Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | securities fraud

Jun/11

8

Did You Invest in Merrill Lynch “Accelerated Return Notes” Structured Product?

Comments off · Posted by admin in FINRA

Currently Soreide Law Group, PLLC, is investigating, Merrill Lynch “Accelerated Return Notes” Structured Product. 

We have found on certain broker-dealer websites that these notes are touted as offering  “investors the opportunity to earn three times the upside appreciation potential of the underlying security, index or basket of securities, up to a specific cap, while only risking one for one on the downside.”

If in your experience as an investor, you have found this not to be true, or if you feel you have lost your investment with Merrill Lynch “Accelerated Return Notes” Structured Product, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority. 

· · · · · · · · · · · · · · · · · · · · · · ·

Jun/11

5

Finra files complaint against David Lerner Associates For REIT Sales to Elderly

Comments off · Posted by admin in FINRA

In a June, 2011, article from Bloomberg News, it was written that David Lerner Associates Inc. has been accused of targeting unsophisticated and elderly customers while selling real estate investment trust (REITs) shares without considering whether the illiquid security was suitable for its clients.

David Lerner Associates is based in Syosset, New York, and known for its “Take a tip from Poppy” advertising slogan, misled investors who bought more than $300 million of shares in the $2 billion Apple REIT Ten offering this year, the Financial Industry Regulatory Authority(FINRA) said in a disciplinary complaint on its website. The firm denies the allegations, according to a statement.

It was reported in the Bloomberg News article that David Lerner Associates solicited customers for Apple REIT Ten, it provided misleading information about distribution rates for a series of predecessor securities that are now closed to investors, Finra said. The figures failed to show that distributions far exceeded income and were funded by debt that increased leverage in the REITs, which invest in extended-stay hotels, the regulator said.  David Lerner Associates has sold almost $6.8 billion of Apple REIT shares to more than 122,000 customers since 1992, according to the Finra complaint, the industry-funded regulator for U.S. brokerages. Those sales have generated more than $600 million, accounting for more than 60 percent of the firm’s business since 1996, Finra said.

This complaint is the first step in a formal proceeding, Finra said. It isn’t filed in court, and the firm can request a hearing before a disciplinary panel, the regulator said in its statement.

“The firm conducted thorough due diligence of Apple REIT Ten’s offering documents and audited financial statements,” DLA said in its statement. “DLA will vigorously defend these claims. It looks forward to the opportunity to set the record straight and expects to be completely vindicated.”

Also, in the Bloomberg News article it was stated that in September, DLA paid a $255,000 fine for failing to provide required information in connection with the replacement of variable life insurance policies and annuity contracts from November 1998 through February 2004, according to the New York State Insurance Department. A year ago this month, DLA was accused by Finra of overcharging customers on sales of municipal bonds and mortgage securities. That case is still pending, according to Finra’s brokerage records.

If you or a family member have become a victim of the alleged fraudulent schemes of David Lerner Associates, Inc., call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

26

Wells Fargo, BNY Mellon Corp., Sue Securities America, & other B-Ds over Medical Capital Holdings, Inc.

Comments off · Posted by admin in FINRA

In a May 26th., 2011, article from InvestmentNews.com, Bruce Kelly writes, that adding to the cascade of legal troubles for broker-dealers that sold private placements for Medical Capital Holdings Inc., two banks have now sued several independent B-Ds that hawked the failed offerings.

It was reported that the Bank of New York Mellon Corp. and Wells Fargo Bank NA, were trustees for Medical Capital. In fact, both were sued in a class action in 2009 in U.S. District Court for the Central District of California after the Securities and Exchange Commission charged Medical Capital with fraud. But Bank of New York Mellon and Wells Fargo want the broker-dealers to pay up money if they are found liable in those class actions.

