Archive for the “Money Market & Short Term Investment Losses” Category

The Wall Street Journal first broke the story in December 2007 when it reported that Columbia Management was shutting down its Columbia Strategic Cash Portfolio fund. The reason behind the liquidation of one of largest enhanced cash funds began with a $20 billion withdrawal from a single institutional investor.  Columbia Management’s, Strategic Cash Portfolio troubles stem to extensive exposure to risky asset-backed securities and structured investment vehicles (SIVs) tied to real-estate mortgages.

Columbia Management is the investment arm of Bank of America. At the time the Columbia Strategic Cash Portfolio was shuttered, only a few investors were able to liquidate their positions in the fund. Others were given their pro rata share of the fund’s underlying securities in lieu of cash.  Still other shareholders were told they could cash out at the fund’s current share price at a loss.

The Columbia Strategic Cash Portfolio was marketed as an enhanced cash fund and a suitable substitute for money market accounts.  In reality, the risks of this investment were significantly greater than the risks associated with cash and cash like investments.

Today, as investors evaluate liquidating the securities distributed to them from their Strategic Cash Portfolios, they are determining they have sustained significant losses.

Investors that were sold shares in the Columbia Strategic Cash Portfolio as a suitable cash equivalent might have strong claims against Columbia Management and Bank of America relating to the manner in which the fund was presented versus how it was invested.

Our affiliation of lawyers is actively involved in advising institutional investors in evaluating their legal options when confronted with significant investment losses.

Many enhanced cash investment products were poor segregates for cash. Case in point: The Columbia Strategic Cash Portfolio fund for institutional investors, managed by Columbia Management of Boston, a division of Bank of America. In less than two months, losses and liquidations tied to the credit and mortgage crisis caused the fund to plummet in value from $40 billion to less than $11 billion. The Columbia Strategic Cash Portfolio was frozen in December 2007 when an institutional investor pulled out $20 billion.

Described by fund managers as an alternative to money-market funds, the Columbia Strategic Cash Portfolio was an enhanced investment fund designed to offer institutional investors many of the same features associated with traditional money-market funds with only moderately higher risk levels. Just like “a money-market fund,” the Columbia Strategic Cash Portfolio was promoted to provide income through a short-term, low risk investment portfolio.

From our perspective, the Columbia Strategic Cash Portfolio inappropriately invested in  high risk structured investment vehicles (SIVs) and mortgage dependent securities that subjected investors to inappropriate risks and eventually significant losses. When the subprime mortgage debacle began to unfold in the summer of 2007, the Columbia Strategic Cash Portfolio fund collapsed under the weight of high-risk mortgage related investments.

Since then, a number of institutional investors have come forth with claims that the Columbia Strategic Cash Portfolio fund did not adequately disclose the high level of risks associated with its investment activity. Specifically, some institutional investors believe Columbia Management inappropriately concentrated the Strategic Cash Portfolio in securities that were illiquid, had to0 much default risk and were too closely tied to real estate.

Unlike traditional money market funds, enhanced money funds like the Columbia Strategic Cash Portfolio are not required to maintain a $1 net asset value. However, because many investors believed the Columbia Strategic Cash Portfolio was a suitable cash alternative, they thought similar requirements were mandated by the Columbia Strategic Cash Portfolio and that by the dictates of its investments guidelines, the fund would invest in short term, liquid, safe investments without inappropriate concentrations in any sector or industry.  

At the time the Columbia Strategic Cash Portfolio was shuttered, only a few investors were able to liquidate their positions in the fund. Many investors were given their pro rata share of the fund’s underlying securities in lieu of cash. Still other shareholders were told they could cash out at the fund’s current share price, which at the time generally constituted a loss.

The Columbia Strategic Cash Portfolio was marketed as an enhanced cash fund and a suitable substitute for money market accounts to institutional investors.  In reality, the risks associated with this investment were significantly greater than the risks associated with cash and cash like investments.  As investors begin to evaluate liquidating the securities distributed to them from their Strategic Cash Portfolios, they are determining they have sustained significant losses.

Our affiliation of lawyers is actively involved in advising institutional investors of their legal options when confronted with significant 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.

Massachusetts Secretary of State William Galvin has launched an investigation into State Street Corp. and whether the Boston-based firm portrayed a bond fund that invested in high-risk derivatives, swaps and subprime-mortgage securities as a low-risk, conservative investment to pension funds and retirement plans.

The center of Galvin’s investigation is an enhanced index bond fund known as the State Street Limited Duration Bond Fund. The fund itself was supposedly created as a way for pension funds and other institutional investors to generate better returns than ultra-safe money market funds, but with only slightly more risk. Instead, it turns out the fund invested heavily in risky mortgage-related products - products that ultimately plummeted in value following the collapse of the subprime market.

