Archive for the “Bond Funds” Category

Already facing a slew of investor lawsuits and arbitration claims for losses in certain bond funds, Morgan Keegan & Co. could soon find itself the subject of a civil proceeding by the Securities and Exchange Commission (SEC) for the alleged mishandling of auction-rate securities.

In a quarterly report filed in March, Regions Financial revealed that the SEC had filed what’s known as a Wells Notice against Morgan Keegan. Receipt of a Wells Notice indicates the possibility of future civil action by the SEC, and gives recipients the opportunity to gather materials and other relevant information for their defense.

In the case of Morgan Keegan, the SEC’s focus is on whether the brokerage appropriately disclosed the liquidity risks associated with auction-rate bonds. In addition, the SEC is investigating whether Morgan Keegan subsequently sold off large volumes of the securities once its ability to support weekly auctions for the instruments was diminished.

Auction-rate securities are long-term financial instruments with interest rates that reset in weekly or monthly auctions. In February 2008, the $330 billion market for auction-rate securities came to an abrupt standstill, leaving investors holding a security they could only sell at a significant loss.

Following the auction market’s meltdown, officials from the Financial Industry Regulatory Authority and the SEC began a series of investigations at nearly 40 brokerages nationwide to determine if they adequately informed customers about the risks of auction-rate investments. Last summer, in an effort to settle accusations by regulators, many of the nation’s biggest banks agreed to buy back more than $55 billion worth of bonds that their retail clients had been unable to sell.

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. 

At least two more investors have filed a lawsuit against OppenheimerFunds, Inc. after assets in the Oppenheimer Champion Income Fund (OPCHX) entered a free fall last year. Investors Gary and Rita Wallen filed their lawsuit April 10 in a Denver, Colorado, U.S. District Court.

The couple’s complaint follows similar charges against Oppenheimer in which investors say managers of the Oppenheimer Champion Income Fund misled them about the fund’s portfolio composition. Instead of being a conservative high-income fund, the Champion Income Fund invested more than 25% of its assets in high-risk mortgage-backed securities and illiquid derivatives.

According to the fund’s own policies, that move required a majority vote from shareholders, something Oppenheimer failed to obtain and which violated state laws.

As a result of the high-risk investments, the Oppenheimer Champion Income Fund lost more than 80% of its value, dropping almost $2 billion over the course of a year. By comparison, other high-yield funds averaged a drop of 32% 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.

Preliminary results of the government’s stress tests on the fiscal soundness of the nation’s biggest banks indicate that State Street Corp., the world’s largest money manager for institutions, does not have a need to raise billions of dollars in additional capital should the economy worsen. That’s good news in light of the fact the Boston-based company faces a slew of lawsuits from pension funds, institutional investors and others over claims State Street intentionally hid the risks of certain bond funds.

Earlier this month, Massachusetts Secretary of State William Galvin confirmed that his office had opened an investigation into State Street and its Limited Duration Bond Fund. At issue is the fact pension funds and other institutional investors invested in the Limited Duration Bond Fund as an “enhanced cash fund,” with the idea to generate better returns than ultra-safe, conservative money market funds with just slightly more risk. As it turns out, the Limited Duration Bond Fund held large concentrations of risky mortgage-backed assets.

When the subprime mortgage crisis unfolded in the summer of 2007, funds like the State Street Limited Duration Bond Fund took a huge hit, as did investors who suffered millions of dollars in losses.

The State Street Limited Duration Bond Fund is managed by State Street Global Advisors, State Street’s investment arm.

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 month, the state of Oregon sued OppenheimerFunds in an effort to recover more than $35 million that officials say investors lost because Oppenheimer misrepresented the risk of its Oppenheimer Core Bond Fund.  Now it appears Oregon state officials may share in some of the blame by failing to reel in managers of OppenheimerFunds and stop the risky investments they were making in the Oregon College Savings Plan with money labeled as conservative and ultra-conservative.

According to a May 6 article in The Oregonian, e-mails between the state treasurer’s office and OppenheimerFunds reveal state officials failed to closely monitor the Oppenheimer Core Bond Fund and didn’t take action to prevent additional losses until it was too late. Instead, documents show the state relied on information from OppenheimerFunds that the money was being well-managed.

Even more troubling: E-mails point to a possible conflict of interest between OppenheimerFunds and Oregon state officials. In addition to OppenheimerFunds buying meals for state executives at expensive Portland restaurants, the Oregonian article reports that when problems surrounding the Oppenheimer Core Bond Fund were made public, OppenheimerFunds provided the state with a talking points document, and a state official gave the company a heads-up about a pending state investigation.

The central issue concerning the Oppenheimer Core Bond Fund focuses on the investing strategies used by Oppenheimer’s managers. According to a February 2008 filing with the Securities and Exchange Commission (SEC), OppenheimerFunds changed the investment focus of the fund in 2007 by dramatically increasing its holdings in the complex investing arena of derivatives. When the state initially hired OppenheimerFunds, the fund held three derivatives in the form of total-return swap contracts. By the end of 2007, the Core Bond Fund held 150 derivative contracts. 

