Investor Lawyers Blog

Investors into Bear Stearns’ “Mult-Strategy Fund Warrants” Lose over 99% on Their Investment

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

On Christmas Eve a Bear Stearns client received a present – a check for $1,000 – less some fees. While a check for $1,000 at Christmas time can come in handy, it was no gift since this was to close out an investment by the client in 2001 of almost $120,000!

Accoording to the paperwork provided to the investor, management chose to terminate early the Bear Stearns Multi-Stragegy Warants expiring March 31, 2009. The warrants, stated in the notice provided, were “linked to the performance of the Bear Stearns Multi-Strategy Fund, L.P.” the value of the warrants at maturity was to be based upon the average of the six month-end “net asset value” of the fund. That maturity never occured because the warrants were ended abruptly more than a year early.

According to the notice “the underlying constituents of the Fund were: New Castle Millennium II, L.P., New Castle Market Neutral, L.P. and Bear Stearns Emerging Markets Macro Fund, L.P., Bear Stearns Institutional Leveraged Loan Fund, L.P. Bear Stearns ABS Partners, L.P. and Bear Stearns High-Grade Structured Credit Strageties Enhanced Leverage Fund, L.P., with approximatelly equal wieghting.”

Class Action filed against Morgan Stanley on Behalf of Former Eastman Kodak Employees

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

Lawyers have filed a class action suit against Morgan Stanley for a group of former Eastman Kodak employees they say were persuaded to retire early and invest their retirement assets through Morgan Stanley.

According to the Dow Jones News Wire, the class action is seeking nearly a half billion dollars in damages from Morgan Stanley because its brokers advised the Kodak employees retire early with promises of financial security that never materialized. One of the attorneys estimates 1,000 investors or more are involved. If so, the claim seeks approximately $500,000 per former Kodak retiree.

Firms which report the results of class action cases estimate that recovery in securities class action cases is LESS THAN THREE PERCENT of the actual losses to investors! If one were to assume that 1,000 Kodak retirees lost, on average, $500,000, each may receive LESS THAN $15,000 according to this average.

SMH Capital and Two of Its Brokers to Settle FINRA Charges Over Oversight Failures

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

SMH Capital has agreed to pay $450,000 in fines to settle charges by the Financial Industry Regulatory Authority (FINRA) over the broker dealer’s failure to have supervisory procedures and systems in place to handle its prime brokerage and soft dollar services to hedge funds. The oversight led to a hedge fund manager receiving improper payments in soft dollars worth $325,000.

FINRA says other failures by SMH included producing and giving out hedge fund sales materials that failed to properly “disclose material investment risks to potential hedge fund investors.” SRO is accusing SMH of engaging in an “improper compensation arrangement” with two brokers who supervised hedge funds.

The two SMH brokers, Michael Rosen and Jack Seibal, have agreed to $100,000 fines and a 20-day suspension. SRO says that agreements prohibited the two men from receiving a share of any commission that SMH earned for fund trades. A third unregistered SMH employee agreed to a 10-day suspension and a $15,000 penalty.

TV Judge’s Case Goes to U.S. Supreme Court

Published on: January 16, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Some folks resolve their disputes by going on TV, where they also get paid and enjoy their 15 minutes of fame (or infamy). But what does a TV judge do to resolve disputes and, perhaps, gain notoriety? Take his case to the U.S. Supreme Court!

TV trials are really arbitrations. The parties sign an arbitration agreement to resolve their disputes on TV. The shows pay each party so, reportedly, no one is actually out any money. One participant or the other may walk away with more than the other, or even all the money. The loser gets rid of the claim and, more importantly, is a loser on national TV. (Hey, people agree to eat worms, get caught cheating on their mates or to getting “punked,” proving some people will do anything to get on TV.)

TV’s “Judge Alex” is a male version of “Judge Judy” (only prettier). Allegedly, Florida State Judge Alex Ferrer, gave up his real judge gig in 2002, to try his luck on TV, though the help of promoter Arnold Preston, who claims Judge Alex agreed to pay him 12% of his income. After Judge Alex made the big time he decided he did not have to pay Preston because Preston was not a registered talent agent under California law. Preston claims he is a manager, not an agent, and does not have to be registered.

Bear, Stearns, Merrill Lynch, Deutsche Bank Securities and UBS Securities Among the 19 Broker-Dealers to Settle SRO Charges Of Overstated Ad Volumes

Published on: January 14, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Last week, the Financial Industry Regulatory Authority (FINRA) announced that 19 broker-dealers agreed to pay fines to settle SRO charges that they “substantially overstated their advertising trade volume to private sector providers.” By agreeing to pay the fines, none of the firms are admitting to or denying the charges.

