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.

Morgan Keegan is back in the news - this time over an arbitration case with a former employee. On June 30, the Wall Street Journal reported that a Financial Industry Regulatory Authority (FINRA) arbitration panel ordered a former Morgan Keegan broker to pay back some of his signing bonus to Morgan Keegan. In an unusual move, however, FINRA also demanded that Morgan Keegan compensate the broker.

According to the article, Paul Kotos was ordered to pay Morgan Keegan about $350,000, plus the firm’s attorney’s fees, from a signing bonus he received when he joined the Memphis-based brokerage two years ago. In Kotos’ counterclaim, the FINRA arbitration panel ordered Morgan Keegan to pay him $200,000.

According to Kotos, Morgan Keegan defamed him with a statement on his Central Registration Depository, or CRD, Form U5. A U5 provides information on the reasons for a broker leaving a firm.

In making the award, FINRA stated that “the procedure deployed by [Morgan Keegan] in the termination of [Kotos] fell significantly short of industry standards.”

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.

Investment firm Morgan Keegan must pay more than $200,000 to an investor after a state court denied a request by the broker to overturn a decision by a Financial Industry Regulatory Authority (FINRA) arbitration panel.

Judge Nicole Gordon Still affirmed a $220,000 award in favor of United Prison Ministries International and its claim against Morgan Keegan over a group of bond funds that suffered massive losses in 2007 and 2008.

Collectively, investors have lost $2 billion in six of the Morgan Keegan funds in question. The funds include Regions Morgan Keegan Select High Income, RMK High Income Fund, RMK Strategic Income Fund, Regions Morgan Keegan Select Intermediate Bond Fund, RMK Multi-Sector High Income and RMK Advantage Income Fund.

As reported June 10 by the Wall Street Journal, Morgan Keegan, a unit of Birmingham-based Regions Financial Corp. (RF), filed an appeal to overturn the initial award to United Prison Ministries in June 2009. At the time, the brokerage argued that the panel’s chairwoman, who previously sat on another FINRA arbitration panel that ruled against Morgan Keegan, should have been recused, according to court documents.

Judge Nicole Gordon Still, however, disagreed.

“The mere fact that she has served on arbitration panels of Morgan Keegan, and has ruled against Morgan Keegan in the past, is not enough to establish bias or prejudice,” the judge wrote in an opinion.

More institutional investors are coming out on top in their cases involving auction-rate securities. Last month, a Financial Industry Regulatory Authority (FINRA) arbitration panel awarded $9.8 million to Catalyst Health Solutions in its auction-rate securities case against Credit Suisse Securities.

Catalyst Heath Solutions, which manages prescription drug benefits, is just one of many institutional investors to take legal action against Credit Suisse after the ARS market came to an abrupt standstill in February 2008. Following the market’s collapse, institutional and retail investors alike were left financially hammered, unable to liquidate their supposedly liquid investments.

Ultimately, regulatory settlements were reached with a number of broker/dealers that marketed and sold auction-rate securities to investors. Most of the agreements, however, benefited retail ARS holders, not institutional investors.

In 2009, another institutional investor, STMicroelectronics NV, also successfully won its case against Credit Suisse when a FINRA arbitration panel ordered the brokerage to pay STMicroelectronics NV more than $406 million to settle claims that it misled the semiconductor maker into buying auction-rate securities.

On May 27, 2010, FINRA again ruled in favor of an investor’s arbitration claim against Credit Suisse. This time, the panel found Credit Suisse liable to Luby’s Inc. Specifically, FINRA ordered Credit Suisse to buy back the auction-rate securities at par and to pay interest on them at the par purchase price of 6% per annum from and including May 29, 2010, through and including the date the award is paid in full.

According to Luby’s Feb. 10, 2010, quarterly filing, the company held $7.1 million par value or $5.2 million fair value in auction-rate securities.

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 Financial Industry Regulatory Authority arbitration panel has ordered Credit Suisse Securities to pay an institutional investor - Catalyst Health Solutions - $9.8 million in a case tied to auction-rate securities backed by student loans.

Credit Suisse Securities is the U.S. broker/dealer unit of Credit Suisse Group. Catalyst Health Solutions is a Rockville, Md., company that manages prescription drug benefits. Catalyst filed its case last year, accusing Credit Suisse of fraud, negligence and selling unsuitable investments.

For the past two years, retail and institutional investors have been waging legal wars against Wall Street over auction-rate securities. The problems began in February 2008 when the $330 billion ARS market abruptly came to a standstill, leaving investors who thought their money was as liquid and safe as cash in severe financial straits.

Following investigations by state and federal regulators, a number of Wall Street firms agreed to buy back ARS holdings from retail clients. The majority of institutional investors, however, were left of the equation.

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.

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.