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March 5, 2010

Oppenheimer Holdings Inc. Settles Massachusetts Auction-Rate Securities Allegations

Oppenheimer Holdings Inc. has settled a securities fraud-related administrative complaint filed against it by the state of Massachusetts for auction-rate securities sales to local residents. The broker-dealer will redeem 60 of the accounts with ARS. The other 10 accounts will be offered “enhanced liquidity.”

According to Massachusetts Secretary of State William Galvin, who had sought to make the investment firm repurchase up to $55.5 million in ARS that were sold in the state, 85% of Oppenheimer’s Massachusetts customer accounts will be completely redeemed over one year.

Galvin contends in his complaint that Oppenheimer misrepresented ARS and the ARS market when marketing to clients. He says that although company’s employees sold their ARS when they found out that the market was collapsing, they failed to notify investors about the unfolding crisis.

Galvin will submit a cease-and-desist order and findings against the broker-dealer over its unethical and dishonest conduct and the failure to properly supervise agents when they marketed and sold ARS. The redemptions will take place in three steps.

Oppenheimer also recently settled its ARS case filed by New York State Attorney General Andrew Cuomo on behalf of investors in his state, as well as throughout the US, for $31 million.

Related Web Resources:
Oppenheimer Settles Massachusetts Auction-Rate Case (Update3), BusinessWeek, February 24, 2010

Oppenheimer, Cuomo reach $31M agreement, LegalNewsline.com

William Francis Galvin, Secretary of the Commonwealth of Massachusetts

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February 25, 2010

Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty

As part of a deal to settle ARS insider trading allegations by New York Attorney General Attorney Cuomo, former UBS AG executive David Shulman has agreed to pay $2.75 million. Shulman is accused of finding out through nonpublic, material information that the investment bank’s student loan auction rate securities program was in trouble and that there was a possibility that future auctions involving the student ARS would fail. Yet he allegedly violated New York securities regulations when he proceeded to sell more ARS.

On December 13, 2007, two days after finding out about the ARS risks, Shulman, who supervised the ARS trading desk, sold $1.45 million in personal holdings of student loan ARS to the desk. He was suspended in July 2008.

Shulman has not denied or admitted to the document’s findings. However, as part of the agreement with Cuomo, he is subject to a retroactive 30-month suspension from working as a registered broker-dealer.

In the wake of the ARS market collapse in February 2008 that left so many investors, who were misled into believing their investments were as liquid as cash, with frozen securities, Cuomo remains committed to investigating broker-dealers’ auction-rate securities marketing and sales practices. Many of the investment firms that sold the ARS did so despite allegedly knowing that the securities were in danger of failing.

Since August 2008, Cuomo has gotten 12 financial service firms to agree to repurchase $61 billion of ARS at par. As part of their securities fraud settlements, the broker-dealers are paying $597.3 million in penalties.

Related Web Resources:
Former UBS Muni Chief Settles Probe for $2.75 Million, BusinessWeek, February 18, 2010

Attorney General Cuomo Announces $2.75 Million Insider Trading Settlement with Former UBS Top Executive David Shulman, Office of the NY Attorney General, February 18, 2010

Continue reading "Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty" »

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Posted In: Auction-Rate Securities , Financial Firms , Insider Trading , UBS

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November 28, 2009

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Braintree Laboratories Inc. is asking the U.S. Court of Appeals for the First Circuit to keep its auction-rate securities lawsuit against the brokerage division of Citigroup Inc. in court. A federal court had ordered the proceedings into arbitration.

Last April, the pharmaceutical company sued Citigroup for securities fraud, accusing the investment bank of misrepresenting $33.2 million in ARS as “liquid,” government-supported “money market” investments that could be sold following seven days notice when Citigroup allegedly knew that the investments were auction-rate securities that were illiquid, subject to failed auctions, and not redeemable until 2030.

Braintree also contends that Citigroup used misleading and false descriptions to prevent clients and regulators from finding out that it was still selling these “toxic instruments.” The pharmaceutical company is accusing Citigroup of destroying key evidence related to the alleged fraud.

Braintree purchased the ARS from Citigroup between June and August ’08. The ARS market froze in early 2008.

Citigroup has agreed to give back $7.5 billion to individual clients, charities, and small businesses that suffered ARS losses when the market collapsed. The broker-dealer is also promising to put its best efforts toward liquidating some $12 million in ARS that were purchased by institutional investors, including retirement plans, by the end of 2009.

As Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd points out, “Most securities firms have agreed to repurchase Auction Rate Securities from smaller investors, but our firm is representing many large investors who remain in ‘ARS limbo.’ It is very important for these investors to hire skilled attorneys to protect their rights before time limits expire to take action! We have found many firms are dragging out discussions with investors but only paying those who take legal action.”

