Yet another investor has found justice over losses caused by the collapse in value of several Morgan Keegan bond funds that owned securities backed by risky subprime mortgages. On March 12, the Financial Industry Regulatory Authority (FINRA) ruled in favor of Alabama investor Philip Willingham, awarding him $187,000.

“It is becoming apparent that the evidence investors are now able to present about the scope of Morgan Keegan’s misconduct is allowing arbitrators to better understand it,” said Indiana lawyer Mark Maddox, who handled the recent case, in a March 13 article in the Birmingham News. Maddox is the founding partner of the law firm Maddox Hargett & Caruso, P.C.

The legal issues surrounding Morgan Keegan focus on a group of open-end and closed-end bond funds. They are: Regions Morgan Keegan Select High Income-A (MKHIX); Regions Morgan Keegan Select High Income-C (RHICX); Regions Morgan Keegan Select High Income-I (RHIIX); RMK High Income Fund (RMH); RMK Strategic Income Fund (RSF); Regions Morgan Keegan Select Intermediate Bond Fund-A (MKIBX); Regions Morgan Keegan Select Intermediate Bond Fund-C (RIBCX); Regions Morgan Keegan Select Intermediate Bond Fund-I (RIBIX); and RMK Multi-Sector High Income (RHY).

Because of their exposure to high-risk mortgage-backed securities, some of the RMK funds have fallen in value by more than 90%. In total, investors in the funds have faced more than $2 billion in losses.

When investors initially placed their money in the RMK bond funds, they were told by the funds’ management, including former Morgan Keegan manager Jim Kelsoe, they had invested in a diversified portfolio composed of relatively conservative corporate bonds and preferred stocks. As it turns out, the bond funds invested in high-risk, low-priority tranches of collateralized debt obligations (CDOs).

“This [recent] arbitration award affirms our view that Morgan Keegan engaged in a massive scheme to defraud many investors, including Philip Willingham, in the sale of its bond funds,” says Maddox.

The subprime mess and allegations of tax evasion schemes are just some of the issues responsible for tarnishing the reputation of UBS AG. For months now, a string of crises has fueled speculation about the fiscal health of the Swiss-based investment firm. In the last year, the company saw its stock price fall some 85%, experienced $18 billion in losses and cut thousands of jobs.

Last month, the U.S. government sued UBS in an attempt to force the bank to reveal the identities of up to 52,000 American clients who allegedly hid secret Swiss accounts from U.S. tax authorities. Prior to the lawsuit, UBS struck a deal with U.S. prosecutors on Feb. 18 by agreeing to pay $780 million and provide the names of up to 300 individuals who may have avoided paying taxes by stashing money in Switzerland.

Fallout from tax evasion scandal has led UBS to clear out its top management. On Feb. 26, the company appointed Oswald Gruebel, who engineered the turnaround at competitor bank Credit Suisse, as its new chief executive. Gruebel replaced Marcel Rohner, who had been on the job as CEO at UBS for only 18 months.

On March 3, UBS announced that Kaspar Villiger would replace Peter Kurer as chairman of its board of directors.

Since the beginning of the subprime meltdown, UBS has amassed more than $50 billion in writedowns and losses, forcing the firm to reduce its workforce by 11,000 jobs.

Ira Sorkin, the lawyer for disgraced money manager Bernard “Bernie” Madoff, says his client will plead guilty to 11 criminal charges on March 12. His punishment: a potential prison term of 150 years.

On Dec. 11, Madoff, a former Nasdaq chairman, was arrested by federal authorities and accused of running a $50 billion Ponzi scheme in which billions of dollars from new investors allegedly were used to pay off older ones.

Madoff’s March 12 court appearance, where he is expected to enter a guilty plea and avoid going to trial, has been anticipated for months. At least 25 of Madoff’s victims are expected to speak.

On Monday, the Wall Street Journal reported that one of Madoff’s assistants directed employees to produce fake trading tickets to mislead clients into thinking their investment returns were legitimate.

To date, authorities have located about $1 billion for investors burned by Madoff’s scam. 

Citigroup CEO Vikram Pandit contends the bank whose stock fell below $1 last week is poised for a rebirth. As reported in a March 9 article in the Wall Street Journal, Pandit told colleagues that despite Citi’s ongoing financial issues and market perception, the bank’s capital strength and earnings power ultimately would enable the company to regain its fiscal footing in the future.

