Colling, Gilbert, Wright & Carter Securites Fraud

The situation for Madoff investors gets worse. After the news broke that the $50 billion dollar investment fund was really a ponzi scheme, thousands of investors which include including wealthy individuals and institutions realized they have lost millions. Some have been wiped out by the scam. In related news, one of the fund managers committed suicide over the debacle.

Now, according to a December 24, 2008 Bloomberg news article A U.S. Bankruptcy Court yesterday upheld a plan by the liquidator of Bernard Madoff's investment fund to restrict individual compensation for victims of his alleged scam to $500,000, including $100,000 in cash. In essence most investors will literally get pennies on the dollar in compensation for their losses.

The bankruptcy court's decision to uphold a plan by Securities Investor Protection Corp. (SIPC) means that anyone trying to get additional compensation will have to file a separate lawsuit or join a class-action claim, according to an article in the NY Post said.

The bankruptcy court also upheld SIPC's plan to limit claims to investors who placed money with Madoff in the 12 months before his arrest on Dec. 11, the newspaper reported.

SIPC plans to start sending out claims forms to customers considered eligible for compensation, no later then January 9, 2009.

Labels: broker misconduct

According to a December 9, 2008 Reuters article, Regions Bank, part of Regions Financial Corp, on Monday launched a $3.5 billion, four-part debt sale that will be guaranteed by the Federal Deposit Insurance Corp.

The sale includes $1 billion in two-year fixed rate notes and $1.75 billion in three-year fixed rates notes. The Bank is also selling $250 million of 18-month floating rate notes and $500 million in two-year floating rate notes. Barclays Capital, Credit Suisse, Goldman Sachs and Morgan Keegan are co-managing the sale.

There is no word as to how much of Regions' cash crunch was caused by Regions' brokerage arm Morgan Keegan which is embroiled in litigation related to the RMK Bond and Income Funds.

If you have lost money related to the RMK Funds, please contact our office for a free case evaluation.

Labels: broker misconduct

Chuck Jaffe of the San Francisco Chronicle, in his December 14 article "Pointng Out Bad Players in the Fund Business" gives out this year's Lump of Coal Awards.

The following is a reprint of the article: Please note the Morgan Keegan Funds are prominently mentioned as they have been on this site for months.

"After years of expecting a little something extra around the holidays, most people in the fund world are getting nothing extra for Christmas this year. That said, it's my job to fill some of those holiday stockings: It's the 13th annual Lump of Coal Awards, my annual two-week holiday tradition of finger-pointing at the bad boys and girls of the fund business, the ones who should get nothing more than an inky chunk of carbon from Santa this year.

The Lump of Coal Awards recognize managers, executives, firms, watchdogs and other fund-world types for action, attitude, behavior or performance that is misguided, bumbling, offensive, disingenuous, reprehensible or just plain stupid.

With the average equity fund down by more than 40 percent, it would be easy to carpet bomb the entire industry with insults this year, but the losing has made it harder to pick "winners" - the buffoons and miscreants who added insult to injury by blunder, ignorance or arrogance.

The 2008 Lump of Coal Awards go to:

Bruce Bent, co-founder of the first money-market fund and chairman of the Reserve funds. Category: Forgetting that talk is cheap. For years, Bent railed against money funds holding anything riskier than Treasury bills and bank certificates of deposit. He ridiculed competition for buying commercial paper - short-term corporate debt that's routinely unsecured.

But, in 2006, when Reserve's money funds were lagging the field in yield, Bent's firm started buying the same things he once described as "garbage." Reserve's money-fund yields climbed the charts; meanwhile, Bent continued ranting well into '08 about the horrible investment behavior of others, ignoring the fact that his funds had become the most dangerous of the bunch.

Holding $785 million in Lehman Bros. Reserve's Primary fund was forced in mid-September to "break the buck." After that, the paper was officially declared garbage in light of Lehman's financial troubles.

The Investment Company Institute. Category: Doing too little, too late.

The money-fund crisis came into full bloom in mid-September. The ICI - the fund industry's trade association - established its money-fund working group in November, long after the focus of the economic crisis had moved on to other parts of the financial world.

