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February 26, 2010

Court Reinstates Texas Securities Arbitration Award

Claimant Leonard Claus was awarded $25,000 by a National Association of Securities Dealers' arbitration panel for his Texas securities arbitration claim. Claus had made a verbal agreement with Jerry Short, who worked for Institutional Capital Management Inc. over the sale and purchase of bonds.

Clause, who bought the bonds, was planning to sell them to Sterling Financial Investment Group Inc. The resale plan didn’t work out, and he sold them to another buyer at cost.

Clause then sued ICM and Sterling for breach of contract, violations of federal and state securities laws, and negligence.

In addition to the $25,000 compensatory damages award, NASD charged Clause $22,000 in arbitration fees. They awarded his lawyer $70,000 in legal fees.

ICM and Sterling asked that the Texas securities fraud award be vacated by the district court. A magistrate judge vacated, claiming that the NASD panel went beyond its authority when it violated Texas law and directly issued an award to Clause’s lawyer.

Clause and IMS appealed, claiming that the judge made a mistake when vacating the entire award on the basis of the awarded attorney’s fee. Meantime, Sterling and ICM contended that the attorney’s fee violated Texas law and that it conflicted with the contingency fee arrangement between clause and his attorney, which the NASD panel is not allowed to override. ICM and Sterling said the legal fee award was unreasonable.

Court of Appeals ruled that even though Texas statute must directly authorize any fee awards, the party that is told to pay the fee cannot challenge the payment’s propriety. The court called the award error harmless and “immaterial to the party” that is ordered to pay it. The court also noted that ICM/Sterling did not challenge the evidence that supported the fee award.

Related Web Resources:
Institutional Capital Management Inc. v. Claus

National Association Of Securities Dealers - NASD

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Posted In: Arbitration , NASD Enforcement , Texas Securities Fraud

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February 23, 2010

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses

A Financial Industry Regulatory Authority panel has ordered Morgan Keegan & Co. to pay investor Andrew Stein $2.5 million because the bond funds that he invested in had bet poorly on mortgage-related holdings. Panel members found Morgan Keegan liable for failure to supervise, negligence, and for selling investments that were unsuitable for Stein and his companies. The claimants, who sustained financial losses, had initially sought $12 million.

Stein’s arbitration claim is just one of over 400 securities claims that have been filed against Morgan Keegan over its bond funds that had invested in subprime-related securities, such as CDO’s (collateralized debt obligations). When the US housing market collapsed, the funds went down in value by up to 82%.

Stein contends that Morgan Keegan did not reveal the kinds of risks involved in investing in the bond funds. He and his companies claim that Morgan Keegan artificially increased the fund assets’ value so that the funds would appear more stable and investors wouldn’t be able to see the actual risks involved.

At least 80 of the securities cases have been heard, and claimants have so far been awarded $10.1 million. Morgan Keegan says that while it has settled a number of securities claims over the bond funds, claimants have dropped 114 other cases.

Stein and his two companies are pursuing a securities claim against Regions Financial and Morgan Asset Management, Inc. They are claiming fraudulent pricing and valuation of funds.

Our securities fraud law firm represents clients that sustained financial losses as a result of investing in Morgan Keegan bond funds. Please contact us for your free case evaluation.

Related Web Resources:
Morgan Keegan Must Pay Investor, Wall Street Journal, February 22, 2010

FINRA

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Posted In: Arbitration , Bond Funds , FINRA , Financial Firms , Morgan Keegan , Regions Financial Corporation , Securities Fraud

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January 13, 2010

Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis

According to FINRA dispute resolution president Linda Fienberg, the market turmoil of the last two years has led to an increase in the number of arbitration cases filed, as well as a change in the the kinds of claims that are submitted. Fienberg made her statements before the DC bar.

7,134 arbitration files were submitted last year—a definite increase from the 4,982 arbitration cases filed the year before and the 3,238 arbitration cases submitted in 2007. Fienberg said that the number of cases filed goes up when stock prices go down. For example, when the dotcom bubble burst, nearly 9,000 arbitration claims were submitted in 2003.

Fienberg told the group that in the wake of the auction-rate securities crisis, more large corporations filed claims over frozen assets last year. The last two years also saw an increase in claims over mutual funds, making this type of fund the most common security cited in arbitration cases.

Fienberg also reported that more claimants are prevailing—48% in 2009— compared to 42% in 2008 and that cases are being resolved in a shorter period of time—within 14 months last year compared to more than 15.5 months during each of the two years prior.

Commenting on Fienberg’s statements, Shepherd Smith Edwards and Kantas founder and stockbroker fraud lawyer Bill Shepherd said, “Securities class action claims are down because the law and the justice system has decimated them. All securities class actions can only be filed under federal (not state) securities laws, which are very unfriendly to investors. Judges that were recently appointed to the federal bench (at all levels) are pro-business and anti-lawsuit. Thus, if possible the majority of securities class action claims must be settled early or they risk dismissal before any money is recovered. This means that the attorney filing these cases loses their own money.”

