California Securities Fraud Lawyer Blog

What are IMH Financial Corporation Shares Worth?

Mon, 02 Apr 2012 14:59:12 -0800

On March 30, 2012, IMH Financial Corporation (formerly known as the IMH Secured Loand Fund) filed their Annual Report with the Securities & Exchange Commision ("SEC"). (Click here to read IMH's Form 10-k.) The company made the following disclosure regarding the purported $9.79/share book value of the Class B and C common stock shares:

In connection with the Conversion Transactions, we issued 3,811,342 shares of Class B-1 common stock, 3,811,342 shares of Class B-2 common stock, 7,721,055 shares of Class B-3 common stock, 627,579 shares of Class B-4 common stock and 838,448 shares of Class C common stock. We have not determined a specific value for the aggregate shares issued in connection with the Conversion Transactions. However, based on our net tangible book value of approximately $165.3 million as of December 31, 2011, the current estimated book value per share for the shares issued in connection with the Conversion Transactions is $9.79 per share.

Recent IMH Blog Posts:

Tentative Settlement Reached in IMH Class Action

Click Here for More IMH Blog Posts

Tentative Settlement Reached in IMH Class Action

Sun, 26 Feb 2012 20:14:52 -0800

The following is a copy of an SEC filing recently submitted by IMH Financial Corporation (formerly IMH Secured Loan Fund) in connection with a proposed class action settlement:

On January 31, 2012, IMH Financial Corporation ("IMH") reached a tentative settlement in principle to resolve all claims asserted by the plaintiffs in the putative class action lawsuit captioned In re IMH Secured Loan Fund Unitholders Litigation ("Litigation"), pending in the Court of Chancery in the State of Delaware against IMH, certain affiliated and predecessor entities, and certain former and current officers and directors of IMH, other than the claims of one plaintiff. The tentative settlement in principle, memorialized in a Memorandum of Understanding ("MOU"), is subject to certain class certification conditions, confirmatory discovery and final court approval (including a fairness hearing). The MOU contemplates a full release and settlement of all claims, other than the claims of the one non-settling plaintiff, against IMH and the other defendants in connection with the claims made in the Litigation.

The following are some of the key elements of the tentative settlement; however, please see the Form 8-K and corresponding exhibits for full details:

·IMH will offer $20.0 million of 4% five-year subordinated notes to members of the Class in exchange for 2,493,765 shares of IMH common stock at an exchange rate of $8.02 per share [See related blog post: IMH Financial Corporation's CEO Shane Albers unloads stock at a premium of $8.02 per share]

·IMH will offer to Class members that are accredited investors $10.0 million of convertible notes with the same economic terms as the convertible notes previously issued to NWRA Ventures I, LLC

·IMH will deposit $1.645 million in cash into a settlement escrow account (less $300,000 to be held in a reserve escrow account that is available for use by IMH to fund its defense costs for other unresolved litigation) which will be distributed (after payment of notice and administration costs and any amounts awarded by the Court for attorneys' fees and expense) to Class members in proportion to the number of IMH shares held by them as of June 23, 2010

·IMH will enact certain agreed upon corporate governance enhancements, including the appointment of two independent directors to the IMH board of directors upon satisfaction of certain conditions (but in no event prior to December 31, 2012) and the establishment of a five-person investor advisory committee (which may not be dissolved until such time as IMH has established a seven-member board of directors with at least a majority of independent directors)

·Provides additional restrictions on the future sale or redemption of IMH common stock held by certain IMH executive officers

IMH has vigorously denied, and continues to vigorously deny, that it has committed any violation of law or engaged in any of the wrongful acts that were alleged in the Litigation, but believes it is in the best interests of IMH and its stockholders to eliminate the burden and expense of further litigation and to put the claims that were or could have been asserted to rest.

There can be no assurance that the court will approve the tentative settlement in principle. Further, the judicial process to ultimately settle this action is estimated to take a minimum of six to nine months or longer. If not approved, the tentative settlement as outlined in the MOU may be terminated and IMH will continue to vigorously defend this action. The foregoing description of the tentative settlement in principle and MOU are qualified in their entirety by reference to the MOU which is available on the SEC's website, attached as Exhibit 99.1 to the Form 8-K furnished on February 6, 2012.