Every 2010 target-date fund. Category: Missing the bull's-eye.

At the very time that investors most needed life-cycle and target-date investing to work, it failed. Target-date funds are all-in-one portfolios built to age with an investor, so that the closer they get to the target date, the more conservative they become. As such, 2010 funds - built for investors less than two years from hitting retirement age - should be a comparatively safe haven. Instead, the average 2010 fund, is down nearly 30 percent this year.

Oppenheimer's target-date funds. Category: The year's most off-target performance.

Oppenheimer is dead last in its peer group for funds targeted for 2010, 2015, 2020 and 2030. By comparison, Oppenheimer 2025 is a star, standing next-to-last in its category. And Oppenheimer 2040 and 2050 didn't start until March, but since their inception date, both rank dead last in their peer groups, too. With performance like that, Oppenheimer may not be running "life-cycle funds," so much as "death-spiral funds."

Second place in this category goes to AllianceBernstein. Were it not for Oppenheimer's misery, Alliance Bernstein would be dead last in every target-date category tracked by Lipper.

Regions Morgan Keegan. Category: Not knowing when to quit.

Two former high-fliers, RMK's Select Intermediate Bond fund and Select High Income, may have been the industry's biggest travesties over the last two years. Manager James Kelsoe - the Lump of Coal (Mis)Manager of the Year in 2007 - had a huge slug of money in subprime paper, so that both bond funds lost more than 50 percent last year, then watched things go from bad to worse in '08.

High Income is down nearly 80 percent and Intermediate Bond has lost 85 percent this year. For every $1,000 invested in the funds at the start of '07, there's less than $100 left now. You would be hard-pressed to find two funds more deserving of liquidation,

Regions Morgan Keegan finally got rid of Kelsoe but inexplicably kept the funds open, with a new subadviser running the money.

Ron Fielding of the Oppenheimer Rochester Municipal funds. Category: Sticking to your guns when they're aimed at your own feet.

The Rochester funds have traditionally flown high on the muni-bond performance charts, largely because of Fielding's penchant for diving headlong into the riskiest portions of the bond market - notably sectors like tobacco, housing and airlines - to gain extra yield. As a result, Fielding's funds - and he's ultimately responsible for 18 Oppenheimer-owned issues - took on a lot more credit risk than the competition.

Predictably, results have been a horror show. Most of the Rochester single-state funds are down more than 35 percent this year, and Oppenheimer Rochester National Muni (ORNAX) is down 48 percent, which is far more abysmal than the average stock fund in 2008.

Fielding has remained bullish, but a combination of redemptions and the continued credit crunch is likely to make things worse before they get better, which in turn could cripple the entire Oppenheimer family. Oppenheimer's target-date funds are suffering because of their bond exposure through Fielding's national muni fund."

Citigroup Inc. and UBS AG on Thursday December 11 agreed to buy back a total of nearly $30 billion in risky auction-rate securities regulators disclosed. The securities were originally marketed to the banks' customers as safe investments. The Securities and Exchange Commission has approved the agreement.

Tens of thousands of the banks' customers bought the auction-rate
securities before the $330 billion market for them froze in
mid-February, according to SEC officials. The new settlements were the largest return of customer money in the agency's history and all the investors will be made whole, SEC Chairman Christopher Cox said in a statement.

Neither Citigroup nor Switzerland's UBS admitted nor denied any wrongdoing
in the marketing and sale of the securities. Citigroup will be buying back roughly $7 billion in ARS's while UBS's repurchase exceeds $22 billion.

The banks came under fire from several state securities regulators including New York and Texas and agreed to buy back the frozen assets under threat of being blocked from doing future business in those states. The banks also agreed to pay civil fines as part of the deal reach with the SEC and state officials.

Following wide-scale investigations into the sales practices involving ARS's, the
regulators alleged the banks misled customers into believing that
auction-rate securities were safe, cash-like investments. The auction-rate securities market involves investors buying and selling instruments that resemble corporate debt, except the interest rates are reset at regular auctions, some as often as once a week. A number of companies invested in the securities because they could treat their holdings almost like cash.