“For these and other reasons,” Shepherd went on to say, “the average recovery in securities class action claims has fallen to less than seven cents per dollar lost. Put another way, crime does pay when that crime is securities fraud. Also, the largest securities class action firm was recently closed and several principals were put in jail (not uncommon for an enemy of Wall Street). Other firms have ceased filing such cases. One again, Wall Street wins and investors lose. This will only change when ordinary people realize that lawsuits are their only hope of leveling the playing field.”

Related Web Resources:
Crisis Caused Spike, Different Trends In Arbitration Cases, FINRA Official Says, BNA, January 11, 2010

Financial Industry Regulatory Authority

Linda Fienberg, FINRA

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January 7, 2010

SunTrust Robinson Humphrey Ordered to Pay $4.1 Million to Former Institutional Salesperson for Alleged Defamation and Wrongful Termination

A FINRA arbitration panel is ordering SunTrust Robinson Humphrey, Inc. to pay $4.1 million to a former institutional salesperson who claims he was defamed in a regulatory filing and wrongfully terminated. SunTrust Robinson Humphrey is the corporate and investment bank services unit of SunTrust Banks, Inc.

Lance B. Beck, who worked for the company 19 years and sold debt securities, claims he was slated to gross more than $3 million when, following the auction-rate securities market collapse, he was let go. According to a regulatory filing for the former institutional salesman, his case against his former employer involves a $2.9 million ARS transaction with a institutional customer. SunTrust later decided to repurchase the securities.

Beck is accusing SunTrust of making disclosures on his Form U5 that were “devastating,” and prevented him from getting hired by other companies or take his book of business with him. Beck wanted certain language in the form, which brokerage firms have to submit to regulators when a broker leaves the company, expunged.

A FINRA panel has recommended expungement. It noted that a review of Beck’s firing showed that the brokerage firm’s allegations against him were false and “intended to defame” so that another brokerage firm wouldn't want to hire him and prevented him from taking his clients with him.

Beck was awarded $1.2 in compensatory damages, $419,000 in lawyer’s fees, and $2.5 million in punitive damages.

“Recovery for statements made in regulatory filings are very difficult to obtain,” says Shepherd Smith Edwards and Kantas LLP founder and securities fraud attorney William Shepherd, who has represented a number of licensed securities persons. “No attorney should attempt to represent securities persons without a full understanding of the law and background concerning such claims, as well as the experience to handle these claims in securities arbitration.” Shepherd was himself licensed in securities and served as a vice president at several major Wall Street firms for 20 years. He also obtained a Masters Degree in Securities Regulation (LLM) from Georgetown Law School and has been a securities attorney for more than 20 years.

Related Web Resources:
SunTrust Robinson Humphrey to pay $4.1 mln in defamation case, Marketwatch, January 4, 2010

FINRA

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Posted In: Arbitration , FINRA , Financial Firms , SunTrust Investment Services Inc.

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December 9, 2009

UBS Loses Lehman Arbitration Note Claim by Small Investor

In an arbitration case that could affect numerous cases that are still pending, a Financial Industry Regulation Authority panel awarded a small investor $200,000 after finding that a UBS Financial Services broker acted inappropriately when he sold high-risk Lehman Brothers Holdings Inc. principal-protected notes to the claimant.

The case involving Lehman notes is one of the first to be decided by a FINRA panel. While the ruling won't establish a precedent, it could be an indication of how similar rulings may go in the future. “There are many cases pending against UBS and other firms that sold Lehman notes shortly before Lehman failed,” said stockbroker fraud attorney William Shepherd, whose firm, securities fraud firm Shepherd Smith Edwards and Kantas, LLP, is handling a number of such cases. “These cases often involve misrepresentations and omissions as well as unsuitability, since the investments were sold to clients who sought safety and income,” he added.

The claimant filed the arbitration claim accusing UBS of recommending structured products that are not suitable for “unsophisticated investors.” The broker purchased for the client a $75,000 return optimization note and a $225,000 guaranteed principal protection note. The FINRA panel determined that the claimant should be compensated for the principal protected note, in addition to legal fees and interest.

Although the amount awarded is less than what the investor hoped to recover, a UBS spokesman said the securities firm was disappointed that the claimant was awarded any damages and maintains the investor’s financial losses were a result of the collapse of Lehman Brothers.

Investor Wins Lehman Note Arbitration, Wall Street Journal, December 5, 2009

FINRA awards US investor in Lehman notes $200,000, Reuters, December 5, 2009

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Posted In: Arbitration , Financial Firms , Lehman Brothers , UBS

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October 27, 2009

Morgan Keegan Again Ordered by Arbitrators to Pay Bond Fund Losses to Investors

Morgan Keegan & Co. has been ordered to pay $51,000 to Larry and Diane Papasan. Larry Papasan is Memphis Light, Gas and Water Division’s former president.

