Archive for the ‘Securities Arbitration’ Category

Justice for Morgan Keegan Investors an Ongoing Struggle

May 23rd, 2011
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Morgan Keegan & Company, Inc., a financial services division of Regions Financial Corporation, has been the subject of numerous regulatory investigations in the last few years.

Originally founded by Allen B. Morgan, Jr., James Keegan and two other businessmen in 1969, Morgan Keegan didn’t grow on a large scale until the 1980s when it began acquiring other brokerage houses, beginning with the Mississippi-based Geary & Patterson. By 1990, it had purchased a total of four investment houses, and it was hungry for more. From 1992 to 1997, it bought seven additional firms as well as a sports agency, Athletic Resource Management.

Morgan Keegan itself was purchased in 2001 by Regions Financial. Regions incorporated its brokerage unit into the firm, creating a division specializing in asset management, investment banking and securities brokerage.

In April 2011, the Financial Industry Regulatory Authority (FINRA) as well as various state regulatory agencies and the Securities and Exchange Commission (SEC) filed civil suits against Morgan Keegan.
According to many investor complaints filed with FINRA, State and SEC suits and investigations, from 2004 to 2007, the company marketed Select Intermediate Bond Funds and Select High Income Funds as low-risk securities to investors who had requested safe, short-term corporate commercial paper investments. Furthermore, Morgan Keegan did not inform clients that most of their assets (over 50 percent) were invested in sub-prime, illiquid, untested investment structures, such as mortgage-backed securities and collateralized debt obligations (CDOs).

When the mortgage market collapsed in 2007, investors lost big. According to the SEC, the company and two of its top execs, Thomas Weller and James Kelsoe, purposely hid the plummeting value of their risky investments through 262 so-called “price adjustments.”

The result of Morgan Keegan’s blatantly behavior was predictably catastrophic for their clients. Thousands of investors, hoping to recoup their financial loss, have filed or will file arbitration claims against Morgan Keegan with FINRA.

Unfortunately, although regulators unanimously agree that Morgan Keegan committed acts of egregious fraud that financially harmed clients, investor claimants in FINRA proceedings, generally individual or family trust investors, have thus far experienced very mixed success in recovering their losses. Why? They’ve consistently been denied access to documents necessary to their cases by FINRA arbitration panels.

Despite the fact that Morgan Keegan has publically admitted it’s been the subject of multiple regulatory investigations, the thousands and thousands of documents relating to these investigations have been denied to claimants and their counsel because many arbitrators have refused to order that Morgan Keegan produce this potentially damning paperwork. Consequently, time and time again, arbitration panels have rendered decisions on claims without having all the relevant facts.

Clearly, this must change if investors are to receive just compensation for their financial loss. And with persistent, long-term petitioning by defrauded investors and their lawyers, no doubt it will change.

If you feel you have been a victim of investment fraud or negligence, contact Carlson Law in San Diego. Carlson Law specializes in investment recovery litigation and arbitration. Call 619-544-9300 now for a free consultation.

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Citigroup Must Pay Claimants $54M in Damages in MAT/ASTA Investment Fund FINRA Arbitration

May 17th, 2011

In April 2011, Citigroup Global Markets, Inc. was ordered by a Financial Industry Regulatory Authority (FINRA) panel to pay damages of more than $54M for its misconduct in managing and promoting a wide range of investment products, including MAT/ASTA municipal bond hedge funds.

The three claimants will receive 100 percent of the compensatory damages they sought, which total $34,058,948, as well as 8 percent interest and $17,000,000 in punitive damages. Furthermore, Citigroup must pay claimants’ attorney fees, expert witness fees, hearing session fees and the nonrefundable portion of the claimants’ filing fee.

The settlement process focused on the company’s poor handling of MAT/ASTA municipal arbitrage funds, including MAT Two, MAT Three and MAT Five; MAT Finance; ASTA Three and ASTA Five; and ASTA Finance. Without regard to their high-risk nature, the funds were promoted as alternatives to municipal bond portfolios. Furthermore, Citibank falsely characterized them as having strong risk-control features. FINRA found that Citibank not only falsely marketed MAT/ASTA funds, but that it also seriously mismanaged them.

