Investment Fraud Lawyer Blog

Student Loan Worries Grow

Thu, 09 Feb 2012 12:41:43 -0500

Student loan debt problems are lurking on the horizon. Americans owe $1 trillion on college student loans, more than they owe on credit cards, which is too much. 2010 graduates owed $25,250 on average (up 5 percent from 2009). Parents of 2010 graduates owed $34,000 on average. More parents are going into debt to pay for their childrens’ college – 17 percent in 2010 versus 5.6 percent in 1993. The default rate is 9 percent for a two-year period ending in 2010, up 2 percent from the previous period. A student who borrows $20,000 a year for four years will have a repayment obligation of $1,000 per month, as much as a small mortgage, according to one financial advisor. (“Student loans the ‘next debt bomb’ for U.S., attorneys warn,” InvestmentNews).

Concerns About the Municipal Bond Market Rise

Wed, 08 Feb 2012 13:15:07 -0500

Various well-respected market followers are beginning to sound alarm bells regarding municipal bonds and municipal bond funds. Investors and financial advisers are encouraged to take heed and proceed with caution.

Why is Trust in Wall Street Banks Declining?

Wed, 08 Feb 2012 10:23:35 -0500

As Wall Street continues to question why its business is declining, a recent Financial Industry Regulatory Authority (FINRA) arbitration case provides part of the answer. The arbitration panel ordered Bank of America Merrill Lynch (Merrill Lynch) to pay $1.38 million to an investor who lost money in a complex structured product composed of pooled loans that were sliced into tranches with varying payouts and risks. While the basic claim doesn't sound particularly egregious, the underlying facts were.

Is the SEC Too Soft on Major Wall Street Firms?

Tue, 07 Feb 2012 10:11:21 -0500

Questions continue to arise regarding the too-cozy relationship between the SEC and Wall Street. Recent reports claim that the SEC, when settling with big Wall Street firms, has a practice of granting waivers that preserve special privileges enjoyed by those firms, and protect them from serious consequences that would otherwise result from their wrongdoing. For example, the waivers preserve fast-track offering privileges for “well-known seasoned issuers,” which allow big Wall Street firms to quickly raise capital in the securities markets. Other waivers permit the firms to continue managing mutual funds and engaging in certain market activities.

Securities Regulators Set High Standards for Firms Selling Complex Investments

Mon, 06 Feb 2012 14:27:59 -0500

The Financial Industry Regulatory Authority has issued a Regulatory Notice (12-03, Jan. 2012) to “remind” its member firms of their sales practice obligations with regard to complex products, and to provide them “guidance” in exercising heightened scrutiny and supervision over marketing and sales of complex products. Complex products are not defined in the Notice, but are described as including a host of alternative investments, such as derivative-based products, nontraded REITs, structured notes, inverse or leveraged exchange traded funds, hedge funds, and securitized products like mortgage-backed securities and asset-backed securities.

Affinity Fraud Hits Close to Home

Fri, 03 Feb 2012 10:26:45 -0500

Affinity fraud is a big problem and it is growing. The affinity aspect of it refers generally to the fraudster’s standing as an insider among a group of people who share a common interest. This standing as a member of the group, so to speak, makes the fraudster presumptively trustworthy. Unfortunately, affinity settings are breeding grounds for investment fraud.

Hedge Fund Formed to Bet on Sports Collapses

Thu, 02 Feb 2012 11:39:44 -0500

The London investment company, Centaur, which launched its Galileo fund to provide investors with the opportunity to generate returns through none other than sports betting has collapsed resulting in what is reported to be a 100% loss with investors holding the bag for about $2.5 million.

Securities Regulator Alerts the Public About Dangerous Investments and Investment Strategies

Thu, 02 Feb 2012 10:15:18 -0500

The Financial Industry Regulatory Authority (FINRA) recently issued a report outlining is its regulatory and examination priorities for 2012. The securities industry regulator is focusing on conduct and products meant to beat the market that are unsuitable investments for many investors.

Currency Risk Haunts Single-Country Exchange Traded Funds (ETFs)

Wed, 01 Feb 2012 17:21:02 -0500

U.S. investors have poured money into single-country exchange traded funds with encouragement from Wall Street, but that can be a dangerous strategy. Such a strategy often leads to dangerous over concentrations, which, like leverage, can amplify both gains and losses. (See SmartMoney Magazine, “Wilting ETF Returns”).

Credit Suisse Traders Face Criminal Charges for Mortgage Investment Fraud

Wed, 01 Feb 2012 17:08:03 -0500

Federal prosecutors plan to file criminal actions against four former traders who allegedly overvalued collateralized debt obligations (CDOs) sold by Credit Suisse in order to increase their commissions. The events occurred in 2008 and resulted in a $2.85 billion write down by Credit Suisse. Credit Suisse fired the traders and cooperated with authorities in their investigation. (“Ex-Traders at Credit Suisse Expected to Be Charged With Fraud,” New York Times, Dealbook).

Most Financial Advisers Don't Understand Alternative Investments According To John Hancock Survey

Mon, 30 Jan 2012 15:24:30 -0500

Given the array of exotic alternative investments being sold to the public, it’s logical that many investors often don’t understand what they are buying. What is even scarier is that it is likely their professional investment adviser doesn’t understand the alternative investment either. Investment advisers – 75 percent of them – admit they do not understand alternative investments. Notwithstanding their puzzlement, 50 percent of advisers said they intend to increase their use of them in their clients’ accounts this year. They could use some help, however, because of alternative investments are so confusing. (“Alternatives spur anxiety,” InvestmentNews).

Arbitrators Are Recognizing That 'Sophisticated Investors' Can Be Defrauded

Fri, 27 Jan 2012 13:54:09 -0500

Wall Street’s favorite defense to investor claims, the “sophisticated investor” defense, isn’t working anymore. In almost every FINRA arbitration brought by an investor, the brokerage firm adopts the mantra that “The claimant is a sophisticated investor.” In essence, the firms argue that the customer was too sophisticated to rely on any alleged misconduct or misrepresentations. In their advertising, brokerage firms say “Trust us.” In arbitration they say, “You were too sophisticated to trust us. Even if we lied, you should never have believed us.” Recently, however, arbitrators haven’t been buying this argument (See “Sophisticated Investor Defense Losing Steam,” Wall Street Journal).

Wall Street Firms Apparently Like Arbitration Only When They Think It Gives Them An Advantage

Fri, 27 Jan 2012 13:29:44 -0500

Wall Street firms apparently like arbitration when they are being sued by customers but prefer court when they want to sue their former employees. This disconnect speaks volumes.

Financial Advisers Winning Big Money from Former Firms

Thu, 26 Jan 2012 09:46:42 -0500

Financial advisers are winning large arbitration awards against their former firms. During the past three months at least three arbitration panels have ordered financial services firms to pay millions of dollars to financial advisers formerly employed by the firms.

20% of Existing Exchange Traded Funds (ETFs) on 'Death Watch' List

Wed, 25 Jan 2012 13:00:30 -0500

While exchange traded funds continue to flood the market, a record number of existing ETFs are failing or in trouble. Last year, 308 new exchange traded funds were launched, but almost 90 percent of them were unable to attract the $30 million regarded as a minimum threshold amount for profitability, according to CNNMoney (See “Is the ETF bubble about to burst?”), citing XTF, a firm that researches and advises exchange traded funds globally.