June 12, 2009

Brokers Renew Push for Investors to Buy Structured Products

Brokers are once again getting behind structured products, hoping that investors will bite. While sales of structured products during 2008’s 4th quarter—at $5.8 billion—was down 75% from the year’s 1st quarter, sales are starting to go up. One reason for this is that certain structured products, such as return-enhanced notes and principal protected notes, are considered safer than reverse convertibles, which led to some of the worst losses for investor.

Ideally, structured products are supposed to provide sturdy profits, while limiting losses, and brokers like them because the commissions are high. However, representatives must still account for why these products haven’t delivered the way investors were told they would. Many investors that bought structured products from Lehman Brothers, such as the Lehman principal-protected notes, incurred some large losses. Some of these notes were bought through a UBS Financial Services office in Houston, Texas.

Until the bear market struck, structured products did incredibly well, and sales almost doubled to $105 billion in 2007 before dropping to $70 billion last year when structured products, collateralized debt loans, and credit default swaps played a huge role in the global financial collapse.

Reverse convertibles are considered the most high-risk structured product—short-term bonds with a large interest that can seriously hurt investors if the underlying stock drops dramatically. Investors can end up with shares with a value far below the principal. For example, 78-year-old Dominic Annino says he invested $300,000 in IndyMac shares and JetBlue shares and lost money after the stocks fell. He filed an arbitration complaint with FINRA and claims that the broker that sold him the Wells Fargo reverse convertibles never fully explained to him what he was getting himself into. Still, brokers are hoping that last year’s stock market fiasco won’t discourage investors from trying structured products again.

Twice Shy On Structured Products? Wall Street Journal Online, May 28, 2009

Understanding Structured Products, Investopedia

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Posted In: Financial Firms , Lehman Brothers , Reverse Convertibles , Structured Products , UBS , Wells Fargo

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June 4, 2009

UBS Financial Services Misled Investors about Lehman Brothers Securities, Says New Hampshire Regulators

According to New Hampshire securities regulators, UBS Financial Services Inc., a unit of UBS AG, misled investors regarding complex securities that were issued by Lehman Brothers before the latter filed for bankruptcy protection in 2008. The Bureau of Securities Regulation says investors were misled when the representatives for the UBS unit told them that the securities were safe, while failing to let them know that Lehman Brothers was in trouble. The state regulators are also accusing UBS of failing to properly supervise the employees that sold the structured products and of engaging in improper sales practices.

Some 42 New Hampshire investors could lose more than $2.5 million from securities underwritten by Lehman Brothers. State regulators have filed a cease-and-desist order against UBS and they are seeking an unspecified sum from the financial firm.

UBS disputes the Bureau of Securities Regulation's allegations. The investment bank claims it didn’t do anything improper when it sold the Lehman products to UBS clients and that its employees engaged in the proper sales practices, followed all regulatory guidelines, abided by client disclosure guidelines, as well as followed firm procedures and industry regulations. The investment bank contends that any losses experienced by investors occurred because Lehman Brothers failed unexpectedly. UBS vows to combat the New Hampshire regulators' allegations.

Already, a number of investors have filed claims against Lehman Brothers. Last year, with $613 billion in debt, Lehman filed the largest bankruptcy in US history. Globally, the collapse of Lehman Brothers resulted in investor losses worth billions of dollars. Many clients have blamed lenders for failing to warn them that Lehman was in trouble.

Meantime, Credit Suisse has offered to pay $140.7 million to compensate more than 3,700 of its retail clients for their Lehman financial products that now have no value.

Securities Fraud Attorney Sam Edwards, partner of the law firm of Shepherd, Smith, Edwards & Kantas says: "While many smaller investors into Auction Rate Securities have now been paid, our firm is representing a number of larger investors, many of whom have millions of dollars that have been frozen for more than a year. Many of these are business which have been crippled by the loss of liquidity of these funds and are seeking resulting business losses."

