December 22, 2011

Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence

According to a recent Wells Fargo & Co-sponsored survey, 23% of the 800 Americans with at $100,000 in investable assets who participated reported that they don’t feel confident that they will have enough money saved by the time they retire. 75% said they felt sure that they would have enough. The ones most likely to feel confident are the ones with a written a financial plan, trust that the stock market will take care of their investments, are married, have at least $250,000 in investable assets, and/or are male. Those who felt unsure about their finances for when they retire included those who are single, female, belong to the 40-59 age group, and/or have under $250,000 in investable assets.

Some of the Other Findings from the Survey:
• 48% of those in the 25 to 49 age range want to keep working during their retirement years.
• More men (42%) than women (34%) wanted to keep working even after hitting retirement age.
• Approximately three-quarters of those that are currently working believe that having a specific amount of money matters more than what age they are when they retire.
• Women without a written financial plan and/or with investable assets of over $100,000 but under $250,000 are more likely to believe that they won’t have enough money when they retire regardless of what they do now.
• Nearly 2 in 5 Affluent Americans feel like they should significantly reduce their spending now to save up for retirement
• One-third of those surveyed worry that they won’t be able to leave their children an inheritance because their savings will have to go toward their retirement
• Four in 10 prefer to enjoy life now rather than worry: These people are usually already retired (54%), seniors belonging to 60-75 age group (51%), Democrats (47%), and parents with kids that are already legal adults (44%)
• Parents with kids under 18 (71%), adults belonging to the 40-49 age group (62%), women (65%), and seniors age 50-59 (64%) are the ones most likely to worry about what will happen when they retire.

Unfortunately, there appears to a nationwide rise in investment fraud targeting baby boomers, many who are just (or on the verge of) retiring. The Wall Street Journal reports that many of these older investors found themselves placing their money in high-risk bets to compensate for the losses they suffered during the recently financial crisis.

There are approximately 77 million baby boomers currently live in the US. Of the 3,475 enforcement actions involving fraud in 2010, 1,241 affected investors were 50 years of age or older. According to securities regulators, this number is expected to hit a record figure this year. Enforcement actions involved free-lunch seminars, variable annuities, or the misuse of professional credentials. Common types of senior investment fraud included Ponzi scams, self-directed IRA’s containing bogus investments in gold, real estate, and oil wells, and promissory notes.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LLP represent seniors throughout the US. We know the toll that losing your savings can take on you and your family.
Retirement Fears Jump the Wealth Gap to Strike Many Affluent Americans, Wells Fargo Retirement Study Finds, Wells Fargo, December 14, 2011

Boomers Wearing Bull's-Eyes, Wall Street Journal, December 14, 2011


More Blog Posts:
Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors, Stockbroker Fraud Blog, December 17, 2011

Texas Securities Fraud Over Sale of Allegedly Bogus Annuities to Elderly Seniors, Stockbroker Fraud Blog, December 14, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients, Stockbroker Fraud Blog, November 29, 2011

Continue reading "Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Senior Investors , Wells Fargo

December 17, 2011

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors

To settle Financial Industry Regulatory Authority securities fraud allegations against one of its brokers, Wells Fargo Advisers will pay a $2M fine, as well as repay an unspecified amount to elderly clients that were defrauded. Over 21 senior investors were reportedly targeted by Alfred Chi Chen, who sold them reverse convertible notes even though the majority of them were retired and/or had never invested in this type of complex instrument. A number of investors were in their 80’s and 90’s.

FINRA says that Chen made over $1M in commissions even as the investors sustained losses. He also is accused of not giving discounts on Unit Investment Trust (UIT) transactions even when clients were eligible. As part of its settlement, Wells Fargo will pay restitution to those that should have but did not get the discounts and those that were sold unsuitable investments.

FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that Wells Fargo did not review the reverse convertible transactions to make sure that they were suitable and that investors were harmed as a result. The SRO also determined that Wells Fargo did not give certain clients that were eligible breakpoint and rollover and exchange discounts when they bought UITs because the financial firm’s procedures and systems were not sufficient to properly monitor unsuitable reverse convertibles and ensure that clients got the discounts for which they were eligible. (Discounts should be offered on UIT sales when purchases go beyond certain thresholds or involve termination or redemption proceeds from another UIT during the initial offering period.)