Related Web Resources:
ARS Investor Fights To Keep Citigroup In Court, Law 360, November 11, 2009

Citi sued over auction-rate securities, Reuters, April 17, 2009

Continue reading "Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court" »

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November 13, 2009

Stifel Financial Corp. Sees 73% 3rd Quarter Earnings Rise and Completes Purchase of 56 UBS Financial Services Inc. Branches

Even as Stifel Financial Corp. continues to deal with securities fraud lawsuits and claims accusing the broker-dealer of misrepresenting the risks associated with investing in auction-rate securities, the company exhibited a 73% increase in 3rd quarter earnings due to a growth in transaction revenue.

Its profit posted at $22.1 million, an increase from earlier this year when it’s posted profit was $12.8 million. Net revenue hit $289.7 million—a 32% increase. Principal transaction revenue went up 81%, hitting $123.2 million. Commissions went up to $90.9 million—that’s a 2.5% increase.

Stifel has been working to turn its business into a full-service investment bank and its subsidiary, Stifel, Nicolaus, & Co., recently completed its buy of 56 UBS Financial Services Inc. branches, which it purchased for at least $46 million. Stifel says the deal should increase the company’s earnings within the first year.

Stifel Nicolaus has retained support staff and 495 financial advisers in the branches. The investment bank has converted some 144,000 accounts with some $16.2 billion in assets under management. This includes money market accounts ($1.7 billion) Reg U and Reg T loans ($204.4 million), and FDIC-insured balances.

UBS was paid $29 million in cash for the financial advisers and branches. It also received $17 million for employee forgivable loans and net fixed assets. UBS is also expected to receive a contingent earn-out payment based on the performances of its financial advisers, now with Stifel, over the first two years.

Our securities fraud lawyers continue to represent clients with ARS claims against broker-dealers that misled them about the risks associated with these investments.

Related Web Resources:
Stifel Financial 3Q Profit Climbs 73%; Results Top Views, Wall Street Journal, November 9, 2009

Stifel, Nicolaus Buys UBS, Dealbreaker, March 23, 2009

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October 3, 2009

Colorado Sues Stifel, Nicolaus for Misrepresenting Auction-Rate Securities to Investors

The Colorado Securities Division is suing Stifel, Nicolaus & Co. for securities fraud. State regulators are accusing the broker-dealer of making false assurances to investors about auction-rate securities.

In its Colorado securities fraud complaint, the securities division accused Stifel Nifel, Nicolaus of violating the Colorado Securities Act by allowing investors to think that their ARS-investments would always be liquid, failing to properly supervise sales team members, and making unsuitable investment recommendations to clients.

The Division claims that Stifel, in the role of underwriter, knew that there were liquidity risks linked to ARS but never let its sales force know about them. Stifel brokers allegedly compared ARS to money market funds on a regular basis and sold them as if they were appropriate for cash management purposes. Investors were told they would always be able to access their funds as if it were cash. However, when the ARS market collapsed in February 2008, the Colorado investors that purchased auction-rate securities were unable to get their funds or sell their bonds.

The ARS lawsuit against Stifel, Nicolaus seeks to have the broker-dealer suspended in Colorado. The complaint comes on the same day that the Indiana Securities Division filed its securities fraud lawsuit against Stifel, Nicolaus & Co.

ARS are long-term bonds. They are dependent on the success of a periodic auction for short-term liquidity. The fallout continues from the ARS market collapse and state securities regulators continue to take action against broker-dealers. Our securities fraud law firm has remained diligent in our efforts to help ARS investors whose funds were frozen. Broker-dealers and their employees must be held accountable for securities fraud. Our investment fraud lawyers are committed to helping our clients recover their financial losses.

Colorado securities regulators file complaint against Stifel, Nicolaus, Business Journal, October 1, 2009

Read the press release announcing the charges filed by Colorado Dep't of Regulatory Agencies (DORA), Division of Securities against Stifel, Nicolaus

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September 2, 2009

Disgruntled Investors Continue to File Securities Fraud Litigation Against Merrill Lynch Even Eight Months After Its Acquisition by Bank of America Corp.

The plaintiffs of some 166 of the 221 cases filed against Merrill Lynch & Co. since January 1, 2009 are alleging securities fraud-related violations. This means that Bank of America Corp, which acquired the broker-dealer at the beginning of the year, has assumed responsibility for the outcome of these civil cases. Some of these investor fraud claims were filed as late as last month.

Some cases discuss Merrill’s involvement in the marketing, underwriting, and selling of securitizations, or asset-backed securities. Other cases delve into Merrill’s dealings in the auction-rate securities market. A number of the securities fraud cases against Merrill are class action lawsuits. Merrill Lynch is the lead defendant in many of the cases and one of several financial firms named in the other complaints.

Some of the Securities Fraud Cases Against Merrill Lynch:
Gordon v. Royal Bank of Scotland Group plc.: Merrill Lynch and several other financial firms are accused of misrepresenting or omitting key information in offering documents when participating in securitization underwriting.

Public Employees Retirement System of Mississippi v. Merrill Lynch & Co. Inc.: Merrill is accused of violated specific sections of the 1933 Securities Act when it allegedly made bogus statements in registering and offering documents connected to asset-backed securities.

