Archive for the “TD Ameritrade” Category

The auction rate securities mess is heating up for Charles Schwab. New York Attorney General Andrew Cuomo is expected to soon file a lawsuit against San Francisco-based Schwab over issues related to the company’s marketing and sales of auction rate securities (ARS) to retail and institutional investors. Cuomo announced last month that he intended to take legal action against the brokerage unless it agreed to an ARS settlement and a buy-program to repurchase the auction rate securities from clients.

Since no deal has materialized, Cuomo will likely proceed with a civil fraud lawsuit against Schwab, according to an Aug. 17 story in the Wall Street Journal. As part of the lawsuit, Cuomo will present transcripts of recorded conversations between Schwab brokers and its clients, revealing how the auction rate securities were misrepresented by Schwab.

In one exchange between a Schwab broker and a client, the customer says: “You know, I’m not trying to make a ton of money. I just want to play it safe.” The broker responds: “The hardest part of this auction is getting into it. That is the tough part. Getting out is easy as just selling.”

Auction rate securities are considered long-term debt instruments that act as a short-term investment because of the manner in which they are resold. Interest rates on the products are reset at weekly or monthly auctions. When the market for auction rate securities collapsed in February 2008, thousands of retail and institutional investors became stuck with an illiquid investment.

Faced with potential lawsuits from state and federal securities regulators, a number of Wall Street firms that underwrote auction rate securities, including Citigroup, Merrill Lynch, UBS and J.P. Morgan Chase, agreed to buy back more than $60 billion of the instruments from customers.

Several retail brokerages, however, opted not to participate in the buy-back programs. Specifically, some “distributors” of auction rate securities continue to leave their clients with no solution to the financial losses they’ve suffered because of ARS investments.

When the market for auction-rate securities collapsed last year, Schwab’s clients were stuck with $789 million of the securities.

Schwab’s hold-out to avoid any type of settlement with regulators comes on the heels of recent agreements by two retail brokers to buy back millions of dollars in auction rate securities from clients. In July, Fidelity Investments and TD Ameritrade both agreed to repurchase $756 million of the securities from customers.

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.

Fed up with one investment fraud scandal after another and the collapse or near-collapse of Wall Street giants like Lehman Brothers, Bear Stearns, Merrill Lynch and Citigroup, many investors are pulling their money out of full-service investment firms and turning to online discount companies such as Charles Schwab and TD Ameritrade. 

As reported July 24 by CNBC, some $32 billion has found its way into TD Ameritrade and Charles Schwab since the onset of the financial crisis. By comparison, investors pulled more than $100 billion out of traditional full-service brokerages like Citigroup’s Smith Barney and Bank of America-Merrill Lynch.

The exodus from big investment firms to smaller boutique brokerages is in part tied to an overall growing lack of confidence in Wall Street and the massive financial losses suffered by investors over the past year because of misrepresentation of various financial products and a disregard of client requests to hold only certain investment products. 

“There has been an awakening,” said Don Montanaro, chief executive of TradeKing, in the CNBC article. “Investors now realize they alone are responsible for their money.” 

According to Montanaro, TradeKing reported a post-Lehman increase in new accounts of 121%.

While investors may view the switch to smaller, online brokerages as a way to better safeguard their money, they should keep in mind that many of those firms face the same regulatory problems and alleged frauds accused of their larger counterparts. 

Case in point: Charles Schwab and the Schwab YieldPlus Funds. 

Hundreds of arbitration claims and class-action lawsuits have been filed against Charles Schwab on charges of misrepresentation and investor losses in two ultra-short bond funds, the Schwab YieldPlus Fund (SWYPX) and the Schwab YieldPlus Select Fund (SWYSX). The funds, collectively known as the Schwab YieldPlus Fund, were initially marketed and sold as a conservative investment, with risk levels similar to money-market funds. 

Instead, the Schwab YieldPlus Fund was over-concentrated in high-risk, illiquid mortgage-backed securities. When the housing market began to go downhill, those holdings resulted in massive losses of more than $1.3 billion. In total, the Schwab YieldPlus Fund lost nearly 40% of its value last year. By comparison, the average ultra-short bond fund fell just 1.9%.

In addition to the fund’s risky assets, investors allege that Charles Schwab intentionally withheld critical information about the portfolio diversification of the Schwab YieldPlus Fund and that it also created misleading marketing materials to falsely advertise the supposed investing safety of the product.

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. 

New York-based Reserve Management Company, along with several of its senior executives, has learned it will face charges by the Securities and Exchange Commission (SEC) for violation of federal securities laws. Charges also are expected to be brought against Reserve President Bruce Bent, Senior Vice President Bruce Bent II and Arthur Bent III, chief operating officer and treasurer.

The charges against Reserve Management come on the heels of at least 19 investor lawsuits after the company’s Reserve Primary Fund broke the buck on Sept. 16 when commercial paper from Lehman Brothers Holdings, Inc. became essentially worthless amid the bank’s bankruptcy filing. The fund was the first money-market fund in 14 years to break the buck.

