Investor Lawyers Blog

Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Files Claims Against Morgan Keegan Following SEC Wells Notice

Published on: July 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Last week, the Staff of the Atlanta Regional Office of the US Securities and Exchange Commission sent Morgan Keegan & Co, Inc., Morgan Asset Management, Inc., and three employees a “Wells” notice. The notice stated the Staff’s intention to recommend that the Commission bring enforcement actions over possible federal securities laws violations. Morgan Keegan, is a subsidiary of Regions Financial Corporation.

The Staff had been investigating a number of mutual funds that Morgan Asset Management had previously managed. In light of the Wells notice, the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP is continuing to file arbitration claims against Morgan Keegan for covering up the risks associated with their bond funds.

Our investor clients are accusing Morgan Keegan of selling specific funds that it promoted as relatively conservative investments when in fact, the funds were exposed to subprime mortgage securities, collateral debt obligations, and other high risk debt instruments. Investors are alleging that Morgan Keegan took part in a scam that defrauded investors of certain bond funds while misrepresenting their degree of involvement in more high risk investments. As a result, our investor clients suffered major financial losses after the subprime mortgage market collapsed.

FINRA Says Number of Stockbroker Fraud Arbitration Claims by Plaintiffs is Rising

Published on: July 14, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to the Financial Industry Regulatory Authority, the amount of investor fraud claims alleging securities fraud and other violations has grown. From January to May 2009, investors filed 3,163 stockbroker fraud claims-an 85% increase from the 1,711 stockbroker fraud arbitration claims that were filed for the same period in 2008.

More investors have filed arbitration complaints since the demise of the sub-prime mortgage market in 2007. About 7,000 investment fraud claims are expected to be filed in 2009-compare this figure to the 4,982 arbitration claims in 2007 and the 2,238 securities fraud arbitration claims in 2007. In 1,718 of the arbitration cases filed through May 2009, breach of fiduciary was the most common complaint.

Also, more investors with arbitration claims are emerging victorious. This may be in part due to new rules by the Securities and Exchange Commission that limits a defendant’s ability to file a dismissal motion. For the first five months of this year, arbitration panels issued rulings in favor of investors in 47% of arbitration claims-compared to 42% of the time during the same time period in 2008.

However, Shepherd Smith Edwards & Kantas LTD LLP founder and Stockbroker Fraud Attorney William Shepherd says, “Considering there are about 60 million investors in the U.S., it is actually surprising that so few seek recovery. Approximately 1 in 10,000 investors file claims, but I believe at least 1 in 1,000 investors is cheated. Thus, 90% of valid claims are never filed. Claims involving money lost gambling in the market or over honest but bad advice do not succeed. Valid claims include those for fraud, misrepresentation, unsuitable investments, failure to disclose risks, or even for negligence.”

Related Web Resources:
Investor Arbitration Claims Sharply Up, Law.com
FINRA
Continue Reading ›

Ameriprise Must Pay $17 Million for REIT Fraud

Published on: July 12, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission says Ameriprise Financial Services has consented to pay $17.3 million to settle allegations that it received millions of dollars in undisclosed compensation in exchange for selling certain REITs (real estate investment trusts) to its brokerage customers.

The SEC says Ameriprise demanded and got “revenue sharing” payments to sell the REITs but neglected to disclose it was receiving the payments. The SEC is also accusing Ameriprise of violating a number of federal securities laws when it sold over $100 million in unregistered shares involving one specific REIT.

SEC Enforcement Director Robert Khumazi says the broker-dealer’s clients were not told that brokers had incentives to sell the REITs. He stressed the importance of investors being able to rely on unbiased advice from financial advisers.

The SEC charges come from REITs sales that took place between 2000 and May 2004. CNL Holdings Group, Inc. and W.P. Carey & Co. LLC created, advised, and managed the REITs named in the proceedings.

By agreeing to settle, Ameriprise is not admitting to or denying wrongdoing.

Shepherd Smith Edwards & Kantas LTD LLP represents Ameriprise investors with securities fraud cases against the broker-dealer. Stockbroker fraud attorney and firm founder William Shepherd says “Our law firm handles claims of all types for investors nationwide who lost in accounts at Ameriprise and other financial firms. Over 90% of our clients recover all or part of their losses. It is sad that many investors choose not to seek recovery from investment firms that commit fraud or and other wrongdoing. We offer a free consultation and most of our clients advance no fees or costs but instead pay these out of their recovery.”