Click here to view copy of the Memorandum of Understanding ("MOU") filed with the SEC.

Click here for all IMH blog postings.

SEC Charges Southern California Stockbroker With Securities Fraud and Misappropriating Over $3 Million in Client Funds

Tue, 14 Feb 2012 11:51:58 -0800

On February 14, 2012, the Securities and Exchange Commission (SEC) filed a complaint against Brenda Esbach of Tustin, California charging her with numerous securities fraud violations. The activity in question began while Brenda Esbach was employed as an investment advisor with Ameriprise Financial Services and continued after she left Ameriprise and began working with Aventine Investment Services, Inc. and Purshe Kaplan Sterling Investments.

The SEC's complaint alleges that, instead of making investments as directed by her clients, Esbach misappropriated the funds using them to pay personal and business expenses, including private school tuition and trips to Las Vegas. Without admitting or denying the allegations, Esbach agreed to provide restitution to her victims in the amount of $2,561,873.

Esbach, who has also been the subject of several investor lawsuits and securities arbitration claims, is awaiting sentencing in a related Federal prosecution where she entered a guilty plea to one count of mail fraud and one count of money laundering back in September 2011.

California Stockbroker Discipline Report for September - December 2011

Mon, 16 Jan 2012 16:42:25 -0800

The following information regarding broker misconduct and disciplinary actions taken against California stockbrokers was released by the Financial Industry Regulatory Authority (FINRA) for the period September through December 2011:

September 2011

John-Eric Bonilla, formerly with U.S. Bancorp Investments Inc., in Sacramento, California, was barred from association with any FINRA member in connection with finding that Bonilla failed to respond to FINRA requests for information related to a claim that Bonilla falsified documents in which he overstated an investor's net worth, annual income, and investment experience and misstated the fee associated with investor's security instrument.

Jerry Jason Rice, formerly with WAMU Investments, Inc., in Fresno, California, was barred from association with any FINRA member in connection with a finding that Rice failed to respond to FINRA requests for information related to allegations that he made misrepresentations and engaged in unauthorized and unsuitable trades.

October 2011

Vikas Goel, with Newport Cost Securities, Inc., in Irvine, California, was fined $7,500 and suspended from association with any FINRA member in connection with findings that Goel placed a customer's signature on statements he prepared without the customer's knowledge, authorization, or consent as a rationale for recommending the customer sell mutual funds to invest the proceeds in various annuities.

Jo Ann Marie Head, formerly with Morgan Stanley Smith Barney in Whittier, California, was barred from association with any FINRA member and ordered to pay restitution to a customer in the amount of $19,000, which represented a loan granted Head by a customer. FINRA further found that Head conveyed false and exaggerated account values to customers, exercised discretion in customer accounts without authorization, and mischaracterized unsolicited trades as solicited in customers' accounts.

Yaman Huseyn Sencan, formerly with Mercator Associates, LLC, in Rancho Santa Fe California, was fined $20,000 and barred from association with any FINRA member in any principal capacity and suspended from association with any FINRA member for six months in connection with a finding by FINRA that Sencan failed to reasonably supervise the activities of firm personnel engaged in charging excessive commissions, sharing commissions with a non-member and misusing funds on deposit with the firm.

November 2011

UBS Financial Services Inc., in Weehawken NJ was censured and fined $300,000 in connection with a finding by FINRA that the firm failed to reasonably supervise resulting in a failure to prevent improper, excessive, and unsuitable short-term trading for multiple customer accounts.

John William Grant, formerly with Torrey Pines Securities, Inc., in Red Bluff, California, was barred from association with any FINRA member in connection with a finding by FINRA he executed unauthorized transactions in accounts belonging to trustees of a family trust in excess of $1 million.

Larry Alan Prelesnik, formerly with LPL Financial LLC, in Palm Desert, California, was fined $7,500 and suspended from association with any FINRA member for 20 business days in connection with a finding that Prelesnik sent oversimplified and incomplete solicitations to clients in connection with a 100 percent bond positioning strategy.

Krittibas Ray, formerly with White Pacific Securities, Inc., in San Francisco, California, was barred from association with any FINRA member in connection with a finding by FINRA that after soliciting investors to purchase promissory notes as a vehicle to fund the startup of a hedge fund he used some of the $675,000 in proceeds for personal expenses and proceeds from later sales to pay interest and principal amounts due on the notes earlier purchasers held.

December 2011

Internet Securities and Chief Compliance Officer Michael Wayne Beardsley of Oakland, California, were censured, fined $12,500, and required to retain an outside consultant to review and prepare a report concerning the adequacy of the firm's supervisory, and compliance policies and procedures and supervisory controls in connection with a finding by FINRA that as a result of Beardsley's failure to supervise, the firm's representative was able to conduct numerous unsuitable transactions.

Walter Louis Howerton formerly with Wachovia Securities, LLC, in Modesto, California, was fined $12,500 and suspended from association with any FINRA member for six months in connection with a finding that he made unsuitable recommendations related to a customer's account. The losses on the account forced the customer to closer her position at a substantial loss. FINRA further found that Howerton did not have reasonable grounds to believe that the recommendations were suitable for the customer based on her financial situation and needs.

Fred Ralph Schwartz formerly with Wells Fargo Advisors, LLC, in Los Angeles, California, was fined $5,000 and suspended from association with any FINRA member for three months and was ordered to pay $42,599 restitution to customers in connection with a finding by FINRA that he engaged in excessive, unsuitable trading in the customers' accounts.

Jeffrey Alan Smith with Accelerated Capital Group in Irvine, California, was suspended from association with any FINRA member in any principal capacity for 20 business days in connection with a finding by FINRA that Smith failed to effectively supervise the activities of the firm's associated persons.

Highland Floating Rate Fund Undergoes Metamorphosis in Name Only

Tue, 10 Jan 2012 17:42:08 -0800

On January 9, 2012, Highland Funds will officially transfer management of their fund portfolios to a new entity called Pyxsis Capital. If history is any guide, Highland Floating Rate Fund investors should not expect a boost in performance following the name change. According to a 2005 study by Michael Cooper with the Krannert Graduate School of Management at Purdue University, funds that changed their names actually performed worse after the name change.

Highland's change of identity is understandable, particularly in light of the legal backlash faced by brokers and advisors who sold the Highland Floating Rate Fund to unwary investors. See our August 2011 blog posting in the California Securities Fraud Lawyer Blog: Highland Floating Rate Funds' Poor Performance Leads to Investor Lawsuits.

Despite the name change, the Pyxsis Floating Rate Fund's management and investment strategy will continue to remain primarily focused in high-yield "junk bonds." High-yield bonds are characterized by high returns as a reward for the risk inherent in investing in below investment grade securities (rated below BBB by credit reporting agencies). The family of Pyxis floating rate funds plan to invest 75% of the fund's assets in bonds of which more than 80% are below investment grade.

Related Blog Posts:

Highland Floating Rate Funds' Poor Performance Leads to Investor Lawsuits

J.P. Morgan Chase Fined $1.7 Million by Securities Regulators for Unsuitable Sales of Floating-Rate Funds

SEC Adopts Regulations to Preclude the Sale of Private Placements to Small Investors

Mon, 09 Jan 2012 21:21:22 -0800

As repeatedly reported here in the California Securities Fraud Lawyer Blog, we have seen an exponential growth in investor complaints involving the sale of private placements. For those of you unacquainted with the term "private placement," click here.

In a nutshell, private placements are illiquid non-publicly traded investments that are exempt from registration requirements under the Securities Exchange Act. For this reason, only wealthy and sophisticated investors, referred to as "accredited investors," are allowed to invest in them. In order to qualify as an accredited investor, an individual must have a net worth of $1 million or more. However, this does not mean that it is fair game for stockbrokers and investment advisors to sell private placements to anyone with a paper net worth of $1 million. See related blog posting: Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule.

In an effort to protect smaller investors whose only significant asset is their home, the Securities and Exchange Commission ("SEC") recently took steps to limit Regulation D of the Securities Exchange Act of 1933 to exclude an investor's primary residence from the $1 million net worth calculation. Although the rule became effective February 27, 2012, the net worth prohibition actually took effect back in July 2010 when President Obama signed off on the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009. See blog post: Investor Home Equity to be Excluded from $1 Million Minimum Net-Worth Requirement for Accredited Investors

The Bottom Line

We recommend extreme caution to anyone contemplating an investment in a private placement that is limited to accredited investors. Don't be fooled by your financial professional's sales pitch. No matter how you slice it, private placements are illiquid and risky investments. As stated in the fine print: These investments are only appropriate if you are willing to lose your entire investment. Still not convinced? I've got a backlog of cases where clients wrongfully assumed that they could get out of their investment anytime they wanted. They are still waiting.

Related Blog Postings:

Investor Sues Ameritas Over Recommendation to Use Real Estate Loans to Invest in Private Placements

FBI Reports 105% Increase in High Yield Investment Fraud Investigations

IMH Secured Loan Fund | IMH Financial Corporation Lawsuit Information

Wells Fargo Investments Fined $2 Million for Unsuitable Reverse Convertible Note Sales

Thu, 15 Dec 2011 11:52:55 -0800

Today, the Financial Industry Regulatory Authority (FINRA) announced that Wells Fargo Investments, LLC was fined $2 million for making unsuitable investments in connection with the sale of reverse convertible notes and for failing to provide required sales charge discounts on Unit Investments Trust (UIT) transactions. FINRA also took the unusual step of requiring Wells Fargo to pay restitution to customers who did not receive UIT discounts and to those who were placed in unsuitable reverse convertibles. More often than not, FINRA will levy a fine on the brokerage firm and leave investors to fend for themselves and try to recoup their losses through FINRA's securities arbitration process.

What are Reverse Convertible Securities?

Reverse convertibles are short-term investments that are tied to an underlying stock or bond. When the security matures, the investor will receive either 100% of the original investment or a predetermined number of shares. When investing in reverse convertibles, investors risk losing a significant portion of their investment if the value of the underlying stock or bond falls below a certain level at maturity. For example, in a reverse convertible bond fund, an investor may be forced to redeem their bonds at a decreased value.

Wells Fargo's Failure to Review Suitability of Reverse Convertible Transactions

FINRA found that Wells Fargo, through one broker, had recommended hundreds of unsuitable reverse convertible transactions. Of the 21 accounts that were found to have unsuitable reverse convertibles, fifteen of those belonged to elderly customers who were over 80 years old. These customers were exposed to risk inconsistent with their investment objectives that resulted in an overconcentration of reverse convertibles in their accounts.

Wells Fargo's Failure to Provide Eligible Customers with UIT Discounts

UITs offer discounts on purchases that exceed certain "breakpoints" or involve proceeds from another UIT during the initial offering period. FINRA found that Wells Fargo failed to provide eligible customers with "breakpoint" and "rollover and exchange" discounts due to the firm's lack of systems for review to ensure that UIT customers received the proper discount.

Ameritas Investment Corporation Suing Its Own Brokers Over Customer Losses in Sale of Private Placement

Fri, 18 Nov 2011 12:10:01 -0800

As noted in a previous blog posting, ALF is pursuing an arbitration claim against Ameritas Investment Corporation on behalf of an investor who borrowed funds to invest in the IMH Secured Loan Fund (now known as IMH Financial Corporation). In an unusual move, Ameritas responded by filing a cross-claim against the broker who sold the investment seeking "contractual and/or common law contribution and/or indemnity" on the basis that any harm or damage suffered was the result of acts or omissions of the broker. It is believed that the broker in question was, at the time, acting in the capacity of an agent or employee of David White & Associates based in San Ramon, California.

As a result of these developments, ALF is stepping up their investigation into this matter and is reaching out to other IMH investors who purchased through brokers employed or affiliated with Ameritas Investment Corporation and/or David White & Associates. ALF is also interested in speaking with current or former brokers employed or affiliated with Ameritas and/or David White & Associates.

Related Blog Posts:

Here come the lawyers! (Nov. 7, 2011)

IMH Financial Corporation's CEO Shane Albers unloads stock at a premium of $8.02 per share (Aug. 15, 2011)

IMH's Financial Troubles Reported in Wall Street Journal (Jan. 19, 2011)

All IMH Posts

J.P. Morgan Chase Fined $1.7 Million by Securities Regulators for Unsuitable Sales Practices Involving Floating-Rate Funds & UITs

Tue, 15 Nov 2011 18:07:46 -0800

On November 15, 2011 the Financial Industry Regulatory Authority (FINRA) entered into a settlement with J.P. Morgan Chase who consented to a fine of $1.7 million and agreed to reimburse customers in the amount of $1.9 million in connection with the failure to supervise unsuitable recommendations to invest in unit investment trusts (UITs) and floating-rate funds given to unsophisticated investors who had a conservative risk tolerance and little or no investment experience. FINRA further found that firm's brokers made the recommendations absent any reasonable grounds to suggest they were suitable for the affected investors.

"Chase allowed its brokers to sell risky UITs and floating-rate loan funds without providing them with the training, guidance and supervision necessary to determine whether these products were suitable for their customers, which resulted in losses for Chase's customers," said Brad Bennet, FINRA Executive Vice President and Chief of Enforcement.

FINRA found that 260 unsuitable recommendations were made with regard UITs resulting in $1.4 million in losses to customers. Unreimbursed losses to customers based on unsuitable recommendations from brokers to purchase the floating-rate funds totaled $500,000.

A UIT is an investment vehicle comprised of a bundle of securities, which can include risky investments such as high-yield below investment-grade, or "junk" bonds. Floating-rate funds are mutual funds comprised of senior loans made to entities with low credit ratings that increases the credit risk associated with those funds. Generally, both types of instruments are not suitable for inexperienced investors with a low risk tolerance seeking preservation of capital.

Also included in FINRA's finding was that WaMu Investments Inc., which merged with Chase in July of 2009, also made unsuitable recommendations to customers related to the purchase of UITs and floating-rate funds.

J.P. Morgan Chase stipulated to FINRA's findings without admitting or denying the charge. The settlement agreement requires Chase to contact eligible customers and complete the process of making restitution payments by April 13, 2012. Accepting such payments, however, does not foreclose affected customers from pursuing arbitration or mediation to recover losses. FINRA encourages customers to consult with a securities lawyer to discuss their rights.

Regulators Concerned About Brokers Claiming to be "Senior Specialists"

Fri, 11 Nov 2011 09:58:56 -0800

Many investors do not realize that the terms Financial Analyst, Financial Advisor, Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are simply generic terms or job titles commonly used by stockbrokers and investment advisors. Equally as troubling are the use of titles or designations, such as "Senior Specialist," that are designed to gain the trust and confidence of elderly investors and retirees. The use of such designations is often little more than a marketing tool to attract business from the rapidly growing pool of investors who are 65 years or older.

Recently, our law firm filed a securities arbitration claim against a financial advisor who touted his qualification as a "Certified Senior Advisor" (CSA) and assured a group of elderly women who attended a free lunch seminar that his firm "worked exclusively with senior investors to protect their financial assets and standard of living." Based on these assurances, they believed that their financial advisor had their best interests in mind when he recommended that they invest the bulk of their assets in a risky high-yield investment.

Our clients are now seeking damages through arbitration before the Financial Industry Regulatory Authority (FINRA). The organization that granted the broker his CSA designation, cannot provide any direct assistance to these investors. Although the Society of Certified Senior Advisors (SCSA) has a mechanism for disciplining CSA designees who fail to adhere to their Code of Professional Responsibility, the SCSA's primary method of discipline is to simply revoke the financial advisor's CSA designation.

FINRA Oversight of Senior Designations

In November 2011, FINRA published a Regulatory Notice urging brokers to pay closer attention to the use of senior designations that imply an expertise or specialty in advising senior investors. According to a survey conducted by FINRA, 68% of firms allow the use of senior designations by their representatives. Of those firms that permit the use of senior designations, 66% require the approval and verification of the credentials, 23% require approval but do not verify credentials, and 11% do not require approval of the certification and do not verify the credentials.

There are a variety of senior designations in use by brokers including: Certified Senior Advisor (CSA), Certified Senior Consultant (CSC), Chartered Senior Financial Planner (CSFP), Chartered Advisor for Senior Living (CASL), Certified Retirement Planning Counselor (CRPC), Accredited Retirement Plan Consultant (ARPC) and Certified Retirement Services Professional (CRSP). FINRA is most concerned with those titles that have little, if any, meaningful qualification standards. California law also precludes broker-dealers and investment advsiors from using senior-specific credentials in the offer or sale of securities where such credentials are non-existent or where the organization does not have reasonable standards for ensuring competency of certified individuals. According to FINRA: "[i]nvestors are unlikely to differentiate between designations that represent an enhanced level of proficiency in dealing with financial matters relevant to senior investors versus a designation that is simply a marketing tool." A brokerage firm that allows the use of any title that conveys expertise in advising for retirement or senior investors where such a specialty does not exist could be in violation of industry rules and also the anti-fraud provisions of the federal securities laws and FINRA rules.