If you believe that Citigroup Global Markets mishandled your investments but have yet to file a claim, don’t delay. Contact an experienced investment recovery lawyer in San Diego at Carlson Law today. It may not be too late to recoup your financial loss and stand up for your rights as an investor.

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FINRA Fines Wells Fargo for Slow Delivery of Prospectuses

May 17th, 2011

According to a May 5, 2011 Investment News article, Wells Fargo took as many as 153 days to deliver prospectuses to more than 900,000 clients who purchased mutual funds in 2009. (Securities law requires that prospectuses be delivered to purchasers within three days of the buy.) For dragging their feet, the company has been fined $1M by the Financial Industry Regulatory Authority (FINRA).

Wells Fargo also allegedly failed to take action to remedy the situation after learning that up to 9 percent of its customers had not received prospectuses within the requisite three days.

FINRA enforcement chief Brad Bennett stressed the importance of prospectuses to customers, as they contain important data regarding a fund’s costs, plans, performance history and risks. By failing to deliver prospectuses in a timely manner, said Bennett, Well Fargo deprived its customers of key information.

According to the article, Wells Fargo further broke FINRA rules by failing to report client complaints. Neither did the company disclose all arbitration claims that involved its representatives within the required 30 days.

Were you one of Wells Fargo’s more than 900,000 unlucky customers? If you suffered financial loss as a result of the company’s misconduct, contact an investment recovery attorney at Carlson Law.

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Is Your Broker Guilty of “Switching” Mutual Funds to Generate Fees?

May 13th, 2011
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Ordinarily, mutual funds are long-term investments. And ordinarily, brokers who switch shares among funds with comparable investment goals have committed a violation if the switch serves little or no legitimate financial purpose other than earning him or her a fee. Such switching not only increases the fees investors pay, but it also puts them at risk of increased tax liability.

Often, investors are unaware that their broker has increased their investment costs and risks by “switching” their mutual funds. Mutual funds are intended to be held for a substantial length of time, not traded like individual stocks. To do so results in considerable charges that don’t apply to common stocks. Furthermore, the majority of mutual funds, by their very nature, may already be diversified and do not need to be traded unless there’s been a major change in the allocation of their assets or the fund manager’s market focus is narrow to the extent that it increases investor risk.

Mutual fund switch transactions are a violation of FINRA acceptable sales practices. If you believe you may have experienced financial loss due broker switching, contact an investment recovery lawyer at Carlson Law. Your broker’s misconduct may constitute a viable claim on your part for damages.

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FAQs About Mutual Funds

May 13th, 2011

How do you buy mutual funds?
To purchases shares (portions) in a mutual fund, investors may go through stockbrokers, banks, insurance agents and other investment professionals. They can even buy portions from the fund directly.
When you buy shares, you pay the current net asset value (NAV) for each share. You also pay any sales charge (sales load).

Are mutual funds easy to sell?
Yes, any mutual fund will buy back your shares during regular business hours. Within seven days, you’ll receive the NAV for each share sold minus any sales load.

Are mutual funds a risk-free investment?
No. Just as individual stocks fluctuate in value, so does the portion price of mutual funds. Therefore, the value of your investment will sometimes be more, sometimes less than its original price.

How do you choose the mutual fund that’s right for you?
To determine if you should invest in a mutual fund, acquaint yourself with the major types that are available.

Mutual funds may be categorized by their asset types. Most are either bond funds, stock (equity) funds or money market funds. However, numerous variations exist within these three categories. In fact, some mutual funds combine several types of investments. An asset allocation fund, for instance, is a type of mutual fund that combines all three asset classes—funds, stocks and money markets. Some mutual funds, funds of funds, invest in other mutual funds rather than in individual securities.

Mutual funds may also be categorized according to the investment strategy that they follow. Funds that attempt to reduce tax liability, for example, are called tax-efficient funds. Some mutual funds are managed actively while others try to imitate an index.

Every mutual fund has its own rewards and risks. In general, the greater the potential return, the greater the risk of loss.