Related Web Resources:
UBS says will fight New Hampshire Lehman case, Reuters, June 4, 2009

UBS Sold Unsuitable Lehman Securities, New Hampshire Alleges, Bloomberg.com, June 4, 2009

Bureau of Securities Regulation


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November 10, 2008

Protestors in Asia Decrying Lehman Brothers “Mini-Bond” Collapse Could Be A Sign of More Lawsuits and Claims Against US Broker-Dealers

Angry investors in Hong Kong and Singapore began protesting last month over losses they suffered due to the collapse of Lehman Brothers credit-linked notes. Also known as mini-bonds, their value is now at pennies on the dollar, and investors want banks to buy the credit-linked notes back from them.

Investors of Lehman mini-bonds have experienced devastating losses. Reports indicate that financial service firms told Asian investors that Lehman Brothers mini-bonds were a safe alternative to fixed deposits.

Over 30,000 Hong Kong investors suffered losses in Lehman Brothers mini-bonds. Close to 10,000 investors in Singapore could lose more than $338 million dollars as a result of the mini-bond collapse. Last month, 600 Singaporean investors attended a public meeting to ask banks why they sold them Lehman Brothers credit-linked notes. Now, investors in the US that also were influenced by similar marketing messages about Lehman Brothers bonds and other "safe" investments are contacting investment fraud attorneys about filing arbitration claims and lawsuits.

Some lawyers are asking how such an overconcentration of mini-bonds, as well as Freddie Mac and Fannie Mae shares, managed to end up in the portfolios of senior investor who cannot afford to take the kind of financial hits that have come with the market collapse. For example, since July, some Fannie Mae shares have dropped in price from $19.50 to $1.40.

While investor claims against broker-dealers had dropped steadily since 2003 (the lowest number of claims ever, at 3,228, was in 2007), FINRA has already received at at least 3,469 claims this year.

Related Web Resources:

Hong Kong Investors Grapple with Effects of Lehman Collapse

Financial Crisis Politically Awakens Singapore Investors, Reuters, November 7, 2008

Continue reading "Protestors in Asia Decrying Lehman Brothers “Mini-Bond” Collapse Could Be A Sign of More Lawsuits and Claims Against US Broker-Dealers" »

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September 30, 2008

Lehman Brothers’ “Structured Products” Investigated by Stockbroker Fraud Law Firm Shepherd Smith Edwards and Kantas, LLP

This week, the securities fraud law firm of Shepherd Smith Edwards and Kantas, LLP announced that it is investigating claims involving “structured products” that were created by Lehman Brothers. Structured products are also called “structured notes.”

These financial instruments combine derivatives with equities and/or fixed incomes to create a product meant to provide the upside of the stock market along with fixed income security. These notes were usually marketed to conservative investors wanting a reasonable yield, the possibility of a modest gain in principal, and the preservation of capital. Other brokerage houses that marketed structured products to their own clients included Merrill Lynch, UBS, JP Morgan Chase, Citigroup, and Wachovia.

There is a brochure that discusses structured notes sold by Lehman Brothers in August 2008 (just one month before the now defunct brokerage firm filed for bankruptcy) that promised “100% principal protection” and “uncapped appreciation potential” based on Standard & Poor's 500 Index gains. The collateral material also said that, at worst, an investor would regain the principal amount invested within three years. However, Lehman Brothers and other brokerage firms were actually using structured products to cover their operational shortfalls.

Based on findings from its ongoing investigation, Shepherd Smith Edwards and Kantas LLP has found that buyers rarely were aware that any issuer other than the brokerage firm they were working with was involved. These purchases became immediately subject to the issuer’s credit and the investment could lose its value were the issuer to default. This may very well be what has transpired with the structured notes sold by Lehman Brothers.

Please contact our stockbroker fraud law firm today if your financial advisor suggested that you buy a Lehman Brothers structured note.