There's No Such Thing as a Free Lunch

A common tactic used by bogus "senior specialists" is the hard to resist free-meal seminar. Elderly investors should be particularly wary of salesmen who are pushing variable or indexed annuities. It is particularly important to make sure that the sales person is properly licensed. Before investing, all investors, especially seniors, should check out a broker's disciplinary history using FINRA's BrokerCheck service.

IMH Secured Loan Fund: Here Come the Lawyers!

Mon, 07 Nov 2011 08:35:07 -0800

A number of our California securities law firm clients who suffered investment losses in the IMH Secured Loan Fund (now known as IMH Financial Corporation) have reported receiving a mass-mailed solicitation letter from a law firm located in Florida. California investors should think twice before hiring an out of state law firm to handle their case. For more information, see related blog posting: Why having a California licensed securities arbitration lawyer is so important

More IMH Blog Posts:

IMH Financial Corporation's CEO Shane Albers unloads stock at a premium of $8.02 per share

Investor Sues Ameritas Over Recommendation to Use Real Estate Loans to Invest in Private Placements

Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

Senior Citizens Have a New Financial Watchdog

Wed, 19 Oct 2011 16:28:42 -0800

Today, the Consumer Financial Protection Bureau named Hubert H. Humphrey III to direct the newly created Office of Older Americans, which was established to focus on elder financial abuse - especially in connection with reverse mortgages and retiree bankruptcies. Based on the cases that have come through our securities law firm, other areas that need immediate attention include: high yield investments and variable annuities.

In a statement by Raj Date, a senior Treasury advisor, he stated that seniors are targeted by fraudulent practices and, according to the CFPB, are losing almost $3 billion a year from such abuses. Such poor investment advice is an important issue for seniors who often have more assets than younger investors and are in a position where they have to make complex financial decisions. A representative of the AARP explained that older Americans are being talked into investing in annuities using money from a reverse mortgage - a practice that she says is a very bad investment decision.

One concerning practice is the growing prevalence of financial advisers with a so-called "senior certification." Humphrey intends to work to make sure that financial advisors do not mislead older investors by telling them that they specialize in seniors.

Another questionable investment strategy is the use of reverse mortgages, which are comprised of hard to understand terms and high fees. Humphrey intends to address the issue of reverse mortgages along with other scams and fraudulent sweepstakes directed at senior investors.

According to Humphrey's blog post regarding his new position, the Office of Older Americans will give seniors the tools they need to detect financial scams and make informed financial choices.

California Securities Fraud Lawyer News Flash: AXA Investment Executive Settles Securities Fraud Charges

Thu, 22 Sep 2011 11:39:16 -0800

Barr M. Rosenberg, co-founder and chairman of Orinda, California, investment firm AXA Rosenberg agreed to pay $2.5 million to settle securities fraud charges that involved hiding a computer error that caused $217 million in losses to his clients. As part of the settlement, Rosenberg will also be banned from the securities industry His company, AXA Rosenberg, which is owned by french company AXA SA, has also agreed to pay $242 million to settle civil charges.

California Stockbroker Discipline Report for May - August 2011

Thu, 01 Sep 2011 15:15:50 -0800

Midas Securities, LLC, in Anaheim, CA, was fined $80,000 in connection with a finding by FINRA that they failed to reasonably supervise registered representatives in the sale of unregistered securities.

Brecek & Young Advisors, Inc., in Folsom, CA, was censured and fined $125,000 in connection with a failure maintain adequate supervisory procedures and a failure to supervise its representatives in complying with applicable securities laws with respect to variable annuities.

Ronald Lee Gershon, with Oppenheimer & Co. Inc in Los Angeles, CA, was suspended from association with any FINRA member for 10 days and fined $5,684.75 in connection with the recommendation and sale of unsuitable securities to a customer of Oppenheimer, including auction rate securities and preferred securities that were below investment grade.

