Category Archives: Uncategorized

Suitability, misrepresentation and issues involving variable annuities and mutual funds topped the list of enforcement actions levied by the Financial Industry Regulatory Authority (FINRA) in 2009. In total, the regulator imposed $50 million in fines and resolved 1,090 disciplinary actions. By comparison, FINRA saw $28 million in fines from 1,007 actions in 2008.

As reported July 9 by Investment News, about two-thirds of the 2009 fines for advertising violations came from auction-rate securities cases. Actions against FINRA members for sales of convertible notes and private placements also were more prevalent in 2009 and into 2010.

Moving forward, analysts predict the industry to see a growing number of fines from cases connected to sales seniors, alternative investments and private placements. Already, two significant cases involving private placements – Medical Capital Holdings and Provident Royalties – are the subject of multiple lawsuits and arbitration claims.

Investment deals involving Magnetar Capital are garnering renewed interest from the Securities and Exchange Commission (SEC), as the regulator steps up its investigation into how hedge funds like Magnetar made huge profits on instruments that produced billions of dollars in losses for investors.

The investments in question are mortgage-related collateralized debt obligations (CDOs). As reported June 19 by the Wall Street Journal, the hedge fund known as Magnetar played a key role in the CDO market, keeping sales growing even as cracks began to appear in the housing market.

Magnetar also worked with most of Wall Street’s top banks in its deals, including Merrill Lynch, Lehman Brothers, Citigroup, UBS and JPMorgan Chase.

Magnetar bought the riskiest portion of CDOs, while simultaneously placing bets that portions of its own deals would fail. Along the way, Magnetar allegedly did something to enhance the chances of that happening. According to an April 10 article by ProPublica, Magnetar pressed to include riskier assets in its CDOs so as to make the investments even more prone to failure.

Apparently Magnetar acknowledges that it bet against its own deals but says the majority of those short positions involved similar CDOs that it did not own. Magnetar says it never selected the assets that went into its CDOs.

The bottom line is Magnetar ended up making big profits when the CDOs collapsed. Meanwhile, investors in the supposedly safer parts of the CDO suffered big losses.

Now the SEC wants to know how the assets that were put into the CDOs were valued at the time, the terms of the deal, what triggers were put in place to determine whether investors would incur losses and at what point did the banks that were involved in the deal bet against the assets in the CDO.

The Securities Investor Protection Corporation (SIPC) has announced the appointment of Steven Caruso of Maddox, Hargett, & Caruso to its SIPC Modernization Task Force. A total of 13 individuals – including representatives from the securities industry, investors, government regulators and academia – will serve on the task force.

The SIPC, which was formed by Congress to help customers of insolvent and failed brokerage firms, also launched a new Web site that will gather input from the public via online comments, as well as provide live interactive forums and national Webcasts.

According to the SIPC, the newly formed task force will provide statutory amendments to the SIPC board, as well as information to assist the SIPC board and members of Congress when it comes to enacting investor reforms.

The SIPC was created in 1970. As of 2009, it has advanced $1.2 billion in order to make possible the recovery of $108 billion in assets for an estimated 763,000 investors.

Some Wall Street executives still don’t get it. Credit Suisse Group AG’s CEO Brady Dougan took home nearly $18 million in 2009 – more than six times what he received in 2008. And the 2009 payout occurred during a time when the nation experienced a financial meltdown, bank bailouts courtesy of the Troubled Asset Relief Program and mounting public criticism over Wall Street bonuses and compensation levels.

As reported March 25, 2010, by the Wall Street Journal, Dougan’s 2009 annual pay, which includes a cash bonus, salary and stock, was nearly twice the $9.6 million that Goldman Sachs paid CEO Lloyd Blankfein. And, to top it off, Goldman made 40% more in net income in 2009 than Credit Suisse.

In a letter to Credit Suisse shareholders, Dougan and Chairman Hans-Ulrich Doerig justified the 2009 payout, stating that “a skilled workforce is key to maintaining high levels of client satisfaction … which is why we will continue to attract … talented people while remaining sensitive to the public debate about compensation.”

Perhaps a better way to “remain sensitive” might be to roll back the bonuses and excessive compensation packages for some of Wall Street’s top earners.