The Papasans filed their arbitration claim against Morgan Keegan last year after they lost about $80,000 in the account they had with the investment firm. The Papasans’ claim is one of many arbitration cases and securities fraud lawsuits filed by Morgan Keegan investors who sustained RMK fund losses. The general accusation is that the broker-dealer misrepresented the volatility of the bond funds, which they allegedly were not managing conservatively.

Larry Papasan, who is retired, opened his account because he knew John Wilfong, a former Morgan Keegan financial adviser. Wilfong felt so confident about the bond funds that he even sold them to his mother, Joyce Wilfong, who also went on to suffer financial losses from her investment. Her friend Maxine Street also suffered bond fund losses.

The two women filed a joint arbitration claim against Morgan Keegan. Joyce was awarded $68,000, while Street settled for an undisclosed sum.

According to the Papasans, John Wilfong spoke with Jim Kelsoe, the RMK funds’ manager, prior to leaving Morgan Keegan for UBS. Kelsoe allegedly told Wilfong not to liquidate because the funds were safe. The Morgan Keegan fund manager is named in other cases for allegedly failing to disclose the risks associated with the mutual fund investments.

Related Web Resources:
Latest RMK Award Goes to Ex- MLGW Head, Memphis Daily News, October 27, 2009

Two Morgan Keegan Funds Crash and Burn, Kiplinger, December 2007

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Posted In: Arbitration , Bond Dealers , Financial Firms , Morgan Keegan , Mutual Funds , Securities Fraud

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September 14, 2009

Morgan Keegan Hit with Large Penalty for Fouling Ex-NBA Star

Following a dispute that was resolved in arbitration, broker-dealer Morgan Keegan & Co. must pay former NBA player Horace Grant $1.46 million. The amount is the largest arbitration loss for Morgan Keegan to date. Morgan Keegan is the securities brokerage firm of Regions Financial Corp.

The award, issued by the Financial Industry Regulatory Authority, is for damages that Grant incurred because he invested in Morgan Keegan’s risky mutual funds that were involved in collateralized debt obligations connected to residential mortgages. Grant had originally sought $1.5 million for the damages he sustained.

There are still several hundred investment fraud lawsuits pending against the brokerage firm over mutual funds involving subprime mortgages that declined because the US housing market fell apart and loans defaulted. Up to 95% of the funds’ value has dissolved since the middle of 2007.

Green used to play for the Chicago Bull, the Los Angeles Lakers, the Seattle Supersonics, and the Orlando Magic. In his arbitration case, the former NBA basketball player contended that Morgan Keegan misrepresented the level of risk that came with the bond funds that he purchased.

Already, Morgan Keegan has lost a number of cases in 2009. Seven of the cases have cost the broker-dealer $3 million. Other professional athletes who have filed lawsuits against Morgan Keegan for losses that they say they sustained from the bond funds are Jerome Woods, formerly of the Kansas City Chiefs, and former St. Louis Cardinals baseball player Tim McCarver. Woods won $950,000 against the brokerage firm while McCarver resolved his claim for $100,000.

Our stockbroker fraud law firm represents numerous investors who have sued Morgan Keegan for misrepresenting risky investments as safer kinds of investments.

Related Web Resources:
Ex-NBA star wins $1.45M arbitration claim against Morgan Keegan, Investment News, September 14, 2009

Morgan Keegan ordered to pay former NBA star $1.4M, Memphis Business Journal, September 14, 2009

NFL retiree gets $950,000 for Morgan Keegan mutual fund losses, Commercial Appeal, April 14, 2009

McCarver Awarded $100K in Morgan Keegan Claim, Memphis Daily, February 26, 2009

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Posted In: Arbitration , Collateral Debt Obligation , Financial Firms , Morgan Keegan

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August 27, 2009

Monex Deposit Company Cannot Compel Investors to Resolve Consumer Investment Dispute in Arbitration, Says Appeals Court

Yesterday, the California Court of Appeals reversed a trial court's ruling that the plaintiffs who had filed an investment fraud lawsuit against Monex Deposit Company had to go through arbitration instead because of the mandatory arbitration provisions that were included in the investors’ contracts. Per Monex's arbitration provisions, three arbitrators from JAMS were to participate in the proceedings. Also, the provisions prohibit the joinder or consolidation of claims.

While the trial court sided with Monex’s motion to compel arbitration, the appeals court said that the provisions were unconscionable and therefore could not be enforced. It found that the court—not the arbitrator—should decide whether arbitration provisions are enforceable. The court said that Monex’s arbitration provisions failed to “clearly and unmistakably” reserve to the arbitration panel the matter of whether the provisions are enforceable. It also noted that because arbitrators charge healthy fees for their services, there exists a conflict of interest whenever they are asked to make a decision about arbitrability.

The California appeals court called Monex’s arbitration provisions substantively and procedurally unconscionable—especially considering that calling for a panel of three JAM arbitrators would cost $9,600/day, with each party sharing in the cost.

Because Monex contracts don’t allow for joinder or consolidation of claims (a prohibition that the court says the company doesn’t justify or explain), each plaintiff would have to take part in a separate arbitration and pay at least $20,800 in fees for a four-day session. The court speculated that such restrictions and financial consequences may be intended to discourage customers from exercising their rights.