Ernesto Zuniga Gomez, formerly with Merrill Lynch, Pierce, Fenner & Smith in San Diego, CA, was barred from association with any FINRA member in connection with the use of verbal authorization forms that falsely stated customer approval for the transfer of funds from their accounts to other customers' accounts.

Jerrold Robin Sexton, formerly with Capital Growth Resources in El Cajon, CA, was barred from association with any FINRA member in connection with findings that Sexton received checks from a customer to be invested in a company he represented as safe. The customer did not know that the company was Sexton's company and that Sexton would use the funds for personal and business expenses.

Mark Andrew Sibert, formerly with Uvest Financial Services Group, Inc. in San Diego, CA, was barred from association with any FINRA member in connection with findings that he engaged in private securities transactions without approval from Uvest and solicited his firm's customers to invest in his company, which was supposed to raise money to invest in real estate and gold-mining.

Ace Diversified Capital, Inc. and chief compliance officer Lynnwood Jen in San Gabriel, CA, were jointly fined $25,000 in connection with a failure maintain adequate supervisory procedures for complying with applicable securities laws with respect to private placements. The findings state that the firm sold interest in Medical Capital Holdings, Inc. without a permit to engage in the sale of private placements.

Carla Wendy Cooper, formerly with Crowell, Weedon & Co. in Los Angeles, CA, was barred from association with any FINRA member in connection with forging a LOA for a customer to authorize the transfer of funds into the account of Cooper's relatives' account.

Priscilla Sabado, formerly with AXA Advisors in Irvine, CA, was barred from association with any FINRA member in connection with findings that she sold investments in Texas oil and gas projects without consent of her member firm.

Highland Floating Rate Funds' Poor Performance Leads to Investor Lawsuits

Tue, 30 Aug 2011 18:05:58 -0800

Our securities law firm is currently pursuing a securities arbitration case on behalf of California investors who suffered losses in the Highland Floating Rate Advantage Fund [Symbols: XSFRX (Class A); XLACX (Class C); XLAZX (Class Z).] These funds are also referred to as "leveraged" loans because the borrowers typically have a significant level of debt relative to equity. The Highland Floating Rate Advantage Fund's share price declined 8% in 2007 and more than 50% in 2008.

Unlike their peers, the Highland Floating Rate funds have continued to disappoint investors. Compared to the performance of other loan participation funds, the Highland Floating Rate Funds are in a class by themselves due to their five-year history of negative returns. In June 2011, the Highland Floating Rate Advantage Fund and the Highland Floating Rate Fund [Symbol: XLFAX] were merged into the Highland Floating Rate Opportunities Fund. Below are the 5-year return results for the Highland Floating Rate Opportunities Funds:

Highland Floating Rate Opportunities Fund 5 Year Return*

Class C Shares [HFRCX] -20.41%
Class B Shares [HFRBX] -19.80%
Class A Shares [HFRAX] -18.39%
Class Z Shares [HFRZX] -16.96%

*Source: lipperleaders.com

Highland's sales literature claims that its floating rate funds seek "capital preservation and the management of credit risk while utilizing leverage to increase yield potential." Investors were attracted to the Highland Floating Rate Funds because they supposedly offered a higher return without adding any significant risk. One of the main reasons the Highland Floating Rate funds performed so poorly is that they invested heavily in loans that were rated as below investment grade or "junk."

Securities Regulators Urge Investors to Use Caution when Investing in Floating Rate Funds

The Financial Industry Regulatory Authority (FINRA) recently issued an "investor alert" to warn investors who may be attracted to the high return promised by floating rate funds. In promoting these investments, FINRA expressed concern about brokers who downplay the potential risks while emphasizing the higher returns.

According to FINRA, floating rate funds have become increasingly popular since 2008 - having grown from $15 billion to $60 billion as of April 2011. These bank-loan funds are highly coveted during periods where investors are concerned with spiked interest rates. Although the funds are low in interest-rate risk, they carry a much higher credit risk. They often extend their portfolios to lower quality borrowers who typically have a higher rate of default than investment-grade bonds. Floating rate funds and other risky high-yield investments should play a very minor role in any investment portfolio--if at all.