Shepherd Smith Edwards & Kantas LLP Investigates Claims Involving Lehman Brothers' 'Structured Products', Marketwatch, September 30, 2008


Related Web Resources:

Structured Products, Lehman Brothers

Banking Crisis: Lehman Brothers Files for Bankruptcy Protection, Guardian.Co.UK

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Posted In: Lehman Brothers

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July 21, 2008

SEC Subpoenas Over 50 Hedge Fund Advisors in Probe of Whether Stock Price Manipulation Affected Bear Stearns and Lehman Brothers Shares

The Securities and Exchange Commission has subpoenaed over 50 hedge fund advisors, including SAC Capital Advisors, Goldman Sachs Group Inc., and Citadel Investment Group, as part of its probe into whether rumors affected the shares of Bear Stearns and Lehman Brothers.

The SEC is looking for information related to options trading and short-selling involving the two investment firms. The subpoenas are part of a wider investigation about trades in bank securities and the communications between the hedge funds and others. The SEC has reassured the parties being subpoenaed that they are not necessarily direct targets of the probe.

Last week, regulators announced that they are investigating whether certain managers had spread rumors to cause share prices to drop. Investigators are also trying to figure out whether correct policies and training procedures had been put in place to detect market manipulation.

The NYSE Euronext’s regulatory arm and the Financial Industry Regulatory Authority are also working together to find out about the compliance polices of certain large securities firms related to rumors and false information. The companies are being asked whether they executed internal probes about the rumors related to the sub-prime loan business, a potential federal government bailout affecting several financial institutions, and the use of the Federal reserve discount window.

As a result of the subpoenas, broker-dealers and hedge funds are rushing to provide regulators with trading records and e-mails.

If you believe that you are a victim of securities fraud, please contact Shepherd Smith Edwards and Kantas, LLP for your free consultation with one of our experienced stockbroker fraud lawyers today.

Related Web Resources:

Firms hurry to comply with SEC subpoenas, Boston.com, July 17, 2008

SEC Issues Subpoenas in Banking Probe, TheStreet.com, July 16, 2008

US Securities and Exchange Commission

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Posted In: Bear Stearns , Financial Firms , Goldman Sachs , Lehman Brothers

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March 19, 2008

Wachovia Securities Analyst Comments on Bear Stearns’ Sale and Calls Merrill Lynch the “Riskiest” Investment Bank

In a note to investors, Wachovia Securities Analyst Doug Sipkin commented on the state of the leading Wall Street securities firms in light of the worsening global credit crisis.

Sipkin blamed the “The failure of Bear Stearns” on a “management issue” rather than a “market issue.” JP Morgan Chase & Co. recently purchased Bear Stearns, the fifth largest securities company, for $236 million—that’s $2/share—a 90% market drop in just two days. The securities firm ran out of money after clients took away funds.

Sipkin, however, reassured investors that the action taken by the Federal Reserve to reduce emergency lending rates will keep the other four big securities firms in business.

The Wachovia analyst says that worries about Lehman Brothers are misguided and that the bank has sufficient liquidity to keep business running. Sipkin cited Lehman’s “superior management” and “superior business.”

Lehman and Goldman Sachs are expected to garner new business from the Bear sale. Sipkin said Goldman will likely benefit from “migrating prime brokerage balances,” while Lehman would likely pick up “material market share" in mortgages.

Morgan Stanley, said Sipkin, seems to be weathering the crisis because it has its asset management and brokerage businesses.

Sipkin pointed to Merrill Lynch as appearing to be the weakest of the top Wall Street firms—but said that it would also likely stay afloat, considering that its balance sheet had the highest leverage.

Related Web Resources:

Ahead of the Bell: Investment Banks, Chron.com/AP, March 18, 2008

US stock market drops as Bear Stearns sold for $2/share, Reuters, March 17, 2008

JP Morgan Shares to Acquire Bear Stearns, Bear Stearns


If you have been the victim of investor fraud, you are entitled to the recovery of your lost investment. Contact Shepherd Smith and Edwards today to schedule your free consultation with one of our stockbroker fraud lawyers.