The court says that since Monex’s entire arbitration clause is now void, the plaintiffs can pursue their claims in court.

The enforceability of mandatory arbitration clauses in consumer contracts is an issue that’s been generating a lot of attention lately. In July, the Minnesota Attorney General settled its lawsuit against the National Arbitration Forum. The complaint accused NAF of being a little too friendly with the credit card industry even though it oversaw numerous credit card disputes as a supposedly “neutral” party. To settle the allegations, NAF said it would stop handling consumer credit arbitrations by July 24. A couple of days later, the American Arbitration Association says it was following suit until new guidelines are set up.

Shepherd Smith Edwards and Kantas, LLP would like to offer you a free consultation to discuss your investment fraud case. Contact our securities fraud law firm today.

Related Web Resources:
Monex Deposit Co.
California Court of Appeals

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July 16, 2009

Stockbroker Fraud Law Firm Shepherd Smith Edwards and Kantas, LLP Files Claims Against Morgan Keegan Following SEC Wells Notice

Last week, the Staff of the Atlanta Regional Office of the US Securities and Exchange Commission sent Morgan Keegan & Co, Inc., Morgan Asset Management, Inc., and three employees a “Wells” notice. The notice stated the Staff’s intention to recommend that the Commission bring enforcement actions over possible federal securities laws violations. Morgan Keegan, is a subsidiary of Regions Financial Corporation.

The Staff had been investigating a number of mutual funds that Morgan Asset Management had previously managed. In light of the Wells notice, the securities fraud law firm of Shepherd Smith Edwards and Kantas, LLP is continuing to file arbitration claims against Morgan Keegan for covering up the risks associated with their bond funds.

Our investor clients are accusing Morgan Keegan of selling specific funds that it promoted as relatively conservative investments when in fact, the funds were exposed to subprime mortgage securities, collateral debt obligations, and other high risk debt instruments. Investors are alleging that Morgan Keegan took part in a scam that defrauded investors of certain bond funds while misrepresenting their degree of involvement in more high risk investments. As a result, our investor clients suffered major financial losses after the subprime mortgage market collapsed.

The Allegations Against Morgan Keegan Name a Number of RMK Funds, including:

• RMK Multi-Sector High Income Fund
• RMK Select High Income Fund
• RMK High Income Fund
• RMK Select Intermediate Bond Fund
• RMK Advantage Income Fund
• RMK Strategic Income Fund

**A Wells notice is not a formal charge or official finding of wrongdoing. It gives the recipients a chance to offer their accounts about the issues raised by the notice before the Commission takes any formal action.

Our securities fraud law firm is comprised of a team of experienced stockbroker fraud attorneys, consultants, and others. Over the years, we ‘ve taken our more than 100 years of combined experience in securities law and the securities industry to help thousands of investors recoup their losses.

Shepherd Smith Edwards and Kantas, LLP successfully represents clients in matters of arbitration, mediation, negotiation, and litigation. Our investor fraud cases have been heard in state and federal courts, as well as in arbitration before the Financial Industry Regulatory Authority, the American Arbitration Association, and the New York Stock Exchange.

Related Web Resources:
SEC could take action against Morgan Keegan, Bizjournals.com, July 15, 2009

Morgan Keegan Target For Possible SEC Suit, Memphis Daily News

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Posted In: Arbitration , Broker Fraud , Financial Firms , Morgan Keegan , Regions Financial Corporation

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July 14, 2009

FINRA Says Number of Stockbroker Fraud Arbitration Claims by Plaintiffs is Rising

According to the Financial Industry Regulatory Authority, the amount of investor fraud claims alleging securities fraud and other violations has grown. From January to May 2009, investors filed 3,163 stockbroker fraud claims—an 85% increase from the 1,711 stockbroker fraud arbitration claims that were filed for the same period in 2008.

More investors have filed arbitration complaints since the demise of the sub-prime mortgage market in 2007. About 7,000 investment fraud claims are expected to be filed in 2009—compare this figure to the 4,982 arbitration claims in 2007 and the 2,238 securities fraud arbitration claims in 2007. In 1,718 of the arbitration cases filed through May 2009, breach of fiduciary was the most common complaint.

Also, more investors with arbitration claims are emerging victorious. This may be in part due to new rules by the Securities and Exchange Commission that limits a defendant’s ability to file a dismissal motion. For the first five months of this year, arbitration panels issued rulings in favor of investors in 47% of arbitration claims—compared to 42% of the time during the same time period in 2008.

However, Shepherd Smith Edwards and Kantas, LLP founder and Stockbroker Fraud Attorney William Shepherd says, “Considering there are about 60 million investors in the U.S., it is actually surprising that so few seek recovery. Approximately 1 in 10,000 investors file claims, but I believe at least 1 in 1,000 investors is cheated. Thus, 90% of valid claims are never filed. Claims involving money lost gambling in the market or over honest but bad advice do not succeed. Valid claims include those for fraud, misrepresentation, unsuitable investments, failure to disclose risks, or even for negligence.”

