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Office of Compliance Inspections and Examinations Released Their Latest Risk Alert

The below link is to the OCIE Risk Alert released this week on August 24th.

National Exam Program Risk Alert

Citigroup Subject of Massive SEC Settlement Stemming from Fraudulent ASTA/MAT and Falcon Hedge Fund Products – Firm to Pay Nearly $180 Million to Defrauded Investors

On August 17, 2015, The Securities and Exchange Commission announced that two Citigroup affiliates have agreed to pay nearly $180 million to settle charges that they defrauded investors in the ASTA/MAT and Falcon hedge funds by claiming they were safe, low-risk, and suitable for traditional bond investors. The funds later crumbled and eventually collapsed during the financial crisis.

The SEC investigation found that the Citigroup affiliates made false and misleading representations to investors in the ASTA/MAT fund and the Falcon fund, which collectively raised nearly $3 billion in capital from approximately 4,000 investors before collapsing. In talking with investors, they did not disclose the very real risks of the funds. Even as the funds began to collapse and Citigroup accepted nearly $110 million in additional investments, the Citigroup affiliates did not disclose the dire condition of the funds and continued to assure investors that they were low-risk, well-capitalized investments with adequate liquidity. Many of the misleading representations made by Citigroup employees were at odds with disclosures made in marketing documents and written materials provided to investors.

“Firms cannot insulate themselves from liability for their employees’ misrepresentations by invoking the fine print contained in written disclosures,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “Advisers at these Citigroup affiliates were supposed to be looking out for investors’ best interests, but falsely assured them they were making safe investments even when the funds were on the brink of disaster.”

According to the SEC’s order instituting the settled administrative proceeding:

*  Neither Falcon nor ASTA/MAT were low-risk investments, akin to a bond alternative, as investors were repeatedly told.

*  Citigroup failed to control the misrepresentations made to investors as their employees misleadingly minimized the significant risk of loss resulting from the funds’ investment strategy and use of leverage among other things.

*  Citigroup failed to adopt and implement policies and procedures that prevented the financial advisers and fund manager from making contradictory and false representations.

The plan of distribution for investors is expected to be presented to the SEC before the end of 2015.

Pimco Facing Possible SEC Lawsuit

After receiving a Wells notice from the SEC, about some Pimco securities that contain bundled mortgages, Pimco released a statement disclosing the possibility of facing a federal lawsuit over how it valued positions held by one of its enormous bond funds.

Between Feb. 29th and June 30th 2012, Pimco may have misrepresented the value of certain securities purchased by its Total Return Active Exchange-Traded Fund (BOND).

The Total Return Active ETF has more than $2.5 billion net assets, according to Pimco, and invests primarily in low-risk debt securities. The fund has a year-to-date return of about 2%.

“The Wells process provides us with our opportunity to demonstrate to the SEC staff why we believe our conduct was appropriate, in keeping with industry standards, and that no action should be taken,” Pimco said in a statement.

LPL Financial Continues to Incur Massive Fines and Settlements Stemming from Securities Regulators’ Actions

On July 28, 2015, The Investment News reported on the firm’s recent annual meeting for its advisers at which executives of the firm purportedly commented that the firm is “close to resolving significant enforcement actions.” (“LPL Financial CEO Mark Casady says Firm Close to Finish Line with Fines and Settlements”)

As noted in the article, “LPL has been in the spotlight over the past few years due to its host of problems with the Financial Industry Regulatory Authority Inc. as well as state regulators. Two products that have caused LPL to pay fines or restitution to clients have been non-traded real estate investment trusts, a popular alternative investment, and variable annuities.”

Among the recent regulatory actions, cited in the article, is the Financial Industry Regulatory Authority (“FINRA”) matter in May of 2015 which ordered LPL to pay $11.7 million in fines and restitution for what it deemed “widespread supervisory failures” related to sales of complex products between 2007 and April of 2015. According to the FINRA settlement, LPL failed to properly supervise sales of certain investments, including certain exchange-traded funds, variable annuities and non-traded REITs, and also failed to properly deliver more than 14 million trade confirmations to customers.

The article also notes that, earlier this month, FINRA ordered LPL to pay $6.3 million in restitution to clients after it allegedly failed to waive sales loads for certain mutual fund shares sold between July 2009 and the end of 2014.

If you are an individual or institutional investor who has any concerns about investments having been recommended for purchase in either your retirement or non-retirement accounts by LPL Financial, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Regulators Bar Adviser Tom Buck From Securities Industry

On July 24th, FINRA permanently barred former Merrill Lynch broker Tom Buck from the securities industry. FINRA alleged that Buck engaged in unauthorized trading, improperly used commission based accounts when fixed fee accounts were more appropriate, and misled clients about fees they were paying in their accounts. Our firm is continuing to assist investors in their potential claims against Merrill Lynch and Tom Buck for all these matters.

