Investor Lawyers Blog

2nd Circuit Reinstates TIAA-CREF Enterprises Inc. Faces Negligence and Breach of Fiduciary Duty Claims

Published on: August 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

TIAA-CREF Enterprises Inc. is once more facing claims of negligent misrepresentation and breach of fiduciary duty following the US Court of Appeals for the Second Circuit’s reinstatement of the claims. The appeals court, however, did affirm the District Court’s decision to dismiss the 1934 Securities Exchange Act Section 10(b) and New York fraud claims.

Per the court’s account, plaintiff Vera Muller-Paisner filed the lawsuit against TIAA-CREF Enterprises Inc. and other entities. Mueller-Paisner was the executrix of the estate belonging to a woman named Mary Engel, who had purchased a fixed annuity from the defendants for about $1.2 million. The annuity was to pay Engel $8,000 each month until her death.

Engel would have recovered the purchase price in 12 years, but she
died six months after buying the annuity and had only collected $48,000. Muller-Paisner discovered that most of Engel’s assets had been used to buy the annuity. This made it impossible for the executrix to dispose of the decedent’s estate, per Engel’s will.

While the district court had dismissed the entire lawsuit, this month, the appeals court affirmed part of that ruling and reversed it in part.

The 2nd circuit says it dismissed common law fraud and federal securities claims because the plaintiff did not sufficiently allege both a scienter and that there had been a materially misleading misstatement or omission. The appeals court, however, also ruled that Muller-Paisner’s allegations were enough to withstand any motions to dismiss the negligence and breach of fiduciary duty claims. It noted, among the plaintiff’s allegations, claims by the defendants that they have the resources and system in place to help customers buy the best options available to them that will maximize their income and allow them to support their post-retirement lives.

Related Web Resources:

US Court of Appeals for the Second Circuit
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Investigation Underway of Asset Management Fund’s (“AMF”) Ultra Short Fund (AULTX) and the Role of Shay Asset Management

Published on: August 27, 2008 | by Shepherd Smith Edwards & Kantas, LLP

When investors placed funds in The Ultra Short Fund (Nasdaq: AULTX), managed by The Asset Management Fund (“AMF”), they believed their funds were safely on the sidelines in a money market alternative. Later surprised by substantial losses in this fund, many now seek legal representation.

On its website, AMF describes itself as a no-load mutual fund complex managed by Shay Assets Management, Inc., a privately-held investment adviser registered with the Securities and Exchange Commission (“SEC”). The AMF Funds are distributed by Shay Financial Services, Inc., a member of FINRA and SIPC. Shay Asset Management’s corporate headquarters are located in Chicago, Illinois.

The Ultra Short Fund’s objective is listed as “current income with a very low degree of share-price fluctuation.” However, the fund has declined more than 15% year to date. For investors seeking modest income and very low degree of price fluctuation, such losses are unacceptable, said Kirk G. Smith, a partner of the law firm Shepherd Smith Edwards & Kantas LTD LLP (SSEK).

Charles Schwab, Fidelity, and Other Downstream Brokerages are Subpoenaed as NY Attorney General Cuomo’s Auction-Rate Securities Probe Expands

Published on: August 26, 2008 | by Shepherd Smith Edwards & Kantas, LLP

As part of his widening investigation into the auction-rate securities market collapse, New York Attorney General Andrew M. Cuomo has subpoenaed Charles Schwab, Fidelity, E*Trade Financial, TD Ameritrade, Oppenheimer & Co., and other ‘downstream’ brokerages that sold the securities to clients even if they did not underwrite them.

The Regional Bond Dealers Association had told Cuomo, in an August 15 letter, that entities that sold ARS to its clients but had nothing to do with managing their issuance should not be made to repay clients back at par illiquid the way financial services firms, such as Citigroup Inc., Morgan Stanley, Wachovia Corp, JP Morgan Chase and Co, UBS AG, and Goldman Sachs Group Inc., are now required to do, so per their settlements with federal and state regulators. The RBDA says downstream brokerages did not know that ARS were illiquid, rather than “highly liquid cash equivalents” that many Wall Street firms presented them to be.

The NY AG Special Assistant Benjamin Lawsky, however, says that the downstream brokerages’ culpability will depend on what their probe reveals. He says the NY AG’s probe has already discovered some “disturbing facts” that contradict the downstream brokerages’ claims of innocence.

Federal and state regulators have maintained that financial firms told their clients that ARS were highly liquid and easily redeemable at auctions. The ARS auctions started failing in February, which made it impossible for investors to sell their securities. Many investors have been unable to recoup their investments since then.