Teva Pharmaceutical Industries Ltd. v. Merrill Lynch & Co. Inc.: The pharmaceutical company plaintiff contends that it lost $5 million when investing in ARS that the broker-dealer structured and sold.

Ginsberg v. Merrill Lynch & Co. Inc.: This class action claim accuses Merrill of failing to tell shareholders that the firm was significantly exposed to collateralized debt obligations and other high-risk financial products. The plaintiffs claim that senior management at Merrill Lynch let bogus information go out during conference calls and in registration statements and news releases.

If you are a former Merrill Lynch investor and you believe you were the victim of securities fraud, our stockbroker fraud law firm would be happy to offer you a free case evaluation.

Related Web Resources:
Gordon v. Royal Bank of Scotland Group plc, S.D.N.Y., 09-cv-00704, 1/28/09

In re: Merrill Lynch & Co. Inc., Auction Rate Securities (ARS) Marketing Litigation, Justia Docket

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Posted In: Auction-Rate Securities , Bank of America , Broker Fraud , Class Action Lawsuits , Collateralized Mortgage Obligations , Financial Firms , Merrill Lynch

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August 21, 2009

Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?”

A federal judge says that when sentencing former Credit Suisse Group AG brokers Eric Butler and Julian Tzolov, he will consider the fact that they committed their securities fraud crimes while working in the securities industry's “culture of corruption.” He also asked defense and government attorneys to touch upon this issue when they submit their sentencing recommendations.

Earlier this week, a jury found Butler found guilty of conspiracy and securities fraud for his involvement in an alleged scheme to mislead investors about auction-rate securities so that higher commissions could be generated. Butler faces a maximum 45 years in prison.
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According to the government, Butler and Tzolov changed securities’ names on communications with investors so that clients wouldn’t find out that federally guaranteed student loans were not backing their investments. Instead, they put the funds in riskier products that were connected to ARS. Investors lost close to $1 billion when the ARS market collapsed.

Butler’s attorney, however, says the failed market, not his client, is at fault for the investors' losses. Butler plans to appeal the verdict.

Tzolov was arrested last month in Spain. He was under house arrest in New York City in May but fled the country. Tzolov pleaded guilty to securities fraud, conspiracy, visa fraud, wire fraud, and bail-jumping charges. Tzolov then testified for prosecutors in the criminal case against Butler.

While commenting on these recent developments, Ann Woolner, on Bloomberg.com, noted that just because federal regulators weren’t paying attention to misconduct on Wall Street doesn’t make it okay for brokers to lie to their clients—it just makes it easier for them to not get caught. She also commented that while people don’t die from white collar crimes, securities fraud can cause a great deal of suffering for investors who were robbed.

While the two former Credit Suisse brokers shouldn’t be punished because of the shortcomings within the securities industry, the “culture of corruption” argument shouldn’t be the reason to shorten their prison sentences. Just because everyone’s doing it doesn’t make it okay.

Related Web Resources:
Wall Street ‘Corruption’ Might Buy Crook a Break: Ann Woolner, Bloomberg.com, August 21, 2009

Broker Convicted in Auction-Rate Case, Wall Street Journal, August 19, 2009

Former Wall Street broker pleads guilty to fraud, MSNBC, July 22, 2009

Continue reading "Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?” " »

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August 20, 2009

Wachovia Securities Ordered by Pennsylvania Securities Commission to Repurchase $325 Million in Auction-Rate Securities

Wachovia Securities, LLC and related entities will offer to refund $324.6 million in auction-rate securities from Pennsylvania investors. The Pennsylvania Securities Commission announced the ARS repurchasing agreement on August 11. Wachovia must also pay the commonwealth a $2.52 million assessment for the part the broker-dealer played in the ARS market.

According to Robert Lam, the commission chairperson, Wachovia failed to properly supervise its agents that dealing with investors over the sale of auction-rate securities, as well as engaged in business practices that were “unethical or dishonest.” Commissioner Steven Irwin said Wachovia sold and marketed ARS as liquid investments even though they were long-term investments that were involved in a complicated auction process. The auction-rate securities market failed in 2008.

Right before the ARS market went downhill, over 1,300 Pennsylvania retail investors held ARS that they had purchased from Wachovia. Now, the broker-dealer will repurchase the ARS.

The Pennsylvania commission is investigating other firms over any alleged misconduct committed that caused investors to get stuck with frozen ARS that they had been told were liquid, similar to cash. The commission has made it clear that they will not allow members of the securities industry to take part in dishonest or unethical business practices.

Wachovia sold more than $12.8 billion in ARS to investors throughout the US. Securities regulators in different states have pushed for Wachovia and other brokerage firms, such as Wells Fargo, Citigroup , Bank of America, and UBS to buyback the frozen auction-rate securities that investors were left with after the market dropped. Broker-dealers are accused of misrepresenting ARS to clients and that despite knowing that the market was about to collapse continuing to sell ARS to investors.