By agreeing to settle, Wells Fargo is not admitting to or denying FINRA’s allegations.

The SRO has filed a separate complaint against Chen, who allegedly exposed clients to risks that were not in line with their investment profiles. As of June 2008, 172 of the accounts he worked with held reverse convertibles. 148 accounts had concentrations over the 50% of their total holdings. 46 accounts had concentrations of over 90%.

Reverse Convertibles
These interest-bearing notes involve repayment of principal connected to an underlying asset’s performance. The specific terms of reverse convertibles may vary. An investor risks loss if the underlying asset’s value drops under a certain maturity level or during the reverse convertible’s term.

It is important for many elderly investors that their investments not expose them to too much risk. For an elderly senior to lose his/her life savings because a financial firm or broker behaved irresponsibly, committed securities fraud, or made an avoidable mistake is unacceptable.

Wells to pay $2M to settle claims broker sold unsuitable investments to seniors, Investment News, December 15, 2011

Wells Fargo Fined by Finra Selling Structured Notes to Aged, Bloomberg, December 15, 2011


More Blog Posts:
Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC, Stockbroker Fraud Blog, July 28, 2011

RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA, Stockbroker Fraud Blog, October 23, 2010

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investors Securities Blog, December 8, 2011

Continue reading "Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: FINRA , Financial Firms , Reverse Convertibles , Senior Investors , Wells Fargo

July 25, 2011

$75K FINRA Arbitration Award Against Wells Fargo Advisors LLC For Defaming an Ex-Employee in Form U-5 is Confirmed by District Court

In district court, Judge Samuel Conti has confirmed a Financial Industry Regulatory Authority panel’s $75,000 arbitration award to Kenneth Schaffer against Wells Fargo Advisors, LLC. It was the financial firm that began proceedings against its former employer last year.

Schaffer accused Wells Fargo of “ending” his career when on a Form U5, which is a Uniform Termination Notice for Securities Industry Registration, the firm provided descriptions of alleged infractions that he said were misleading and had prevented him from being offered another job. He claimed that the reasons given for his firing were pretextual and that he was actually let go over health issues. Schaffer also disputed Wells Fargo's claim that he owed them money for a promissory note. While he said that the financial firm had represented the note as a “sales bonus," Wells Fargo said that after terminating Schaffer’s employment was terminated on October 1, 2009, it should receive the entire $74,617.76 that was owed on a promissory note.

The FINRA arbitration panel, however, agreed with Schaffer and found the promissory notice “unconscionable.” It said that Wells Fargo therefore could not recover on it. The panel also said that because the Form U5 Termination Explanation was of a “defamatory nature," the financial firm was liable to Schaffer for compensatory damages. The court confirmed the arbitration award, while denying Wells Fargo’s motion to vacate, and entitled Schaffer to recover legal fees.

Our stockbroker fraud lawyers are experienced in recovering our clients' losses through FINRA arbitration. We also represent investors with securities fraud lawsuits in court.

Related Web Resources:
Wells Fargo Advisors, LLC v. Shaffer, Justia Dockets

Court Confirms FINRA Award Finding Wells Fargo Defamed Employee in Form U-5, BNA Securities Law Daily, July 13, 2011


More Blog Posts:
AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients, Stockbroker Fraud Blog, May 4, 2011

NASD Form U-5 Notice of Termination Statements Are ‘Absolutely Privileged,’ Says A Divided New York Court of Appeals, Stockbroker Fraud Blog, April 9, 2007

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery, Stockbroker Fraud Blog, May 12, 2011

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Arbitration , Financial Firms , Wells Fargo

May 12, 2011

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery

FINRA is fining Wells Fargo Advisors LLC $1 million over the allegations that the financial firm did not deliver mutual fund prospectuses within the three days (as required by federal securities laws) and delays in the updating of material information about former and current representatives. Wells Fargo has agreed to the fine.

Per FINRA, about 934,000 clients who bought mutual funds two years ago were affected when Wells Fargo did not deliver prospectuses within three days of the transactions. Prospectuses were given to clients anywhere from one to 153 days late. The SRO contends that even after a 3rd provider notified the broker-dealer about the delay, Wells Fargo allegedly did not take corrective action to remedy the problem.