In the memo to employees, Pandit noted Citigroup’s “relatively stable” deposits, and that the bank had conducted its own stress tests using assumptions more “pessimistic than those of the Federal Reserve.” Pandit did not elaborate, however, about Citigroup’s internal stress tests.

At one time, Citigroup was the world’s biggest bank by market value. Two years ago, that value was more than $270 billion. Today, Citigroup stock has plummeted 95%, reducing the bank’s market value to about $5.8 billion.

Former high-profile executives with Merrill Lynch, including two CEOs, invested in hedge funds that lost huge amounts of money to disgraced money manager Bernard Madoff and his $50 billion Ponzi scheme. According to a March 5 report from Reuters, one-time chief executive officers Daniel Tully and David Komansky, along with former investment-banking chief Barry Friedberg, personally invested millions in the hedge funds, which were set up by former Merrill Lynch brokerage chief John “Launny” Steffens.

Steffens’ connection to Madoff was tied to Ezra Merkin, who, along with Steffens, is a partner in Spring Mountain Capital LP. Spring Mountain managed nine of Steffens’ hedge funds, and invested in three Merkin-led funds. Steffen reportedly was aware of their heavy Madoff exposure in at least one.

Shortly after Madoff’s arrest on Dec. 11, Steffens announced plans to shut down the Spring Mountain funds of hedge funds. It is unclear exactly how much money the Merrill Lynch executives lost.

Daniel Tully served as president and chief operating officer at Merrill Lynch from 1985 to 1996, and was named chairman in 1993. Succeeding Tully was David Komansky, who held the top spots from 1997 to 2003. John Steffens spent nearly four decades at Merrill Lynch, ultimately rising to vice chairman in charge of overseeing the company’s global assets division. He retired in 2001 to launch Spring Mountain Capital.

Revelations that several former top Merrill Lynch executives personally invested with Madoff and his alleged $50 billion Ponzi scheme are unsettling on several fronts. At one time, these men were CEOs and senior-level management, responsible for managing and overseeing billions of dollars of investors’ money during their tenure at Merrill Lynch. If they can put due diligence on the backburner when it comes to investing their own personal wealth – i.e. fail to perform the legwork necessary to fully understand exactly how Madoff and those associated with him made money – what does it say about the job they did in protecting the investments of Merrill Lynch’s own clients?

Hedge fund managers Paul Greenwood and Stephen Walsh lived the life of Riley – and they did it on investors’ money. Lavish mansions, horse farms, paintings, cars, even a rare collection of Steiff teddy bears were bought courtesy of a decade-long con game that has left investors, pension funds and universities out millions of dollars.

On Feb. 25, the swindle came to an end with the arrest of Greenwood and Walsh by federal agents for allegedly misappropriating $550 million from investors. The two men face charges of conspiracy, securities and wire fraud charges.

In addition, the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission brought separate civil charges against the pair. In its complaint, the CFTC says that beginning in 1996, Greenwood and Walsh fraudulently solicited approximately $1.3 billion from individuals and entities through their Westridge Capital Management and WG Trading Investors, LP hedge funds.

The arrest of Greenwood and Walsh comes just days after the Iowa Public Employees’ Retirement System reported that nearly $340 million in Iowa pension funds had been frozen following the suspension of Greenwood and Walsh’s trading privileges by the National Futures Association (NFA). 

From at least 1996 through February 2009, federal authorities believe Greenwood and Walsh operated a fraudulent commodities trading and investment advisory scheme using WG Trading as their front. The two men reportedly enticed investors with promises of a conservative trading strategy called “enhanced stock indexing,” which they claimed had outperformed results of the S&P 500 Index for 10 years. 

A number of institutional investors, including the Sacramento County Employees’ Retirement System, the Iowa Public Employee’s Retirement System, the University of Pittsburgh and Carnegie Mellon University took the bait and invested more than $668 million. In exchange for their investment, investors received promissory notes that Greenwood and Walsh said would pay interest at a rate equal to the investment returns earned by their enhanced stock indexing strategy.

However, a February 2009 audit conducted by the National Futures Association shows approximately $812 million on the books of WG Investors, with more than $794 million claimed as receivables due from Greenwood and Walsh and investments in entities that they two men controlled.

