Financial Firms

Merrill Lynch NY Branch Manager is No Longer with the Firm

Published on: December 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch & Co. is confirming that Branch Manager Joseph Mattia no longer works for the investment firm’s global wealth-management group. Mattia supervised 200 financial advisors in Merrill Lynch’s 5th Avenue office.

A spokesperson for Merrill Lynch refused to provide details. CNN reports that Mattia left the firm. Investment News, however, says that Mattia was escorted from the building on Monday. Industry insiders say there are a number reasons why a branch manager might be let go. Personnel problems and compliance issues are just two reasons.

Also on Monday, Merrill Lynch severed ties with Rosalie H. Fields, an adviser who also worked at the New York branch. Fields was one of 900 female brokers that filed a class action lawsuit against Merrill Lynch accusing the firm of gender discrimination. A settlement was reached with almost all of the plaintiffs.

Meantime, Bank of America, Corp. is still expected to acquire Merrill Lynch during the first quarter. Merrill Lynch is one of the bigger investment firms that took huge financial hits because of the credit crunch. Today, several hundred people showed up at a meeting at Merrill Lynch’s New York offices to vote on the merger between Bank of America and Merrill Lynch.

Bank of America shareholders also got together today to ratify the $50 billion acquisition. Because of Bank of America’s falling share price, however, the value of the deal has dropped by $30.3 billion since September and is now worth $19.7 billion. Continue Reading ›

Securities Fraud Class Action Lawsuit Against Hartford Financial Services Group Inc. is Reinstated in Appeals Court

Published on: November 25, 2008 | by Shepherd Smith Edwards & Kantas, LLP

This month, the U.S. Court of Appeals for the Second Circuit issued a decision granting class action plaintiffs another opportunity to make their securities fraud claims against Hartford Financial Services Group Inc. The district court had previously dismissed the class action lawsuit as untimely under the 1934 Securities Exchange Act.

That court had found that based on all media reports, regulatory filings, and information about several lawsuits available, the plaintiffs could have and should have filed their securities fraud lawsuit before the two-year statute of limitations had run out on July 25, 2001. Instead, the plaintiffs filed their complaint more than one year after the deadline had passed.

The securities fraud lawsuit, filed by Steve Staehr and a number of other plaintiffs who had acquired Hartford stock between August 6, 2003 and October 13, 2004, accuses the life and property/casualty insurer of acting fraudulently by concealing price manipulation and kickbacks involving insurers and commercial brokers. The plaintiffs also claim that because of the firm’s misrepresentations, omissions, and fraudulent concealments, they acquired Hartford stocks at artificially inflated prices. They filed their lawsuit soon after then-New York Attorney General Eliot Spitzer filed a lawsuit against Marsh, Inc., a Hartford broker.

Second Circuit Judge Colleen McMahon reversed the district court’s decision saying the information the plaintiffs had was not enough to place them on notice by July 2001 that Hartford was likely going to be investigated for “contingent” commissions. The appeals court also noted that Spitzer’s lawsuit connected Hartford to Marsh’s activities and that in 2003, Hartford revealed it paid brokers $145 million in kickbacks.

Related Web Resources:

Securities Fraud Class Action Lawsuit Against Hartford Financial Services Group Inc. is Reinstated in Appeals Court, Reuters, November 17, 2008
N.Y. Attorney General Spitzer Sues Marsh Over Contingent Commissions, Insurance Journal, October 25, 2004 Continue Reading ›

Massachusetts Top Securities Regulator Charges Oppenheimer & Co with Unethical Conduct and Fraud

Published on: November 20, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of State William Galvin is charging Oppenheimer & Co. with unethical conduct and fraud. The state’s top securities regulator is accusing the investment bank of continuing to market and sell auction rate securities to clients even as Oppenheimer executives were getting rid of their own ARS holdings, worth $3 million, before the collapse.

Galvin says that Oppenheimer Chairman and Chief Executive Albert Lowenthal and other firm executives kept clients and other firm employees “in the dark” about the collapsing ARS market. His office is seeking to revoke Lowenthal’s broker-dealer registration in Massachusetts because he says that the CEO and other Oppenheimer executives “betrayed” their clients’ trust. This is the first time that a state regulator has charged one of the smaller brokers for its alleged involvement in the sale of auction-rate securities while the market was failing.