On April 29, the two banks filed separate lawsuits against the broker-dealers, including struggling Securities America Inc., claiming that the broker-dealers “breached their obligation to MedCap investors” by selling the product to investors for whom it was not a suitable investment, and failing to make proper disclosure of the notes’ risks. Bank of New York Mellon has sued 13 broker-dealers, seven of which are no longer in business. Wells Fargo has sued six firms, as well as Ameriprise Financial Inc., which owns Securities America, the biggest seller of Medical Capital notes. Not all broker-dealers that sold the product were included in the suit. “We believe the banks’ actions are unwarranted and baseless,” said Janine Wertheim, a spokeswoman for Securities America. “The wrongdoing in this case lies with the principals of Medical Capital, who have been accused of fraud by the SEC.”

Kelly writes that the plaintiffs in the class action against the two banks claimed in a 2010 amended complaint that the two trustees signed off on a request by Medical Capital executives to take $325 million in fees — despite documents for the Medical Capital notes stating that fees were not supposed to come from investor funds. From 2003 to 2008, dozens of independent broker-dealers sold notes of Medical Capital, which raised $2.2. billion. Securities America sold about $700 million of the product and last month agreed to settle with investors who sued the firm in a class action. Investors have lost more than $1 billion in principal, and regulators and the Medical Capital bankruptcy trustees have said the operation was a Ponzi scheme.

The banks’ suits against the B-Ds is at least the third time in the past year that broker-dealers that sold failed private placements or real estate deals have been sued by outside parties such as a trustee or receiver. Last June, the trustee overseeing the receivership of another failed series of private placements, Provident Royalties LLC, sued almost 50 broker-dealers seeking to claw back $285 million, including commissions.

And in November, the bankruptcy trustee for DBSI Inc., which packaged real estate deals and went bust in 2008, sued almost 100 broker-dealers looking to get back about $49 million from the firms.

If you or a family member have become a victim of the alleged fraudulent sale of private placements for Medical Capital Holdings, Inc. by your broker-dealer, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

15

FINRA on Reverse Convertibles, a Complex Investment Vehicle

Comments off · Posted by admin in FINRA

On FINRA’s website, under “Investor Alert,” they offer the following to investors; over the past few years, brokerage firms and banks have been issuing and marketing complex investments known in the industry as “structured products” to individual investors. These include “reverse convertibles,” also known as RCN, which are popular in part because of the high yields they offer. Also known as “revertible notes” or “reverse exchangeable securities”—and sold under a variety of proprietary names that may or may not use the term “structured” to describe the product—reverse convertibles are debt obligations of the issuer that are tied to the performance of an unrelated security or basket of securities. Although often described as debt instruments, they are far more complex than a traditional bond and involve elements of options trading. Reverse convertibles expose investors not only to risks traditionally associated with bonds and other fixed income products—such as the risk of issuer default and inflation risk—but also to the additional risks of the unrelated assets, which are often stocks.

 FINRA is issuing this alert to inform investors of the features and risks of reverse convertibles. They are complex investments that often involve terms, features and risks that can be difficult for individual investors and investment professionals alike to evaluate. If you are considering a reverse convertible, be prepared to ask your broker or other financial professional lots of questions about the product’s risks, features and fees and why it’s right for you.

 What Is a Reverse Convertible?

 FINRA says that a reverse convertible is a structured product that generally consists of a high-yield, short-term note of the issuer that is linked to the performance of an unrelated reference asset—often a single stock but sometimes a basket of stocks, an index or some other asset.

The product works like a package of financial instruments that typically has two components: 1.)a debt instrument (usually a note and often called the “wrapper”) that pays an above-market coupon (on a monthly or quarterly basis); and 2.) a derivative, in the form of a put option, that gives the issuer the right to repay principal to the investor in the form of a set amount of the underlying asset, rather than cash, if the price of the underlying asset dips below a predetermined price (often referred to as the “knock-in” level).

According to FINRA, when you purchase a reverse convertible, you’re getting a yield-enhanced bond. You do not own, and do not get to participate in any upside appreciation of, the underlying asset. Instead, in exchange for higher coupon payments during the life of the note, you effectively give the issuer a put option on the underlying asset. You are betting that the value of the underlying asset will remain stable or go up, while the issuer is betting that the price will fall. In the typical best case scenario, if the value of the underlying asset stays above the knock-in level or even rises, you can receive a high coupon for the life of the investment and the return of your full principal in cash. In the worst case, if the value of the underlying asset drops below the knock-in level, the issuer can pay back your principal in the form of the depreciated asset—which means you can wind up losing some, or even all, of your principal (offset only partially by the monthly or quarterly interest payments you received).

