Investor Lawyers Blog

Investors File Texas Securities Fraud Lawsuit Against Ernst & Young

Published on: August 27, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A group of investors that lost over $17 million after a Plano-based hedge fund that promised low risk investments collapsed are suing Ernst & Young for Texas securities fraud. Parkcentral Global sold the two funds involved.

According to the Houston securities fraud complaint, although E & Y was auditing Parkcentral, the audited financial statements never warned investors that they were in financial trouble. Investors quickly lost every cent they invested even though they were promised that placing their money in Parkcentral would preserve capital. Parkcentral, which is now-defunct after losing over $2.6 billion, used to be run by affiliates of former presidential candidate H. Ross Perot

The plaintiffs contend that not only did E & Y make false representations that it fairly audited Parkcentral, but also it failed to fulfill its role as “watchdog” for investors. They are accusing E & Y of Texas securities fraud, fraud, negligent misrepresentation, and conspiracy.

Earlier this month, one of the plaintiffs, Brown Investment Management, L.P., won a Delaware Supreme Court case requiring that Parkcentral Global disclose the identity of its investors, which means that their names could also be added to the Houston securities case. Other current plaintiffs include Thomas R. Brown Family Private Foundation, SBS Ventures LLC, and MBB Ventures LLC. They are seeking actual and punitive damages.

Related Web Resources:
Ernst & Young Facing Securities Fraud Lawsuit in Houston Over Failed Hedge Fund, Digital Journal, August 26, 2010
Delaware Supreme Court Says Hedge Fund Investors Are Entitled to Ownership List, Securities Technology Monitor, August 25, 2010

Other Recent Texas Securities Fraud Stories on Our Blog Site:
Texas Securities Fraud Incidents on the Rise, Say State Officials, https://www.stockbrokerfraudblog.com, August 18, 2010
Dallas Billionaire Brothers Charged with Texas Securities Fraud, https://www.stockbrokerfraudblog.com, July 31, 2010 Continue Reading ›

HSBC Securities to Pay $375K to Settle FINRA Allegations that It Recommended Unsuitable Collateralized Mortgage Obligations to Retail Clients

Published on: August 25, 2010 | by Shepherd Smith Edwards & Kantas, LLP

HSBC Securities has agreed to pay $375,000 to settle Financial Industry Regulatory Authority charges that it recommended the unsuitable sale of inverse floating rate collateralized mortgage obligation to retail clients. The SRO is also accusing the investment bank HSBC of inadequate supervision of the suitability of the CMO sales and failure to fully explain the risks involved in CMO investments to clients. The investment bank has already reimbursed clients $320,000.

Per FINRA, six HSBC brokers made 43 unsuitable inverse floater sales to “unsophisticated” retail clients. Even though HSBC requires that a supervisor approve all retail clients sales larger than $100,000, 25 of the sales were larger than this amount. 5 resulted in $320,000 in losses for clients. According to FINRA executive vice-president and acting enforcement chief James S. Shorris, the clients’ financial losses could have been prevented.

FINRA contends that HSBC brokers were not given enough training and guidance about the risks involved with CMOs. They also were not specifically told that inverse floaters were only suitable for investors with high-risk profiles.

FINRA also says that HSBC was not in incompliance with a rule requiring brokerage firms to offer specific educational collateral prior to a CMO sale to anyone that is not an institutional investor. FINRA says that not only did HSBC’s registered representatives not know that they were required to offer this material, but also the brochures that were offered did not meet content standards regarding required educational information.

By agreeing to settle, HSBC is not admitting or denying the allegations.
Related Web Resources:
FINRA Fines HSBC $375,000, On Wall Street, August 19, 2010
FINRA fines HSBC for unsuitable sales of CMOs, Banking Business Review, August 20, 2010
FINRA

Collateralized mortgage obligation, SEC Continue Reading ›

John Gardner Black Responds to Stories Recently Published Concerning His Role in an SEC Securities Fraud Action.

Published on: August 24, 2010 | by Shepherd Smith Edwards & Kantas, LLP

On August 19, 2010, along with other news sources, we published a story regarding investment fraud victims of John Gardner Black. Mr. Black subsequently protested that ours and other stories published concerning him were inaccurate.

