. On Sept. 9, 2009, it filed for bankruptcy reorganization, leaving investors like Bridgeman - who had more than $1 million in LandAmerica - with no access to their cash.

“It was a big portion of what I worked for my whole life,” Bridgeman, 60, said in the Wall Street Journal.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Consulting Services Group (CSG) is the latest investor to sue Morgan Keegan & Co. for losses suffered in several collapsed RMK funds. CSG filed its lawsuit on Dec. 22, naming Morgan Keegan, Morgan Asset Management, parent company Region Financial Corp., and James Kelsoe, former manager of the Morgan Keegan funds, as defendants. 

CSG’s complaint mirrors other lawsuits filed by hundreds of individual and institutional investors against Morgan Keegan and the bond funds. Among the laundry list of illegal actions that CSG cites in its lawsuit: Misrepresentation and suppression, fraudulent concealment, breach of fiduciary duty, intentional interference with business relationships and “negligent supervision and conspiracy in the underwriting, marketing and management” of the RMK Funds.

In addition, CSG alleges that Morgan Keegan and Kelsoe used “misrepresentation” and “fraudulent concealment” to keep CSG and its clients invested in the RMK funds even after Morgan Keegan reportedly knew the investments had become risky and were plummeting in value. 

“A complete collapse of the funds in the current market was only a matter of time,” the lawsuit reads. “By March 2008, the damage was done: All six of the (RMK) funds collapsed, causing many of CSG’s clients to lose most, if not all, of their investment.”

Losses in the Morgan Keegan funds have been significant, ranging from 51% to 86%.  Between March 2007 and March 2008, the funds lost $2 billion of their value. 

The six funds in question include the Regions Morgan Keegan Select High Income Fund, the Regions Morgan Keegan Select Intermediate Bond Fund, RMK High Income Fund Inc., RMK Strategic Income Fund Inc., RMK Advantage Income Fund Inc. and the RMK Multi-Sector Fund.

As reported Dec. 22 by the Memphis Business Journal, 78 cases involving the Morgan Keegan funds have been heard by arbitration panels with the Financial Industry Regulatory Authority (FINRA). Claimants in those cases have received approximately $7.6 million in awards. 

Memphis-based CSG provides investment advice to institutions, foundations, pension funds and wealthy investors. 

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Yet another Schwab Yield Plus investor has emerged victorious in a case against Charles Schwab and the Schwab Yield Plus Fund Select Shares (SWYSX). On Dec. 7, a Financial Industry Regulatory Authority (FINRA) arbitration panel awarded an investor from Huntington Beach, California, more than 100% of his net out-of-pocket losses - $19,400 - for his claims against Charles Schwab regarding Schwab Yield Plus Fund Select Shares.

The claimant was represented by the law firms of David P. Meyer & Associates Co., L.P.A.; Maddox, Hargett & Caruso, P.C.; Aidikoff, Uhl & Bakhtiari; and Page Perry, LLC.

The Schwab Yield Plus Funds have been at the center of ongoing litigation and claims by investors that Charles Schwab misrepresented the risks of the products, as well as failed to disclose important information regarding certain securities held by the funds.

Those securities included an overconcentration of high risk, speculative mortgage-backed securities. Ultimately, investors in the Schwab Yield Plus Funds lost 31.7% from June 2007 through June 2008, while other ultra short bond funds experienced little or no losses.

Thousands of Yield Plus investors have filed arbitration claims with FINRA in an attempt to recover their investment losses in the Yield Plus Funds. In each of the claims, the common theme involves allegations that Charles Schwab presented the Yield Plus Funds as similar to money market investments but with higher potential returns and only marginally higher risks.

In August, a federal court certified a Charles Schwab Yield Plus lawsuit as a class action lawsuit. With the ruling, the court imposed a Dec. 28 deadline for class members to decide whether they wish to opt out of the class action and pursue an individual arbitration claim with FINRA. This means Yield Plus investors who intend to opt out of the class action must ensure that their exclusion request is received by the Dec. 28 deadline. After that date, investors will be bound by the final results of the class action lawsuit.

For more information about opting out of the Charles Schwab Yield Plus class action lawsuit, please contact us at 800-505-5515.

Additional information is available at SubprimeLosses.com.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Schwab Yield Plus investors have approximately two weeks to opt out of a Schwab Yield Plus class action lawsuit involving the Schwab Yield Plus Fund Select Shares (SWYSX) and the Schwab Yield Plus Investor Shares (SWYPX). The deadline to opt out is Dec. 28, 2009.

San Francisco broker Charles Schwab marketed and sold the Yield Plus funds as a safe alternative to money market accounts, depicting the funds as a way to preserve capital while generating income at relatively low risk. Unfortunately for investors, those representations did not live up to their hype. Evidence shows that the Schwab Yield Plus funds contained more than 45% of toxic mortgage- and asset-backed securities, which exposed investors to the potential of more risk and greater financial losses.

More investors are filing individual arbitration claims with the Financial Industry Regulatory Authority (FINRA) as they try to recover their investment losses in the YieldPlus funds.  Among the allegations in their complaints: Charles Schwab misrepresented the Yield Plus products by failing to disclose the fact that the funds were over concentrated in risky mortgage-related holdings.             

Investors need to understand that they are considered part of a class action - and bound by the lawsuit’s final outcome - unless they formally request exclusion. For some Schwab Yield Plus investors who suffered significant financial losses in their Schwab Yield Plus investments, filing an individual claim with FINRA may present a better opportunity to recover more of their financial losses. Investors should consult with legal counsel to thoroughly review all of their options.