Related Web Resources:
Investor Arbitration Claims Sharply Up, Law.com

FINRA

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May 14, 2009

Fisher Investments Hit with $1.2 Million Arbitration Claim by Senior Investors Alleging Breach of Fiduciary Duty

A senior couple has filed a $1.2 million arbitration claim against Fisher Investments for allegedly neglecting to fulfill its fiduciary duty to them. According to Georgia residents Michelle and Brent Murphy, the investment advisory firm invested too much of their $2.5 million portfolio into stocks last year—nearly 100% in equities—even when it knew the market was failing.

Fisher Investments started handling the couple’s investments in 2007. The Murphy’s securities arbitration lawyer says that Fisher Investments neglected to properly diversify his clients’ portfolio, which should have been done considering that the two of them are retired and need fixed-income investments. He says that he will be filing more claims against Fisher Investments.

Responding to the claim, Fisher Investments chief executive Ken Fisher called it “nonsense,” says his firm acted appropriately, and he vowed to teach the couple’s attorney an unforgettable lesson.

Fisher Investments is one of the biggest US investment advisory firms. It has 37,648 accounts and $28 billion in client assets.

When hearing about Fisher’s response to the Murphys' arbitration claim, Shepherd Smith Edwards and Kantas, LLP founder and securities fraud lawyer William Shepherd responded, “The attitude of a claim as 'nonsense' is typical for financial firms. Sadly, regulators reinforce this attitude with inaction and occasional slaps on the wrist. The only route to justice for investors is to hire an experienced securities law firm and file an arbitration claim. Our firm has represented thousands of investors nationwide in arbitration including against the most powerful financial firms. It will be my pleasure to teach Mr. Fisher a lesson he will not forget!”

Related Web Resources:
Couple slaps a feisty Ken Fisher with $1.2M arbitration claim, Investment News, May 12, 2009

Senior Investment Fraud News & Alerts, North American Securities Administrators Association

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Posted In: Arbitration , Financial Firms , Senior Investors

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May 5, 2009

Customer Who Filed Motion to Vacate Arbitration Award is Ordered to Pay Sanctions for Frivolous Arguments

An Illinois federal court has ruled in line with the Seventh Circuit and says it will impose sanctions on a party that tried to get an arbitration award vacated because he only put forth frivolous arguments. The case is Halim v. Great Gatsby's Auction Gallery, Inc.

Cameel A. Halim purchased items via an auction that Great Gatsby's Auction Gallery had put together. Halim eventually sued the gallery. He claims that the items he bought were not as they had been described in the catalog. Per their agreement, the parties went into arbitration.

The arbitrator had told the parties to cooperate in good faith when discovery disputes were first brought before him. The arbitrator would go on to refer the parties to the earlier order as the disputes ensued.

The arbitrator denied the claims made by Halim, who then tried to get the award vacated. Gatsby responded by filing a confirmation motion and a motion for sanctions because it contended that Halim’s motion was frivolous and therefore violated the Federal Rules of Civil Procedure’s Rule 11.

Halim presented two arguments for his motion. He said the arbitrator acted in manifest disregard of the law by (1) not resolving a discovery dispute when he told the parties to turn back to the earlier order and (2) by not issuing a reasoned award. The court said these arguments were frivolous.

The court also imposed sanctions on Halim after determining that there was no evidence to support his contentions. Halim has been ordered to reimburse Gatbsy’s legal fees from when it had to move for sanctions and oppose the motion to vacate.

Congress is currently considering a bill to prevent companies from forcing arbitration of consumer disputes by using arbitration agreements contained in contracts. However, Wall Street's influence will likely cause securities arbitration to be exempted from the bill.

The best way to ensure a successful outcome when you are involved in a case that is being disputed through securities arbitration is to retain the services of Shepherd Smith Edwards and Kantas, LLP. We have helped thousands of investors recover losses resulting from improper sales transactions.

Related Web Resources:
Read the Memorandum Opinion filed on February 15, 2007 (PDF)

Great Gatsby's Auction Gallery, Inc.

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April 17, 2009

Magistrate Judge Tells Texas Court that Citigroup Global Markets Holding Inc. Should Not Be Denied Arbitration Award for Unpaid Promissory Note

The US District Court for the Western District of Texas should confirm an arbitration award for brokerage firm Citigroup Global Markets Holding Inc. against a former employee who failed to pay his promissory note—so says magistrate judge Nancy Stein Nowak.

Nowak argued before the Texas court that even if “equitable reasons” exist for why stockbroker Ernest Elam shouldn’t pay the brokerage firm the money he owes for the note, the arbitrator's decision must still be upheld because the former Citigroup broker failed to provide a reason for why he shouldn't pay that falls under the Federal Arbitration Act.

