Investor Lawyers Blog

FINRA, SEC, and NASAA Announce New Initiative for Protecting Senior Investors

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

The Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), and the North American Securities Administrators Association (NASAA) have announced a new group initiative to protect senior investors from becoming the victims of investment scams.

SEC, NASAA, and FINRA will work with investment advisers and broker-dealer companies to identify effective compliance and supervisory practices involving senior investors. Areas of exploration will include:

• Opening accounts • Training company employees • Marketing practices • Advertising practices • Review of products and accounts • Fulfilling the evolving needs of aging investors • Regularly reviewing products

Detroit Accounting Firm Named in Lawsuit Involving Alleged Ponzi Scheme

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

The accounting firm of Doeren Mayhew & Company was named in a lawsuit filed in Oakland County, Michigan, in connection with a highly publicized multi-million dollar alleged ponzi scheme using partnerships, many purported to earn revenues from telephone usage in Las Vegas hotels. The central figure reported as the mastermind of such investments is Ed May who, along with other individuals and firms, is the subject of several investigations including by the U.S. Securities and Exchange Commission.

The lawsuit was filed on behalf of investors jointly by three law firms: Sheldon Miller & Associates, a premier Detroit area litigation firm, the Poppe Law Firm, which has extensive experience in accounting malpractice claims, and Shepherd Smith Edwards & Kantas LTD LLP, a securities law firm which handles claims for investors nationwide.

The suit states allegations regarding Doeren Mayhew, including that the accounting firm was listed as the accounting firm of record for various partnership investments and that the firm and that some of its agents and directors were involved with the ongoing business affairs of the partnerships and/or engaged into direct and indirect communications with investors which misled them regarding these investments.

U.S. Supreme Court Decides That 401(k) Retirement Participants Can Sue for Losses Under ERISA

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

WASHINGTON – The Supreme Court ruled unanimously today that individual participants in 401(k) retirement plans can sue to recover their loses under the federal pension protection law.

Over 50 million workers in the U.S. have a total of $2.7 trillion invested into 401(k) retirement plans which are governed by the Employee Retirement Income Security Act (ERISA). Yet, as has recently been the unfortunate fate in court of other investors, judges have ruled against 401(k) participants who seek to recover under the very pension law written to protect them.

James LaRue of Southlake, Texas, filed such a claim stating that the value of his 401(k) plan fell $150,000 when the plan’s administrators failed to follow his instructions to switch to safer investments. Yet, attorneys for the plan administrator claimed the law only allows recovery of losses to the “plan,” not losses of an individual participant in the plan.

Allianz Life Insurance Settles Inappropriate Fixed Annuity Sales Allegations for $10 Million

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

Allianz Life Insurance Co. of North America and California’s insurance department have reached a settlement agreement over allegations that Allianz engaged in inappropriate fixed annuity sales.

Allianz Life will pay $10 million: $3.3 million to the California insurance department, $3 million to investments in the California Organized Investment Network, and $3.75 million, over a five-year period, to California’s Life and Annuity Consumer Protection Fund.

The agreement was reached after the California department of insurance’s market conduct examination results showed that Allianz Life had acted deceptively when it replaced 126 annuities for 84- and 85-year old senior investors.

Goldman Sachs, Merrill Lynch, Lehman Brothers, and Other Investment Firms Deal with Frozen Auction-Rate Securities

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

This week, Goldman Sachs told a number of investors that they could not withdraw money from their auction-rate securities investments. This move by Goldman came as a shock to investors-but the firm was not alone. Merrill Lynch, Lehman Brothers, and other banks have also found themselves notifying their investors that the market for these types of securities are frozen-along with their money. Just this week, there were nearly 1,000 failed auctions. The banks are now refusing to support the auctions and many investors are not sure when they’ll recover their investments.

Usually, auction-rate securities are considered safe alternatives to cash-and banks frequently recommend these bonds, considered long-term securities-to rich individuals and corporations. Banks regularly hold auctions to establish the interest rates and give holders an opportunity to sell their securities.

Auction-Rate Securities

Goldman Sachs Settles Enron Fraud Lawsuit with University of California for $11.5 Million

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

Goldman Sachs & Co. says it will settle a class action suit filed by the University of California (UC) over the purchase of Enron Corp. securities for $11.5 million. The University of California Board of Regents has approved the terms of the settlement.

Goldman allegedly marketed Enron 7% exchangeable notes via a registration statement that was false and misleading-this is a violation of the 1933 Securities Act.

UC says that it has so far received over $7.4 billion in settlements for Enron investors, including:

Pondering the SEC’s Role in the Subprime Mortgage Crisis

Published on: February 11, 2008 | by Shepherd Smith Edwards & Kantas, LLP

What was the role of the Securities and Exchange Commission in the collapse of the subprime mortgage bubble? Although mortgage brokers, investment banks, and ratings agencies are frequently held responsible for the demise, little is said about the roles of the Financial Industry Regulatory Industry (FINRA) and the SEC-both watchdog agencies that are responsible for monitoring complex credit derivatives and their suitability requirements for investors.

Yet where was the SEC when it was time to oversee investment banks and determine whether they had sufficient capital for their balance sheets, trading positions, and the appropriate risk management systems so that major losses could be avoided?

One notable problem is that there is not enough clear data available about the credit derivatives market. Structured finance products, including collateralized debt obligations (CDOs) are traded over-the-counter in the United States. This means that price information for these products is not easily accessible.

Banc One Securities Will Settle FINRA “Unsuitable” Deferred Variable Annuities Charges for $225,000

Published on: February 7, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Banc One Securities Corp. (BOSC) says it will pay $225,000 to settle Financial Industry Regulatory Authority (FINRA) charges that it made “unsuitable” sales of deferred variable annuities to 23 clients-21 of them elderly customers over 70 years of age.

FINRA says that BOSC representatives told clients that they should exchange their fixed annuities for variable annuities, which all 23 clients did. The SRO says that the clients then placed 100% of their assets into the variable annuity’s fixed-rate fixture. The payment was 3% maximum.

FINRA says that considering each client’s age, financial situation, investment goals, and income needs, the recommendations were inappropriate. FINRA says that BOSC should have properly supervised these transactions and that oversight procedures and policies failed to require that supervisors look at and assess certain information.

Heartland Advisors Inc. Settles SEC Charges for $3.9 Million

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

Heartland Advisors Inc. and several of the investment adviser’s employees have agreed to pay $3.9 Million to settle Securities and Exchange Commission charges that they allegedly violated the Federal Securities Act.

The SEC case stems from incidents that allegedly took place from March through October 2000, when Heartland “negligently mispriced certain bonds owned by two high-yield municipal bond funds.” Because the funds were mispriced during that time period, net asset values for the funds were incorrect and so were the prices for funds’ shares.

Redeeming investors therefore benefited at the expense of new and remaining investors when investors bought and redeemed fund shares at these incorrect prices.

SEC-Commissioned Report Finds that Investors Have A Hard Time Telling the Difference Between the Roles of Broker-Dealers and Investment Advisers

Published on: February 4, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Investors have a hard time understanding the differences between investment advisers and broker-dealers, as well as distinguishing between the different services and protections that each group offer. This finding was reported last month in an SEC-commissioned study conducted by Nonprofit policy group Rand Corp.

Rand gathered its findings from data that came from six investor focus groups and a survey it conducted of 654 U.S. households.

Included among the findings: