Wedbush Hit with Nun’s Complaint over CMO’s - May Have More Than Brokers in Common with Brookstreet
Last month, when Brookstreet Securities suffered a flame-out over high risk mortgage investments, its second in command, also the son of its founder, joined Wedbush Morgan and invited Brookstreet brokers to join him at that firm. Some thought it an odd fit, but the firms may have more in common than earlier believed.
Recently, a group on nuns, who claim they were led to believe they were making safe investments, apparently had their funds invested by Wedbush into mortgage-backed CMO securities which were just pools of mobile home loans. They soon lost $1 million, according to a complaint filed by The Sisters of St. Joseph of Carondelet in California against Wedbush Morgan in arbitration through the National Association of Securities Dealers.
Ed Wedbush, president of the firm that handled the nuns' investments, said in an interview that the losses in this and other cases came on the riskier portions of mortgage investments and were the result of "clients being very aggressive and wanting high yields." They should have understood, he said, that "high yield is high risk." (The statement resembles another recently made by Oppenheimer & Company, which claimed an elderly widow “only has herself to blame” for losses in a joint account as her husband lay dying. Oppenheimer was subsequently fined $1 million and ordered to reimburse over a million to the widow by the state of Massachusetts.)
Wedbush has been named in over 40 complaints over CMO products. It was ordered to pay over $1 million to the Narramore Christian Foundation, a nonprofit mental-health organization in Arcadia, Calif. In another case, it was ordered to pay $3.8 million in damages and fees to 22 investors. Wedbush blames these problems on one broker who it says has since the left the firm.
These are among several broker-fraud complaints involving risky mortgage investments that have been filed with regulators and in securities arbitration actions. Some cases involve sub-prime loans while others are in “interest only”, “inverse floaters” and other high-risk, difficult to understand and dificult to price mortgage investments.
Samco Financial Services is another firm accused of defrauding a "novice investor" into investing her funds, which she wanted to be safe, into “inverse floater CMOs.” The complaint states that her $100,000 was wiped out before she even started, since the securities purchased in her account were worth $100,000 less than she even paid for them. The firm gave up its brokerage license last year, according to the NASD.
Just as multi-billion dollar portfolios such as hedge funds, including those managed by Bear Stearns Cos, have been hit hard by losses in sub-prime and other high-risk mortgage securities, so also have smaller institutional portfolios and even individuals' accounts endured losses. Such losses have come through CMO and other mortgage-backed securities, but also through certain partnerships, REITs shares, mutual funds and other investment vehicles.
Shepherd Smith and Edwards represents institutional and individual investors nationwide in claims against members of the securities industry. We have served thousands of victims of misconduct by investment firms and their representatives, including those at Brookstreet and at Wedbush Morgan. To learn whether our firm can assist you, contact us to arrange a free consultation with one of our attorneys.