Oren Eugene Sullivan, a former broker with New York Life Securities, was a master at pulling the wool over investors’ eyes. For decades, the former South Carolina broker fleeced investors out of millions of dollars in an elaborate Ponzi scheme. What makes Sullivan’s case truly shocking, however, are the victims Sullivan allegedly preyed upon. Many were more than 80 years of age, mentally and physically impaired, widows, church members and/or long-time family friends. One investor who gave Sullivan $70,000 suffered from Alzheimer’s disease. Another investor was confined to a wheelchair, her legs amputated. She invested tens of thousands of dollars with Sullivan.

In August 2009, the Financial Industry Regulatory Authority (FINRA) permanently barred Sullivan for life from working in the securities industry. On Jan. 4, 2010, Sullivan pleaded guilty to one felony count of mail fraud in connection to operating a Ponzi scheme.

Sullivan apparently ran his scam from 1998 to October 2008, obtaining money from investors for his personal use while leading clients to believe they were investing in promissory notes or other legitimate financial products issued by New York Life and its affiliates.

The scheme came crashing down after one of Sullivan’s elderly customers and her daughter discovered that he had misappropriated $10,000 given to him for the purchase of variable annuities. Instead of investing the money as promised, Sullivan used the funds to pay for his son’s wedding. Over a period of approximately three years, the customer had never received a statement showing the purchase or the investment performance of the variable annuities.

Most of Sullivan’s victims had previously invested in one or more NYLife products sold by the former South Carolina broker. In exchange for the money he took from customers, Sullivan usually provided a one-page note that outlined the amount of principal and the promised annual interest rate. That rate ranged from 6% to 12%.

In total, federal authorities say Sullivan misappropriated $3.7 million from investors.

As for Sullivan, he faces a maximum fine of $250,000 and the possibility of up to 20 years in federal prison. Sentencing is scheduled for April 2010.

Securities America and financial adviser Bradley Hofhines have been sued in a potential class action tied to Provident Royalties and oil-and-gas private placements that the Securities and Exchange Commission (SEC) alleged in July were fraudulent. Securities America has been named in at least two other related potential class actions; however, this may be the first time an adviser and his individual practice are cited.

As reported Dec. 1 by Investment News, a lawsuit filed Nov. 25 in an Idaho federal court alleges that Bradley K. Hofhines and his firm, Summit Retirement Advisors LLC, failed to disclose to clients that returns from investments in Provident Royalties LLC securities did not come from revenue generated by actual investments in oil-and-gas properties.

“Rather, investor funds were commingled, and funds raised from later offerings were used to pay so called dividends or “returns of capital” to earlier Provident investors,” the article says.

Hofhines is affiliated with Securities America, an independent broker/dealer subsidiary of Ameriprise Financial. Securities America and Ameriprise are named in the latest lawsuit.

The complaint alleges that the defendants violated federal securities laws and the Idaho Uniform Securities Act, as well as provided investors with materially untrue and misleading offering materials regarding Provident Securities.

In July, the SEC charged Dallas-based Provident of allegedly committing fraud in connection to the sale of $485 million of preferred stock and limited partnership offerings in oil and gas deals. Since then, many investors have begun legal action to get their money back by filing individual arbitration claims with the Financial Industry Regulatory Authority (FINRA).

If you have suffered investment losses and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, please contact us.

MetLife Securities and three affiliates – New England Securities Corp., Walnut Street Securities, and Tower Square Securities – are facing a fine of $1.2 million by the Financial Industry Regulatory Authority (FINRA) for failing to properly monitor and review their brokers’ email correspondence with the public. One of those brokers is Mark Salyer, who stole nearly $6 million from his customers through private securities transactions he initiated to raise capital for various real estate development companies.

In January 2009, the Securities and Exchange Commission (SEC) barred Mark Salyer from associating with any broker, dealer or investment adviser.

The $1.2 million fine also resolves allegations that MetLife supervisors failed to properly monitor brokers’ participation in outside business activities and private securities transactions.

According to FINRA, the failures allowed Salyer and another MetLife Securities broker to engage in undisclosed outside business activities and private securities transactions while working at MetLife Securities. Eventually, those failures cost MetLife Securities customers millions of dollars.