Below are the inaccuracies he reports, verbatim, regarding ours and apparently other publications which concern him. We do not purport to have confirmed the accuracy of Mr. Black’s response at this time, but felt it fair to publish the corrections he claims should be made.

1.) I did not plead guilty to securities fraud. If I had, do you really think the SEC would have reinstated me? My guilty plea was to not informing my customers of the liquidation value of securities they did not own.

Investors Seek Recovery of Losses in Oppenheimer Champion Income Fund, Oppenheimer Rochester National Municipal Bond Fund and Nuveen High Yield Municipal Bond Fund

Published on: August 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Oppenheimer Champion Income Fund (OPCHX; OCHBX; OCHCX; OCHNX; OCHYX) plummeted 82% overall making it the worst performing taxable high yield bond fund of 2008. The investors believed they were in a conservative high yield fund when in fact they were exposed to illiquid derivatives and high risk mortgage backed securities. The collapse eliminated approximately $2 billion over the course of 15 months.

Investors who purchased this fund were clients of UBS, Citigroup Smith Barney, Wachovia, Linsco Private Ledger LPL, Merrill Lynch, UBS, ING, and Stifel Nichols among others. Many investors who were sold conservative high yield bond funds were shocked to learn that they had losses of 40% to 80% of their principal. With slightly higher risk than a CD, this gave investors a one to two percent higher rate of return. Now, these conservative investors will need nearly 5 years of income just to recover. Meanwhile due to the inverse relationship between interest rates and bonds, high quality bonds have risen in value.

The Oppenheimer Rochester National Municipal Bond Fund (ORNAX; ORNBX; ORNCX) lost approximately 60% of its $4 billion in assets. The fund violated its investment ratio in illiquid securities and failed to disclose risk factors associated with the overconcentration of municipal bonds that could become illiquid quickly.

The Nuveen High Yield Municipal Bond (NHMAX; NHMBX; NHMCX; NHMRX) suffered losses of 40% in 2008. The fund invests around 80% in bonds rated BBB or below and was the reason for the decline.
Continue Reading ›

Bank of America Merrill Lynch to Settle UIT Sales-Related FINRA Charges for $2.5 Million

Published on: August 22, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America Merrill Lynch has agreed to settle for $2.5 million Financial Industry Regulatory Authority allegations that it did not provide “sales charge discounts” to clients with eligible unit investment trusts purchases. By agreeing to settle, the broker-dealer is not admitting to or denying the charges. Of the $2.5 million, $2 million is restitution and $500,000 is a fine.

UITs
A unit investment trust is an investment company that holds a fixed portfolio of securities while offering redeemable units from that portfolio. The units have a fixed date for termination. UIT sponsors usually offer sales charge discounts called “rollover and exchange discounts”-usually offered to investors that use redemption or termination proceeds from one unit to buy another-and “breakpoint discounts”-based on the purchase’s dollar amount-to investors.

Since March 2004, FINRA has made it clear that investment firms must have procedures in place to make sure that clients get their UIT discounts. The SRO contends, however, that until May 2008, Merrill Lynch did not provide brokers or their supervisors with such guidance and neglected to tell clients when they were eligible for a UIT discount. This went on between October 2006 and June 2008 and many clients were overcharged for their UIT purchases.

FINRA also accused Merrill Lynch of distributing client presentation that contained sales information about UITs that were “inaccurate and misleading,” causing clients to believe that they were only eligible for a UIT discount if UIT proceeds were used to buy a new UIT from the same sponsor.

Related Web Resources:
BofA Merrill Lynch to Pay $2.5 Million in FINRA Matter, ABC News, August 18, 2010
Merrill Lynch to pay $2.5M in sales charge case, Business Week, August 18, 2010

Other Merrill Lynch Stories on Our Web Site:
Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, StockbrokerFraudBlog, February 15, 2010
Merrill Lynch Must Pay $26 million to States to Resolve Charges of Failure to License Associates, StockbrokerFraudBlog, December 22, 2009 Continue Reading ›

Investment Fraud Victims of John Gardner Black May Be Due Tax Refunds

Published on: August 19, 2010 | by Shepherd Smith Edwards & Kantas, LLP

John Gardner Black, who spent three years in prison after pleading guilty to 21 counts of securities fraud, two counts of false documents, and three counts of mail fraud in 2001, says he doesn’t think that he should have to pay $61.3 million in restitution.

