Archive for July, 2010

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered Raymond James Financial to buy back $2.5 million in auction-rate securities (ARS) from investor Greg Merdinger.

According to a July 27 Wall Street Journal article, Merdinger filed a claim in June 2009 against Raymond James & Associates and Raymond James Financial Services on allegations of breach of fiduciary duty and contract. In the addition to the $2.5 million ARS buyback, FINRA awarded Merdinger $86,000, plus 5% interest on the $2.5 million until Raymond James buys back the securities.

FINRA’s ruling stated that Merdinger initially wanted to invest in money-market funds, but changed his mind based on recommendations from Raymond James. Instead, Raymond James advised him to invest in auction-rate securities, which it said were safer. In making the recommendation, Raymond James concealed the risks associated with the products, FINRA said.

When the market for auction-rate securities collapsed in February 2008, Raymond James continued to advise Merdinger to buy auction-rate securities. As reported in the Wall Street Journal article, copies of emails showed that financial managers at Raymond James realized there were problems in the auction-rate market long before its ultimate collapse.

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.

For the past year, ASTA/MAT investors have been biding time as they wait for their arbitration claims against Citigroup to be heard. The focus of investors’ legal claims centers on a group of six hedge funds sold under the brand names of ASTA and MAT. Investors say Citigroup misrepresented the funds as safe, relatively low-risk investments.

Instead, the funds produced staggering financial losses for investors because of a highly risky investing strategy known as municipal bond arbitrage. When the credit and bond markets began to become unglued in the summer of 2007, ASTA/MAT plummeted in value.

As reported in a July 27 Wall Street Journal article, one series of Citigroup funds lost between 70% and 97% of their asset value by the end of February 2008. The funds were later given life support when Citigroup stepped in with more than $650 million of its own capital.

Recently, however, some ASTA/MAT investors and investors in similar funds have begun to see a light at the end of the tunnel. This month, a Financial Industry Regulatory Authority (FINRA) arbitration panel awarded a California family $2.1 million - the full amount of their losses on a $3 million investment in a municipal bond fund investment sponsored by First Republic Securities Co. (formerly owned by Merrill Lynch & Co.)

In May and June, three groups of investors in funds sold by Citigroup - the largest sponsor of such funds - won a total of $2.1 million in separate arbitration proceedings.

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 with losses in a group of ill-fated Morgan Keegan bonds emerged victorious recently in five out of six arbitration claims presented before the Financial Industry Regulatory Authority (FINRA). The decisions, which cover the months of May and June 2010, are related to a series of proprietary Morgan Keegan bond funds that made investments in speculative mortgage loans and toxic collateralized debt obligations (CDOs).

According to investors, Morgan Keegan marketed and represented the funds in question as safe investments that were suitable for low-risk investors. When the housing market crashed in 2007, however, the funds plummeted in value by as much as 80%. Investors meanwhile experienced enormous financial losses.

A slew of lawsuits and arbitration claims have been filed against Morgan Keegan, as well as against several of the company’s top executives. In the past year, evidence has continued to come forth to back up investors’ claims that the Memphis-based brokerage deliberately misled clients when it marketed and sold the bond funds.

Further affirmation came in April 2010 when the Securities and Exchange Commission, state regulators and FINRA charged Morgan Keegan and two employees - James Kelsoe and Joe Weller - with fraud for inflating the value of the risky securities held by the bond funds.

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.

Changes are coming to BrokerCheck, the online tool managed by the Financial Industry Regulatory Authority (FINRA) that documents investor complaints and other information about stockbrokers, financial representatives and brokerage firms.

Among the changes planned: increasing the number of customer complaints reported publicly; posting certain information about brokers on a permanent basis; and extending the public disclosure period from two years to 10 years for all brokers who leave the industry.

“The greater amount of information that is available to the investing public will only provide the opportunity for investors to be better informed as to the investment professionals they are entrusting their assets to,” said Steven Caruso of Maddox Hargett & Caruso, P.C., in a July 14 phone interview with On Wall Street.

As part of the changes, FINRA also will formalize a dispute process for current or former brokers to dispute the accuracy of, or update, factual information disclosed through BrokerCheck.

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.

The Financial Industry Regulatory Authority (FINRA) nearly doubled its fines and disciplinary actions in 2009 against brokerages and financial advisors. As reported in FINRA’s recently released report, 2009 in Review, FINRA fined firms and individuals approximately $50 million in 2009, almost twice as much as in 2008.

In addition, FINRA resolved more disciplinary actions in 2009 (1,090) versus 2008 (1,007), but fewer than what were resolved in previous years - 1,344 in 2005; 1,147 in 2006; and 1,107 in 2007.

The top enforcement issues in 2009 concerned mutual funds, which produced fines totaling about $12 million. More than one-half of the mutual fund cases included allegations involving suitability issues.

Suitability cases also ranked high in FINRA’s report, with total fines reaching $11.9 million. Variable investment cases generated approximately $6.45 million in fines and/or actions.

Another finding in FINRA’s report concerns fines of $1 million or more. In 2009, FINRA imposed 10 such fines versus three in 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.

Morgan Keegan & Co. has lost an attempt to vacate a $1.46 million arbitration award involving former NBA star Horace Grant. On June 25, Judge S. James Otera denied the Memphis-based broker’s claims that arbitrators were biased when they initially ruled in favor of Grant.

The award to Grant, which included $1.45 million in compensatory damages and $10,000 in costs, was announced in September by a Los Angeles arbitration panel of the Financial Industry Regulatory Authority (FINRA).

Grant is among hundreds of investors who have filed arbitration claims against Morgan Keegan and six proprietary bond funds that were heavily invested in collateralized debt obligations (CDOs) and other mortgage-related securities. The funds declined in value by as much as 95% following the housing bubble burst.

According to many investors, Morgan Keegan marketed the funds as conservative investments appropriate for retirees looking to protect their principal.

In trying to have Grant’s award dismissed, Morgan Keenan said that one member of the arbitration panel - attorney Jonathon Schwartz - failed to reveal his background as an expert in recovering losses from collateralized debt obligations. The judge in the case, however, disagreed.

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.