Colling, Gilbert, Wright & Carter Securites Fraud

An August 4, 2008 Morningstar Fund Spy article discusses the way several income funds went from relatively safe to very risky over a very short period of time and how the metamorphosis occurred. The Fidelity Ultra-Short Bond Fund (FUSFXP),for instance, suffered losses previously believed to be impossible based on the fund category's past record. Also, the Regions Morgan Keegan Select High Income Fund (MKHIX), a high-yield bond fund, is another prominent example, posting a staggering loss of nearly 79% in 2007.

A lethal combination of events lead to the meltdown in these heretofore safe havens: Security markdowns in their subprime and mortgage-related holdings and forced selling due to shareholder redemptions. Unfortunately, the risk exposure didn't become obvious to the fund managers or investors (proving sometimes ignorance is not bliss). Clearly the risk-control systems of these money managers and, indeed, those of most financial institutions turned out to be ineffective in the widespread liquidity crunch showing the danger of overconentrating untested, structured products in funds marketed as highly liquid, money market alternatives (see Schwab YieldPlus).

Obviously the usual quantitative risk measures did not hold up. Why? The complex derivative securities owned in these portfolios did not have enough history for these measures to rely on which left investors in the dark about the true downside potential of these funds. Worse, the extent of these holdings was often not disclosed to investors looking for a safe place for their money. The funds were often retirement monies never intended to be exposed to risk.

If you have lost money in a bond or income fund that was marketed as a money market alternative, you may be entitled to damages for your losses. Contact our office for a case evaluation.