Related Web Resources:
Pennsylvania Securities Commission Orders Wachovia to Refund Over $300 Million to More Than 1,300 for Auction Rate Securities, Earth Times, August 11, 2009

Wachovia to Buy Back $325 Million in ARS, Wall Street Journal, August 11, 2009

Continue reading "Wachovia Securities Ordered by Pennsylvania Securities Commission to Repurchase $325 Million in Auction-Rate Securities" »

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August 7, 2009

Merrill Lynch & Co. Sued Over Auction-Rate Securities by Teva Pharmaceutical Industries Ltd. and Seneca Gaming Corp.

On Wednesday, Teva Pharmaceutical Industries Ltd. sued Merrill Lynch & Co., a Bank of America Corp. unit. The pharmaceutical company’s securities fraud lawsuit accuses the brokerage firm of making misrepresentations that resulted in its purchase of $273 million in ARS. Merrill Lynch underwrote the securities that Teva bought. A day later, Seneca Gaming Corp. filed its own lawsuit against Merrill Lynch. The complaint is over a $5 million tranche of ARS backed by mortgages that the company had purchased.

While the agreements that brokerage firms have reached with regulators generally require that the former buy back auction-rate securities from small companies, individual investors, and nonprofits, the broker-dealers are only required to work with bigger investors or try their best to help them deal with their illiquidity issues. As a result, some large investors are taking matters into their own hands by filing securities fraud claims and lawsuits. These investors include Bankruptcy Management Solutions Inc., Braintree Laboratories, Ocwen Financial Corp. Ashland Inc., and Texas Instruments. Other large companies will likely follow suit.

For the large investors that are undecided on what action to take regarding their frozen ARS, it is important from them to realize that more financial losses are likely.
Shepherd Smith Edwards and Kantas, LLP founder and securities fraud attorney William Shepherd notes, “Our law firm is handling a number of substantial ARS claims for large investors with funds that have been frozen for more than a year. Some have suffered consequential damages as a result. Other clients have sold and sustained large losses or will face such losses if and when they do sell. Many investors simply seek to unlock their funds as soon as possible. Our legal fee arrangements differ depending upon these circumstances.”

Related Web Resources:
Merrill Lynch Sued By Teva, Seneca Gaming Over ARS Sales, CNN, August 6, 2009

Will Their Be An Onslaught of ARS Litigation?", Law 360

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July 29, 2009

Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble

Julian T. Tzolov, a former Credit Suisse Securities (USA) LLC broker, has pleaded guilty to fraud charges over his involvement in an auction-rate securities scheme involving hundreds of millions of dollars. Tzolov, 36, is accused taking investor funds and placing them in high-risk ARS rather than government-backed conservative instruments.

In April, Tzolov was charged with wire fraud, conspiracy to commit securities fraud, and securities fraud. Tzolov and another man, Eric Butler, are accused of as early as November 2003 soliciting funds from companies to invest in ARS. Tzolov allegedly told potential clients that he would be investing their money in government-backed ARS. Instead, the former Credit Suisse broker placed the investors’ money in ARS that were connected to riskier, collateralized debt obligations. He is also accused of falsifying the names of products that investors bought to make it look as if they were purchasing conservative instruments, rather than CDO-ARS.

When the CDO-ARS market fell in late 2007, Tzolov was unable to sell the securities and repay clients who were demanding their returns. This incident is further evidence that broker-dealers and brokers knew before February 2008 that investors and their money were in trouble.

Tzlolov’s conviction is the first one connected to the ARS market. His sentencing is scheduled for October. Tzolov was captured earlier this month after he fled the US in May while under house arrest. He could end up serving 20 years in prison for each fraud count.

Ex-Broker Pleads in Auction-Rate Case, WSJ, July 23, 2009

Julian Tzolov, Ex-Credit Suisse Broker, Target Of International Manhunt, The Huffington Post, June 5, 2009

Continue reading "Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble" »

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July 6, 2009

Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan

According to Stifel Financial Corp., 95% of its clients with frozen auction-rate securities have indicated that they will accept its offer to buy back the investments over a three-year period. Missouri Securities Regulator and Secretary of State Robin Carnahan, however, continues to maintain that the buyback plan is inadequate.

She also disagrees with the broker-dealer’s claim that customers are endorsing the buyback plan by accepting it. Rather, she believes that it is the only option that Stifel has given clients that will allow them to get all of their funds back—and that means that many of them will have to wait three years. Carnahan noted that over 20 other broker-dealers were able to give their clients immediate relief.

Some 1,200 Stifel clients bought ARS before the market collapsed. The firm’s clients currently hold about $170 million in ARS. Some 40% of eligible accounts reportedly were to have received 100% liquidity by June 30. The remaining accounts are to obtain full liquidity by June 2012.

Stifel Chief Executive Officer and Chairman Ronald J. Kruszewski maintains that the broker-dealer did not know that the ARS market was in trouble until it collapsed. This is the main reason that Stifel has given for why it isn’t buying back their clients’ holdings in full the way other brokers have from their clients.