Related Web Resources:
Ameriprise Pays $17.3M To Settle SEC Charges, Wall Street Journal, July 10, 2009
REITs, Investopedia Continue Reading ›

Morgan Stanley Plan to Repackage Low-Grade Debt Obligations Then Sell These as Low-risk AAA Bonds is “Preposturous,” Says Stockbroker Fraud Lawyer Bill Shepherd

Published on: July 10, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley is taking low grade collateralized debt obligations, repackaging these in into new pooled securities and obtaining questionable AAA ratings. The broker-dealer plans to sell $130 million CDO’s this way in a manner similar to the way banks have been dealing with commercial mortgage-backed securities. The repackaged CDO is to a great expent a copy of a CDO put together by Goldman Sachs Group in 2007 using bonds from Greywolf CLO I Ltd.

$87.1 million of securities are expected to receive the AAA rating-the offering is 89 cents on the dollar-the second portion is $42.9 million of securities that Moody’s Investors Service have rated Baa2.

According to Sylvain Raynes, an R&R Consulting principal, many insurers and banks can only buy AAA. She says that by making AAA out of not AAA, people with AAA “on their forehead” can purchase.

SEC Wants to Know Why Target-Date Mutual Funds are Growing Riskier

Published on: July 8, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Labor Department and the Securities and Exchange Commission want to know why target-date mutual funds, which were supposed to get safer as investors aged, have become more high risk. Large mutual fund firms, including Vanguard and Fidelity , promised that as investors approached their retirement target-date funds would automatically shift from high-growth investments to safer ones, such as bonds. These funds were supposed to be a safe bet for retirement.

In 2007, the Labor Department issued a ruling protecting employers that automatically sent workers 401(k) funds to target funds if the employees later lost money. This decision released a lot of money into the funds. Approximately $182 billion has gone into target-date funds. Yet as the stock market fell in 2008, a number of 2010 funds lost 40% value.

Now, SEC Chairman Mary Shapiro wants to know whether companies misled investors about the risks involved with target-date funds. The SEC has gathered data that reveal that no clear standards exist for how target-date funds should operate and that they can vary when it comes to investment risks even if their names or target dates are similar. According to Shapiro, the SEC is worried that funds with even the same target date can vary a great deal when it comes to investment and returns. Funds invested in safer bonds appeared to perform better. Last year:

Fidelity Freedom 2010 Fund: Invested 50% in stocks; it lost 25% of its value last year.
Wells Fargo 2010 Fund: Lost 11% and is heavy in bonds.
AllianceBernstein 2010: Dropped by 1/3rd; 57% invested in stocks.
Deutsche Bank Fund: 4% down; favors fixed-income investments.

Now, Congress wants workers that want to invest in target-date funds and other 401(k) funds to receive accurate marketing, better disclosure fees, and better financial advice. Envestnet Asset Management and Behavioral Research Associations conducted a study that brought to light a number of misconceptions about target-date funds. For example, employees believed target-date funds offer a guaranteed return, faster money growth, and the ability to invest less and still be able to retire.

Related Web Resources:
Target-Date Mutual Funds May Miss Their Mark, NY Times, June 24, 2009
Target-Date Funds That Hit the Mark, Smart Money, January 17, 2008 Continue Reading ›

Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan

Published on: July 6, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to Stifel Financial Corp., 95% of its clients with frozen auction-rate securities have indicated that they will accept its offer to buy back the investments over a three-year period. Missouri Securities Regulator and Secretary of State Robin Carnahan, however, continues to maintain that the buyback plan is inadequate.

She also disagrees with the broker-dealer’s claim that customers are endorsing the buyback plan by accepting it. Rather, she believes that it is the only option that Stifel has given clients that will allow them to get all of their funds back-and that means that many of them will have to wait three years. Carnahan noted that over 20 other broker-dealers were able to give their clients immediate relief.