FINRA also says that the financial firm did not abide by the SRO’s rules when it wasn’t prompt in reporting required information about its representatives, both past and present. Securities firms must make sure that the information on their representatives' applications for registration on Forms U4 are current in FINRA’s CRD (Central Registration Depository). Termination notices, known as Forms U5, must also be updated. Financial firms have 30 days from finding out about a “significant event” to update the forms. Examples of such events are customer complaints, formal investigations, or an arbitration claim against a representative. FINRA says that Wells Fargo did not update 7.6% of its Forms U5 and about 8% of its Forms U4 between 7/1/08 and 6/30/09. This resulted in almost 190 late amendments.

By agreeing to settle, Wells Fargo is not denying or admitting to the securities charges. The broker-dealer has, however, consented to the entry of FINRA’s findings.

Related Web Resources:
FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers, FINRA, May 5, 2011

FINRA fines Wells Fargo $1M for prospectus delays, Forbes/AP, May 5, 2011

CRD, Financial Industry Regulatory Authority


More Blog Posts:
AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Client, Stockbroker Fraud Blog, May 4, 2011

Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011

Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud, Stockbroker Fraud Blog, June 30, 2010

Continue reading "Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: FINRA , Financial Firms , Mutual Funds , Wells Fargo

May 4, 2011

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients

Missouri Secretary of State Robin Carnahan says that A.G. Edwards & Sons LLC will pay $755,000 to settle charges over improper annuity sales. The financial firm allegedly sold variable annuities without the necessary documentation to elderly clients. The Missouri’s Securities Division, AG began its investigation because an 18-year-old Missouri resident reported noticing irregularities after the liquidation of a variable annuity.

Per the investigation’s findings, AG Edwards, now known as Wells Fargo Advisors after Wachovia Corp. acquired it and the latter was later acquired by Wells Fargo & Co. (WFC), sold the annuities to elderly clients but failed to maintain proper records of transactions. This lack of proper documentation prevented the annuity sales, which occurred between July 2006 and June 2007, from being in compliance with company policy and state law.

At least 31 Missouri investors were affected by this oversight. They will receive $381,993. The Missouri Investor Education and Protection Fund will get $375,000. The Missouri’s Securities Division will be reimbursed the $50,000 it cost to probe the investor complaint.

In a release issued last month, Carnahan said that she appreciated AG Edwards’s willingness “to work with my office.” She also reminded investors that if they believe their investment is at risk, they can always contact her office for help. Meantime, Wells Fargo Advisors says it is pleased that these “legacy issues” have been resolved.

Related Web Resources:
Carnahan Secures $380,000 for Missouri Seniors, Robin Carnahan, Missouri Secretary of State, April 19, 2011

Poor Record-Keeping Costs A.G. Edwards $755k, Annuity News Journal, April 29, 2011

AG Edwards pays $755,000 to end annuities probe, STL Today, April 20, 2011


More Blog Posts:
Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License, Stockbroker Fraud Blog, March 13, 2010

Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC, Stockbroker Fraud Blog, October 17, 2009

Continue reading "AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: A G Edwards , Annuities , Financial Firms , Wells Fargo

September 9, 2010

Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers

UBS AG unit UBS Wealth Management Americas recently recruited Bank of America Corp.'s Merrill Lynch financial adviser Nina Hakim to join its Westfield, New Jersey office. Hakim, who reportedly managed $300 million in client assets and generated $1.5 million in commissions and fees, will now report to UBS branch Manager Erik Gaucher.

Another new addition to the UBS team is Morgan Stanley Smith Barney adviser Raymond Schmidtke, who will be based in Seattle, Washington. According to regulatory records, Schmidtke, was employed by Citigroup Inc. for over two decades and stayed at the MS joint venture for a year. He reportedly had close to $100 million in assets under management and $1 million in annual production. He now reports to UBS branch manager Shawn MacFarlan.

In other investment adviser news, a team of now former Wells Fargo Advisors advisers has joined Morgan Stanley Smith Barney. Francis Schiavetti and Ben Dembin’s base will be the Boca Raton, Florida office. The team reportedly manages $107 million in client assets and produces approximately $1.2 million in commissions and annual fees. The two men both were employed by Wells Fargo and predecessor firm Wachovia Securities before joining the Morgan Stanley Smith Barney team.