Galvin says that Oppenheimer clients in Massachusetts are unable to access some $56 million because their ARS investments have been frozen since February. Also named in Galvin’s complaint are ARS Managing Director Greg White and Senior Managing Director Robert Lowenthal.

Oppenheimer and its firm executives are denying Galvin’s allegations. On Tuesday, the investment bank issued a statement claiming that its employees had no knowledge of the kinds of actions that their larger firm counterparts engaged in that contributed to the ARS market collapse. The investment bank also maintains that its executives personally bought and sold ARS during the period noted in Galvin’s complaint, and they continue to hold a number of these securities.

Oppenheimer says it is working with financing sources and regulators to help investors cash out of their ARS.

Related Web Resources:

Massachusetts sues Oppenheimer & Co over ARS sales, Reuters, November 18, 2008
Galvin blasts Oppenheimer & Co. over auction-rate securities, Boston Herald, November 18, 2008

Related Web Resources:

View the Exhibits (PDF)

Oppenheimer & Co.
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NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

Published on: November 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183 Deutsche Bank 1-866-926-1437 Citi 1-866-720-4802 JP Morgan 1-866-450-8470 Goldman Sachs 1-888-350-2857 Merrill Lynch 1-888-706-1381 UBS 1-800-253-1974 Morgan Stanley 1-800-566-2273 Wachovia 1-866-283-794
Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
Small firms caught in ARS buyback vise, November 16, 2008 Continue Reading ›

Citigroup Global Markets Ordered to Pay FINRA Fine for Inadequate Supervision

Published on: November 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. says it is fining Citigroup Global Markets Inc. $300,000 for its failure to reasonably supervise the commissions that clients were charged for stock and options trades. Citigroup Global Markets is Citigroup Inc’s brokerage and securities arm.

FINRA says that between April 2002 and January 2006, then-Citigroup representative Juan Carlos Hernandez charged 27 clients unreasonable commissions that substantially exceeded the firm’s calculated rate for appropriate charges. One client was reportedly overcharged about $1.2 million.

Citigroup let Hernandez go in February 2006 and one month later, without admitting to or denying FINRA charges, he consented to the findings made against him and was barred by FINRA.

FINRA contends that Hernandez was able to overcharge clients because Citigroup neglected to properly supervise him. FINRA also found that it wasn’t until October 2007 that Citigroup told its brokers about its calculated commission rates or that they weren’t allowed to charge commissions higher than these rates. In the cases when commissions were greater than Citigroup’s calculated rates, FINRA says the firm lacked the proper procedures and policies for determining whether a commission was inappropriate.

By agreeing to settle, Citigroup is consenting to FINRA’s findings but is not admitting or denying the charges. The firm offered to reimburse customers who were affected.

District Court Confirms Merrill Lynch Arbitration Award in Investor Dispute

Published on: November 12, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, Pierce, Fenner & Smith, Inc. and a number of its workers have won an arbitration dispute filed by a couple that invested in a money market mutual fund. In U.S. District Court for the Southern District of New York, Judge George Daniels confirmed the award.

Konstantinos Karetsos and Greta Rothstein began their New York Stock Exchange arbitration in February 2006. The married couple accused Merrill Lynch and several of its employees of alleged deceit, fraud, conspiracy, deceptive practices, misrepresentation, obstruction of justice, material omissions, unauthorized transactions, unsuitable investments, gross negligence, breach of fiduciary duty, and account management related to their money market fund purchase.

Arbitration proceedings took place over a six-day period. On the 4th day, the arbitration panel dismissed claims against three Merrill Lynch employees with prejudice. At the end of the proceedings, more claims against Merrill Lynch and a fourth employee were dismissed with prejudice.

The arbitration panel also found that claims against one Merrill Lynch employee were obviously erroneous and that the couple had filed claims against another employee who did not take part in the “alleged investment-related sales practice violations.”