FINRA says that after comparing each firm’s advertised trade volume in selected securities with executed trade volume for the same issuer, they noticed overstatements that were substantial in at least one of the securities examined.

Broker-dealers that agreed to be fined $200,000:

Investors Complain about Mutual Funds Sold by Morgan Keegan

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

Some Investors have complained they were sold mutual funds by the securities firm of Morgan Keegan & Company, Inc. based on representations of safety which were unfounded. At this time such complaints are only allegations and no determination has been made that the firm and/or its representations engaged in any wrongdoing.

The funds in question include RMK High Income Fund (RMH), RMK Advantage Income Fund (RMA), and RMK Multi-Sector High Income Fund (RHY). Reportedly, these funds were heavily invested into collateralized debt obligations (CDO’s) based on sub-prime mortgages and have therefore declined sharply in value.

Morgan Keegan is a Memphis, Tenessee based brokerage firm and is a division of Regions Financial Group. The firm’s offices are located primarily in the South, including in the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.

vFinance Investment Inc. is Slapped with SEC Charges for Failing to Retain E-Records

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

The Securities and Exchange Commisison is charging vFinance Investment Inc., its President Richard Campanella, and former New Jersey Branch Manager Nicholas Thompson for failing to keep records and show them to Commission staff. The SEC’s need for the e-records stemmed from possible securities fraud involving a company that vFinance is the market maker for.

The Securities and Exchange Commission is accusing Thompson of erasing documents, e-mails, and instant messages from his computer’s hard drive even though he knew that the records had been requested by the commission. By law and according to vFinance’s policies, e-mails and instant messaging communications with clients must be preserved.

The SEC says that vFinance Investment President Campanella should have made sure that the documents were being preserved. He was reportedly “on notice” that vFinance was not keeping Thompson’s business records.

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading

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

Eugene M. Plotkin, a former Goldman Sachs associate, will serve 57 months in prison for his involvement in insider trading. Plotkin pleaded guilty to conspiracy and eight counts of insider trading for his role in a number of insider trading scams that generated over $6 million in illegal gains.

The former fixed-income research associate to will have to forfeit $6.7 million and pay a $10,000 fine. The forfeiture will come from money that the government has already frozen.

Plotkin, along with ex-Goldman analyst David Pajcin, was one of the key players accused of illegally trading stocks after consulting prepublished copies of BusinessWeek’s “Inside Wall Street” column. The scam also involved the use of information leaked by Jason Smith, a grand juror in the Bristol-Myers Squib Co. case and information provided by Stanislav Shpigelman, a former Merrill Lynch investment-banking analyst.

$600 Million Set Aside by State Street May Be Tip of Mortgage Litigation Iceburg

Published on: January 8, 2008 | by Shepherd Smith Edwards & Kantas, LLP

State Street Corp. announced it established a pre-tax reserve of $618 million billion “to address legal exposure and other costs associated with the under-performance of fixed-income strategies managed by the company’s investment management arm,” blaming exposure to subprime mortgages. The company referenced “customer concerns as to whether the execution of the strategies was consistent with the customers’ investment intent” without identifying any specific litigation.

However, the New York Times published an article stating that State Street created the reserve “after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds they were told would be invested in risk-free debt like Treasuries.” The article added that State Street’s reserve “highlight the legal challenges that lie ahead for financial firms.”

The first of the five lawsuits referenced by the Times article was filed October 1, 2007, by Prudential Retirement Insurance and Annuity Co. The action “seeks, among other relief, restitution of certain losses attributable to certain investment funds” sold by State Street’s investment management arm, and alleges State Street “failed to exercise prudent investment management,” in violation of the Employee Retirement Income Security Act of 1974 (ERISA).

Morgan Keegan Settles Arbitration Claim Made By Indiana Children’s Wish Fund

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

Last month, brokerage firm Morgan Keegan made an undisclosed payment to the Indiana Children’s Wish Fund to settle an arbitration dispute. The wish granting organization had lost $48,000 in a mutual fund that was heavily invested in mortgage securities.

The Indiana Children’s Wish Fund has about $1 million in assets. The Wish Fund was founded by Richard Culley, a blind attorney, in 1984. The charity has granted some 1800 wishes to children who have been diagnosed with life-threatening illnesses. If the charity had not received its settlement sum, it would not have been able to realize the wishes of nine children.

Last June, a banker at Regions Bank in Indiana recommended that the Wish Fund invest money in a bond that Morgan Keegan offered. Regions Bank and Morgan Keegan are affiliated with one another. Terry Ceaser-Hudson, the Wish Fund’s executive director, says that the Morgan Keegan broker told her that the fund was very safe.