In August, the Financial Industry Regulatory Authority fined and censured Morgan Stanley $800,000 for not making public disclosures, which is required under the SRO’s rules that oversee research-analyst conflicts of interest. FINRA claims that the financial firm also did not comply with a key 2003 Research Analyst Settlement provision when it failed to disclose independent research availability in customer account statements. Every six months, for the next two years, Morgan Stanley must now review a sample of its research reports and certify that they are in compliance with FINRA’s rules.

Related Web Resources:
Hires Merrill Lynch, Morgan Stanley Brokers, Fox Business, August 24, 2010

Morgan Stanley Adds Team From Wells Fargo, Faces FINRA Fine, Investment Advisor, August 24, 2010

FINRA Fines Morgan Stanley $800,000 for Deficient Conflict of Interest Disclosures in Equity Research Reports and Public Appearances by Research Analysts, FINRA, August 10, 2010

Continue reading "Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Merrill Lynch , Morgan Stanley , Smith Barney - Citigroup , UBS , Wells Fargo

June 3, 2010

Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud

A jury has ordered Wells Fargo to pay four Minnesota nonprofits $30 million in securities fraud damages. The Minnesota Medical Foundation, the Minneapolis Foundation, the Minnesota Workers' Compensation Reinsurance Association, and the Robins, Kaplan, Miller & Ciresi Foundation for Children had accused the investment bank of investing their funds in high risk securities and then failing to disclose until it was too late that the investments were going down in value. The same jury has yet to decide the issue of punitive damages

The jury found that Wells Fargo violated the Minnesota Consumer Fraud Act and breached its fiduciary duty to the nonprofits. In the investment program that the Minnesota nonprofits participated in, Wells Fargo would hold its clients’ securities in custodial accounts and use the money to issue temporary loans to brokerage firms for their trading activities. Each brokerage firm posted collateral of at least 102% the worth of the borrowed securities’ value.

While the investment bank had promised that the nonprofits money would be placed in liquid, safe investments, the plaintiffs contend that Wells Fargo put their money in high-risk securities, including asset-backed and mortgage-backed securities. They say that even as the collateral investments’ value became less stable in 2007, the investment bank continued to place more of the nonprofits’ securities out on loan. The nonprofits also claim that when two of the SIV’s went into receivership and they asked Wells Fargo to either redeem their interests or return the securities, the investment bank refused to do so until the collateral investments were sold and the nonprofits made up a shortfall in value.

While the nonprofits are asking for over $400 million in damages, Wells Fargo’s lawyers argue that the actual damages to the plaintiffs was just $14.3 million. According to the bank, “the investments made by Wells Fargo on behalf of our clients in the securities lending program were in accordance with investment guidelines and were prudent and suitable at the time of purchase." Apparently ignoring the claim or puntive damages, the investment bank says it is pleased that the plaintiffs were denied the full amount of damages they had sought. Wells Fargo continues to maintain that it didn’t invest in high-risk securities and that the nonprofits had the choice to get out of the investments if they were willing to pay 102% of the collateral.

Related Web Resources:
Wells Fargo ordered to pay $30 million for fraud, MRNewsQ, June 3, 2010

Wells Fargo Wins Minnesota Verdict on Punitive Damages (Update), BusinessWeek, June 3, 2010

Continue reading "Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Securities Fraud , Wells Fargo

March 31, 2010

UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam

Over two dozen bankers at Wall Street investment firms have been listed as co-conspirators in a bid-rigging scheme to pay lower than market interest rates to the federal and state governments over guaranteed investment contracts. The banks named as co-conspirators include JP Morgan Chase & Co, UBS AG, Lehman Brothers Holdings Inc., Bear Stearns Cos., Bank of America Corp, Societe General, Wachovia Corp (bought by Wells Fargo), former Citigroup Inc. unit Salomon Smith Barney, and two General Electric financial businesses.

The investment banks were named in papers filed by the lawyers of a former CDR Financial Products Inc. employee. The attorneys for the advisory firm say that they “inadvertedly” included the list of bankers and individuals and asked the court to strike the exhibit that contains the list. The firms and individuals on the co-conspirators list are not charged with any wrongdoing. However, over a dozen financial firms are contending with securities fraud complaints filed by municipalities claiming conspiracy was involved.