A reverse convertible might make sense for an investor who wants a higher stream of current income than is currently available from other bonds or bank products—and who is willing to give up any appreciation in the value of the underlying asset. But, in exchange for these higher yields, investors in these products take on significantly greater risks.

How Do Reverse Convertibles Work?

FINRA reminds us that the initial investment for most reverse convertibles is $1,000 per security, and most have maturity dates ranging from three months to one year. The interest or “coupon rate” on the note component of a reverse convertible is usually higher than the yield on a conventional debt instrument of the issuer—or of an issuer with a comparable debt rating. For example, some recently issued reverse convertibles have annualized coupon rates of up to 30 percent. A reverse convertible’s higher yield reflects the risk that, instead of a full return of principal at maturity, the investor could receive less than the full return of principal if the value of the unrelated reference asset falls below the knock-in level the issuer sets. For a reference asset that is a single stock, the knock-in level can be 20 percent or more below the original price.

Depending on how the underlying asset performs, you will receive either your principal back in cash or a predetermined number of shares of the underlying stock or asset (or cash equivalent), which amounts to less than your original investment (because the asset’s price has dropped). While each reverse convertible has its own terms and conditions, you will generally receive the full amount of your principal in cash if the price of the reference asset remains above the knock-in level throughout the life of the note. In some cases, you will also receive a full return of principal if the price of the reference asset ends above the knock-in level at maturity, even if it has fallen below it during the term of the investment—although in other cases, any breach of the knock-in level will result in your receiving less than the original principal. However, you typically will not participate in any appreciation in the value of the reference asset during the life of the note.

Reverse convertibles can have complex pay-out structures involving multiple variables that can make it difficult to accurately assess their risks, costs and potential benefits. For example, a hypothetical payoff structure of a reverse convertible with common stock as the reference asset could result in the following scenarios:

Scenario Stock Price Visual At maturity, the investor gets
1. The stock price never declines below the knock-in level, but ends below the original price. Reverse convertibles scenario 1 Full return of principal in cash (despite the decline in the stock price), plus any fixed coupon payments.
2. The stock price never declines below the knock-in level, and ends above the original price. Reverse convertibles scenario 2 Full return of principal in cash, plus any fixed coupon payments, but no participation in the increase in the stock price.
3. The stock price ends below the knock-in level. Reverse convertibles scenario 3 Predetermined number of shares of stock (or cash equivalent), worth less than the principal amount, plus any fixed coupon payments.
4. The stock price declines below the knock-in level, but ends between the original price and knock-in level. Reverse convertibles scenario 4 Predetermined number of shares of stock (or cash equivalent) worth less than the principal amount, plus any fixed coupon payments; or full return of principal in cash, plus any fixed coupon payments, depending on the issuer and product.
5. The stock price declines below the knock-in level, but ends above the original price. Reverse convertibles scenario 5 Full return of principal in cash, plus any fixed coupon payments, but no participation in the increase in the stock price.

 

According to FINRA, generally speaking, the higher the coupon rate the note pays, the higher the expected volatility of the reference asset. In turn, the more volatile the reference asset, the greater the likelihood that the knock-in level will be breached, and the investor could receive less than a full return of principal at maturity (as illustrated in cases three and four above).

The bottom line is that reverse convertibles come not only with the risks that fixed income products ordinarily carry—such as the risk of issuer default and inflation risk—but also with any additional risks of underlying asset. When the underlying asset is a stock, this means exposure to the business risks of the company as well as systemic equity market risks, including price volatility. If you are considering investing in reverse convertibles, it is critical that you look beyond the high coupon rate and focus on the risks of the underlying asset. Remember that even if the issuer of the reverse convertible is able to meet its obligations on the note—and even if the yield keeps pace with or surpasses inflation—you could wind up, when the note matures, with shares of a depreciated—or even worthless—asset that you otherwise would not have purchased.

