Archive for May, 2010

Broker/dealers are apparently facing new scrutiny from the Financial Industry Regulatory Authority (FINRA). According to a May 27 article by Investment News, FINRA is actively investigating broker/dealer underwriters of subprime securities. In addition, FINRA allegedly is preparing to bring more enforcement actions for selling Regulation D deals - i.e. private placements.

According to the Investment News story, FINRA allegedly wants to know whether various broker/dealers reported incorrect data when they created the subprime securities. If the data was incorrect, it could include misstatements by firms about the default rates for the underlying mortgages used to create the mortgage-backed securities.

This same issue was the subject of a fraud lawsuit filed in April by the Securities and Exchange Commission (SEC) against Goldman Sachs.

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.

Auction-rate securities are once again in the news - this time, the spotlight is on Thomas Weisel Partners Group. Specifically, the San Francisco-based investment bank faces a regulatory probe by the Financial Industry Regulatory Authority (FINRA) in connection to sales of $15.7 million in auction-rate securities.

According to a May 18 story in Investment News, a former employee of Thomas Weisel Partners sold auction-rate securities to three clients in January 2008, just before the ARS market collapsed. That employee, Stephen Brinck, allegedly was “stuffing” auction-rate securities into client accounts without getting their permission, according to FINRA. The actions allegedly were done to pay corporate bonuses.

The Investment News story also states that the ARS sales occurred “only days” after Brinck and Thomas Weisel told customers they were selling auction-rate securities because of concerns about the ARS market.

Thomas Weisel says it intends to “defend the FINRA proceeding vigorously.”

Following the demise of the auction-rate securities market, financial firms have bought back more than $50 billion in auction-rate securities from investors and some small businesses in order to settle claims with federal and state regulators.

Brinck worked for Thomas Weisel from August 1999 until August 2008.

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.

Investors in a municipal arbitrage hedge fund known as MAT Five have been awarded more than $1.7 million by a Los Angeles Financial Industry Regulatory Authority (FINRA) arbitration panel.

The MAT Five fund specialized in municipal arbitrage - highly leveraged financial activities in which fund managers hedge tax-free municipal bonds against riskier taxable corporate bonds. When Citigroup first launched MAT Five, investors thought they were investing in a relatively low-risk, conservative fixed-income alternative that had the volatility of Lehman Brothers Aggregate Bond Index.

In reality, MAT Five was a risky investment. According to evidence presented to the FINRA arbitration panel, the fund exposed investors to a 100% more loss of principal, was 2.5 times more volatile than the S&P 500 and 7.8 times more volatile than a traditional portfolio of municipal bonds.

“When confronted with evidence that Citigroup misrepresented MAT’s risk level to its brokers, who then passed the misleading information on to their clients, a high ranking Citigroup official testified that it was “unwise” for customers of the firm to have relied on what their brokers had told them about an investment that had been recommended by the firm,” said Steven B. Caruso, a partner of Maddox Hargett & Caruso P.C., one of the several law firms that provided legal counsel to the plaintiffs.

In addition to the $1.7 million award in favor of investors, the arbitration also assessed the entire cost of the hearing against Citigroup Global Markets.

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.

Last week’s market volatility - in which the stock market registered its largest intraday point drop in history - has left investors reeling and fearing a repeat performance in the not-so-distant near future.

Most of all, investors want to know what contributed to the 1,000-plummet in the Dow Jones Industrial Average on May 6. Was human error to blame? A computer glitch using pre-programmed mathematical models? Fears about the Greek debt crisis? There’s also rumors of a large hedge fund liquidating shares as a possible contributor. So far, no one theory has been proven.

In a May 7 article by the Wall Street Journal, Steven Caruso, a partner with Maddox, Hargett & Caruso P.C., reports that he received a telephone call from a couple who had sold stock via an order to do so at the market price during the decline of May 6. The husband and wife received $100,000 less than they expected, according to the article.

“The message was, “We got killed. Can you help?’” Caruso said. “The woman said her husband sold some securities and got taken out of the position at a very low price before things came back.”

Many investors are in the same boat. Regulators and the exchanges are reportedly reviewing millions of trades made during the computerized sell-off. Under procedures announced by major U.S. stock exchanges, trades made on May 6 will be canceled if they occurred between 2:40 p.m. and 3 p.m. at prices 60% above or below the level that prevailed at 2:40 p.m., before the market’s downward spiral took hold.

Our affiliation of securities 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.

Broker/dealer Morgan Keegan has been granted an administration hearing over allegations that the company cost investors more than $2 billion because of fraudulent and reckless business practices.

The hearing will take place Oct. 5 in Montgomery, Ala., at the offices of the Alabama Securities Commission.

The Securities Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and four states have charged Morgan Keegan with fraud and reckless business practices, accusing the company and several employees of overstating the value of several bond funds backed by risky mortgages and using false and misleading sales materials.

The two Morgan Keegan employees who are named in the charges by regulators are James Kelsoe and Joseph Weller. Weller heads Morgan Keegan’s accounting department.

The regulatory charges facing Morgan Keegan are in addition to hundreds of arbitration claims that have been filed by investors.

Our affiliation of securities 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.

Troubled investment bank Morgan Keegan has been granted an administration hearing regarding legal issues tied to a group of RMK bond funds and allegations that the products cost investors more than $2 billion in losses because of Morgan Keegan’s fraudulent and reckless business practices.

The hearing will take place Oct. 5 in Montgomery, Ala., at the offices of the Alabama Securities Commission.

Several states, including Mississippi, Alabama, Kentucky and South Carolina, as well as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) filed administrative actions on April 7 against Morgan Keegan. The focus of their actions concerns allegations that Morgan Keegan and several high-ranking employees overstated the value of funds backed by subprime mortgages and used false and misleading sales materials to tout the funds to investors.

The federal and state charges are in addition to hundreds of arbitration claims that have been filed by investors against Morgan Keegan over losses in the bond funds. Class-action lawsuits also have been leveled against the company.

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.