Related Web Resources:

Auction-rate securities probe expands to nearly 40 brokerages, Los Angeles Times,
August 22, 2008

NY Attorney General Cuomo’s Office
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NY Attorney General Coumo Estimates that Wall Street Firms Have Only Agreed to Repurchase 18% of ARS Securities

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

The nearly $35 billion in auction-rate securities-related frozen debt that Wachovia Corp, Citigroup Inc, JP Morgan Chase & Co, UBS AG, and Morgan Stanley have agreed to repurchase consists of less than 18% of the $200 billion that New York Attorney General Andrew Cuomo says is outstanding. Charities, individuals, and small businesses are the ones expected to benefit from the repurchase agreements made with the Wall Street firms.

Meantime, corporate finance officers that also purchased auction-rate securities because banks had marketed the securities to them as safe investments have not been offered the same commitment. Only Wachovia and UBS have agreed to buy back securities from institutional investors-Wachovia has set its date in June 2009, while UBS said it would begin repurchasing frozen securities from institutions starting June 2010. Google Inc, United Parcel Service Inc., and Texas Instruments Inc. are among the companies that have taken significant markdowns on over $32 billion in auction-rate securities holdings.

During the press conference announcing that Morgan Stanley & JP Morgan agreed to buy back $7.5 billion of the auction-rate securities, Cuomo said that he was making it a priority to return the money of retail investors. He also said that institutional investors needed “to be fairly compensated.” He and other state securities regulators have called on Wall Street firms to help institutional investors convert their securities into cash.

However, the settlements reached could worsen the situations for companies with debt. If banks buy back the securities from individual investors and end up selling the securities at reduced rates, companies may have to mark down their portfolios even more.

Related Web Resources:

Attorney General Cuomo Announces Settlements with JP Morgan and Morgan Stanley to Recover Billions for Investors in Auction Rate Securities, NY Attorney General
Cuomo Snubs Treasurers in Auction-Rate Debt Rescue, Bloomberg.com, August 21, 2008 Continue Reading ›

Arbitration Claims for Consequential Damages on Auction Rate Securities (ARS)

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

After months of uncertainty and delays, investors in Auction Rate Securities continue to receive conflicting news about their situation. While some investors may have access to funds in the near future, many have been severely damaged by this debacle and the delays. In settlements with regulators several firms were forced to acknowledge such “consequential damages” by investors

A special arbitration program is currently being designed to determine claims for “consequential damages” in which some firms have agreed not to contest their own liability. The arbitrations will be conducted through the Financial Industry Regulatory Authority (FINRA), formerly the National Association of Securities Dealers (NASD).

What is FINRA Arbitration?

FINRA Rolls Out New Arbitration Process for Auction-Rate Securities Claims

Published on: August 21, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says it has set up an arbitration process designed to resolve claims involving auction-rate securities. Parties now have the option to have their claims reviewed by an arbitration panel with members that are not connected with any firm that may have recently sold the securities.

FINRA says the process was developed following the system it set up for Citigroup’s settlement with the Securities and Exchange Commission. Earlier this month, Citigroup Inc. reached an agreement with state and federal regulators to redeem $7.3 million in illiquid auction rate securities that retail investors had purchased, as well as pay $100 million in fines. The agreement was to settle charges over misconduct related to sales practices.

FINRA Dispute Resolution President Linda Fienberg says it is only fair that all investors with auction-rate securities claims be given the opportunity to resolve their disputes in the same way. She said that FINRA would work hard to put the process in place so that claims wouldn’t be delayed unnecessarily. Persons that since January 1, 2005 have sold auction-rate securities, worked for a company that sold the securities, or supervised the selling of the securities cannot be on the panels.

FINRA Creates Process for Arbitrations Involving Auction Rate Securities, Marketwatch.com, August 7, 2008
Citigroup Returning $7 Billion To Auction-Rate Securities Investors, The Star, August 8, 2008
FINRA
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State Street Sued Over Allegations of Misrepresentation Related to Mortgage-Backed Securities

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

Massachusetts plumbing and air conditioning supply company F.W. Webb Company is suing State Street Bank and Trust Company, State Street Global Advisors (SSgA), and CitiStreet. F.W. Webb is accusing the defendants of misrepresenting a bond fund as a low risk 401k-investment option, when in fact, the SSgA Yield Plus Fund was invested in mortgage-based securities.

FW Webb says the investment option had been represented on more than one occasion as being similar to a money market portfolio but with better returns. FW Webb alleges that beginning in 1996, State Street changed its investment strategy for the Yield Plus account so that there was an emphasis on lower-quality securities that were accompanied by greater risks.

The lawsuit contends that the Yield Plus Fund create a level of risk that was inappropriate and not in line with the stated investment goals of the Massachusetts company’s 401K Plan or the objectives of a traditional money market fund. The complaint contends that the fund dropped dramatically in mid-2007 because of its overexposure to low-quality assets and securities that were high in risk.