At the close of 2008, the Oppenheimer Core Bond Fund - at one time a $1.4 billion fund - had lost 41% of its value.

As reported in the May 6 Oregonian article, OppenheimerFunds first disclosed its exposure to the crisis on Wall Street in a Sept. 24 letter to Oregon 529 College Savings Network Executive Director Michael Parker.  The letter, however, failed to accurately portray the amount of the Core Bond Fund’s exposure and lacked other important details. Moreover, OppenheimerFunds reportedly marked the letter as “not for public disclosure.”

On Oct. 23, at a board meeting to discuss the financial status of the Oregon College Savings Plan, Former Oregon State Treasurer Randall Edwards reportedly expressed concern about the deep losses in the Oppenheimer Core Bond Fund yet did not call for making any changes to the investments, according to the Oregonian story.

In January 2009, Oregon voted to replace the Core Bond Fund from the Oregon College Savings Plan; it wasn’t until March, however, that any action occurred.

The bottom line: Red flags were waving loud and clear when it came to OppenheimerFunds’ mismanagement of the Oregon College Savings Plan and the Core Bond Fund. Meanwhile, state officials apparently chose to remain asleep at the wheel as OppenheimerFunds and its managers took on more and more risks with investors’ money.

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.

Memphis-based Morgan Keegan & Co., the brokerage arm of Regions Financial Corp., is discovering the best-laid plans can indeed have dire - and expensive - consequences. In 2002, Morgan Keegan enthusiastically unveiled a group of high-yield bond funds filled with unconventional and untested structured finance products, including large concentrations of mortgage-backed securities. Today, Morgan Keegan and those bond funds are mired in lawsuits, with six cases costing the company more than $1.6 million in just the past two months.

For awhile, the RMK funds, which included the Select Intermediate Bond Fund and the Select High Income Fund, outperformed their peers. Then, in 2007, the subprime mortgage crisis took center stage and a dark cloud suddenly was cast over the future performance of the funds. In late 2006, the funds’ assets were $1.6 billion; by the end of June 2008, the figure had shrunk to $52 million.

As reported May 1 by the Birmingham Business Journal, investors in the RMK funds cried foul, contending the “safe” investments that Morgan Keegan had sold them essentially were now worthless. Hundreds of arbitration claims against Morgan Keegan soon followed, along with several class-action lawsuits.

Morgan Keegan’s bonds were fat with some of the “worst pieces of structured finance deals,” on the market, said securities expert Craig McCann of Virginia-based Securities Litigation & Consulting Group in the Birmingham Business Journal article.

New information regarding the risk factors of the bond funds and what Morgan Keegan did and did not reveal to investors, including the funds’ classification as investments similar to corporate bonds and preferred stocks when in fact they were high-risk derivatives, ultimately has helped investors prove their cases. Since early March, six different investors have rendered significant awards from FINRA arbitration panels. In one case, an investor won $950,000.

The bottom line: There seems to be a new trend shadowing the arbitration claims against Morgan Keegan and its bond funds, one in which more investors are coming out on top because the evidence speaks for itself.

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.

There appears to be no end in sight for the arbitration claims that keep piling up against Charles Schwab & Co. over losses suffered by investors in the Schwab YieldPlus Fund and the Schwab YieldPlus Select Fund. As recently as April 2009, investor claims were filed with the Financial Industry Regulatory Authority (FINRA), charging Schwab with breach of fiduciary duty, negligence, misrepresentation and fraud.

The focus of the claims centers on the fact that Schwab allegedly failed to disclose certain risks about the Schwab YieldPlus Funds. Specifically, investors say Schwab marketed and sold the funds as safe, low-risk alternatives to money-market investments, with the idea they would generate higher potential returns at only a slightly higher risk.

It turns out the Schwab YieldPlus Funds were heavily invested in subprime mortgage-backed securities, with more than 50% of the funds’ assets in these high-risk products. In the face of the subprime mortgage market collapse, this over-concentration caused investors to suffer $1.3 billion in losses between July 1, 2007, and April 30, 2008.

Since then, investors from Indiana to California have taken legal action against Charles Schwab, filing both arbitration claims with FINRA and class-action lawsuits. So far, FINRA arbitration panels have ruled in favor of several investors. In one decision, FINRA awarded more than half a million dollars, or about 81% of the investor’s claimed damages. Other FINRA claims have resulted in awards totaling 100% of investors’ claimed damages.

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.

State Street Corp.’s reputation continues to be called into question. This time, accusations of misrepresentation and negligence are coming from Massachusetts Secretary of State William Galvin, who is investigating the Boston-based financial services firm on claims it hid the risks of certain bond funds from pension fund clients.

Galvin confirmed last week  his office has opened a probe of State Street and the State Street Limited Duration Bond Fund. In a story appearing April 30 in Investment News, it was reported that the fund is among several fixed-income strategies managed by State Street’s investment unit, State Street Global Advisors, to lose substantial amounts of money because of exposure to the subprime mortgage market.