Why Do Investors Buy Reverse Convertibles?

  • High coupon rate or “stated yield.” Reverse convertibles can offer coupons from 7 percent to 30 percent. Typically, however, a higher coupon rate indicates higher volatility in the underlying stock or asset. This translates into a greater likelihood that the knock-in level will be breached during the term of the reverse convertible and that investors will receive stock (or the current cash value of the asset) at maturity worth considerably less than the full return of principal in cash. As a general rule, the higher the offered yield, the greater the risk of losing all or a portion of the principal invested.
  • Expectation of flat markets. Investors who are betting that a stock price will be relatively flat may expect to do better with a reverse convertible than buying the stock itself. But remember, the coupon rates for reverse convertibles linked to relatively stable stocks may not be as high as for those linked to volatile stocks.
  • Convenience for some investors. Some investors may have a specific strategy in mind that a reverse convertible can replicate. For example, an investor may believe that a stock will only trade within a certain range. Instead of buying options or futures separately that together would allow the investor to profit from that bet, the investor can buy a reverse convertible.

 

What’s the Downside?

  • Exposure to asset-related risks. When you purchase a reverse convertible, you get all the risks that debt instruments ordinarily entail, plus the risks of the underlying asset. That is why it is so critical that you fully comprehend what is behind the higher coupons these products offer—and that you fully understand the product you are buying. Remember that purchasing a reverse convertible means you are either bullish on the underlying asset itself or you are betting that the asset’s volatility will be low for the term of the note.
  • Embedded options. When investing in a reverse convertible, you effectively buy a note from the issuer and sell a put option to the issuer simultaneously. If you don’t have the risk tolerance for selling put options generally, you should question whether you want to invest in a security that contains an embedded one. If you are considering reverse convertibles, be sure you fully understand the complexities of the product and have the financial means to bear the risks.
  • Fees. Issuers charge an up-front embedded fee to investors—typically ranging from less than 1 percent to 8 percent or more—for assembling and packaging a reverse convertible’s individual components. Prospectuses may call this fee “built-in costs” or “costs of hedging,” although the exact amount is not typically disclosed to the investor. Industry experts say that it is all but impossible for individual investors to determine the size of this embedded fee (and therefore whether the reverse convertible represents a good deal), because that would require dissecting the reverse convertible’s parts and determining what it would cost for the investor to obtain and assemble them.

 

Investor Tip—Be Sure to Adjust for Annualized Yields

FINRA reminds us that while yields on reverse convertibles are often described on an annualized basis, fees are often expressed only for the term of the note. It is important that you consider how these numbers are described—and, if necessary, do a little math so you can make an apples-to-apples comparison of yields and fees. For example, a sales brochure for a 3-month instrument might boast a yield of 10 percent per year and a fee of 1.5 percent. This is not as attractive as it may sound, because a 1.5 percent fee on a 3-month product amounts to a 6 percent fee on an annualized basis. As a result, your actual annualized coupon would be 4 percent—or 1 percent over the term of the investment. You get the same result if you compare the yield for the term (here, 3 months) with the fee for the term: a 10 percent per year coupon provides a return of roughly 2.5 percent over the 3-month term, and 2.5 percent minus 1.5 percent is 1 percent

  • Potential liquidity risk. As is the case with virtually all structured products, secondary trading for reverse convertibles will generally be limited—which means reverse convertibles can be highly illiquid. Even if the issuer of a reverse convertible states that it intends to maintain a secondary market, it is not required to do so. This means that you could have trouble selling reverse convertibles in a pinch and/or could lose money if you sell the reverse convertible prior to maturity. Finally, transaction costs in the secondary market for these products could be high.
  • Credit quality. A reverse convertible is an unsecured senior debt obligation of the issuer, meaning that the issuer is obligated to make the interest payments and final payments as promised. These promises, including any principal protection, are only as good as the financial health of the issuer that gives them and that issuer’s ability to meet its obligations when they come due. While it is not a common occurrence that an issuer of a reverse convertible is unable to meet its obligations, it can happen.