The Primary Fund, whose assets exceeded $65 billion in September, including $785 million in bonds issued by Lehman Brothers, is now in the process of liquidating.

Meanwhile, shareholders of the Reserve Primary Fund who did not get out before the company froze redemptions in September are taking legal action. According to lawsuits already filed, investors contend the fund “deviated from its stated investment objective by sacrificing preservation of capital and liquidity in pursuit of higher yields. This strategy was exemplified by the fund’s disastrous and unreasonable concentration of $785 million face value in commercial paper issued by Lehman.”

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.

The final months of 2008 have morphed into a hotbed of legal problems for the Reserve Management Corporation, which is now facing a new federal class-action lawsuit concerning the Yield Plus Fund. Filed in New York on Nov. 25, the lawsuit accuses Reserve Management of misleading thousands of investors in the fund by taking on risky investments, rather than preserving capital as initially advertised.

As reported Nov. 28 in USA Today, the risky investments in the Yield Plus Fund included Lehman Brothers debt. When Lehman filed for bankruptcy protection on Sept. 16, the Yield Plus Fund quickly broke the buck, and redemptions in the $1.1 billion fund were subsequently frozen.

The lawsuit also accuses TD Ameritrade of intentionally misleading clients in the Yield Plus Fund by characterizing the fund as a money market fund. In reality, the Yield Plus Fund is a diversified mutual fund that made high-risk investments as opposed to the conservative nature of a money market investment.

The Yield Plus Fund lawsuit is just one of a number of lawsuits on Reserve Management’s plate. To date, at least 16 other lawsuits have been filed against the company over another fund that it manages, the Reserve Primary Fund. The $64 billion Primary Fund, which is the oldest money-market fund in the United States, became the first fund in 14 years to break the buck after Lehman Brothers filed bankruptcy in September. At the time, Reserve Management told investors that redemptions only would take up to seven days.

Seven days ultimately turned into months. However, unlike the Yield Plus Fund, the Reserve Primary Fund is covered by the government’s bailout out plan. As for investors in the frozen Reserve Yield Plus Fund, their “coverage” is non-existent; instead, they are looking at double-digit losses.

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 holdings in several funds managed by the Reserve Management Company continue to wait for answers as to when they can access their money. In September, assets in the $1 billion Reserve Yield Plus Fund - which is not a money market fund but apparently was represented as one, according to investors - fell to 97 cents for each dollar, causing the fund’s management to begin liquidation plans. Since then, Reserve Management has yet to provide concrete details on exactly when investors will receive their money in the fund.

Angry investors are posting their experiences regarding the Reserve Yield Plus Fund and the Reserve Primary Fund, also managed by Reserve Management, debacles on Internet message boards in droves. Many are like that of an Oct. 18, 2008, posting from Benny, who said:

“In March, I went to TD Ameritrade and asked the “adviser” for a safe money market fund to invest in while waiting for stock markets to rise. I was directed to the Reserve Yield Plus Fund and put my life savings in it. Now, TDAmeritrade claims the fund is not a money market fund like the Reserve Primary Fund and that it is my own fault for investing in it. Attempts to contact Reserve Management have proven fruitless. My funds are being held hostage and so am I.”

At least nine lawsuits have been filed against the Reserve Management Company and its president and founder of money-market funds, Bruce Bent. Among the charges, investors claim Reserve Management misled investors about the kind of investments made by the funds. And, in the case of the Reserve Primary Fund, investors say several executives from Reserve Management secretly tipped off at least two dozen large institutional investors about the fund’s pending losses and that the news would soon go public. When those investors subsequently pulled out more than half of the fund’s assets, losses for investors who remained in the fund became even worse. Instead of a 1% loss, it rose to 3%.

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. 

In September, investors were shocked to learn that the Reserve Primary Fund had “broke the buck,” and as a result, access to their cash unavailable. A few days later, investors got another surprise courtesy of the fund’s manager, the Reserve Management Company, when they discovered that the supposed safe, conservative fund had doubled its investment in Lehman Brothers during a time when the firm clearly was in financial trouble.

The revelation is especially disturbing because the transactions were contrary to what investors had been told about the fund and its investments in only high-quality, short-term securities. In May 2008, more than 50% of the holdings in the Reserve Primary Fund were in commercial paper. By comparison, the percentage was less than 1% a year ago.

Investors’ worst fears came to fruition on Sept. 17 when the Lehman debt, with a face value of $785 million, was written down to zero, which in turned caused the asset value of the nation’s oldest money market fund to drop below $1 a share.

Since then, the Reserve Primary Fund has invoked a mandatory suspension of redemption proceeds. The suspension was supposed to last only seven days. In October, however, the manager of the Fund asked the Securities and Exchange Commission (SEC) to extend the suspension indefinitely, or until the financial markets became liquid. The SEC approved the request, leaving investors in the Primary Fund, as well as a dozen other Reserve funds, unable to access their cash.