Some 1,200 Stifel clients bought ARS before the market collapsed. The firm’s clients currently hold about $170 million in ARS. Some 40% of eligible accounts reportedly were to have received 100% liquidity by June 30. The remaining accounts are to obtain full liquidity by June 2012.

Stifel Chief Executive Officer and Chairman Ronald J. Kruszewski maintains that the broker-dealer did not know that the ARS market was in trouble until it collapsed. This is the main reason that Stifel has given for why it isn’t buying back their clients’ holdings in full the way other brokers have from their clients.

Carnahan’s office, however, alleges that Stifel was aware of the risks involved with investing in ARS and that the broker-dealer should have worked harder to protect investors. Her office sued Stifel in March 2009 over the way the firm marketed ARS and misled investors.

Related Web Resources:
Most Stifel clients accept auction rate securities buyback; Carnahan calls offer ‘inadequate’, St Louis Business Journal, June 23, 2009
Carnahan Sues Stifel Over Auction Rate Securities, iStockAnalyst, March 13, 2009
New Trouble in Auction-Rate Securities, The New York Times, February 15, 2008 Continue Reading ›

Wachovia Securities Agrees to $1.4 Million FINRA Fine for Failure to Deliver Prospectuses to Customers

Published on: July 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Wachovia Securities, LLC $1.4 million for its alleged failure to provide customers with product descriptions and prospectuses between July 2003 and December 2004, as well as for related supervisory failures. A probe conducted by the SRO determined that the broker-dealer did not provide the prospectuses to clients in 6,000 of about 22,000 transactions during this time period. These 6,000 transactions’ market value was about $256 million.

Per FINRA rules and by law, broker-dealers are required to give potential clients hard copy prospectuses. The SRO, however, discovered a number of deficiencies related to prospectus delivery by Wachovia Securities related to:

• Collateral mortgage obligations • Exchange-traded funds • Preferred stocks • Secondary purchases of equity non-syndicate initial public offerings • Corporate debt securities • Mutual funds • Equity syndicate initial public offerings • Alternative investment securities • Auction market preferred securities
According to FINRA Enforcement Chief and Executive Vice President Susan L. Merrill, failure to provide the investing public with prospectuses and other offering documents deprives customers of valuable data that they need to make “informed investment decisions.”

Per FINRA, reasons Wachovia Securities did not give prospective customers the required prospectuses included:

• Business units’ failure to report to the proper department that prospectus delivery was required • Coding errors • Failure to supervise and monitor outside vendors under contract to deliver prospectuses • Inadequate supervisory systems, procedures, and polices
When the activity allegedly at issue occurred, Wachovia Securities, LLC was a non-bank affiliate and subsidiary of Wachovia Corporation. This year, the latter merged with Wells Fargo & Co..

By agreeing to settle, Wachovia Securities is not admitting to or denying the allegations. The broker-dealer, however, has agreed to an entry of the SRO’s findings.

Related Web Resources:
FINRA Fines Wachovia Securities $1.4 Million for Prospectus Delivery Failures, Related Supervisory Violations, FINRA, June 25, 2009
Wachovia Fined $1.4 Million By Finra For Not Sending Prospectuses, June 30, 2009 Continue Reading ›

SEC May Sue State Street Corp Over Investor Losses Related to Mortgage-Backed Securities

Published on: July 1, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is considering whether to file civil charges against State Street Corp. over possible securities violations related to subprime mortgages. The Boston-based firm is the largest asset manager for institutions in the world.

In its regulatory filing that it submitted on Monday, State Street noted that the SEC had sent State Street Bank and Trust Co. a “Wells” notice related to a probe into disclosures and management of the bank’s fixed-income investments before 2008. The asset manager is cooperating with the SEC, as well as with Massachusetts’s attorney general. Massachusetts’s lead securities regulator, Secretary of the Commonwealth William F. Galvin, is looking at allegations that State Street misled pension funds over how much risk was involved in the investments.

Just before the housing market fell in 2007, State Street’s fixed-income investment unit began to increase its investments in bonds and securities related to subprime mortgages. Customers with poor credit records were even given loans. When the market collapsed and defaults on mortgages went sky high, the investments’ values dropped significantly, leading to investor losses.