 

Credit Ratings—They May Not Mean What You Think They Mean

Credit ratings are a way of assessing default and credit risk—in other words, the creditworthiness of the issuer. While the note component of a reverse convertible carries the issuer’s credit rating, that rating does not reflect the risk that the price of the unrelated underlying asset will fall below the knock-in level, resulting in a loss of principal. A reverse convertible packaged by a highly rated issuer could be linked to a poorly rated company—or to a highly rated company whose stock performs poorly.

 

  • Tax considerations. The tax treatment of reverse convertibles is complicated and uncertain. Investors should consult with their tax advisors and read the tax risk disclosures in their prospectuses and other offering documents. Although these documents typically provide instructions on how investors should treat reverse convertibles on their tax returns, there is no guarantee that the IRS or a court would agree with that tax treatment. Little guidance in the way of court decisions or published IRS rulings has been issued on this topic. When considering the tax consequences of any investment, you may want to consult with a tax advisor.
  • Call risk. Some reverse convertibles have “call provisions” that allow the issuer, at its sole discretion, to redeem the investment before it matures. If this is the case, you would not receive any subsequent coupon payments that you were promised for the term of the reverse convertible, and you would immediately receive your principal in either cash or stock. Also, if a reverse convertible is called, it might be difficult or impossible to find an equivalent investment paying rates as high as the original rate (which is known as reinvestment risk). You should carefully read the prospectus to learn whether there is a call provision and what its specific terms are.
  • Loss of principal.While some other structured products may offer principal protection, reverse convertibles do not. Depending on whether the price of the underlying stock or asset breaches the knock-in level, you could lose some—or even all—of your principal. You may be told that, in a down market, you at least “walk away with something.” But don’t forget that the stock you receive in the case of a breach could, for example, be shares in a company that is about to declare bankruptcy—or that you don’t want to own or doesn’t make sense for your circumstances.
  • Conflicts of interest. An issuer may conduct activities that could represent conflicts of interest with respect to investors of its reverse convertibles. For example, the issuer might engage in regular business activities with the company whose stock is the underlying asset, such as investment banking, asset management or other advisory services and writing research reports about the company. An affiliate of the issuer, for example, might publish research reports that are unfavorable to the stock and could hurt the performance of a reverse convertible that is linked to that stock.

 

FINRA Tells Us How to Protect ourselves

  • Be wary of any advertisements or sales literature suggesting that reverse convertibles are safe and suitable for investors seeking high yields. These sales pitches may play up the high yield on the note and play down the risk of the derivative component.
  • If you are considering a reverse convertible, you face at least two risks—that the stock or other asset will go down in value, and that the issuer will be unable to repay its obligation on the note. Before taking on these risks, be sure to ask your broker plenty of questions, such as:
    • Can you review the prospectus, prospectus supplement or offering circular for the product with me? (The prospectus will contain a more extensive and balanced discussion of the risks involved. You should always carefully review the prospectus prior to making any investment decision.)
    • Given my investment objectives, is this product suitable for my account?
    • Do I get interest or other cash payments, and if so, how much and how often? What are the risks that I might not receive them?
    • What are the risks of the underlying asset? How volatile has this asset been recently? Be aware that while past performance can never guarantee future results, looking at historical price information (to the extent it is available) can help you assess the volatility of the underlying asset.
    • What is the likelihood that the reverse convertible breaches the knock-in-level, such that I might receive the underlying asset (or cash equivalent) instead of the return of my principal at maturity? If I end up owning the asset, how does that asset fit in with my investment objectives?
    • Is there an active market in this security if I need to sell it before its maturity? If so, what risk of loss might there be?
    • Can this product be called? If so, what will I receive?
    • Are there any other risks related to this product?
    • What are all the fees and expenses associated with this product?
    • How is the investment treated for tax purposes, and what are the effects on my taxes of any principal and interest payments?
  • Always remember:
    • Higher yields go hand-in-glove with greater risk. Reverse convertibles are complex, risky products that do not offer principal protection. They are not plain vanilla bond investments, and they are not right for every investor.
    • Consider whether you would independently invest in the underlying asset. Remember that you are effectively giving the issuer a put, allowing the issuer to return your principal in the form of the depreciated asset if the asset’s value goes down. If you are not comfortable with the concept of writing a put option—and if you would not independently want to purchase the underlying asset—then think twice about investing in a reverse convertible.
    • Read the prospectus, offering circular and sales literature very carefully. Reverse convertibles are complex financial instruments that vary from product to product.
    • Make sure you are comparing apples with apples when you are sizing up the fees and stated yields. If yields are described on an annualized basis, be sure to do the math to determine the actual amount of the fees on the same basis. When annualized, yields tend to sound higher.
    • Typically the stated yield that is advertised is the maximum return that you could achieve on the product in the best circumstances—not a guaranteed return or even a likely return. In particular, you might not achieve the stated yield if you end up receiving stock instead of cash. Be sure you understand what the advertised yields or returns really mean.
    • For the typical retail investor, it would be unwise to put a significant portion of life savings into riskier structured products such as reverse convertibles. These types of products are not for everyone. Make sure you stick with the bedrock principle of diversification.
    • If you do not fully understand the product, reconsider your decision to invest in it.