Instead of investing money, Greenwood and Walsh are believed to have spent more than $161 million on “personal expenses,” including purchases of lavish mansions, rare books, horses and horse farms, a $3 million residence for Walsh’s ex-wife and Steiff teddy bears costing as much as $80,000.

Greenwood and Walsh remain out of jail on a $7 million bond. If convicted, both men face up to 20 years in prison on each of the fraud counts and five years for conspiracy. 

Strangled by the tentacles of toxic subprime mortgages and structured investment vehicles (SIVs), the Florida Local Government Investment Pool (LGIP) is finding itself unable to pull in deposits from once-burned, twice-shy municipalities. 

Florida’s LGIP is used much like a money-market fund by nearly 1,000 school districts, counties and cities in the state Florida. At one time, the fund had $27 billion in assets. Today, the Florida LGIP is down to $5.7 billion after revealing it held billions of dollars worth of below-investment-grade securities. Upon learning that the LGIP had invested in the same kinds of securities responsible for crippling financial institutions and producing $1 trillion of write-downs, investors quickly withdrew more than $13 billion from the fund.

So far, Florida’s LGIP hasn’t lost money. The fund did, however, suspend withdrawals on Nov. 29, 2007, following credit rating downgrades on toxic debt that ultimately reduced its assets by 44%. 

The fund also placed a month’s interest in a reserve account in the event of a future cash shortfall. That move eventually caused a number of municipalities to move their money in rapid fire sequence into banks, Treasuries and private municipal funds. As depositors transferred their assets, another pool for local governments – the Florida Surplus Asset Fund Trust – grew 60% to $255 million in a single year.

The Florida LGIP has since brought in new leadership to shore up its financial and PR issues. Under a reorganization plan created by New York-based BlackRock Inc., the Florida LGIP has eliminated two-thirds of its bad debt, replaced managers and increased oversight. Even those actions, however, appear to be having little impact on restoring investor confidence. 

Missouri Secretary of State Robin Carnahan had harsh words for the brokerage firm Stifel, Nicolaus & Company and its plan to give investors holding auction-rate securities only $25,000, or 10%, or their frozen savings. 

On Feb. 11, Carnahan told Stifel it needed to immediately come up with an alternative solution that will buy back all frozen auction-rate securities from clients, many of whom have had their savings frozen since the collapse of the auction-rate market in February 2008.

Last August, a class-action lawsuit was filed against Stifel, Nicolaus & Company and its parent company, Stifel Financial Corp., by investors who claimed the companies deceived them about the investment risks of auction-rate securities and the auction market in which the securities were traded. Specifically, the lawsuit said that Stifel Financial and Stifel Nicolaus sold and represented auction-rate securities as “cash equivalents or better than money market funds.” 

Following the break-down of the auction-rate market one year ago, a number of Wall Street investment firms and banks agreed to buy back auction-rate securities for the prices their clients had paid for them. The buy-back settlements, which totaled more than $50 billion, put to rest state and federal charges that investment firms had improperly marketed and sold auction-rate securities to investors.

Stifel, the third-largest brokerage based in St. Louis, wasn’t part of the settlements, however. Until recently, the firm refused to buy back auction-rate securities from clients, claiming it did nothing wrong. Other regional brokerages, including Raymond James Financial, also have resisted ARS buy-back programs.

Those decisions have had a devastating effect on ARS investors like Glenn Linke, 80, and his wife, Norma, 73. As reported Jan. 11 in the St. Louis Dispatch, the elderly couple had decided to add a first-story bedroom to their house because they were no longer able to easily climb stairs. When the construction bills came due, they called their broker at Stifel Nicolaus, instructing him to sell some of their weekly CDs.

That’s when the Linkes’ were hit with news no investor wants to hear: Their money was frozen. The weekly CDs actually were auction-rate securities. 

The Linke’s story is typical of many investors stuck in auction-rate securities. Today, at least 33 formal complaints have been filed by Stifel’s auction-rate customers with the Missouri Secretary of State’s office. All report that they were promised auction-rate securities would be the “same as cash.”

On Feb. 11, after hearing Stifel’s plan for its auction-rate customers, one investor called Missouri’s Secretary of State to express his frustration. “Ten percent is nothing but an insult,” said the 60-year-old. “If it wasn’t for Stifel’s misleading sales tactics, I would have all of my savings right now.”