According to the district court, the opposition that was noted in the couple’s pro se pleadings appeared to be based on many of the arguments they made in arbitration. Judge Daniels also said that the couple’s “vague and conclusory” terms” impugned the arbitration panel’s “integrity and neutrality.”

Commenting on Merrill Lynch’s arbitration award, Securities Arbitration Attorney William Shepherd said, “Investors who do not hire a lawyer, or hire one without experience in securities arbitration, fare very poorly in claims against brokerage firms. While securities arbitration has less formalities than court cases, investors simply cannot alone understand how to properly present their claims to the arbitrators.”

Related Web Resources:

Rothstein et al v. Fung et al, Justia
Change in Arbitration Panels Will Allow Investors Only, NY Times, July 25, 2008 Continue Reading ›

Protestors in Asia Decrying Lehman Brothers “Mini-Bond” Collapse Could Be A Sign of More Lawsuits and Claims Against US Broker-Dealers

Published on: November 10, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Angry investors in Hong Kong and Singapore began protesting last month over losses they suffered due to the collapse of Lehman Brothers credit-linked notes. Also known as mini-bonds, their value is now at pennies on the dollar, and investors want banks to buy the credit-linked notes back from them.

Investors of Lehman mini-bonds have experienced devastating losses. Reports indicate that financial service firms told Asian investors that Lehman Brothers mini-bonds were a safe alternative to fixed deposits.

Over 30,000 Hong Kong investors suffered losses in Lehman Brothers mini-bonds. Close to 10,000 investors in Singapore could lose more than $338 million dollars as a result of the mini-bond collapse. Last month, 600 Singaporean investors attended a public meeting to ask banks why they sold them Lehman Brothers credit-linked notes. Now, investors in the US that also were influenced by similar marketing messages about Lehman Brothers bonds and other “safe” investments are contacting investment fraud attorneys about filing arbitration claims and lawsuits.

Some lawyers are asking how such an overconcentration of mini-bonds, as well as Freddie Mac and Fannie Mae shares, managed to end up in the portfolios of senior investor who cannot afford to take the kind of financial hits that have come with the market collapse. For example, since July, some Fannie Mae shares have dropped in price from $19.50 to $1.40.

While investor claims against broker-dealers had dropped steadily since 2003 (the lowest number of claims ever, at 3,228, was in 2007), FINRA has already received at at least 3,469 claims this year.

Related Web Resources:

Hong Kong Investors Grapple with Effects of Lehman Collapse

Financial Crisis Politically Awakens Singapore Investors, Reuters, November 7, 2008 Continue Reading ›

J.P. Turner & Co. Will Pay $250,000 to Settle FINRA Charges Related to Inadequate Supervision of Stock Trade Commissions

Published on: November 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority and J.P. Turner & Co. have reached a settlement agreement over charges that the broker-dealer failed to put in place a proper supervisory system for making sure that its registered representatives charged clients reasonable and fair commissions on stock trades. By agreeing to settle, JP Turner is not admitting to or denying the charges involving inadequate supervision.

FINRA says that between January 2002 and March 2005, JP Turner failed to take certain relevant factors into consideration when determining how much commission they should charge clients for equity securities transactions. Instead, FINRA says that the broker-dealer let its brokers charge commissions of up to 4.5% on nearly every stock trade, with discretion on what commission to charge solely limited by whether the security’s price was higher or lower than $25/share. If the security’s price was under $25/share, FINRA says that JP Turner representatives could charge commission of up to 4.5%. They could charge commissions of up to 3.5% if the security price was higher than $25.

FINRA requires brokerage firms to put in place systems and “reasonable procedures” for determining what commission fee a customer should be charged for such transactions, while taking into consideration certain relevant factors. The SRO’s mark-up policy provides a list of these relevant factors, including: the kind of security, the price of the security, the transaction size, the order execution cost, and the availability of the security.

During the review period, FINRA says that 91% of JP Turner’s transactions involved securities priced under $25/share. While the broker dealer’s trading manager was in charge of reviewing and approving trades to make sure charges were reasonable and fair, the SRO says the reviews actually consisted of checking transactions to make sure that commissions did not go above the company’s 4.5% and 3.5% guidelines.