The government says that CDR, a local-government adviser, ran auctions that were scams. This let banks pay lower interests to the local governments. In October, CDR, and executives David Rubin, Evan Zarefsky, and Zevi Wolmark were indicted. They denied any wrongdoing. This year, three other former DCR employees pleaded guilty.

While the original indictments didn’t identify any investment contract sellers that took part in the alleged conspiracy, Providers A and B were accused of paying kickbacks to CDR after winning investment deals that the firm had brokered. The firms were able to do this by allegedly paying sham fees connected to financial transactions involving other companies.

Per the court documents filed in March, the kickbacks were paid out of fees that came out of transactions entered into with Royal Bank of Canada and UBS. The US Justice Department says the kickbacks ranged from $4,500 to $475,000. Financial Security Assurance Holdings Ltd divisions and GE units created the investment contracts that were involved.

Approximately $400 billion in municipal bonds are issued annually. Schools, cities, and states use money they get from the sale of these bonds to buy guaranteed investment contracts. Localities use the contracts to earn a return on some of the funds until they are needed for certain projects. The IRS, which sometimes makes money on the investments, requires that they are awarded on the basis of competitive bidding to make sure that the government gets a fair return.

Related Web Resources:
JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy, Business Week, March 26, 2010

U.S. Probe Lays Out Bid Fixing, Bond Buyer, March 29, 2010

Read the letter to District Judge Marrero (PDF)


Continue reading "UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bank of America , Bear Stearns , Citigroup , Financial Firms , J P Morgan - Chase , Lehman Brothers , UBS , Wachovia , Wells Fargo

December 11, 2009

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.
• 53% of Wells Fargo Advisors (includes Wachovia Securities and AG Edwards) brokers said their place of work was #1.
• UBS received the least accolades from its workers, with just 1/3rd of its brokers ranking it as the best securities firm workplace.

However, UBS brokers were at the top of the heap for self-reported metrics. According to UBS advisers, they claim an average $101.2 million for assets under management and gross production of $696,032. Other firms:

• Merrill Lynch representatives: $655,250 average gross production; $97.1 million under management
• Morgan Stanley Smith Barney brokers: $84.9 million under management ; $619,961 in production
• Wells Fargo representatives: $80.2 million in client assets; $542,350 in production
• Edward Jones representatives: $364,258 in average production; $58.6 million in assets under management

Yet, as Shepherd Smith Edwards & Kantas, LLP founder and stockbroker fraud lawyer William Shepherd points out, “securities brokers at large firms with average production receive about 30% of their gross production in pay. Brokers at Edward Jones receive about half. Thus, the take home pay for the brokers is not as different as is indicated. In any event, it is notable that the average stockbroker earns about $200,000 per year, a college degree is not required to gain a license, and the training takes only 4 months.”

Related Web Resources:
UBS Reps Least Happy Among Big-Firm Brokers, Wall Street Journal

Registered Rep

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Edward D. Jones , Financial Firms , Merrill Lynch , Miscellaneous , Morgan Stanley , UBS , Wells Fargo

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

Continue reading "Brokers Renew Push for Investors to Buy Structured Products" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

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

June 9, 2009

Morgan Keegan, Charles Schwab and Others Fight as Wells Fargo Unit Settles Claims of Misrepresented Securities in Short Term Bond Funds

Evergreen Investment Management Company, a Wells Fargo unit, has agreed to a $40 million settlement with federal and state regulators over allegations that it misrepresented securities in short-term bond funds. The settlement could be a sign that other fund providers, including Morgan Keegan, Charles Schwab Corp., and Fidelity Investments, may face similar lawsuits. Already bond providers are facing securities fraud lawsuits and arbitration claims from clients that experienced heavy losses from investing in debts that were either high risk or became illiquid.

The Massachusetts Securities Division and the Securities and Exchange Commission had accused Evergreen and one of its affiliates of inflating the value of its Ultra Short Opportunities Fund by up to 17%. The SEC says that this inflated value allowed the fund in 2007 and 2008 to be ranked high compared to other peer funds, when its true value should have placed it closer to the bottom of its class. At the time of the alleged violations, Evergreen was a Wachovia Corp. subsidiary.

With the housing crisis getting worse, Evergreen is accused of not using the information it had access to about mortgage-backed securities when engaging in the valuation process. Evergreen dealt with the fund by adjusting the prices on specific holdings, but only notified a select number of investors about the reasons for the re-pricings, as well as the possibility of adjustments in the future.