Prosecutors had accused Black of investing approximately $233 million for about 48 school districts while using a risky investment that Pennsylvania law doesn’t allow for school districts. Black hid from his clients both the transfers to the high risk investments and the $71 million loss when the investments’ value declined.

Black is now contending that he was prosecuted based on a Securities and Exchange Commission determination that he “materially” overstated the assets’ value by providing the school districts’ investments’ security. Last year, however, the SEC and the Financial Accounting Standard Board ended up adopting the same valuation method that he’d applied during the 90’s. Black is arguing that because he was sanctioned for “unethical” business practices that are now sanctioned, the court order that he pay $61.3 million for ill-gotten gains should be set aside.

Black applied a similar argument when he went to the SEC asking that it lift the lifetime ban preventing him from taking part in the investment industry. Although Black is still not allowed to associate with investment companies or investment advisers, he can once again associate with dealers, brokers, and municipal-securities dealers. He has, however, lost his appeals to have the criminal conviction against him overturned.

As a victim of investment fraud, you may be entitled to tax refunds.

Related Web Resources:
Fraud says he shouldn’t have to pay restitution to his victims, Pittsburgh Live, August 18, 2010
Related Court Document (PDF)
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Texas Securities Fraud Incidents on the Rise, Say State Officials

Published on: August 18, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to state authorities, there are more Texas securities schemes happening than ever before. One of the reasons for this is that many investors are looking for opportunities to make money during these tough economic times as they try to rebuild their savings. Securities officials are working hard to combat these investment schemes.

The Texas State Securities Board says that it took about 2,177 law enforcement actions during fiscal year 2009-up significantly from the 949 administrative and criminal actions it took in 2008. Now, after the recent BP oil spill, there have been scammers who have tried to persuade investors to invest in “new technology” that can stop similar disaster from happening. Also, State Securities Commissioner Denise Voigt Crawford says precious metal-related schemes are currently popular because gold prices are at a high. According to the Statesman.com, other leading Texas investors traps include:

• Life settlements • Gas schemes • Oil scams • Exchange-traded funds • Foreign exchange trading schemes • Affinity fraud • Green scams • Undisclosed conflicts of interest • Unsolicited online offers (via email, Twitter, Facebook, other social media)
• Private deals
People who want to retire and need financial security are among those at high risk of becoming victims of Dallas securities fraud. Crawford suggests that investors contact her office to make sure that a financial adviser is properly licensed.

It is important that you do your own due diligence find out more about a particular financial opportunity before investing your own money. For example, not only can you check with the Texas State Securities Board to find out whether a securities dealer or investment adviser is in fact registered, but also you can go onto the Financial Industry Regulatory Authority Web site to find out more about a broker-dealer or broker.

Texas authorities see rising investment scams in a soft economy, Statesman, August 14, 2010
Texas State Securities Board

FINRA

SEC
Continue Reading ›

Oppenheimer Champion Income Fund Resulted In Significant Financial Losses for Investors from Citigroup, UBS, Merrill Lynch, and Other Large Financial Firms

Published on: August 16, 2010 | by Shepherd Smith Edwards & Kantas, LLP

If you are an investor who suffered losses because you invested in the Oppenheimer Champion Income Fund, do not hesitate to contact our securities fraud law firm to request your free case evaluation. Unfortunately, many investors were not apprised of the risks they were taking on when they placed their money in these high risk, very illiquid derivatives. Many of these securities victims were clients of large brokerage firms, such as UBS, Citigroup Smith Barney, Wachovia, Linsco Private Ledger LPL, Merrill Lynch, UBS, ING, Stifel, and Gun Allen.

Thousands of investors were led to believe, via the prospectus, the financial advisers, and the marketing collateral, that the Oppenheimer Champion Income Fund was a high income fund that wasn’t much riskier than a high income fund peer group or a conservative high income fund. Unfortunately, this was not the case at all, and many investors ended up sustaining major losses when the fund lost 79.1 for the 2008 calendar year.