As part of its settlement with FINRA, JP Turner will pay $250,000. The broker-dealer has also agreed to retain an independent consultant who will evaluate for adequacy the company’s systems, policies, procedures, and training related to FINRA’s fair price ruling.
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SunTrust Investment Services to Pay $700,000 Fine to Settle FINRA Charges of Excessive Commission and Supervisory Violations Involving Fee-Based Brokerage Business

Published on: October 23, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has announced that SunTrust Investment Services Inc. has agreed to pay a $700,000 fine to settle allegations that it engaged in supervisory violations involving its fee-based brokerage business and charged excessive commissions on low-priced stocks. By agreeing to settle, the investment firm is not admitting to or denying the charges.

SunTrust terminated its Portfolio Choice accounts, which were fee-based accounts, in 2006. The charges by FINRA involve the period between November 2002 and December 2005 when SunTrust opened more than 2,644 Portfolio Choice accounts without properly evaluating whether the accounts were the appropriate fit for customers. According to FINRA, SunTrust neglected to properly monitor the Portfolio Choice accounts to make sure that they continued to be the appropriate account choice for clients.

FINRA found that at least 36 Portfolio Choice accounts that did not engage in any trades for at least eight quarters-yet these accounts were charged more than $129,000 in fees during the last four quarters. FINRA also says that a number of SunTrust Portfolio Choice clients paid an asset-based fee and transaction commission on the same assets.

FINRA was able to identify over 900 incidents when SunTrust neglected to exclude a customer asset that was purchased with a commission from the asset base that is used to determine the account fee. The error resulted in customers being charged twice, leading to about $437,500 in commissions and excess fees for SunTrust clients.

FINRA also accused the investment firm of acting inappropriately when it let a number of customers keep their accounts and pay for them even though they had not traded for years. Between January 2002 and September 2, 2005, FINRA says SunTrust did not establish a supervisor system that could make sure that registered representatives would charges clients fair commissions on securities transactions. The firm used an automated commission system that charged commission of more than 5% when low quantities and/or low-priced stocks were sold or purchased. Because of this, some clients were billed excess commissions nearing $100,000 in total.

Also as part of its settlement, SunTrust said it would certify that it returned $713,362 in interest and fees to clients that were affected by the alleged violations. FINRA says it took this voluntary refund into account when assessing its fine against SunTrust.

Related Web Resources:

SunTrust Investment Services

FINRA
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Banorte Securities International Agrees to $1.1 Million Fine Over Charges It Recommended Class B Mutual Fund Shares Instead of Class A

Published on: October 22, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Banorte Securities International, Ltd. has agreed to a $1.1 million fine to settle charges that it recommended to customers that they buy Class B off-shore mutual fund shares even though they would have benefited more financially by buying Class A shares. The Financial Industry Regulatory Authority announced the settlement agreement last week.

By agreeing to settle, Banorte is not admitting to or denying the charges. The company also agreed to a plan that would address more than 1,400 transactions involving accounts in over 300 customer households.

Banorte had been accused of having inadequate supervisor systems to oversee the sales of off-shore mutual fund shares, including guidelines that failed to properly advise registered representatives that Class A share purchases eligible for front-end loans were more affordable than Class B Shares.

According to FINRA enforcement head Susan L. Merrill, firms are obligated to consider all share classes and pricing features that would most benefit a customer-regardless of whether or not that clients reside in the United States or abroad. The majority of Banorte’s customers reside in Mexico. Merrill also said that firms must take all relevant factors into considerations when making mutual fund recommendations to clients.

Class A Shares

These mutual fund shares come with a front-end sales charge and lower ongoing fees that are asset-based.

Class B Shares

While these mutual fund shares usually do not come with a front-end sales fee, their asset-based fees are usually higher than Class A Shares’ fees.

FINRA alleges that from 2003 until May 2004, the majority of Banorte mutual fund sales involved Class B shares even though investing in Class A Shares could have resulted in higher returns for clients.

Related Web Resources:

FINRA Fines Banorte Securities International $1.1 Million for Improper Sales of Class B Mutual Fund Shares, FINRA, October 16, 2008 Continue Reading ›