Last July, the arbitration panel found in favor of Smith Barney and Elam was told to pay the investment firm $193,484.28, $15,768.70 in legal fees, and 5% interest per annum for any balance that is not paid. In turn, Elam asked for the award to be vacated because he claims that:

• The promissory note was a forgivable lone.
• He was misled about repayment requirements.
• Smith Barney sought repayment because the broker’s departure caused the branch manager’s end of the year bonus to go down.
• Smith Barney benefits financially from commissions through Elam’s previous clients.

According to Nowak, Citigroup Global Markets Holdings Inc. and Citigroup Global Markets Inc. (as Smith Barney) had asked for confirmation of the award against Elam for the 2004 note he defaulted on in the original principal amount of $270,878. The magistrate judge says that according to the FAA, an arbitration award can only be vacated if:

• The award was obtained through fraud, corruption, or undue measures.
• The arbitrators were at least partially corrupt or engaged in misconduct or went beyond the scope of their powers.

Therefore, Novak contends that the district court cannot vacate the award and should grant Smith Barney’s motion.

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Posted In: Arbitration , Citigroup , Financial Firms , Texas Securities Fraud

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April 7, 2009

Morgan Keegan Ordered by FINRA to Pay Investors $267,711 Plus Interest for Losses in RMK Bond Funds

Separate Financial Industry Regulatory Authority arbitration panels have issued awards to investors who suffered financial losses in Regions Morgan Keegan mutual funds. Last week, a FINRA panel awarded two California residents $267,711 plus interest for their losses—the largest bund fund arbitration award that Morgan Keegan has been ordered to pay to date.

In two arbitration cases last month, investors were also awarded six-figure sums, with one award amount larger than the damages claimed by investors. To date, FINRA panels have awarded over $871,000 to investors for their Morgan Keegan-related claims.

All of the arbitration claims accuse Morgan Keegan of concealing the actual risks associated with their bond funds. The investors have accused Morgan Keegan of selling certain funds as relatively conservative investments when they were actually exposed to a number of high risk debt instruments, including collateral debt obligations and subprime mortgage securities. They say Morgan Keegan engaged in a scheme to defraud investors of certain bond funds and misrepresented the extent of their holdings in riskier investments.

Morgan Keegan investors sustained substantial financial losses after the subprime mortgage market declined. RMK funds named in the allegations against Morgan Keegan, include:

RMK Select Intermediate Bond Fund
RMK Strategic Income Fund
RMK Advantage Income Fund
RMK High Income Fund
RMK Select High Income Fund
RMK Multi-Sector High Income Fund

Stockbroker fraud law firm Shepherd Smith Edwards and Kantas LLP is investigating claims by investors who say they sustained financial losses with Morgan Keegan, and our securities fraud attorneys are filing investment fraud claims on their behalf.

Morgan Keegan must pay investor $267,000, regulator says, Birmingham News, April 2, 2009

Arbitration and Mediation, FINRA

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February 27, 2009

Morgan Stanley Court Case Demonstrates Why Securities Arbitration is Often a Better Forum

Many lawyers and investors complain about securities arbitration. According to Shepherd Smith Edwards and Kantas, LLP Founder and Stockbroker Fraud Attorney William Shephard, however, the following Morgan Stanley case is “one of many cases filed in court which would have likely not been dismissed in securities arbitration.”

Earlier this month, the U.S. District Court for the Southern District of New York tossed out a securities class action lawsuit filed against Morgan Stanley, Morgan Stanley DW Inc. (MSDWI), Morgan Stanley & Co. Inc. (MS&Co.), the Technology Fund, the Information Fund, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Advisors Inc. (MSIA), and Morgan Stanley Distributors Inc. The class action case is on behalf of investors in the Morgan Stanley Information Fund and Morgan Stanley Technology Fund over alleged improprieties in initial public offering shares allocations, as well as alleged conflicts of interest between Morgan Stanley’s research and investment banking departments.

According to the court, the investors claim they lost millions of dollars in the purchase of the funds as a result of violations of the 1933 Securities Act. The plaintiffs are also claiming that Morgan Stanley, MSDWI, and MS&Co. publicly said that they kept a “Chinese Wall” between their research and investment banking departments so there wouldn’t be any conflicts of interest when, in fact, this wall had fallen and MS & Co. was acting to benefit its investment banking departments. They also claim they were told that analyst recommendations and research were not influenced by the interests of Morgan Stanley or its affiliates.

Among the conflicts of interest, the investors are alleging that the defendants engaged in at least one of the a number of roles involving companies that with shares included among the funds’ portfolio securities for the class periods, including:

• As underwriters for certain securities.
• As investment bankers for certain companies with securities in the funds’ portfolios.
• Preparing and sending out research reports and recommendations about companies that had shares in the funds’ portfolios.
• Trying to get first-time or more underwriting and additional business from the companies that had shares in the portfolios.