Oppenheimer Champion Income Fund
Hoping that commercial mortgage-backed securities would rally, the fund had placed a large bet in high risk derivatives, such as credit default swaps and mortgage backed securities-not to mention total-return swaps in 2006. Unfortunately, this is not what ended up happening.

In September 2008 alone, credit default swaps declined by $238 million. It was during this time that the fund sold credit default swaps on beleaguered companies, including Tribune Co., Lehman Brothers Holdings Inc., General Motors Corp, and American International Group Inc. The fund also raised its gamble on mortgage-related bonds that, with defaults rising, started to fail.

Hundreds of millions of dollars has reportedly been lost, and the fund’s investors have not been the only ones to suffer financial losses. Over 10% of the fund was held by other OppenheimerFunds offerings, including funds that bundled a number of the firm’s products together.

Related Web Resources:
Oppenheimer Champion Income Fund, MorningStar
FINRA Arbitration and Mediation
Continue Reading ›

Structured Notes Becoming New “Investment Bubble” on Wall Street, says Institutional Risk Analytics Director

Published on: August 12, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg recently reported on a report by Institutional Risk Analytics Managing Director Christopher Whalen. According to the former Federal Reserve Bank of New York official, structured notes are about to become the “next investment bubble.” Whalen is the one who predicted a little over three years ago that the mortgage-backed securities market was going to collapse. Now, he says that investment firms are applying the same “loophole” that allowed auction-rate securities and collateralized debt obligations to be sold over-the-counter.

Structured notes are derivatives packaged with bonds. Their value comes in part from bets on interest rates. Accredited buyers purchase them through private deals, while the public can buy them in trades. StructuredRetailProducts.com says that structured note sales to individual investors in this country has gone up 72% to $29.6 billion in the last year.

As with ARS, the firms originating these illiquid structured notes are not obligated to “show clients a low-ball bid” or create markets in these OTC structured assets. Whalen says that even as the larger financial firms are making it appear that they are abiding by the new Dodd-Frank law (which does not allow proprietary trading and limits private-equity fund investments), they are now concentrating on structured assets that are based on Treasury bonds, corporate debt, or nothing at all.

Whalen says that it is the individual investors that will lose money on structured notes when the benchmark interest rates go up. Among the the other reasons why structured notes worry Whalen:

• They come with high risk yields.
• They are not regulated.
• They frequently come with minimal disclosure.

According to Whalen, there are already two hedge funds set up for when the rates start to rise and “distressed” retail investors will want to sell.

Individual and institutional investors that believe their financial losses are a result of broker-dealer misconduct or misleading information should explore their legal options.

Related Web Resources:
Structured Notes Are Wall Street’s `Next Bubble,’ Whalen Says, Bloomberg, August 9, 2010
Chris Whalen Gives 6 Reasons Why The Next Bubble Will Be In Structured Notes, Business Insider, August 10, 2010
Institutional Risk Analytics

Obama Signs Dodd-Frank Reform Bill, Journal of Accountancy, July 21, 2010 Continue Reading ›

UBS Ordered to Pay Auction-Rate Securities Investor Kajeet Inc. $81 Million

Published on: August 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay investor Kajeet Inc. $80.8 million for failed auction-rate securities. The brokerage firm disagrees with the decision and intends to file a motion to have the claim vacated.

Although Kajeet had only invested $8 million in ARS through UBS, the company, which markets cell phones for kids, contends that because its securities were frozen, a “domino effect” resulted and it ultimately lost $110 million. Also, Kajeet was forced to significantly cut its 60-person work team and it lost a key distribution deal with a national retail chain.

UBS had previously resolved ARS-related charges with an agreement that it would pay a $150 million fine and buy back $18.6 billion of the securities. The brokerage firm was one of a number of broker-dealers that agreed to repurchase over $60 billion in ARS from investors because they had allegedly misrepresented the securities as safe investments. When the $330 million ARS market froze in February 2008, UBS had over $35 billion in ARS that were held by some 40,000 customers.