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Home > Blog > Monthly Archives: March 2015

Monthly Archives: March 2015

Market Concern over Bond Funds’ Liquidity

Generating another risk for financial markets, Bond funds might depend on investors who can take their money out at any time. Potentially causing big losses for investors in funds, if lots of bondholders want to sell at the same time. Another problem with a greater scope for hefty redemptions by fund investors to elicit such market chaos.

For a deeper look into this rising concern:

SEC Files Fraud Charges Against Lynn Tilton & Patriarch Partners Over its Zohar Funds

On March 30, 2015, the SEC filed administrative fraud charges against Lynn Tilton (“Tilton”); Patriarch Partners, LLC (“Patriarch”); Patriarch Partners VIII, LLC (“Patriarch VIII”); Patriarch Partners XIV, LLC (“Patriarch XIV”); and Patriarch Partners XV, LLC (“Patriarch XV”).

According to the SEC complaint, it is alleged that, since 2003, Respondents have defrauded three Collateralized Loan Obligation (“CLO”) funds they manage and these funds’ investors by providing false and misleading information, and engaging in a deceptive scheme, practice and course of business, relating to the values they reported for these funds’ assets.

A CLO fund is a securitization vehicle in which a special purpose entity, the issuer, raises capital through the issuance of secured notes and uses the proceeds to purchase a portfolio of commercial loans.

The three CLO funds, collectively known as the “Zohar Funds,” raised more than $2.5 billion from investors and used these investments to make loans to distressed companies. However, many of the distressed companies have performed poorly and have not made interest payments, or have made only partial payments, to the Funds over several years.

Despite the poor performance of many of the Funds’ assets, the SEC has alleged that Tilton intentionally and consistently directed that nearly all valuations of these assets be reported as unchanged from their valuations at the time the assets were originated. As a result, Tilton and her entities purportedly received almost $200 million in excess fees from the Funds.

The SEC’s administrative complaint can be found at


FINRA Orders Oppenheimer to Pay $3.75 Million in Broker Fraud Case

Oppenheimer & Co. has been ordered to pay $3.75 million for allegedly failing to properly supervise a broker that FINRA says defrauded dozens of clients and who also cheated the producers of a Broadway musical.

FINRA says the firm failed to supervise an ex-broker despite detecting unnecessary trades and overlooked other “red flags” indicating that Mark Hotton was wiring funds from customer accounts to businesses he owned or controlled.

For more information:

Massachusetts Fines $2.5M for Supervision Violations to Merrill Lynch

William Galvin, Secretary of the Commonwealth of Massachusetts has fined Merrill Lynch $2.5 million for supervisory violations in association with a training presentation in 2013.

The fine order states that the presentation specifically “did not include language regarding client suitability or the fiduciary requirements of Merrill Lynch financial advisers.”

Secretary Galvin, , said “During the presentation, Merrill financial advisers were being trained in how to double their production by, among other things, transferring existing customer assets from commission-based brokerage accounts to fiduciary fee-based alternatives.”

William Halldin, Merrill Lynch spokesman said, “We are reiterating to our employees the need to have internal presentations properly approved before their use, Importantly, as the state notes, this was not a matter involving any conduct that disadvantaged our clients.”

Miguel Mattei Zapata Hit with $500K Clawback, $6M in Client Complaints

A former UBS and Wells Fargo advisor, Zapata has been ordered by FINRA to reimburse $500,000 to his ex-employer Wells Fargo for failure to pay back a promissory note, and will be answering to seven client complaints that allege more than $6 million in damages for misconduct at his most recent employer, UBS. According to Zapata’s FINRA BrokerCheck record, the complaints, he is now facing during his time at UBS, include allegations of overconcentration and misrepresentation of closed-end funds. He was terminated from UBS in November 2014. These complaints mirror the wider problems that UBS and its advisors are facing for their sales of municipal bonds and closed-end funds in Puerto Rico since 2013. Over the past year the number of complaints in Puerto Rico have soared, leading FINRA to boost the size of the arbitrator pool. There are currently about 700 eligible arbitrators on FINRA’s roster, a figure the regulator is trying to increase further.

FINRA Unveiled a Redesigned Website

FINRA just unveiled a redesigned website today for arbitration and mediation. It is much more user friendly, checkout the new webpage here:


Concern for Investing in “Target Funds”

It’s essential for investors to make a knowledgeable decision about investing their 401(k) money in a target-date fund or in other options. Retirement-plan investors frequently aren’t sure how to distribute the money they’re putting away. So the growth of target-date funds, which automatically shift investors’ money from stocks to fixed income gradually over the years, has been widely seen as a success for the country’s retirement readiness. Experts worry that some investors who don’t fully understand these funds might take on more risk than they want. Target-date approach surprised many investors with a decline in their funds during the 2008 financial crisis.

“That experience should have served as a wake-up call for investors and the relentless growth in target-date funds is troubling because studies have shown that investors and industry professionals alike do not fully appreciate the risk these funds present,” Luis A. Aguilar, SEC member. Investors should be aware that target-date funds can have confusing names and large fees.

To evaluate a target-date fund, check the prospectus to determine the glide path, the changes in allocations over time, to make sure the fund is taking an amount of risk over the years that the investor is comfortable with. Typically, 401(k) plans offer a series of target-date funds from the same fund company, so investors who can’t find one with low fees and their preferred risk profile might prefer to do things the traditional way, to invest in the stock and bond funds their plan offers and commit to doing the rebalancing in the years ahead themselves.

Merrill Lynch abruptly parts ways with top financial adviser

Merrill Lynch Advisor Tom Buck Terminated

Our firm will be looking into investor complaints against Tom Buck and the Buck Group as a result of his termination from Merrill Lynch.

Schwab Causing Controversy with New Investment Service for the Frugal

Charles Schwab is set to introduce Schwab Intelligent Portfolios a FREE investment service for consumers wanting low-cost personalized advice but with minimal money to invest. Schwab will potentially trounce the competition given its established brand name and size.

Schwab is following the lead of a few smaller firms in regards to automated investing. Wealthfront, which has collected $2 billion in customer assets over its three-year existence, largely from people under 35, and Betterment, which has collected $1.55 billion since it opened in 2010. These smaller companies provide service to people with thousands, not millions, to invest and little to spend on investment advice. A unique service that is in high demand.

Naureen Hassan, an executive vice president of Schwab, says that “Schwab wanted to create a product that would appeal to the masses and get more people into well-diversified portfolios,” she said. Although the program does not officially become available to customers until later this month, its federal regulatory filing and website contain many of its details.

The major source of criticism in the service lies within the allocation of cash recommendations and with how the portfolios are constructed. The cash allotment will often be larger than many financial advisers recommend. For more information about Schwab’s new service click here

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