Tens of thousands of investors nationwide - including cities and towns,
charities and small businesses - were left holding damaged securities
that couldn't be readily sold for cash once the market for auction-rate
securities dried up in February.

Settlements calling for buybacks of auction-rate securities also have
been reached with Bank of America Corp., RBC Capital Markets Corp.,
Morgan Stanley, JPMorgan Chase & Co., Wachovia Corp., Merrill Lynch &
Co., Goldman Sachs Group Inc., Deutsche Bank, Credit Suisse Group and
Wachovia Corp.

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Labels: broker misconduct

On Thursday December 4, a New York State Supreme Court justice dismissed a shareholder class action against The Bear Stearns Cos. Inc.’s officers and directors challenging its merger with JPMorgan Chase & Co. The class action lawsuit claimed the $10.00/share stock swap was inadequate and not in the best interest of shareholders. The suit sought damages from Bear Stearns directors for alleged “violations of fiduciary duties” and from JPMorgan for its “tortious conduct.”

State Supreme Court Justice Herman Cahn rejected the consolidated class action in a 44-page ruling, saying that the decision to merge was protected by the “business judgment rule,” meaning that the board of directors made an informed decision in what it believed was the best interest of the company and therefore were not liable.

The merger was brokered by the Federal Reserve to prevent a bankruptcy
at Bear Stearns, “an event with potentially cataclysmic consequences for the broader economy as well as for the shareholders,” wrote Justice Cahn.

Initially, JPMorgan agreed to purchase Bear Stearns shares for $2/share but an amended agreement increased the initial offer to $10/share when there was a significant backlash from shareholders and company officials. Of the Bear shareholders that took part in approval vote, approximately seventy-one percent voted to go forward with the takeover of Bear by JP Morgan Chase.

The fallout of this transaction had devastating effects on investors and employees of Bear. Many employees lost most of their 401K value and shareholder saw their stock value decline over 93% from a prior year high of $157/share.

The fall of Bear Stearns in March 2008 was only the first of many failures and mergers in the financial sector which has thrown the markets into turmoil and caused billions of dollars in investor losses.

Bear Stearns' financial situation started to unravel with the failure of two Bear hedge funds that took huge bets on supprime mortgage bonds. The two fund managers are currently under federal indictment after being arrested June 19, 2008 and charges with fraud.

Labels: broker misconduct

A controversial selling-away case decided by the Securities and Exchange Commission last month serves as a warning to brokers about getting entangled in an often vague and gray area of securities law.

And it serves as a reminder of the risks that financial advisers face from overly aggressive enforcers. The SEC last month threw out the case, which was brought by the Financial Industry Regulatory Authority Inc. (FINRA) of New York and Washington against two Dallas-based brokers for Paine Webber Inc. of New York.

In dismissing the case, the SEC chided FINRA enforcers for attempting a "novel interpretation" of FINRA's selling-away rule. FINRA, then known as NASD, charged the brokers in 2002. In the action, FINRA alleged the brokers engaged in a private securities transaction by soliciting clients to buy shares in e2 Communications Inc. of Dallas without the required prior notice and approval from their firm.

Both a Finra hearing panel and its National Adjudicatory Council upheld some of the charges.

But on appeal, the SEC said that "the record demonstrates that e2 itself solicited" the clients. "NASD points to no evidence that [the brokers] were involved in these ... purchases."

Although the brokers in this case were ultimately absolved of the charges, selling away occurs very frequently and investors need to understand their right and options for recovery should they be involved in one of these unauthorized and illegal transactions.

Selling away occurs when a broker recommends or solicits the purchase of a security that is not approved for sale by the broker's employing firm. Selling away cases often involve ponzi schemes, real estate partnerships and other forms of private investment.

As broker/dealers are responsible for supervising their agents, they may be responsible for any losses that occur from the unauthorized transactions. In other words, brokerage firms are typically liable for the conduct of their agents done during the course of their employment.

If you believe you have been sold an unauthorized investment that was not on your brokerage firm's recommended list, please contact our offices for a free consultation.

Labels: broker misconduct, selling away, unauthorized investment