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Preferred Stock

More Investors Find Themselves Victims Of Preferred Stock Fraud

Preferred stock fraud involving acts of broker misrepresentation or omissions is becoming a way of life for investors, causing millions of dollars in preferred stock losses. In the past year, more institutional and individual investors have come forth with complaints that the supposed safe and conservative preferred stock and bonds they purchased on the recommendation of their brokerage firm turned out to be anything but safe and instead were financially disastrous.

The reasons behind investors' losses in certain preferred stocks or bonds are often related to the company's underlying exposure to mortgage-related securities and other risky debt, a fact that has forced Fannie Mae, Freddie Mac, CIT Group, Bear Stearns and Lehman Brothers Holdings to take billions of dollars in write-downs and losses. In turn, this has often caused the price of the preferred stocks to plummet. In other cases, the company's financial health has deteriorated to the point where bankruptcy becomes the only option, leaving preferred stock holders with millions of dollars in investment losses.

CIT Group Preferred Stock

On Nov. 1, CIT Group became the first financial firm to fail after being bailed out by the U.S. government when it filed for bankruptcy protection. The bankruptcy spells bad news for many parties, beginning with U.S. taxpayers. CIT Group received $2.3 billion in government aid in 2008 in the form of preferred stock. For current holders of CIT's preferred stock, the Nov. 1 bankruptcy filing will likely leave them with nothing.

Lehman Brothers Preferred Series J Stock

Before CIT Group, there was Lehman Brothers Holdings. On Sept. 24, 2008, a securities class action lawsuit was filed on behalf of purchasers of Lehman Brothers' Feb. 5, 2008, offering of Preferred Series J Stock.

Among the allegations, the complaint asserts that Lehman's Prospectus contained both material misstatements and omissions that investors relied upon to their detriment. At the time of the Preferred Series J Stock offering, investors say Lehman already was suffering from several adverse factors that were never revealed and/or adequately addressed in company documents. This included the company's failure to set aside sufficient allowances to cover an ever-increasing portfolio of underperforming mortgage-related products.

On Sept. 15, 2008, Lehman filed for bankruptcy protection. Investors who bought Lehman's preferred stock say they were misled about the risks of investing in Lehman and the state of its fiscal health.

  • Freddie Mac Preferred Series Z Stock
  • Fannie Mae Preferred Series S Stock
  • Schwab YieldPlus Investor Shares
  • Schwab YieldPlus Select Shares
  • Citigroup Preferred Series F Stock

Other securities class action lawsuits filed on behalf of preferred stockholders include those involving Freddie Mac Preferred Stock, Series Z, Fannie Mae Preferred Stock, Series S, Schwab YieldPlus Investor Funds Investor Shares and Schwab YieldPlus Funds Select Shares, and Citigroup Preferred Stock, Series F.

Many investors of preferred stock in these companies were advised by their brokerage firms that the investments were safe, conservative and suitable for current income investment objectives. In reality, however, investors were exposed to unnecessary risks.

Brokerage firms have a fiduciary duty to inform their clients of all the risks associated with a certain stock or financial product, to recommend investments that are within a client's risk tolerance, and to provide accurate, material facts regarding a security. When they fail to fulfill this duty, investors have the right to hold them accountable by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

If you are a preferred stock holder who suffered investment losses because a brokerage or financial advisor misrepresented the risks of certain financial products, please contact us. We want to hear your story.


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