For additional information about opting out of the Schwab Yield Plus class action before the Dec. 28 deadline, please contact us at 866-827-6537. 

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Dow Corning Corp. has filed another ARS lawsuit - this one against Merrill Lynch over a $166 million loss in auction rate securities. The lawsuit, filed Nov. 20, alleges that Merrill Lynch misled the silicone supplier about the safety and liquidity of the instruments and the ARS market, which collapsed in February 2008.

This is the second lawsuit that Dow Corning has filed over losses in auction rate securities. The first complaint was filed Nov. 7 against BB&T Corp. and alleged that the North Carolina bank falsely represented the safety and liquidity of $667 million in auction rate securities that Dow previously purchased. According to the complaint, Dow bought the ARS bonds from 2005 to February 2008 after BB&T touted the investments as a “highly liquid, highly rated and secure investments that were equivalent to cash.”

The latest lawsuit involving Merrill Lynch is Dow Corning Corporation et al v Merrill Lynch & Co, U.S. District Court for the Southern District of New York, No. 09-9697.

Tell us about your situation with auction rate securities by leaving a message in the Comment Box below or via the Contact Us form. You may have a viable claim for recovery of your investment losses.

Schwab YieldPlus investors have approximately 30 days to opt out of a class action lawsuit involving the Schwab YieldPlus Fund Select Shares (SWYSX) and the Schwab YieldPlus Investor Shares (SWYPX). Investors who do not opt out by the deadline of Dec. 28, 2009, will be bound by the final outcome of the class action.

Investors are considered part of a class action unless they formally request exclusion. For individuals who suffered significant financial losses in their Schwab YieldPlus investments, this decision needs to be weighed carefully. Class action representation can often be an attractive legal option when individual financial losses are small. In other instances, however, filing an individual claim with the Financial Industry Regulatory Authority (FINRA) may be more economically viable. Investors should consult with legal counsel to thoroughly review all of their options.

When Schwab first advertised the Schwab YieldPlus Funds, they were characterized as a safe alternative to money market accounts, with the intent to preserve capital while generating income at relatively low risk. Ultimately, those representations did not pan out. Instead, evidence shows that the YieldPlus Funds contained more than 45% of toxic mortgage- and asset-backed securities.  As a result, investors were exposed to not only more risk but also the potential for more financial losses.

Many investors have filed arbitration claims with FINRA, alleging that Charles Schwab misrepresented the YieldPlus Funds and failed to disclose crucial details about their large and inappropriate concentration in mortgage-related holdings. As reported Oct. 14 by Investment News, Schwab stated in July that it had paid $21 million in the first half of the year to settle client complaints and arbitration claims related to YieldPlus investments.

For more information about the Dec. 28 deadline to opt out of the Charles Schwab class action or if you are an individual or institutional investor and have questions about your Schwab YieldPlus investments, please contact us at 866-827-6537.

Tell us about your situation with Schwab YieldPlus Funds by leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.

Wells Fargo & Co. will refund $1.4 billion in non-liquid auction rate securities to investors, charities and small businesses nationwide, including about $700 million to California investors. The agreement, which was reached Nov. 18 with the California Attorney General’s Office, puts to rest a California fraud lawsuit that alleged Wells Fargo misrepresented auction rate securities to thousands of investors as safe-as-cash investments.

As part of the settlement agreement, the bank also will pay a $1.9 million fine, plus legal costs and future monitoring expenses incurred by the attorney general’s office.

In April, California Attorney General Edmund G. Brown, Jr. sued three Wells Fargo investment subsidiaries, accusing them of securities fraud by convincing investors to purchase auction-rate securities with false promises of healthy returns and liquidity. The company also was charged with failing to supervise and train its sales agents and selling unsuitable investments.

When the market for auction rate securities collapsed in February 2008, those same investors suddenly found themselves holding essentially worthless investments.

The North American Securities Administrators Association also had launched an inquiry of the Wells Fargo subsidiaries over sales of auction rate securities.

“Wells Fargo convinced thousands of investors to purchase auction rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold,” the California attorney general said in announcing the agreement with Wells Fargo. “Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back.”

Wells Fargo joins more than a dozen brokerages and investment firms that entered into settlement agreements with regulators to buy back auction rate securities from investors. To date, companies have agreed to repurchase approximately $61 billion of the risky investments.

Tell us about your situation regarding auction rate securities by leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.

Dow Corning, the world’s biggest silicone supplier, is suing BB&T Corp. over allegations the North Carolina bank falsely represented the safety and liquidity of $667 million in auction rate securities that Dow has been unable to sell. According to Dow’s complaint, it bought the auction rate bonds from 2005 to February 2008 after BB&T touted the instruments as a “highly liquid, highly rated and secure investments that were equivalent to cash.”

Problems for investors holding auction rate securities reached a fever pitch in February 2008 when the $330 billion ARS market came to a standstill after brokerages abandoned their support for the instruments. Meanwhile, individual investors and institutional investors were left stranded, unable to sell their so-called cash-like investments.

As reported Nov. 6 by Bloomberg, Dow’s complaint accuses BB&T and its Scott & Stringfellow broker/dealer unit of fraud, breach of fiduciary duty, negligent misrepresentation and omissions, and violations of the Michigan Uniform Securities Act.

Tell us about your situation with auction rate securities by leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.