Carnahan’s office, however, alleges that Stifel was aware of the risks involved with investing in ARS and that the broker-dealer should have worked harder to protect investors. Her office sued Stifel in March 2009 over the way the firm marketed ARS and misled investors.

Related Web Resources:
Most Stifel clients accept auction rate securities buyback; Carnahan calls offer ‘inadequate’, St Louis Business Journal, June 23, 2009

Carnahan Sues Stifel Over Auction Rate Securities, iStockAnalyst, March 13, 2009

New Trouble in Auction-Rate Securities, The New York Times, February 15, 2008

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June 1, 2009

Auction-Rate Securities Probes Lead to More Enforcement Actions and Final Settlements with Investment Firms

Another state has filed an individual enforcement against brokerage and investment banking firm Stifel, Nicolaus, & Co. Inc. On May 7, Virginia’s State Corporation Commission's 's Division of Securities and Retail Franchising filed its civil lawsuit accusing the broker-dealer of making misrepresentations and false statements related to the sale of auction-rate securities, as well as failing to properly supervise its sales representatives that sold ARS to Virginia residents.

Just this March, Missouri Secretary of State Robin Carnahan had sued Stifel, Nicolaus, accusing the investment firm of making misrepresentations to over 100 ARS clients that were told that the securities were liquid, conservative investments. In May, Carnahan reached an agreement with two Bank of America Corp subsidiaries. Under the agreement, the bank would pay a $1.37 million fine and provide relief to numerous Missouri entities that bought $400 million in ARS.

Meantime, state officials are looking into whether TD Ameritrade Holding Corp., Charles Schwab Corp., and E*Trade Financial Corp also engaged in ARS-related violations. Broker-dealers that have reached preliminary settlements with federal and state regulators over their misrepresentation of ARS to clients include Citigroup Inc., Deutsche Bank AG, Credit Suisse Group, JP Morgan Chase & Co, Goldman Sachs Group Inc., Merrill Lynch & Co. Inc., Royal Bank of Canada, Morgan Stanley, Wachovia Corp, and UBS AG.

Per the agreements, settlement parties would repurchase up to $56 billion in illiquid ARS at par from charities, retail investors, and mid-sized and small businesses, as well as pay $522 million in penalties. The agreements with Bank of America, Wachovia, and Citigroup have been finalized.

Last month, the Financial Industry Regulatory Authority announced final settlements reached with NatCity Investments Inc. of Cleveland (a $300,000 fine), M & T Securities Inc. of Buffalo (a $200,000 fine), M & I Financial Advisors Inc. of Milwaukee (a $150,000 fine), and Janney Montgomery Scott LLC of Philadelphia (a $200,00 fine). FINRA also announced that SunTrust Investment Services Inc. and SunTrust Robinson Humphrey Inc. decided not to finalize their preliminary settlements. FINRA is still investigating both firms’ activities pertaining to ARS.

Related Web Resources:
Virginia sues Stifel, Nicolaus & Co. over auction rate securities, St Louis Business Journal, May 15, 2009

FINRA Announces Agreements with Four Additional Firms to Settle Auction Rate Securities Violations, FINRA, May 7, 2009

Carnahan Finalizes $400 Million Bank of America Auction Rate Securities Settlement, Missouri Secretary of State, May 14, 2009

Carnahan sues Stifel Nicolaus over auction rate securities, St Louis Business Journal, March 12, 2009

Continue reading "Auction-Rate Securities Probes Lead to More Enforcement Actions and Final Settlements with Investment Firms" »

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March 19, 2009

Stifel Nicolaus Will Repurchase Auction-Rate Securities from Costumers Within Three Years

Stifel Financial Corp says that subsidiary Stifel Nicolaus & Co. Inc. will buy back all of its customers’ auction-rate securities in the next three years. This is a significant change from its initial offer to purchase 10% of the clients’ ARS holdings.

The ARS repurchase will occur in four stages:
• By June 30, 2009: $25,000 or 10% (whichever is greater).
• Before June 30, 2010, $25,000 or 10% (whichever is greater).
• Prior to June 30, 2011, $25,000 or 10% (whichever is greater).
• Prior to June 30, 2012, the balance of any outstanding ARS.

Employee accounts, however, are only eligible once the last phase of the enhanced plan begins.

Stifel CEO & Chairman Ronald J. Kruszewski says the plan reflects the proper balance between shareholder and client interests. He says the plan will give relief to its 1200 ARS clients and that about 40% of the accounts would be completely liquidated by the end of June 2009.

The repayment offer applies to ARS that are held by retail clients who purchased the securities through Stifel before the ARS market fell. In return, Stifel says it will take assignment of actionable legal claims by customers against the large players in the ARS market for the amounts it buys back. Stifel maintains that it would not have told its clients to purchase ARS if the key market participants had told the financial firm what they knew about the ARS market collapse.

Missouri securities regulator Secretary of State Robin Carnahan, however, is still concerned that this new offer is still not enough to guarantee that customers will get back all their funds. She noted that three years might be too long for many investors and she called on Stifel to guarantee that it would make its investors whole again.