The plaintiffs contend that MS & Co. factored in how much investment bank business research analysts were able to secure when determining their total compensation. This resulted in MS & Co.'s promotion of Morgan Stanley shares or those of potential clients, which then would lead to the price inflation of the companies’ shares. They also claimed that the portfolio funds had a substantial amount of Morgan-Stanley sponsored-stocks and that Morgan Stanley took part in “laddering,” which involved rewarding customers with “hot” IPO shares when they went after research tie-ins that artificially inflated an IPO stock’s aftermarket share price.

The court, however, dismissed the lawsuit saying that the plaintiffs failed to plead material omissions that Morgan Stanley should have disclosed.

Related Web Resources:
Morgan Stanley Suits Over Conflicts Tossed, Law360.com, February 4, 2009

Morgan Stanley

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Posted In: Arbitration , Class Action Lawsuits , Financial Firms , Morgan Stanley

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January 28, 2009

FINRA Says Securities Arbitration Claims Increased by 85% in 2008

The Financial Industry Regulatory Authority says that between 2007 and 2008, the number of securities arbitration claims increased by 85%. While Investors filed 1,985 claims against brokerage firms in 2007, last year, 3,667 cases were filed.

Between November 30 and December 31, 2008, 462 securities arbitration claims were filed with FINRA. Through November 30, FINRA received 3,215 claims.

Some of the reasons why there were so many more claims last year than the year before are that the market has been so volatile and certain investment products have experienced losses. Among these are the frozen auction-rate securities market and losses from the Regions Morgan Keegan bond funds and a number of Charles Schwab YieldPlus funds.

Investors, frustrated that brokerage firms placed them in a position to experience such losses, are seeking to recover through arbitration and in court. Unfortunately, it is a challenging time for many investors to recover their losses, especially those involving defaults and bankruptcy. This is one reason why investors are filing their cases now instead of waiting to do so years later.

FINRA’s Arbitration Process
Arbitration provides parties with a way to resolve their securities industry-related disputes. This alternative to filing a securities fraud lawsuit is considered a less costly and more rapid way for investors to resolve their claims with broker-dealers.

The resolution of an arbitration case is considered final and binding. Parties who choose to resolve their case through arbitration have generally given up their right to bring the case to court.

Related Web Resources:
Arbitration Process, FINRA

Charles Schwab YieldPlus funds

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December 29, 2008

Former Stanford Group Co. Financial Advisers Must Arbitrate Constructive Discharge Claims

This month, the Texas Court of Appeals concluded that two ex-Stanford Group Co financial advisers must arbitrate state labor law claims that their former employer constructively discharged them for complaining about its unethical business practices. The appeals court’s decision reverses a lower court’s ruling to not compel arbitration.

According to Chief Justice Hedges, former Stanford advisers Charles W. Rawl and D. Mark Tidwell signed U-4 registration applications that had arbitration provisions. The promissory notes they executed that were payable to Stanford also came with arbitration provisions.

While they worked for Stanford, the two men allegedly discovered that the company engaged in several unethical and illegal business practices, such as the deletion of certain electronic data in the wake of a Securities and Exchange Commission probe and the inflation of certain asset values in order to mislead potential customers. Tidwell and Rawl contend that they told management to investigate the alleged illegal activities, but their requests were ignored. The two advisers then resigned from the company because they thought they could be implicated for the alleged illegal activities.

After they left the firm, Stanford began FINRA arbitration proceedings against the two men to collect on promissory notes that allegedly were due to be paid as soon as they resigned. The former advisers responded by filing an employment discrimination lawsuit. They claim that their constructive discharge violates the Texas Labor Code because they refused to participate in Stanford’s alleged illegal acts. They also maintained that Stanford’s behavior was actionable under Sabine Pilot Services Inc. v. Houck, 687 S.W.2d 733 (Tex. 1985).

Stanford’s response was a motion to compel arbitration. The two men then said that under FINRA Rule 13201, their employment claims were excluded from arbitration.

The appeals court says that although the Texas labor code prohibits employment discrimination, the plaintiffs failed to note that their discrimination was based on any protected classes named in the statute. As a result, Judge Hedges said the trial court was in error when it did not compel arbitration.

According to Shepherd Smith Edwards and Kantas, LLP Cofounder and Securities Arbitration Attorney WIlliam Shepherd, "The key on this one is that registered securities representatives must go to securities arbitration and can not take employment cases to court despite language securities arbitration code concerning statutory labor claims in the Texas Labor Code. Our securities arbitration law firm often represents such persons against their employer or former employer."

Related Web Resources:

3201. Statutory Employment Discrimination Claims, FINRA

Texas Labor Codes

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December 16, 2008

Former NEXT Financial Group Stockbroker’s Claim that He Was Fired for Refusing to Conceal Churning is Subject to Arbitration

The Texas Supreme Court says that former NEXT Financial Group Inc. stockbroker Michael Clements’s claim that the brokerage firm fired him for refusing to cover up churning activity must be arbitrated. Clements was hired as a NEXT Financial regional supervisor in September 2006. Nearly a year later, the brokerage firm fired him because he allegedly failed to perform his required broker responsibilities related to an NASD audit.