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Posted In: Bear Stearns , Goldman Sachs , J P Morgan - Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley

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January 24, 2008

Deutsche Bank Trust Company, Goldman Sachs Group, and Bank of America Corporation are Among the 21 Lenders Named in Cleveland, Ohio Lawsuit

The city of Cleveland, Ohio is suing 21 financial institutions for hundreds of millions of dollars in damages caused by subprime lending and securitization. The defendants named in the lawsuit are:

• Deutsche Bank Trust Company
• Ameriquest Mortgage Company
• Bank of America Corporation
• The Bear Stearns Companies
• Citigroup, Inc.
• Countrywide Financial Corp.
• Credit Suisse (USA)
• Fremont General Corporation
• GMAC-RFC
• Goldman Sachs Group
• Greenwich Capital Markets, Inc.
• HSBC Holdings, PLC
• Indymac Bancorp., Inc.
• J.P. Morgan Chase Co.
• Lehman Brothers Holdings, Inc.
• Merrill Lynch & Co., Inc.
• Morgan Stanley
• Novastar Financial Inc.
• Option One Mortgage Corporation
• Washington Mutual Inc.
• Wells Fargo & Co.

The city of Cleveland says that the defendants issued loans to people who would never have been able to pay them back and that the foreclosures were inevitable. The lawsuit says that not only did the financial institutions issue loans to ill-qualified borrowers, but they securitized the loans and used the profits to fund more subprime mortgages, make more money, and secure more borrowers.

In the past two years, Cleveland has experienced over 7,000 foreclosures. Entire city blocks have been vacated and violent crime and arson incidents have increased. 1,000 abandoned homes have been torn down. Cleveland is calling the “propagation of subprime mortgages… and the corresponding foreclosures... a public nuisance as defined by Ohio common law.

As a result, the city of Cleveland’s population was 444,000 last year—way down from its nearly one million residents in 1950. The decrease in population size has negatively affected the city’s budget.

The stockbroker law firm of Shepherd Smith and Edwards represents investors who have lost money due to the misconduct or negligent actions of broker-dealers and other financial institutions. Contact Shepherd Smith and Edwards today and one of our stockbroker fraud lawyers will be happy to offer you a free consultation.

Related Web Resources:

Cleveland Sues 21 Lenders Over Subprime Mortgages, Herald-Tribune, January 12, 2008

Read the Complaint (PDF)

Posted by Shepherd Smith & Edwards | | Email This Post

Posted In: Ameriprise - Securities America , Bank of America , Credit Suisse , Deutsche Bank , Financial Firms , J P Morgan - Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , Wells Fargo

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May 27, 2007

Citigroup, Merrill Lynch and Lehman Ex-Brokers Face Retrial in Eavesdropping Case

Three former brokers of Citigroup, Merrill Lynch and Lehman Brothers face a second trial on charges they conspired to commit fraud by allowing day traders to eavesdrop on orders being discussed on investment firms' internal “squawk boxes.” Four current and former executives at the day trading firm A. B. Watley Group will also be retried for their alleged roles in the scheme.

After a seven-week trail seven defendants including these former brokers were acquitted of securities fraud and other charges, but the jury deadlocked on the conspiracy charges opening the door to a retrial.

Prosecutors assert the brokers conspired to give Watley traders access to large orders broadcast over intercoms, or “squawk boxes”, in exchange for cash and commissions. The traders bought or sold stock ahead of the orders in anticipation of share-price swings, prosecutors say.

During the first trial, John J. Amore, Watley’s former chief executive and a prosecution witness, testified he introduced the intercom scheme when he was hired in 2002 as a consultant. Amore pleaded guilty to conspiracy to commit securities fraud prior to the trial.

The law firm of Shepherd Smith and Edwards represents institutional and individual investors in investment claims. Collectively, we have recovered more than $100 million from investment and securities brokerage firms. If you or your firm has sustained significant losses in investments contact us to arrange a free confidential consultation with one of our securities litigation lawyers.

Posted by Shepherd Smith & Edwards | | Email This Post

Posted In: Citigroup , Lehman Brothers , Merrill Lynch , Securities Fraud

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