When you’re looking for a mutual fund, be sure to shop around, comparing mutual funds of the same type with each other. If you find a mutual fund that interests you, carefully examine its prospectus. Think about the goals, risks, and expenses involved in investing. Is the mutual fund’s aim in keeping with your own? Are the risks acceptable to you?

If you feel overwhelmed by your investment options, do what many other investors do: consult a financial expert. If you were advised to invest in funds that were higher risk than was explained to you by your financial advisor, you may have a claim to recover your losses. Contact Carlson Law for a free consultation.

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Before you Invest in a Mutual Fund, Learn the Basics. Fees, Costs and Undisclosed Risk Can Make Mutual Funds Unsuitable for Investors.

May 13th, 2011

Mutual Funds 101
Mutual funds are sold by companies that pool money (capital) from many investors. This capital is then invested in bonds, stocks and/or other securities. Investors in the fund all have shares, and these shares represent a part of the fund’s holdings.

If you’re interested in making an investment, a mutual fund may or may not be the right choice for you. Like all investments, they come with many different levels of risk. They aren’t insured or guaranteed by financial institutions or government agencies, even those sold by banks. However, because mutual funds are often a mix of various bonds and/or stocks, the risk is some mutual funds is “spread out” or diversified. That said, some mutual funds are not diversified, and it is important to understand that a mutual fund investment can be very high risk, or very low risk, depending upon the holdings and the goals of the fund. Each fund must be looked at individually to determine if it is appropriate for the investor, in the same manner as any individual stock or other investment.

Mutual funds are managed by professional fund managers. These managers invest the money investors contribute into individual stocks, bonds and other securities. And because mutual funds buy and sell securities in large amounts at one time, they usually incur fewer fees, thus operating in a cost-efficient manner. However, it is very important to carefully examine prior to purchase all of the fees and costs associated with the fund you are purchasing as they can vary greatly and take a significant bite out of your return.

If you feel your financial advisor placed you in inappropriate mutual fund investments and/or failed to disclose the fees and costs associated with investment or that the underlying holdings of the fund were beyond your tolerance for risk, you may have a case. Call Carlson Law at 858-544-9300 for a free consultation.

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Promoting Real Estate Loans to Fund Private Placement and Limited Partnership Investments

May 11th, 2011

Making financial investments with money from a loan on your home is generally a poor, high risk activity. And it’s a particularly poor idea when the investment is a private placement that’s speculative and unable to be liquidated easily or traded publically. Brokerage houses that encourage clients to take out extra mortgages or home equity loans in order to buy risky investments in limited partnership and private placements are often held liable for their customers’ financial loss.

In 2009, the Ameritas Investment Corporation was fined $100,000 by the Financial Industry Regulatory Authority (FINRA) for not supervising one of its brokers whose deceptive financial recommendations to customers included home refinancing to purchase securities. The broker was fined $60,000 by FINRA, and her license was suspended for five years.

If your broker encouraged you to take out real estate loans in order to invest in any private securities, limited partnerships or other investments, you should seek the advice of a securities attorney. Contact Carlson Law for a free consultation.

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Variable Annuity Exchanges & Replacements: Annuity Loss – Annuity Fraud – Did You Get Shafted by Your Broker?

May 11th, 2011

There is a continuing problem for investors relating to the improper sale or switching by investment advisors of variable annuities that can be annuity fraud and result is annuity losses. Many older investors have been counseled by their brokers to replace their old variable annuity contracts with new ones. In many cases it may be unsuitable and result in the creation of fees and commissions for the advisor, surrender charges for the investor and new long term non-liquid investment. Furthermore, adding insult to injury, in some cases advisors have neglected to exercise due diligence by assuring that the exchange of those annuities was tax free under Internal Revenue Code (Section 1035).

If done properly, exchanging variable annuities should be tax free.
In a tax-free 1035 exchange, the owner of a variable annuity replaces the current contract with a new contract. No tax is paid on the investment gains or income from the old variable annuity. If, however, an investor gives up his or her old annuity for cash and then uses that money to buy a new annuity, he or she will have to pay taxes on the old annuity.