Investors who had accounts MetLife Securities and its three affiliates – New England Securities Corp., Walnut Street Securities, and Tower Square Securities are encouraged to contact us and tell us your story. Please leave a message in the Comment Box below or on the the Contact Us form.

Tom Hargett and Mark Maddox both mistakenly mentioned J.P. Turner in recent blog postings concerning Medical Capital Holdings.  We have learned that these posts were inaccurate, and we apologize to J.P. Turner and retract the statements made about the firm.

Yield Plus and the words, Charles Schwab lawsuit, are becoming one and the same these days. Hundreds of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA) over charges the San Francisco brokerage made false and misleading statements about the Yield Plus Funds and the extent to which investments were made in high-risk, speculative mortgage-backed securities.

Last week, Charles Schwab announced it had received a Wells notice from the Securities and Exchange Commission (SEC), in which the regulator outlined plans to recommend civil enforcement charges against the company over two Schwab bond funds.

Adding to the Schwab’s legal troubles: In August, a federal court in San Francisco certified a class action lawsuit on behalf of about 250,000 Yield Plus shareholders.

The Schwab Yield Plus Funds – the Schwab Yield Plus Funds Investor Shares (SWYSX) and the Schwab Yield Plus Funds Select Shares (SWYPX) – were initially offered as an safe, conservative investment alternative to money market accounts. Contrary to those representations, however, Schwab managers invested more than 45% of the funds’ assets in the mortgage industry. When the housing market crashed, so, too, did the value of the funds.

In May 2007, Yield Plus had more than $13 billion in assets. By March 2008, it was down to $2.5 billion. Today it has about $210 million.

Our lawyers are actively advising individual and institutional investors concerning the Schwab Yield Plus Funds. We have created an alliance with other experienced securities arbitration lawyers. Learn more about your  Schwab Yield Plus Funds. Tell us about your Schwab Yield Plus investments by leaving a message in the comment box, or the Contact Us page. We will counsel you on your options.

A warning from the Securities and Exchange Commission (SEC) in the form of a Wells Notice could have a direct impact on how Charles Schwab addresses current and future lawsuits and arbitration claims by investors who suffered losses in the  Schwab YieldPlus Funds.

The San Francisco-based brokerage acknowledged earlier this week that it had received the SEC’s Well Notice, which outlined possible civil enforcement actions against Schwab Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the president of the YieldPlus funds for alleged violations of securities laws in connection to the two fixed-income mutual funds.

Companies that receive Well Notices are given a chance to respond to the SEC’s allegations before the commission decides whether to approve an enforcement action. The notice is not a formal allegation or finding of wrongdoing.

On Aug. 21, a California federal court certified an investor lawsuit involving the YieldPlus Fund Select Shares and YieldPlus Investor Shares as a class action. As reported Oct. 15 in an article by Investment News, the Oct. 14 Wells Notice plus other various supporting documents could very well serve as a road map for the class action lawsuit, which some analysts and attorneys contend dwarfs individual arbitrations by hundreds of millions, if not billions, of dollars.

Regardless of the outcome of the SEC’s investigation, Schwab YieldPlus investors are under a tight deadline to decide whether to stay in the class-action lawsuit or “opt out” if they wish to file an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA). (Individuals are generally in a class action unless they formally ask to be excluded.)

The deadline to submit opt-out requests is Monday Dec. 28, 2009. In addition, investors must:

•Provide a written statement requesting exclusion from the Schwab YieldPlus class-action lawsuit;
•Sign and date the request and include your mailing address; and
•Ensure the written request is received by the Notice Administrator no later than Dec. 28, 2009. The address to mail the opt-out request is: Schwab Corp. Secs. Litigation Exclusion, c/o Gilardi & Co. LLC, P.O. Box 808061, Petaluma, CA 94975-8061.

Between Sept. 1 and Oct. 1, the date on which the most current available decision with FINRA is posted, Schwab has lost seven out of 10 YieldPlus FINRA arbitration cases, according to the Investment News article.

We are very interested in your situation with Schwab YieldPlus. Leave us a message in the comment box or the Contact Us form. We want to counsel you on your legal options.