Pension funds and other institutional investors initially invested in the Street Limited Duration Bond Fund as an “enhanced cash fund,” with the idea to generate better returns than ultra-safe, conservative money market funds with just slightly more risk. Investors now say the Limited Duration Bond Fund took on large positions of high-risk mortgage-related assets, a move that ultimately proved devastating for investors.

When the subprime mortgage market went south, bond funds like the Limited Duration responded by plummeting in value.

More than a year ago, several lawsuits were filed against State Street over charges the firm misrepresented the risks of various bond funds, including the Limited Duration Fund. Perhaps anticipating a legal outcome in favor of investors, State Street subsequently set up a reserve fund containing millions of dollars to cover possible future payouts. Now facing additional investigations, State Street may need to infuse even more funds into that reserve.

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.

One of the world’s biggest institutional managers has found itself in the middle of an investigation by Massachusetts securities regulator William Galvin. The Wall Street Journal first reported that Boston-based State Street Corp. was being targeted by Galvin over whether the firm intentionally misled pension funds and institutional investors about the risks of certain bond funds. 

Galvin’s probe apparently is zeroing in on State Street’s enhanced index bond funds, which include the State Street Limited Duration Bond Fund. According to the April 30 Journal article, the fund was marketed to pension funds, retirement plans and other investors as a safe, conservative bond fund when in actuality it held high-risk securities such as derivatives, swaps, and mortgage-backed assets.

This isn’t the first time State Street’s Limited Duration Bond has been at the center of state and federal investigations. Several investors previously sued State Street after suffering losses because of what they say was deception and gross negligence of State Street management to invest fixed-income funds in high-risk mortgage-backed securities. 

In January 2008, State Street set aside more than $600 million to settle legal claims over losses and other issues associated with its bond funds. If Galvin’s investigation turns up evidence proving State Street deceived pension funds and institutional investors, that amount could be just the beginning.

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.

A recent Financial Industry Regulatory Authority (FINRA) award of $187,000 to a retired Alabama cattle farmer who suffered losses in Morgan Keegan & Company bond funds is now the subject of an appeal by the Memphis-based investment bank. On April 13, Morgan Keegan filed a motion to vacate the award, arguing that FINRA overstepped its authority to provide compensatory damages greater than the amount actually requested by the investors.

Specifically, on March 11, an Alabama FINRA arbitration panel awarded Phillip Willingham and Melinda Oates $187,215 for their claim against Morgan Keegan. Initially, the couple sought damages of $109,881, as well as “unspecified, well-managed damages had their account been properly invested.”

FINRA did not explain the rationale behind the amount it awarded, saying only that the award was for compensatory damages.

Investors’ claims against Morgan Keegan concern the performance of a group of RMK bond funds, many of which have lost more than 95% of their value since mid-2007. The losses have since been traced to the investments that Morgan Keegan made in risky and untested types of subprime mortgage securities, collateral debt obligations (CDOs) and other debt instruments. Ultimately, the overexposure to those products cost investors more than $2 billion in losses.

In turn, the financial carnage in the Morgan Keegan funds has spawned a wave of lawsuits and arbitration claims by investors who say they were steered into risky funds that Morgan Keegan represented as low-risk and conservative.

Morgan Keegan is owned by Regions Financial.

As for Morgan Keegan’s latest attempt to sidestep FINRA’s March 11 award of $187,000 to Phillip Willingham and Melinda Oates, a Jefferson County, Alabama, Circuit Court will now decide the final outcome in the case.

In the meantime, Morgan Keegan is facing hundreds of additional arbitration claims regarding its collapsed bond funds. To date, FINRA has awarded more than $1.6 million to investors for their losses in the funds. Among the most recent arbitration awards: $950,000 to Jerome Woods, a former football player for the Kansas City Chiefs; $100,000 to sports broadcaster Tim McCarver; $267,711 plus interest to two California brothers; and $18,000 to an Indiana church secretary.

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. 

Investors with a Morgan Keegan lawsuit are finally getting their day in court. Recent decisions handed down by Financial Institution Regulatory Authority (FINRA) panels are ruling in favor of investors for their losses in several RMK bond funds that plummeted in value after Memphis based Morgan Keegan secretly gambled and lost with bets on subprime mortgage securities, collateral debt obligations (CDOs) and other risky debt instruments. 

During the past two months, FINRA has awarded investors more than $1.6 million for their claims against the embattled investment bank. The most recent award of $950,000 went to Jerome Woods, a former football player for the Kansas City Chiefs.

Woods’ win is the sixth consecutive win for investors. Moving forward, Morgan Keegan faces hundreds of additional claims from investors who collectively lost $2 billion between March 31, 2007 and March 31, 2008. Some of the Morgan Keegan bond funds in question have plummeted in value by as much as 95%.

At the center of investors’ claims are charges of misrepresentation and negligence on the part of Morgan Keegan. Specifically, the RMK funds that stumbled did so because of investments in high risk subprime mortgages and collateralized debt obligations, a fact that investors contend Morgan Keegan never disclosed to them.

Moreover, recent documents and testimony involving investor claims with FINRA show that Morgan Keegan apparently gave advanced notice to institutional clients and large retail clients to get out of the troubled funds ahead of small retail 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.