 This extremely valuable information comes to us from the FINRA website.

Have you or a family member become a victim of the sale of risky Reverse Convertible Notes or RCNs by your broker or brokerage?  If so call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

15

TiVo Reverse Convertible Notes

Comments off · Posted by admin in FINRA

Soreide Law Group, PLLC, is currently investigating the sale of TiVo reverse convertible notes (RCN).  The Wall Street Journal published an article in March, 2011, titled Complex Bond Faces Regulators’ Scrutiny; ‘Reverse Convertible Notes’ Can Tumble Along with Stock.   In the Wall Street Journal article it states that, “Securities regulators have broadened their probes into whether Wall Street sold a complex type of bond without fully disclosing the drawbacks to individual investors.”  According to the Wall Street Journal, the SEC is investigating whether Wall Street firms that developed the bonds allegedly failed to properly disclose the risks and fees to investors before they bought the notes. The SEC is also examining the disclosure of potential conflicts of interest, such as a bank selling a note linked to the stock of a company it is advising.  The Wall Street Journal reported that the SEC is investigating reverse convertible notes issued last year by J.P. Morgan Chase & Co. and Barclays PLC linked to TiVo, Inc.

The article also states that the total return on the TiVo notes was less than $600 per $1,000 invested. TiVo shares dropped after the company lost a court ruling in May, 2010, in a patent dispute.  The prospectuses for the RCNs contained disclosures on risk factors, but didn’t refer to the pending TiVo court ruling.

Reverse convertible notes or RCNs pay a fixed interest rate and guarantee the investor’s initial investment after a specified period, unless the linked stock falls below a certain point. If that should happen, the notes often pay back just a fraction of the original investment. RCNs typically have high commision fees and are considered by some money managers to be highly risky and even toxic assets.

Did you or a family member invest in TiVo Reverse Convertible Notes, or were you sold other risky RCNs by your broker or brokerage?  If so, call Soreide Law Group, PLLC, for a free consultation on how to recover your losses.  To speak with a Securities Arbitration Attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

15

Learn How to Recover Your Losses on Frozen Raymond James Auction Rate Securities

Comments off · Posted by admin in FINRA

When the auction rate securities mess was first brought to light, there was an article in the St. Petersburg Times in 2009, reporting that while institutions like Bank of America are placating regulators and investors by buying back the hard-to-trade securities from customers, Raymond James chief executive Tom James told clients in a letter that the company doesn’t have access to financing to cover “anything near” the $1-billion outstanding owned by its clients.

Even if he could buy back the securities, James said, regulators would not give his company credit for the securities because they are illiquid. James also wrote that some large banks that have pledged to buy back securities “perhaps even with funds provided by the federal government for other purposes,” but have not yet repurchased everything.