The investors that were given this information managed to leave the fund before their shares’ value went down even more. However, the other shareholders that did not receive the preferential information were left at a disadvantage. In June 2008, Evergreen closed the Ultra Short Fund, which, at the time, had $403 million in assets.

By agreeing to settle, Evergreen is not admitting to or disagreeing with the SEC’s findings. As part of the agreement, the Wells Fargo unit will pay $33 million to fund shareholders, $3 million in disgorgement of ill-gotten gains, a $4 million SEC penalty, and $1 million to Massachusetts.

Evergreen settles state, US charges for $40 mln, Reuters, June 8, 2009

Settlement in Mutual Fund Case, NY Times, June 8, 2009

Continue reading "Morgan Keegan, Charles Schwab and Others Fight as Wells Fargo Unit Settles Claims of Misrepresented Securities in Short Term Bond Funds " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , SEC Enforcement , Short-Term Trading , Wells Fargo

May 21, 2009

Wells Fargo Sued Over ARS Sales by California Attorney General for $1.5 Billion

California Attorney General Edmund G Brown, Jr. is suing Wells Fargo Investments LLC, Wells Fargo Institutional Securities, and Wells Fargo Brokerage Services for $1.5 billion. Brown is accusing the Wells Fargo affiliates of violating state securities laws and misleading California investors with false statements about auction-rate securities.

According to the California Attorney General’s securities fraud lawsuit, the Wells units engaged in fraud and deception to sell the securities, neglected to properly train and supervise the agents that sold the ARS, marketed the securities to investors that shouldn’t have been investing in them, and regularly misrepresented the securities when marketing them.

Brown says that nearly 40% of the ARS that the Wells defendants sold are owned by Californians. ARS investors included individuals, non-profits, small businesses, and others that were never fully informed about the risks of investing in theses securities.

ARS sales pitches by Wells Fargo representatives reportedly continued even though there were warnings as early as 2005 from the Financial Accounting Standards Board and others that auction-rate securities should not be considered cash-like equivalents. In November 2007, a Wells Fargo Bank's Trust Department reportedly sent a memo warning against buying ARS.

Following the collapse of the $330 billion ARS market in February 2008, some 2,400 Californians, who were told that their ARS were liquid like cash, were unable to access their investments that ranged in worth from $25,000 to millions.

Brown says he is suing the Wells units because unlike Citigroup, UBS, Wachovia, and Merrill Lynch, the affiliates have not been able restore the securities’ cash value. The California Attorney General wants Wells Fargo to restore the securities’ value, disgorge any associated profits, and pay civil penalties at $25,000/violation.

Wells Fargo Chief Executive Officer Charles W. Daggs says the investment bank is disputing the claims made in the California Attorney General’s lawsuit. He also noted that Wells was among the first in the investment bank industry to voluntarily give clients with frozen securities significant liquidity. Daggs says that since April 2008, these clients have been able to access 90% of their ARP holdings’ par value via non-recourse loans with favorable rates.

Related Web Resources:
Calif. AG sues Wells Fargo for $1.5 billion, News Daily, April 23, 2009

Read the Attorney General's Complaint Against Wells Fargo (PDF)


Continue reading "Wells Fargo Sued Over ARS Sales by California Attorney General for $1.5 Billion" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Wells Fargo

February 26, 2009

Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use

Earlier this month, the chief executives of the eight biggest banks in the United States, including Citigroup, Bank of America, Wells Fargo, and Goldman Sachs addressed the House Financial Services Committee in an attempt to persuade US lawmakers that billions of dollars in bailout funds were used as intended—to increase consumer and business lending and improve balance sheets. The banking heads also admitted to certain mistakes and promised that compensation in the future would be commensurate with performance.

Under the Capital Purchase Program, the federal government gave the banks $125 billion in cash infusions in November. Bank of America and Citigroup also received $20 billion each in Treasury investments.

At the session, some of the bank executives gave testimony regarding activities performed since they received the government’s financial assistance. For example, Kenneth Lewis, Bank of America’s chief executive, says that during 2008’s fourth quarter, the bank committed to $115 billion in new loans.