Clements filed a lawsuit against the company, claiming he was terminated from his job because he refused to conceal the fact that a NEXT trader had violated federal securities laws by churning client accounts. NEXT pushed for arbitration, claiming that Clements had signed a Form U-4 when he was hired, which requires that he resolve any claims with the brokerage firm through arbitration—per the Federal Arbitration Act.

Clements has maintained that because his claim was based on at-will employment and wrongful termination, rather than a contract connected to a commercial transaction, his claim is exempt from the FAA’s arbitration requirement. He also asserted that his claim resulted from NEXT’s alleged illegal behavior, not its business dealings, and that a recent change in NASD code (following the National Association of Securities Dealers’s merger with the Financial Industry Regulatory Authority) indicated an intent to exclude disagreements involving employment matters from arbitration. Clements noted Sabine Pilot Services v. Hauck, (1 687 S.W.2d 733, 1985), a case where the Texas Supreme Court held that an employer had to pay an ex-employee damages because the worker was fired for refusing to perform an illegal act.

The Texas Supreme Court, however, upheld that the FAA was applicable in this case, NEXT could compel arbitration, and the NASD rule 13200 (a) did not exclude employment and termination-related claims. The court’s decision reverses the trial court’s ruling, which denied NEXT’s request, as did the court of appeals.

Related Web Resources:

Orders and Opinions, Texas Supreme Court

Next Financial Group Inc.

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November 12, 2008

District Court Confirms Merrill Lynch Arbitration Award in Investor Dispute

Merrill Lynch, Pierce, Fenner & Smith, Inc. and a number of its workers have won an arbitration dispute filed by a couple that invested in a money market mutual fund. In U.S. District Court for the Southern District of New York, Judge George Daniels confirmed the award.

Konstantinos Karetsos and Greta Rothstein began their New York Stock Exchange arbitration in February 2006. The married couple accused Merrill Lynch and several of its employees of alleged deceit, fraud, conspiracy, deceptive practices, misrepresentation, obstruction of justice, material omissions, unauthorized transactions, unsuitable investments, gross negligence, breach of fiduciary duty, and account management related to their money market fund purchase.

Arbitration proceedings took place over a six-day period. On the 4th day, the arbitration panel dismissed claims against three Merrill Lynch employees with prejudice. At the end of the proceedings, more claims against Merrill Lynch and a fourth employee were dismissed with prejudice.

The arbitration panel also found that claims against one Merrill Lynch employee were obviously erroneous and that the couple had filed claims against another employee who did not take part in the “alleged investment-related sales practice violations.”

According to the district court, the opposition that was noted in the couple’s pro se pleadings appeared to be based on many of the arguments they made in arbitration. Judge Daniels also said that the couple’s “vague and conclusory” terms” impugned the arbitration panel's “integrity and neutrality.”

Commenting on Merrill Lynch's arbitration award, Securities Arbitration Attorney William Shepherd said, “Investors who do not hire a lawyer, or hire one without experience in securities arbitration, fare very poorly in claims against brokerage firms. While securities arbitration has less formalities than court cases, investors simply cannot alone understand how to properly present their claims to the arbitrators.”

Related Web Resources:

Rothstein et al v. Fung et al, Justia

Change in Arbitration Panels Will Allow Investors Only, NY Times, July 25, 2008

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August 21, 2008

FINRA Rolls Out New Arbitration Process for Auction-Rate Securities Claims

The Financial Industry Regulatory Authority says it has set up an arbitration process designed to resolve claims involving auction-rate securities. Parties now have the option to have their claims reviewed by an arbitration panel with members that are not connected with any firm that may have recently sold the securities.

FINRA says the process was developed following the system it set up for Citigroup’s settlement with the Securities and Exchange Commission. Earlier this month, Citigroup Inc. reached an agreement with state and federal regulators to redeem $7.3 million in illiquid auction rate securities that retail investors had purchased, as well as pay $100 million in fines. The agreement was to settle charges over misconduct related to sales practices.

FINRA Dispute Resolution President Linda Fienberg says it is only fair that all investors with auction-rate securities claims be given the opportunity to resolve their disputes in the same way. She said that FINRA would work hard to put the process in place so that claims wouldn’t be delayed unnecessarily. Persons that since January 1, 2005 have sold auction-rate securities, worked for a company that sold the securities, or supervised the selling of the securities cannot be on the panels.

FINRA Creates Process for Arbitrations Involving Auction Rate Securities, Marketwatch.com, August 7, 2008

Citigroup Returning $7 Billion To Auction-Rate Securities Investors, Courant.com, August 8, 2008

FINRA

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Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

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FINRA Says Securities Arbitration Claims Increased by 85% in 2008

Former Stanford Group Co. Financial Advisers Must Arbitrate Constructive Discharge Claims

Former NEXT Financial Group Stockbroker’s Claim that He Was Fired for Refusing to Conceal Churning is Subject to Arbitration

District Court Confirms Merrill Lynch Arbitration Award in Investor Dispute

FINRA Rolls Out New Arbitration Process for Auction-Rate Securities Claims

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