CitiStreet, which has provided FW Webb with investment management and recordkeeping and administrative functions since 2000, is also a defendant in the suit. FW Webb say that any instability related to the Yield Plus Fund was never an issue that CitiStreet or State Street brought to its attention, which gave the plumbing and air conditioning supply company no reason to question whether the fund should be included in its 401K Plan.

The lawsuit also noted that the decision to move the Yield Plus Fund into mortgage-backed investments during 2005-2007 occurred during a time when defaults of the subprime mortgages had skyrocketed and subprime lenders were dealing with insolvency. The SSgA Yield Plus Fund’s Board of Directors decided to liquidate the fund as of May 31, 2008.

Related Web Resources:

FW Webb Company

State Street Corporation Continue Reading ›

Bank of America Did Not Warn Small Investors About Auction-Rate Securities Crisis

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

Documents reveal that Bank of America told the state of California as early as late last year that there were problems brewing with the auction-rate securities market. The country’s largest retail banking firm, however, failed to warn smaller investors about potential trouble and continued selling the investments without providing any warning to these clients.

In its presentation to the California’s treasurer last year, Bank of America warned the state of a “significant dislocation” in the auction-rate securities market, as well as a drop in demand for the bonds. It also informed the State that corporate clients had engaged in “significant year-end selling” of the investments. The Boston Globe obtained a copy of Bank of America’s presentation to California, as well as the presentation of other investment banks.

Bank of America is the eighth-biggest issuer of auction-rate securities. It is one of the few brokerage firms that has yet to announce a settlement with state regulators related to the collapse.

The retail banking firm told The Boston Globe that its presentation to the state of California did not talk about the liquidity issues that would end up being at the center of the auction-rate securities collapse earlier this year. Upon closer scrutiny, however, Bank of America’s presentation appears to indicate the possibility of the market shutting down.

Prior to the market collapse, California had some $1.4 billion in outstanding auction-rate securities. Fortunately, the state’s treasurer paid attention to the warnings it received from Bank of America and other investment advisers. By May 23, it had refinanced all except for $100 million of its auction-rate bonds.

Related Web Resources:

Bank of America subpoenaed on auction-rate securities, derivatives, BizJournals.com, August 8, 2008
Investors sue Bank of America over auction rate securities, Bizjournals.com, July 18, 2008 Continue Reading ›

SEC Charges Former AG Edwards and Bank of America Broker With Misappropriating $1.3 Million from Customers

Published on: August 15, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed a complaint charging Brent S. Lemons, a former AG Edwards Inc. and Bank of America Investment Services Inc. stockbroker, with misappropriating over $1.3 million from at least three clients. He allegedly used the money to pay off his gambling debts.

The Commission is accusing Lemons of violating Section 10(b) of the Securities Act of 1934 and Rule 10b-5 there under. The SEC says that Lemons, who managed the financial affairs of certain customers, had clients sign brokerage and bank documents in blank. The former stockbroker allegedly then told them he would use the documents to liquidate securities in their accounts and reinvest any proceeds in instruments that were higher yielding.

The SEC is seeking a permanent injunction against Lemons, as well as disgorgement with prejudgment interest and a civil penalty. He also faces criminal charges related to his alleged misconduct.

Broker Misconduct
It is wrong for a stockbroker to misappropriate investor funds for personal use. If you have lost money because of broker misconduct, our stockbroker fraud lawyers can help you determine whether you have grounds to file a claim to get your money back.

Examples of common claims involving broker misconduct:

• Unsuitability • Misrepresentation • Overconcentration • Omissions • Churning • Failure to Supervise • Failure to Execute Trades • Breach of Fiduciary Conduct • Breach of Contract • Negligence • Breach of Promise • Margin Account Abuse • Unauthorized Trading • Registration Violations
Related Web Resources:

SEC Charges Brent Lemons, Former Registered Representative From Tyler, Texas, With Fraud, SEC.gov
Read the SEC Complaint (PDF)
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Claims Continue over MasterShare – Prudential Securities’ Deferred Compensation Plan

Published on: August 13, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Prudential Securities has been plagued by claims over its deferred compensation plan, known as MasterShare. A number of former representatives have filed claims and recovered damages.

Started in 1999, MasterShare allowed Pru employees to deduct up to 25 percent of their gross pay to purchase discounted shares of a stock index fund. This discount had the effect of a company match of the funds deducted. Yet, the plan also provided that if the employee left the firm early he or she not only forfeited the company’s “match” but also the portion withheld from his or her check!

With the threat of forfeiture of a substantial portion of the employee’s pay, some representatives claim they became hostages of Prudential. One former broker trainee says the firm promoted the plan as a pension plan and that he was “strongly encouraged” to join with the further suggestion that those not participating were perceived as “transients”.