In addition, the bond fund was highly leveraged, borrowing money to make bigger bets on mortgage-backed securities. The strategy ultimately caused more financial losses.

According to an April 30 article in the Wall Street Journal, Massachusetts’ Galvin wants to know if State Street marketed and sold the Limited Duration Bond Fund as a “safe” investment to pension funds despite the fact it held risky instruments considered inappropriate for that sector of investors.

Inappropriate bets on subprime mortgages have plagued State Street’s enhanced index funds for some time now, making the company the focus of several lawsuits. On April 8, the Sisters of Charity of the Blessed Virgin Mary, based in Dubuque, Iowa, sued State Street, charging it of putting their money in risky subprime mortgages instead of the more conservative investments State Street’s financial advisors had promised.

The nuns say they have lost more than $1 million.

In a document that State Street apparently gave clients on another enhanced bond index fund, the Government/Corporate Bond Fund, investments are described as those in a “broad-based, investment-grade fixed-income universe.” As of March 31, 2007, however, the fund had nearly half of its weighting in mortgage-backed securities and other risky asset-backed products, according to the Wall Street Journal.

By comparison, the same fund’s biggest weighting in September 2005 was in U.S. Treasurys, while mortgage- and asset-backed securities accounted for less than 6% of the fund’s top 10 holdings, according to the Wall Street Journal.

State Street also is at the center of a 2007 lawsuit filed by Prudential Financial, which claims the firm deceived the insurer by investing in products whose returns were linked to 20 high-risk subprime mortgage pools.

In early 2008, State Street replaced William Hunt, CEO of State Street Global Advisors, amid growing controversy of the company’s ties to subprime mortgages and other toxic financial products.

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.

Unexpected and unexplained losses in the Oppenheimer Champion Income Fund (OCHCX), the Oppenheimer Core Bond Fund (OPIGX) and other funds owned and managed by OppenheimerFunds are causing a financial headache for investors, college savings plans and pension funds across the country. Now, as OppenheimerFunds prepares for what could be the first of a lengthy run of arbitration claims, a consortium of four nationally recognized law firms has launched an independent investigation into how Oppenheimer executives may have misrepresented the funds to investors.

The legal alliance behind the investigation into OppenheimerFunds includes Maddox Hargett & Caruso, Uhl & Bakhtiari, David P. Meyer & Associates, and Page Perry, LLC. It was in 2007, following the onset of the subprime mortgage crisis and the subsequent meltdown on Wall Street, that the group created their affiliation - SubprimeLosses.com - to help individual and institutional investors combat fraudulent actions on the part of dishonest investment firms and brokerages.

As it turns out, dishonesty and wrong-way bets on subprime mortgage securities and risky credit-default swaps are responsible for the fiscal nightmare now facing investors in the Oppenheimer Champion Income Fund and the Core Bond Fund. The funds, which initially had been presented as conservative and safe investments by Oppenheimer management, were instead tied to high-risk, speculative derivative deals.

By the end of December 2008, assets in the Champion Income Fund had plunged by more than 80% in value. The Oppenheimer Core Bond Fund, which is offered by 529 plans in Illinois, Oregon, Texas, Maine and New Mexico, fell by more than 40% last year. By comparison, similar funds posted 4% gains.

Both the Oppenheimer Champion Fund and the Core Bond fund were managed by Angelo Manioudakis. In December, Manioudakis abruptly resigned from his position at OppenheimerFunds.

Meanwhile, investors are left to inherit the repercussions of Manioudakis’ ill-informed management decisions. Far from safe or conservative, the Champion and Core Bond funds invested in extremely risky and highly illiquid derivatives. Not knowing about this critical detail has collectively cost investors - many of whom are retirees, living on a fixed income - millions of dollars. Yet, Oppenheimer management, company marketing materials, even information contained in the funds’ prospectus never revealed this important and vital fact.

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.

Investments in illiquid auction-rate securities proved to be a financial nightmare for LandAmerica Financial Group and for customers who are now scrambling to recover money in what was supposed to be a short-term and low-risk arrangement. On Nov. 26, less than a week after the Virginia-based company’s proposed merger with rival Fidelity National Financial abruptly fell through, LandAmerica filed for Chapter 11 bankruptcy protection.

On Dec. 23, Fidelity National Financial acquired LandAmerica Financial Group’s two principal title insurance underwriters, Commonwealth Land Title Insurance Company and Lawyers Title Insurance, as well as United Capital Title Insurance Company. The total price tag of the deal: $235 million. The purchase makes Fidelity National Financial the largest title insurer in the United States.