Variable annuities can be fraught with hidden costs.
An additional problem with variable annuities is that exchanging and replacing them often results in surrender charges. Customers must pay these charges when annuities are surrendered before the end of their given surrender period. Usually, that’s six to eight years from the purchase date. Because surrender charges reduce the amount of money available for reinvestment in a new annuity, they also lower an investor’s potential return. And if that weren’t bad enough, the new replacement annuity has a new surrender period, so funds are ordinarily locked into place for another six to eight years.

In general, seniors shouldn’t invest in them.
Because of the risks, high fees and surrender charges associated with variable annuities, they’re poor financial choices for most investors over 65. In fact, California law requires that selling agents prove that an annuity replacement is of “substantial benefit” to their senior clients.

FINRA oversight of variable annuities is increasing.
The Financial Industry Regulatory Authority (FINRA) has recently implemented new rules regarding broker recommendations to purchase and exchange variable annuities, making variable annuities one of the few securities products with its own suitability requirements. These new rules require that brokerage firms put supervisory procedures into practice for the detection and prevention of “inappropriate exchanges.”

Should you contact a securities attorney?
If you’re an older investor whose financial advisor has advised to exchange or replace variable annuities, resulting in a loss in your annuity either fraom annuity fraud or simple negligence, call Carlson Law for a free consultation at 619-544-9300. Furthermore, if your broker failed to facilitate a tax-free 1035 exchange of variable annuities, contact our firm. Your broker may be liable for any or all fees, taxes and financial loss you incurred as a result.

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Improper Leveraged and Inverse ETF Trading Spells Big Financial Loss for Investors

May 9th, 2011

Recently, many investors have experienced significant financial loss in their securities accounts because of the inappropriate and improper trading of exchange traded funds (ETFs) by their stockbrokers.

A number of leveraged and inverse ETFs, including some funds by Direxion and Proshares, had risk associated that may not have been fully disclosed to some investors. Although these ETFs were built to seek out multiples of the exchange that they were created to track, many were also structured to reset daily. The result is radical disparities in their performance in the long term compared to the index that they were intended to follow.

Often, stockbrokers did not tell their clients about the extremely risky nature of holding these types of funds for any period of time, a risk that the Financial Industry Regulatory Agency (FINRA) clearly recognizes. In a June 2009 Regulatory Notice (09-31), FINRA underscored the high-risk character of these ETFs, asserting their unsuitability for many investors that intend to hold them for longer than one trading session, especially if the markets are volatile.

Have you incurred financial loss due to your broker’s advice on leveraged or inverse ETFs and/or the amount of time you were advised to hold those funds? Contact Carlson Law to discuss your potential claim with an experienced securities attorney today at 619-544-9300 or www.securities-fraud-attorney-san-diego.com

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If You Bought Desert Capital REIT, Contact Carlson Law Today

May 6th, 2011
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Desert Capital REIT, a non-traded realty investment trust founded in 2004, was created to fund short-term, high-interest rate mortgage loans. During the real estate boom, brokerage houses sometimes committed broker fraud by marketing these “hard money” loans as safe investments. Because they could earn as much as 13.4 percent interest, the REIT appealed to investors. But safe? In fact, these types of investments are illiquid and can be among the riskiest real estate investments you can make.

When the real estate market plummeted, investors were stunned by the annihilation of the REIT’s market value. Losses were hefty. In 2007, Desert Capital lost $21M. In 2009, it lost $11M. And it the third quarter of 2010, it lost a staggering $26M. By the time that the company announced the likelihood of its imminent liquidation, investors were left with virtually worthless non-dividend-paying, illiquid investments they couldn’t trade on any exchange.

The Securities and Exchange Commission (SEC) is currently investigating Desert Capital and its relationship with CM Capital and CM Securities, brokerage firms that not only shared Desert Capital CEO Todd Parriott, but also marketed the REIT.

Do you hold investments in Desert Capital?  Did you purcuase on the advice of CM Capital or CM Securities? If so, contact Carlson Law at 619-544-9300 for a free consultation. We may be able to help you recover your investment loss.

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