The market for auction rate securities, which had been sold by nearly every large firm on Wall Street as a cash equivalent, seized up in February 2008, precipitating the stock market crash that September.

ARS or auction-rate securities, are long-term debt instrument designed to trade like short-term securities. They were issued by many municipalities and closed-end mutual funds, and often pitched to small investors as safe and easily redeemable. In early 2008, as the credit crunch intensified, the $300-billion auction-rate market froze, leaving investors unable to sell their holdings. When the market for the securities froze, Raymond James Financial’s clients held $1.9 billion in auction rate debt.

In a lengthy letter to clients in 2009, filed with the Securities and Exchange Commission, James alluded to other underwriters that allegedly knew that auctions were failing, had suppressed research reports or employed executives who liquidated their own positions while still selling to clients. “To the best of my knowledge, we didn’t participate in those types of acts,” James wrote.

Also in his letter, James said he couldn’t remember a significant number of failed auctions in auction-rate securities for almost 20 years. James said he understood clients could conduct business with whomever they wish. But he urged patience and understanding, noting that he personally still owns a large number of auction-rate securities.

In some of the more recently settled auction-rate cases, claimants allegethat their brokers recommended, and then invested their money in, an auction rate securities when they opened their account with Raymond James & Associates in or around January 2008.

The claimants also alleged that the broker’s “actions and conduct created the false impression that there were deep pools of liquidity in the auction market,” according to the arbitration award.

In one instance, the key to the investors’ $925,000 recent award, was the timing of the purchase which was reported in InvestmentNews.com. Thirty-five days after the couple made the purchase, their securities came up for auction for the first time. The auction failed, he said, and the clients never had the chance to go to auction.

If you feel you have a claim against Raymond James Financial, Inc., for selling you Auction Rate Securities (ARS) and would like to potentially recover your losses, contact  a lawyer for a free consultation at Soreide Law Group, PLLC, at:  www.stockmarketlawsuit.com or call (888) 760-6552.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

14

Raymond James Could Pay Up to $50M due to Distressed ARS

Comments off · Posted by admin in FINRA

Because of distressed auction-rate securities (ARS), Raymond James Financial Inc., could face a loss of $25 million to $50 million, if it has to buy them back  from their clients.

In a May 10, 2011, article from InvestmentNews.com, Bruce Kelly writes that  the Securities and Exchange Commission (SEC), the New York attorney general’s office, and the Florida Office of Financial Regulation have been investigating the firm, which has had negotiations with the regulators to resolve the matter.

“Were we to repurchase that ARS portfolio, the fair value could be less than the par value of such securities by an amount ranging from $25 million to $50 million,” the company said in a filing with the SEC. “This estimate does not include any ARS held by our clients who transferred to another broker-dealer.”

Kelly writes that Raymond James clients held about $370 million in auction-rate securities, at the end of March. The distressed market for the securities, which many brokerage firms sold, touting their liquidity, was one of the first major signs of the credit crisis that eventually shook Wall Street and the economy in 2008 and 2009.

The large investment banks that underwrote the frozen securities quickly entered into settlements with regulators to buy back the securities from retail clients. Raymond James sold the product but was not an underwriter.

“We believe we have meritorious defenses, and therefore, any action by a regulatory authority to compel us to repurchase the outstanding ARS held by our clients would likely be vigorously contested by us,” the firm said

It was reported that Raymond James has more than 5,000 registered reps and advisers in employee and independent sales channels.

If you feel you have a claim against Raymond James Financial, Inc., for selling you Auction Rate Securities and would like to potentially recover your losses, contact  a lawyer for a free consultation at Soreide Law Group, PLLC, at:  www.stockmarketlawsuit.comor call (888) 760-6552.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

14

Did you Purchase “Reverse Convertible Notes?”

Comments off · Posted by admin in FINRA

Reverse convertibles notes (RCNs), sometimes referred to as “reverse convertibles,” “reverse converts,” “knock-in notes,” or “revcons,” are short-term, unsecured bonds that are issued by banks and financial institutions. These notes are often linked to the performance of a well-known stock and may pay double-digit yields. Once the notes mature, investors should get their full principal investment back. However, if the value of the underlying stock falls to a certain point, sometimes referred to as the “knock-in” or “barrier” level, investors get shares of the devalued stock in lieu of their full principal investment.