The undoing of LandAmerica and its 1031 Exchange Services subsidiary, which also was placed in Chapter 11 bankruptcy protection, involved risky bets on auction-rate securities. In its bankruptcy filing, LandAmerica said a slowdown in the real-estate title insurance business and the collapse of the auction-rate securities market made it impossible to meet the ARS obligations of its 1031 Exchange Services customers.

A 1031 exchange, which refers to a section of the U.S. tax code, allows investors to delay capital-gains taxes on the proceeds from recently sold property. The catch is they must allow a third party to hold the funds.

In LandAmerica’s case, that arrangement proved disastrous. Its 1031 customers - which include many retirees - are now left holding an empty bag. After investing customers’ money in illiquid auction-rate securities, LandAmerica’s best advice is for them to file a claim. This is after the company had marketed LandAmerica 1031 Exchange Services as “providing the security and liquidity that taxpayers and their advisors should be demanding from a qualified intermediary.”

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 year of 2008 will likely be remembered as the year subprime mortgages and corporate scandals changed the face of Wall Street. Buried under the weight of the subprime crisis, financial institutions took nearly $800 billion in writedowns and losses. The value of stocks worldwide plummeted by more than $30 trillion. Goliath investment houses like Bear Stearns fell apart. State, municipal and corporate pension funds reported massive losses from investments tied to faulty valuation models and high-risk mortgage-backed securities and their derivative spin-offs, collateralized debt obligations (CDOs).

Then there’s the near financial collapse of mortgage giants Fannie Mae and Freddie Mac and American Insurance Group (AIG), which required a financial intervention courtesy of the U.S. government. Lehman Brothers, the fourth-largest investment bank in the United States, filed for bankruptcy protection in 2008. Washington Mutual and IndyMac, along with some 20 other banks were forced to close their doors. Government bailouts reached an astronomical $9 trillion. And as a final nod to 2008, investors lost some $50 billion in a Ponzi scheme orchestrated by the former Nasdaq chairman, Bernard (Bernie) Madoff.

For investors, 2008 is the year that went from bad to worse. It began with the collapse of the auction-rate securities market in February and continued with credit default swaps and structured investment products. For the first time since the 1930s, the Dow Jones Industrial Average experienced losses of more than 30%, closing the year at 8,776.39. By comparison, the Dow finished out 2007 at 13,264.82. Bank stocks in particular took a beating in 2008, with Bank of America and Citigroup losing nearly 70% of their value. As for shareholders, they saw about $7 trillion of their wealth wiped out.

In the world of ultra-short bond funds, 2008 provided the lesson that ultra short does not translate to “ultra safe.” A number of supposedly safe and conservative ultra-short funds got into trouble in 2008 by investing in risky mortgage-backed securities and collateralized mortgage obligations (CMOs). When losses in those toxic assets began to skyrocket, investors lined up to pull their money out in droves, sparking a wave of fund redemptions.

As a result, several fund managers were forced to liquidate their funds’ assets. State Street Global Advisors’ SSgA Yield Plus Fund began liquidating in May after the fund fell 19%. It turns out more than 50% of the fund’s assets were tied to mortgage-related securities funds. One month later, the Evergreen Ultra-Short Opportunities Fund liquidated, as well, when its assets plunged more than 20% in value. Finally, there is Charles Schwab’s YieldPlus Fund. Marketed to investors as a safe alternative to cash, the fund suffered the most losses of any ultra-short bond fund in 2008, losing more than 40% of its value.

Investors, meanwhile, are suing all three funds, charging that they investments were represented as conservative “cash alternatives” and similar to money-market funds. Far from safe or conservative, the funds were heavily concentrated in risky mortgage and asset-backed securities. And, in the case of Schwab’s YieldPlus Fund, several investors who have filed lawsuits claim various Schwab executives and fund manager Kimon Daifotis committed “acts of gross misconduct” by encouraging investors to hold on to their YieldPlus shares, while simultaneously dumping millions of YieldPlus shares from the portfolios of Schwab’s other mutual funds.

Capping out 2008, of course, is the Bernie Madoff scandal. The disgraced hedge fund manager was arrested Dec. 11 by federal agents on charges of securities fraud for scamming $50 billion from investors. Meanwhile, the Securities and Exchange Commission (SEC), the supposed protector of investors and their investments, apparently turned a blind eye to Madoff’s subterfuge over the years by ignoring red flags that signaled problems with his funds and their “too-good-to-be-true” returns.

For investors, the Madoff affair may well be the final nail in the coffin when it comes to confidence in Wall Street. Already shaken from a year that was punctuated by the subprime crisis and corporate scandals - including the implosion of Bear Stearns, the collapse of the auction rate securities market, the bankruptcy of Lehman Brothers and inept accounting practices by Fannie Mae and Freddie Mac and other institutions - Wall Street has its work cut out in 2009 as it tries to renew investors’ faith once again.

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.