In a press statement released in response to Stifel’s auction-rate plan, Secretary of State Carnahan said the following:

 “After nearly a year, Stifel is finally beginning to address this issue but it is too little, too late for those who desperately need their frozen savings. It is time for Stifel to follow the lead of other major investment banks and give their customers the access to their money that was promised. In these uncertain economic times, my office will continue taking the necessary steps to help these investors get their savings back.”

First there was Bernie Madoff, now Texas financier Robert Allen Stanford is making a name for himself by running an alleged $8 billion fraud scheme. On Feb. 17, the Securities and Exchange Commission (SEC) filed a civil lawsuit against Stanford and three of his companies on charges of orchestrating a fraudulent, multibillion-dollar investment scam that involved an $8 billion certificates-of-deposit program.

Stanford’s companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis, as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action. 

According to the SEC’s complaint, Stanford lured investors with promises of big returns on certificates of deposit but instead poured money into illiquid real estate and private equity investments. The complaint also alleges Stanford used false historical performance data to add $1.2 billion in revenues to a “proprietary mutual fund wrap program” called Stanford Allocation Strategy.

On Feb. 17, federal authorities raided Stanford Financial Group’s offices in Houston. A sign outside the office now reads: “Under management of receiver.” Currently, Stanford’s whereabouts are unknown. Many believe the money manager may be hiding out in Antigua.

Stanford International Bank is operated by a small group of family and long-time friends, according to a Feb. 17 article by Forbes. The firm’s investment committee, which oversees the bank’s portfolio, is made up of Stanford; his father, James Stanford; Pendergest-Holt, who, the SEC says, had no financial services experience prior to joining Stanford Financial Group; and James Davis, Stanford’s college roommate.

In 2008, SIB promised clients 12-month certificates of deposit paying interest rates of 4.5%. That rate represented a 3.5% premium over two-year U.S. Treasury bonds (which were paying just below 1%). In June of 2005, SIB was offering CDs paying 7.45%.

According to the SEC’s complaint, SIB showed a 1.3% loss on its investments last year while the S&P 500 declined nearly 40%.

The parallels between Madoff and Stanford are uncanny. Like Madoff, Stanford’s fraud appears to have global implications, reaching from the Texas to Caribbean and around the world.  Stanford also lived a lavish lifestyle. Known as “Sir Allen” after being knighted by Antigua’s prime minister, the Texas financier owned private jets and spent millions on sport sponsorships and charities.

Also like Madoff, Stanford offered too-good-to-be-true investment opportunities. Law enforcement agencies questioned his investing strategies as far back as 1998 but, just like the Madoff case, nothing was done until it became too late.

Our securities lawyers are actively involved in advising individual and institutional investors in evaluating their legal options when confronted investment losses.

Another chapter has been written in the saga on auction-rate securities – and this time it’s a win for institutional investors.  On Feb. 13, the Financial Industry Regulatory Authority (FINRA) ordered the Credit Suisse Group to pay STMicroelectronics NV more than $406 million to settle claims that the brokerage misled the semiconductor maker into buying auction-rate securities.

FINRA’s ruling may well provide additional legal fuel to kick start future auction-rate settlements, with institutional investors more likely to file claims and lawsuits for their own losses in the investments. Said Thomas Hargett, a partner at Maddox Hargett & Caruso PC, in a Feb. 13 article by Reuters:

“FINRA’s ruling is a clear signal that there are opportunities for corporate and individual investors to recover their losses from broker-dealers. The evidence is so compelling against the major broker-dealers that sold this garbage.”

In total, the FINRA arbitration panel ordered Credit Suisse Securities to pay $400 million in compensatory damages, and more than $6.6 million in legal costs, financing fees and interest.

STMicroelectronics’ win against Credit Suisse is the biggest ARS award to date for an investor not covered by last year’s regulatory settlements.

According to the Feb. 13 ruling, STMicro initially instructed Credit Suisse to invest in student-loan securities backed by U.S. government guarantees. Instead, Credit Suisse brokers invested into high-risk collateralized-debt obligations (CDOs), many of which turned out to be backed by toxic subprime real-estate loans. When the housing market ultimately collapsed, those CDOs plunged in value.

STMicroelectronics (NYSE: STM) is an Italian-French electronics and semiconductor manufacturer headquartered in Geneva, Switzerland.

To date, STMicroelectronics has been forced to take a $75 million charge stemming from losses tied to auction-rate securities.