The more the price goes down, the more money the issuer can make. They will “swap” your note at some point, for shares of stock, worth far less than the principal value of the note. That is why the interest rate you receive, at times as much as 18%, is the enticement to get you to buy the notes.  There may be some unscrupulous brokers who really want you to buy their reverse convertible notes because they allegedly believe the underlying stock will go down. The brokers should almost never consider individuals who wish to take below average, average or even above average risks with their investment dollars for RCNs. They should never be considered appropriate for retirees or other income oriented investors. Don’t let the high yields entice you.

It has been reported that some brokerage firms may have been allegedly charging fees on reverse convertible notes that equal or exceed the securities’ highest possible yield.  There are also many undisclosed costs, making it very difficult for the typical individual retail investor to determine whether the reverse convertible represents a good investment. The Financial Industry Regulatory Authority or FINRA, has recently made sales of reverse convertibles one of its priorities for the examination and enforcement divisions.

Have you or a family member been a victim of the sale of risky Reverse Convertible Notes or RCNs by your broker or brokerage?  If so call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

10

Did you Invest in Argus Preferred Notes, LLC?

Comments off · Posted by admin in FINRA

Argus Preferred Notes, LLC, are unsecured notes. Argus was a start up company that began with less than $100k in assets and had no real track record. The guarantor of the Argus note, ARI Capital, also was a start up and had no reported investment track record. Argus was a highly speculative start up that was pitched as safe and secure to its investors which later became defunct in 2009.  The Argus note was pitched as backed by real property, guaranteed and secured and was allegedly falsely listed on some brokerage account statements as a short term bond.
 At their own admission under the “Risk Factors” in their Argus Preferred Notes, LLC, Private Placement Memorandum, was the following:
“An investment in the notes is highly speculative and involves substantial risks. Notes should not be purchased by persons who cannot afford the loss of their entire investment. You should carefully consider the risks described below, as well as the other information in this memorandum, when evaluating whether to make an investment in the notes. You should also consult with your own legal, tax and financial advisors about an investment in the notes. If any of the following risks actually occur, our business, financial condition and results of operation could be materially and adversely affected. In such case you could lose all or part of your investment.  

You and your advisors are invited to ask us questions and to request information about the terms and conditions of this offering for the purpose of evaluating the merits and risks of an investment in the notes. We will provide such information to the extent we possess the information or can acquire it without unreasonable effort or expense. This memorandum contains certain forward-looking statements that involve risks and uncertainties. ” 

Also, words used in their own memorandum to describe their own product were:  “New Venture, Speculative Investment, and Highly Leveraged.”

 
If you feel you were not made aware of some of the “fine print” by your brokerage or broker, and were an investor in Argus Preferred Notes, LLC, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

May/11

10

The Z Seven Fund ( ZSEVX ) , is down 73.2%

Comments off · Posted by admin in FINRA

Soreide Law Group would like to know if your stock broker or financial advisor recommend to you the this year’s worst-performing fund? According to Smart Money, the Z-Seven Fund decided to liquidate the fund as of December 29.
The Z Seven fund’s stock-picking system was designed to incorporate the lessons learned in the 1973-74 bear market, and the international stock fund did outperform a world stock index during the downturn in late 2008 and early 2009, but it fell behind in the recovery. If you put $10,000 in this fund at the beginning of this year would have lost more than $7,000 in the last 12 months.
So, you ask, what went wrong? Smart Money says that with just 14 stocks in its portfolio at the end of the third quarter, the fund may have suffered from bad timing – some of its top holdings, including British investment management company Rathbone Brothers PLC, PetMed Express, and British consulting firm RPS Group suffered steep losses in the spring and summer. While shares of those companies have since recovered, this fund’s shareholders never did.

If you were an investor in the Z-Seven Fund (ZSEVX), call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Older posts >>

Find it!

Theme Design by devolux.nh2.me
To top