Investment Fraud Lawyer Blog

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.

SEC Receiver Seeks to Deny Recovery to Many Medical Capital Investors

Tue, 24 Jan 2012 12:04:59 -0500

In connection with the Medical Capital receivership, the SEC Receiver recently filed its “Proposed Plan for Distribution” (the “Plan”). Unfortunately, the Plan contains some disturbing news for those investors who were pro-active and obtained recoveries against third-parties through litigation (including class actions) or arbitration.

Are Wall Street Wirehouses 'Killing the Goose that Laid the Golden Egg?'

Tue, 24 Jan 2012 10:16:24 -0500

The big four Wall Street wirehouses have lost market share since the financial crisis in part because of their role in the crisis and “customer distrust,” according to Bing Waldert, a director of Cerulli Associates Inc. (See “Wirehouse market share has shriveled since crisis,” InvestmentNews). Merrill Lynch Wealth Management, Morgan Stanley Smith Barney, UBS AG and Wells Fargo & Co. have also lost market share by terminating lower producing brokers. While the wiehouses have tried to focus on high net worth clients, their share of that lucrative market has declined as well.

Survey - Financial Service Professionals Less Trusted Than Car Salesmen

Tue, 24 Jan 2012 09:30:11 -0500

The declining public trust in the financial services industry confirms the serious problems permeating the industry. A recent survey by the public relations firm Edelman revealed that more than half of the educated public distrusts firms in the financial services sector, making it the nation’s least-trusted sector for the second year in a row (See InvestmentNews, “Car salesmen miles ahead of advisers in consumer trust”).

Corporate Bankruptcies Expected to Increase

Mon, 23 Jan 2012 12:17:32 -0500

An increase in corporate borrowing costs and Eastman Kodak’s recent bankruptcy filing have set off a round of speculation about whether it is the start of a growing trend in corporate bankruptcy filings. While Chapter 11 bankruptcy filings have been falling since 2009, George Putnam of BankruptcyData.com is expecting an uptick in corporate bankruptcy filings. (“Are corporate defaults set to rise?” USA Today) "We're going to see more big bankruptcies this year," Putnam was quoted as saying, adding: "We'll see a reasonable number even if the economy is pretty strong."

The Number of Very Large Securities Arbitration Cases is on the Rise

Mon, 23 Jan 2012 11:53:29 -0500

The amount of dollars at stake in FINRA securities arbitrations has grown in recent years. Of the 7,000 claims currently pending, approximately 200 involve claims of $10 million or more. “The claims coming in now are substantially larger than what we had a few years ago,” Linda Fienberg, president of FINRA Dispute Resolution, was quoted as saying. (“FINRA flooded with multimillion-dollar cases,” Nate Raymond, The American Lawyer).