In early November, after weeks of delay, investors in the Reserve Primary Funds finally began to receive their checks, following an initial distribution of $26 billion. Even that, however, only covers about half of each client’s total account balance.

Adding to investors’ woes are the words of the Reserve Primary Fund’s founder, Bruce Bent. For years, the 71-year-old touted the safety and liquidity of money-market funds and was resolute in the fact that commercial paper paying slightly higher yields had absolutely no place in money-market funds. He apparently changed his belief because in May 2008, more than half of the Reserve Primary Fund’s holdings were in commercial paper.

Bent, along with his company’s Web site, also proudly advertised the Reserve Primary Fund’s “unwavering discipline and focus on protecting investors’ principal.” Right before the Reserve Primary Fund broke the buck, in fact, Brent is quoted in the Wall Street Journal as saying: “The purpose of a money fund is to bore the investor into a sound night’s sleep.”

For investors in the Reserve Primary Fund and similar Reserve funds, “nightmare” might be a more suitable depiction.

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. 

Its corporate Web site says, “We’re Here When You Need Us.” Unfortunately for a number of TD Ameritrade clients, the brokerage has been missing in action when it comes to the Reserve Yield Plus Fund.

The Reserve Yield Plus Fund was marketed to investors by TD Ameritrade as a “money market fund” - a conservative-type investment that offered immediate liquidity for clients who needed quick access to their cash. In reality, the Yield Plus Fund is an “enhanced cash fund,” an investment vehicle that invests in short-term debt. Moreover, investing and disclosure restrictions on products like the Yield Plus Fund are much less stringent than those of money market funds and therefore leaves investors more open to risk.

Last month, investors learned that their accounts in the Reserve Yield Plus Fund had been frozen. According to TD Ameritrade’s Web site, the net asset value of the fund was $0.97 per share as of 5 p.m. on Sept. 16, 2008. On Oct. 9, 2008, the Board of Trustees of Reserve Short-Term Investment Trust announced agreed to liquidate the assets of Reserve Yield Plus Fund.

Reserve Management Corp. is the manager of the Yield Plus Fund, as well as the Reserve Primary Fund. In September, the Reserve Primary Fund - a money-market mutual fund - broke the buck, which is Wall Street lingo to describe a situation when investors might receive less than a dollar-for-dollar return on their investment.

On Sept. 16, the Primary Fund’s assets fell in value to 97 cents on the dollar. Reserve Management is now liquidating the Primary Fund, and shareholders are facing losses of pennies on the dollar.

TD Ameritrade Holding Corp. apparently has pledged some $50 million to help cover losses for some of its clients in the Primary Fund Primary.  The offer, however, doesn’t apply to Yield Plus investors, even though Yield Plus includes a high concentration of shares in the Primary Fund among its assets.

Meanwhile, investors remain in an unexpected and unwelcome holding pattern. They have hundreds of millions of dollars in the Yield Plus Fund that they cannot take out, with no word from TD Ameritrade on if or when their situation will be resolved or exactly how much they can expect to get back from the $1 billion fund.

As for TD Ameritrade, information on its Web site appears to be as illusive as the brokerage’s marketing of the Yield Plus Fund as a safe investment haven for investors needing immediate access to cash. In short, TD Ameritrade states the Yield Plus Fund’s assets will be liquidated “as soon as possible,” but that it is not in “shareholders’ interests to sell those assets at their current market values.”

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 have grown increasingly tired of Wall Street. Amid a $700 billion taxpayer-funded bailout to rescue investment banks from themselves, investors are watching their portfolios get smaller by the day. Now it appears yet another brokerage has misrepresented the safety factors of a certain investment product to clients.

The investment in question is the Reserve Yield Plus Fund (RYPQX), and the broker is TD Ameritrade. In September, investors in the fund learned they could no longer access their accounts. They money had been frozen.

One of the investments of the Reserve Yield Plus Fund is the Reserve Primary Fund. On Sept. 16, that fund “broke the buck,” leaving investors with less than $1 for every dollar invested.

TD Ameritrade isn’t saying when investors in the Reserve Yield Plus Fund will be able to redeem their shares or have access to their money.

The Reserve Yield Plus Fund was marketed and sold by TD Ameritrade as a money market fund - a “conservative” investment designed to provide clients with funds for their immediate cash-flow needs.

That hasn’t been the case.  Many of TD Ameritrade’s clients in the Reserve Yield Plus Fund are older investors - retirees, who in the face of current market conditions, need their money now for daily living expenses.

The debacle surrounding the Reserve Yield Plus Fund and TD Ameritrade is one more example of investors putting their faith and trust into their broker only to find out later they’ve been fooled. Investments, by nature, are speculative. However, when a broker knowingly misrepresents the safety or asset composition of an investment product - as in the case of TD Ameritrade and the Reserve Yield Plus Fund - it’s a different story altogether.

Investors in the Reserve Yield Plus Fund want answers - along with their money - from TD Ameritrade, and they want them now.

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.