Soon after Stifel’s announcement of its ARS repurchase plan, Carnahan filed a lawsuit against the St. Louis-based financial firm for misleading clients that had purchased ARS.

Related Web Resources:
Missouri's Carnahan files suit against Stifel, Forbes/AP, March 12, 2009

Stifel Financial plans 100 percent buyback of ARS, The Street.com, March 9, 2009

Missouri Secretary of State Robin Carnahan

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February 16, 2009

Wachovia and SEC’s Finalized Auction-Rate Securities Settlement Will Provide Over $7 Billion in Liquidity to Investors

Wachovia Securities, LLC and the Securities and Exchange Commission have reached a finalized settlement to resolve charges that the company mislead investors when selling billions of dollars worth of auction-rate securities. Under the terms of the agreement, Wachovia would purchase ARS from non-profit organizations, individuals, and clients with accounts worth up to $10 million. This phase ended on November 28, 2008 and Wachovia has bought back over $6.2 billion in ARS from clients as of that date.

During a second buyback phase running from June 10 – 30, 2009, Wachovia will repurchase ARS it sold to its other clients. Fulfillment of the terms of the settlement will give thousands of investors over $7 billion in liquidity.

The terms of Wachovia’s agreement with the SEC are similar to the ones it reached with the North American Securities Administrators Association and New York Attorney General Andrew M Cuomo’s office, which mandated that Wachovia pay a $50 million fine and buy back the ARS it sold to investors. Following completion of this latest settlement's terms, the SEC will determine whether Wachovia needs to pay a fine. By agreeing to settle, Wachovia is not admitting to or denying wrongdoing.

The SEC, the North American Securities Administrators Association, and Cuomo have alleged that sales representatives purposely misled investors about ARS liquidity in 2008 (even though they knew as early as late 2007 that the ARS market was beginning to collapse) when they claimed the securities were equivalent in liquid to cash. The market fell on February 14, 2008 when Wachovia and other broker-dealers stopped supporting the auctions, causing segments of the ARS market to freeze and leaving thousands of clients without any means of recovering their funds.

Just recently, Cuomo’s office concluded its probe into Wachovia’s ARS activities and issued an Assurance of Discontinuance.

Read the SEC Complaint

NY State Attorney General Andrew Cuomo's Office

Continue reading "Wachovia and SEC’s Finalized Auction-Rate Securities Settlement Will Provide Over $7 Billion in Liquidity to Investors" »

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February 11, 2009

Merrill Lynch Pierce Fenner & Smith Does Not Have to Halt Redemption of ARS Clients, Says Court

In the U.S. District Court for the Southern District of New York, Judge Shira Scheindlin said that TGS- GS-NOPEC Geophysical Co failed to convince the court that the institutional investor would suffer irreparable harm if Merrill Lynch Pierce Fenner & Smith Inc. continues redeeming clients’ ARS under the investment firm’s current procedures. The judge refused to stop the redemptions and said that the geographical exploration company has admitted that any harm caused by an improper redemption procedure can later be remedied.

Following the collapse of the auction-rate securities market, Merrill Lynch devised a redemption plan to help restore some liquidity to investors, whose ARS were now frozen. The scheme allows the investment bank to redeem partial liquidity to its clients. Anytime an issuer declared a partial redemption, Merrill would note a $25,000 share from each client account before giving out the remaining shares through a proportionate lottery.

Since October 2008, GS-NOPEC Geophysical Co held some $64.5 million in ARS accounts with Merrill. The company claims that Merrill's redemption scheme is not in its favor.

TGS began FINRA arbitration proceedings against Merrill in November. The company wants to repurchase its ARS with interest, recession purchases, or the actual damages of its holdings’ par value. TGS later filed for injunction pending arbitration and asked the court to mandate that Merrill Lynch allocate prior and future partial redemptions solely in proportion to holdings.

The court refused. The judge said that any harm that TGS incurs can be remedied financially, which is what the company is seeking via arbitration.

TGS-NOPEC Geophysical Company v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Federal District Court Filings and Dockets, Justia

Related Web Resources:
TGS-NOPEC Geophysic

Merrill Lynch Pierce Fenner & Smith Inc.

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Posted In: Auction-Rate Securities , Financial Firms , Merrill Lynch

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January 11, 2009

Although $200 Billion Auction Rate Securities Are Unfrozen, Many Investors Still Hoping to Recover $135 Billion in Frozen ARS

There is some good new to report. Nearly one year since the auction-rate securities market collapsed and some $330 billion in what was supposed to be liquid, cash-like investments in government bonds became frozen, some $200 billion auction-rate securities are now unfrozen thanks to the efforts of Massachusetts and New York securities regulators. However, there is still a lot more work to be done.

About $135 billion in ARS remain frozen. For many individual investors, the possibility that they will recover these funds is limited. A number of non-profit groups and companies are also unable to access their frozen funds.

For example, Vicor’s $30 million in ARS are tied up until 2010, while Five Star Quality Care has $75 million in frozen ARS. Issuers and regulators have to find a way to retrieve these frozen ARS for investors so they can get their funds back.