Checkout the below links for more on this story:

FINRA Consent Agreement Buck

http://www.ibj.com/articles/54198-regulators-bar-adviser-tom-buck-from-securities-industry

http://www.investmentnews.com/article/20150728/FREE/150729893/fired-by-merrill-now-barred-by-finra-thomas-buck-stops-here

 

 

Steven B. Caruso, Partner at Maddox Hargett & Caruso, P.C., to Speak at 2015 PLI Securities Arbitration Program

Steven B. Caruso, the Resident Partner in the New York City office of Maddox Hargett & Caruso, P.C., has been invited to participate as a speaker at the 2015 Practicing Law Institute (PLI) conference program that will be held on Thursday, July 30, 2015.

The PLI Securities Arbitration program will be held at the PLI New York Center and will also be broadcast online by webcast.  The program brings together leading legal professionals and securities industry regulators to discuss hot topics in the securities arbitration practice area.

For more information on this conference, visit:

http://www.pli.edu/re.aspx?pk=59146&t=THF5_SARB5

Bond ETFs and Liquid Alternative Funds – Preparing for Panic on Main Street

On July 21, 2015, The Wall Street Journal reported on a growing number of hedge funds who are looking to profit from an anticipated decline in the prices of exchange-traded bond funds (ETFs) and liquid alternative funds. (“Hedge Funds Gear Up for Another Big Short”)

Among the hedge funds, cited in the article, who are reportedly lining up in anticipation of potential trouble at some “alternative” mutual funds and bond exchange-traded funds that have boomed in popularity among retirees and other individual investors are Leon Black’s Apollo Global Management LLC, Oaktree Capital Management LP and Reef Road Capital LLC.

The predicate for their investment thesis is that the junk bonds, bank loans and esoteric investments held by some of those funds will be extremely hard to sell if the market turns, leaving prices pummeled in a rush for the exits.

As noted in the article, “critics said both sets of products suffer from a similar weakness. They promise investors the ability to trade in and out as they would with a stock, but the underlying securities trade far less frequently, meaning there may not be buyers waiting when the funds line up to sell.”

If this prediction should come to pass, the hedge funds would then offer the liquid-alternatives funds and bond ETFs cut-rate prices for thinly traded holdings like low-rated corporate debt and bank loans when they are forced to sell to meet daily redemptions.

Just last month, for example, it has been reported that BlackRock, Inc. asked the SEC for permission to borrow from some of its mutual funds to pay redemptions in others. A spokeswoman for BlackRock is quoted as having said the firm’s liquid-alternative products were among those it may use to take advantage of the practice. The SEC decision is pending.

If you are an individual or institutional investor who has any concerns about Bond ETF or Liquid Alternatives investments having been recommended for purchase in either your retirement or non-retirement accounts, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Bond ETFs – A Building Chorus of Investment Professionals Forecast a Potential Brewing Crisis for Individual Investors

On July 17, 2015, The Wall Street Journal reported on a growing number of investors who are concerned as to whether a crisis is brewing in the expanding world of exchange-traded bond funds. (“Carl Icahn Fuels Criticism of Bond ETFs”)

Bond ETFs have emerged as one of Wall Street’s most lucrative niches in recent years, promising buyers the steady income of bonds in a package that is as easy to trade as stocks. Now, a building chorus of investors – including activist investor Carl Icahn – is warning that this best-of-all-worlds pitch may be a mirage. They argue that troubles could arise if the bond market has a sharp showdown, perhaps due to higher interest rates, and investors in ETFs start heading for the exits.

At a hedge-fund conference in New York on July 15th, Mr. Icahn is reported to have said that “some ETFs have bought so many riskier and infrequently traded bonds that it isn’t clear who will buy them, or at what price, should the funds be forced to sell during a market panic.” In doing so, he joins skeptics who say “ETF selling could spread the effects of a downdraft, because the ETFs are widely held by individual investors, who often flee in a market downturn.”

As noted in the Wall Street Journal article, Bill Gross, who helped found bond giant Pacific Investment Management Co. and now runs a fund for Janus Capital Group Inc., sent a note to investors last month bemoaning the lack of liquidity and how “mutual funds, ETFs, and even index funds” might be hit in a downturn. “The obvious risk – perhaps better labeled the ‘liquidity illusion’ – is that all investors cannot fit through a narrow exit at the same time,” Mr. Gross wrote.

If you are an individual or institutional investor who has any concerns about Bond ETF investments having been recommended for purchase in either your retirement or non-retirement accounts, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Obama Saying Fiduciary Rule Will Be a Vital Consumer Protection

President Obama, one of the most prominent critics of Americans being taken advantage of by brokers and advisors for their retirement planning needs. Renewing his call for stricter rules in an effort to guard investors planning for retirement from conflicts of interest, proclaimed a new push to increase access to retirement plans.

http://www.onwallstreet.com/news/regulatory_compliance/fiduciary-rule-will-be-a-vital-consumer-protection-obama-says-2693511-1.html?zkPrintable=1&nopagination=1

New York Stock Exchange Suspended Trading Today

The New York Stock Exchange halted trading around 11:32am today, stating it was due to technology issues. We will be investigating cases for investors that had losses related to the events that happened today, July 8, 2015. Follow this link to learn more on this developing story.

http://money.cnn.com/2015/07/08/investing/nyse-suspends-trading/index.html

 

 

 


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