Evergreen to Pay Over $40 Million to Settle SEC and Massachusetts Securities Division Charges that Funds were Overvalued

Published on: June 29, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Evergreen Investment Management Co., which distributes Evergreen mutual funds and related entities, has settled Securities and Exchange Commission charges that the Ultra Short Opportunities Fund was overvalued and that the problem was only disclosed (in a selective manner) to certain shareholders.

To settle the allegations, the distributor will pay over $40 million.The SEC says the settlement amount is a reflection of the respondents cooperation and “remedial acts.” $33 million will compensate fund shareholders, $3 million is for the disgorgement of ill-gotten gains, and $4 million is for penalties.

Also, Evergreen Investment Services, a broker-dealer and distributor, and Evergreen Investment Management Co. LLC, an investment adviser, say they will pay $1 million to settle similar charges made by the Massachusetts Securities Division. The state of Massachusetts is mandating that the firms hire an independent compliance consultant to evaluate internal procedures for valuing portfolio securities and preventing the misuse of nonpublic, material data. The consultant will present these findings to the Massachusetts Securities Division and the Evergreen funds’ board of trustees. William Galvin, who is the Massachusetts Secretary of the Commonwealth, says the orders should remind the mutual fund industry that proper fund supervision is necessary.

For 2007 and 2008, Ultra Short Fun was regularly regarded as a high performer among its peers. The defendants are accused of inflating the fund’s value by up to 17%, in part due to a failure to factor in information about MBS. The fund’s portfolio management team is also accused of holding back negative data from the Evergreen committee in charge of the valuations. The SEC says the fund would have fallen closer to the bottom if it had been ranked correctly.

In an attempt to deal with the valuation issues, the respondents repriced certain holdings and told only certain shareholders about the repricings and of the possibility that more were likely to come. This gave the parties that were informed of the repricings an advantage over the shareholders that did not know there was an issue. The shareholders that were given this information were able to redeem their investments to avoid more losses. This was “to the detriment” of those that were uninformed of the repricings and stayed invested. Also, new purchasers ended up paying more than the shares actual value.

After the repricings occurred, the fund experienced significant redemptions and closed in June 2008.

Related Web Resources:
SEC Charges Evergreen for Overvaluing Holdings in Mortgage-Backed Securities and Making Selective Disclosures to Investors, SEC.gov, June 8, 2009
Regulators: Fund firm hid losses, Boston.com, June 9, 2009 Continue Reading ›

Former Stifel Nicolaus and A.G. Edwards Stockbroker Pleads Guilty to Mail Fraud

Published on: June 25, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A former stockbroker that used to work for A.G. Edwards and Stifel Nicolaus has pleaded guilty to mail fraud. Neil R. Harrison, could spend up to 27 months behind bars-although his agreement to repay $85,739, cooperate with police, and lack of a criminal record could help him receive less than the 21-month minimum sentence. Harrison is accused of defrauding clients at two Illinois firms. He solicited investors to place their money in commodities futures and the gold market but instead used their funds for gambling. The mail fraud charge is based on a wire transfer confirmation mailed to a Stifel client.

While this may be Harrison’s first official brush with the law, he was let go from A.G. Edwards in 2005 for failing to cooperate with a probe regarding his efforts to get a loan from a client. A.G. Edwards filed the necessary securities documents regarding his firing. Even though Stifel Nicolaus was aware of Harrison’s background, the broker-dealer still hired him-with a special supervised agreement-just 10 days after A.G. Edwards terminated him.

Stifel would eventually fire the stockbroker in 2008 for “unethical and professional misconduct.” The broker-dealer accused Harrison of soliciting and getting money and personal loans from clients for fraudulent investments.

Per Harrison’s plea agreement: The ex-stockbroker persuaded clients to sign paperwork to open margin accounts without making sure that they had a good understanding of what these accounts were or the interest rates associated with them. He would then direct his broker-dealer to issue wire transfers to the investors’ checking accounts to replace money that was issued to him for the bogus investments. He also made material misrepresentations to clients and prospective investors. He told them they could make a lot of money but they would have to go outside the traditional brokerage account for diversity when making investments.

At least five investors were defrauded.

Related Web Resources:

Illinois Securities Department
Continue Reading ›