The ARS debacle is much bigger than Bernie Madoff’s $50 billion Ponzi scam, which has been dominating the headlines. On BloggingStocks.com, Peter Cohen said that he believes the reason the Madoff scheme has gotten more media attention than the ARS collapse is because Madoff’s victims are high profile celebrities, such as Steven Spielberg and Kevin Bacon.

ARS Market Collapse
UBS, Bank of America, Merrill Lynch, Wachovia, and other large investment firms were accused of knowingly misleading investors into believing that auction-rate securities were “safe," liquid like cash investments. When the ARS market dropped, these same investors became victims of the market collapse and could longer access these funds.

Related Web Resources:
$135b still frozen by an early '08 debacle, Boston.com, December 31, 2008

Auction Rate Securities: $200 billion unfrozen, $135 billion to go, BloggingStock.com, December 31, 2008

Continue reading "Although $200 Billion Auction Rate Securities Are Unfrozen, Many Investors Still Hoping to Recover $135 Billion in Frozen ARS" »

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Posted In: Auction-Rate Securities

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December 23, 2008

ARS Investors Can Seek Consequential Damages Recovery Through Special Arbitration Procedure Introduced by FINRA

This month, the Financial Industry Regulatory Authority introduced a special arbitration procedure that auction-rate securities investors can avail of to recover consequential damages. This procedure can be used by customers who are allowed to file for such damages under the ARS-related settlements that have been concluded with the Securities and Exchange Commission or with FINRA.

Under the special procedure, investment firms cannot contest liability related to ARS product sales or the illiquidity of ARS holdings. The companies also cannot use as its defense an investor’s choice not to borrow money from the firm (if it offered the ARS holder a loan option) or his or her decision not to sell ARS holdings prior to the settlement date.

Investors have the option to seek their recovery through this procedure or in other applicable forums, including through standard arbitration rules. FINRA Dispute Resolution President Linda Fienenberg says the special procedure offers a quicker, more affordable resolution for clients claiming consequential damages. Any fees related to the special arbitration procedure will be paid for by the firms.

A single public arbitrator will hear consequential damage claims under $1 million. If the amount is larger, the parties have the option, by mutual consent, to have their claim heard by a three-person arbitration panel.

Consequential Damages
These damages are the financial harm that was experienced by ARS investors because the market collapsed. This may include losses incurred by investors whose ARS assets are frozen, as well as opportunity costs.

As of the end of last month, 275 ARS arbitration claims had been filed under FINRA’s standard arbitration procedure. Investors that limit claims to consequential damages can opt to have their case heard under the special arbitration procedure.

In the wake of the ARS market’s downfall last February, FINRA has been working with the SEC and state regulators to provide investors recovery options. FINRA is also investigating some two dozen firms for alleged misconduct involving their handling of ARS.

FirstSouthwest Co and WaMu Investments have reached final settlement agreements with FINRA. Agreement in principles have been reached with City National Securities, Mellon Capital Markets, SunTrust Investment Services, Comerica Securities, SunTrust Robinson Humphrey, Harris Investor Services, and NatCity Investment, Inc.

Related Web Resources:

FINRA Provides Details on Special Arbitration Procedure for ARS Consequential Damages, MarketWatch, December 16, 2008

WaMu, First Southwest To Buy Back ARS Under Finra Settlements, CNN, December 16, 2008

Special Arbitration Procedures for Investors Involved in Auction Rate Securities Regulatory Settlements, FINRA

FINRA

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Posted In: Auction-Rate Securities , FINRA

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December 22, 2008

UBS and Citigroup to Pay Nearly $30 Billion to Tens of Thousands of ARS Investors

UBS Financial Services, Inc., UBS Securities, LLC, and Citigroup have reached finalized settlements with the Securities and Exchange Commission to pay tens of thousands of ARS investors almost $30 billion. The settlements will resolve SEC charges that the companies misled investors about the risks involved with auction rate securities.

The SEC’s complaint accused UBS and Citigroup of misleading customers by telling them ARS were liquid, safe investments and failing to warn them of the growing dangers when the market started to fail. When the ARS market froze in February, the SEC says both firms left tens of thousands of clients holding billions of dollars in illiquid ARS.

These finalized settlements will restore about $22.7 billion in liquidity to UBS clients who invested in ARS and some $7 billion to Citigroup investors. SEC Chairman Christopher Cox says investors will get back “100 cents on the dollar on their ARS investments.” Both firms will buy ARS from affected customers at PAR. Customers that sold their ARS under the par difference will be paid between par and the ARS sale price. This is the largest settlement in SEC history.

UBS and Citigroup are not admitting to or denying the SEC’s allegations by agreeing to settle. Both investment firms, however, have agreed to enjoinment from future violations.

The U.S. District Court for the Southern District of New York still needs to approve the settlements, and additional SEC penalties could still arise for UBS and Citi. The SEC is also waiting to finalize the settlements-in-principle it reached with Merrill Lynch, Bank of America, Wachovia, and RBC Capital Markets.

Related Web Resources:
SEC Finalizes ARS Settlements With Citigroup And UBS, Providing Nearly $30 Billion in Liquidity to Investors, SEC, December 11, 2008

SEC Complaint Against UBS (PDF)

SEC Complaint Against Citigroup (PDF)

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Posted In: Auction-Rate Securities , Citigroup , Financial Firms , SEC , UBS

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November 20, 2008

Massachusetts Top Securities Regulator Charges Oppenheimer & Co with Unethical Conduct and Fraud

Massachusetts Secretary of State William Galvin is charging Oppenheimer & Co. with unethical conduct and fraud. The state’s top securities regulator is accusing the investment bank of continuing to market and sell auction rate securities to clients even as Oppenheimer executives were getting rid of their own ARS holdings, worth $3 million, before the collapse.

Galvin says that Oppenheimer Chairman and Chief Executive Albert Lowenthal and other firm executives kept clients and other firm employees “in the dark” about the collapsing ARS market. His office is seeking to revoke Lowenthal’s broker-dealer registration in Massachusetts because he says that the CEO and other Oppenheimer executives “betrayed” their clients’ trust. This is the first time that a state regulator has charged one of the smaller brokers for its alleged involvement in the sale of auction-rate securities while the market was failing.

Galvin says that Oppenheimer clients in Massachusetts are unable to access some $56 million because their ARS investments have been frozen since February. Also named in Galvin’s complaint are ARS Managing Director Greg White and Senior Managing Director Robert Lowenthal.

Oppenheimer and its firm executives are denying Galvin’s allegations. On Tuesday, the investment bank issued a statement claiming that its employees had no knowledge of the kinds of actions that their larger firm counterparts engaged in that contributed to the ARS market collapse. The investment bank also maintains that its executives personally bought and sold ARS during the period noted in Galvin's complaint, and they continue to hold a number of these securities.

Oppenheimer says it is working with financing sources and regulators to help investors cash out of their ARS.

Related Web Resources:

Massachusetts sues Oppenheimer & Co over ARS sales, Reuters, November 18, 2008

Galvin blasts Oppenheimer & Co. over auction-rate securities, Boston Herald, November 18, 2008

Related Web Resources:

Read the Complaint (PDF)

View the Exhibits (PDF)

Oppenheimer & Co.

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Posted In: Auction-Rate Securities , Financial Firms , Oppenheimer

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November 19, 2008

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183
Deutsche Bank 1-866-926-1437
Citi 1-866-720-4802
JP Morgan 1-866-450-8470
Goldman Sachs 1-888-350-2857
Merrill Lynch 1-888-706-1381
UBS 1-800-253-1974
Morgan Stanley 1-800-566-2273
Wachovia 1-866-283-794

Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
State Securities Regulators Remind Auction Rate Securities Investors to Contact Firms About Buyback Offers, NASAA, November 17, 2008

Small firms caught in ARS buyback vise, November 16, 2008

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Posted In: Auction-Rate Securities , Bank of America , Citigroup , Deutsche Bank , Financial Firms , Goldman Sachs , J P Morgan - Chase , Merrill Lynch , Morgan Stanley , NASAA , UBS , Wachovia

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Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

Oppenheimer Holdings Inc. Settles Massachusetts Auction-Rate Securities Allegations

Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Stifel Financial Corp. Sees 73% 3rd Quarter Earnings Rise and Completes Purchase of 56 UBS Financial Services Inc. Branches

Colorado Sues Stifel, Nicolaus for Misrepresenting Auction-Rate Securities to Investors

Disgruntled Investors Continue to File Securities Fraud Litigation Against Merrill Lynch Even Eight Months After Its Acquisition by Bank of America Corp.

Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?”

Wachovia Securities Ordered by Pennsylvania Securities Commission to Repurchase $325 Million in Auction-Rate Securities

Merrill Lynch & Co. Sued Over Auction-Rate Securities by Teva Pharmaceutical Industries Ltd. and Seneca Gaming Corp.

Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble

Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan

Auction-Rate Securities Probes Lead to More Enforcement Actions and Final Settlements with Investment Firms

Stifel Nicolaus Will Repurchase Auction-Rate Securities from Costumers Within Three Years

Wachovia and SEC’s Finalized Auction-Rate Securities Settlement Will Provide Over $7 Billion in Liquidity to Investors

Merrill Lynch Pierce Fenner & Smith Does Not Have to Halt Redemption of ARS Clients, Says Court

Although $200 Billion Auction Rate Securities Are Unfrozen, Many Investors Still Hoping to Recover $135 Billion in Frozen ARS

ARS Investors Can Seek Consequential Damages Recovery Through Special Arbitration Procedure Introduced by FINRA

UBS and Citigroup to Pay Nearly $30 Billion to Tens of Thousands of ARS Investors

Massachusetts Top Securities Regulator Charges Oppenheimer & Co with Unethical Conduct and Fraud

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

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