Vikram Pandit, Citigroup’s chief executive, said his bank had provided $75 billion in new loans for the fourth quarter. He also said that Citigroup had used $36.5 billion to expand personal loans, mortgages, and credit lines for businesses, families, and individuals, as well as to create secondary market liquidity. He said Citigroup had cancelled an order for a $50 million jet.

While the executives were contrite, Committee Chairman Barney Frank criticized them for giving executives bonuses, in addition to salaries. Lawmakers also asked the banks’ executives to stop home foreclosures until the Obama Administration can executive a $50 billion plan on mortgage modifications and other assistance for borrowers that are experiencing problems.

John Stumpf, Wells Fargo's chief executive, said that his bank could hold off on foreclosing on loans in which it is the investor or owner. Pandit said Citigroup could support a moratorium for borrowers that live on properties facing foreclosure. Lewis said Bank of America could place a moratorium on home foreclosure for two or three weeks.

Related Web Resources:
Foreclosures halt by Bank of America, Citigroup, JPMorgan, Wells Fargo, UB-News.com, February 14, 2009

Fed Urges Banks to Put Bailout Funds Into Loans, Not Dividends, Bloomberg.com, February 24, 2009

Continue reading "Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bank of America , Citigroup , Financial Firms , Goldman Sachs , Wells Fargo

December 19, 2008

Senior Investor’s Claim Against Wells Fargo is Remanded on Fraud in Execution by California Court of Appeal

The California Court of Appeal has remanded a lawsuit filed by an elderly woman accusing Wells Fargo of defrauding her and her husband. The case now goes back to the Los Angeles Superior Court, where a judge must determine whether Wells Fargo engaged in fraud when its employees executed its agreement with the couple.

Los Angeles Superior Court Judge Shook had previously concluded that the arbitration clause in the brokerage agreement between Ronnie and Ira Brown and Wells Fargo Bank, NA was unconscionable. However, he had decided that it was up to a jury to decide whether constructive fraud occurred. If Shook now decides that Wells Fargo did engage in the alleged fraud, the arbitration clause and any other portion of the agreement could then be determined unenforceable.

Sometime between 2003 and 2004, Wells Fargo assigned company vice president and trust administrator Lisa Jill Tepper to serve as Ira and Ronnie Brown's “relationship manager.” Ira Brown, who was 93 at the time and suffering from health issues (he has passed away since), founded the Save-On Drug chain. His wife, Ira, was 81.

Tepper, who is now a defendant in this case, visited the Browns regularly to assist with their financial paperwork. She eventually began providing the couple with investment advice. At one point, she recommended that they open a Wells Fargo brokerage account because she believed that their other investments were inappropriate due to their advanced age. Through Tepper, the couple began working with Wells Fargo stockbroker Jack Harold Keleshian, who is now also a defendant in the case.

With Tepper and Keleshian’s help, the couple opened up a number of investment accounts, including a “Brown Family Trust.” An arbitration clause was included among the documents.

In 2006, Ronnie sued Wells Fargo. She claimed that when she was under duress while caring for her ailing husband, the bank pressured her into selling nearly 75,000 stock shares at $24.71. She says Keleshian told her that if she didn’t sell, the stock’s value would drop dramatically.

Instead, the stocks increased in value while Ronnie experienced an increase in capital gains taxes. Ronnie claims her damages were over $1 million (including Wells Fargo’s commission from the stock sale). Wells Fargo wants to resolve the dispute through arbitration.

Related Web Resources:

C.A. Orders Hearing on Claim Bank Defrauded Drug Chain Founder, MetNews.com, November 26, 2008

Brown v. Wells Fargo Bank N.A., Cal. Ct. App., No. B196258 (PDF)

Continue reading "Senior Investor’s Claim Against Wells Fargo is Remanded on Fraud in Execution by California Court of Appeal " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Broker Fraud , Financial Firms , Senior Investors , Wells Fargo

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 & Kantas LTD LLP | | 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

July 3, 2007

Wells Fargo and its Former Research Director Fined Over Undisclosed Conflict

NASD levied a fine of $250,000 against Wells Fargo Securities LLC and $40,000 against its former research director, plus other sanctions, for failing to disclose that the lead analyst on reports issued on a company had accepted a position with that company.

The research reports concerned Cadence Design Systems, which designs semi-conductors for use in the global electronics market. According to the NASD, the analyst had applied for a job with that company prior to issuance of a report in 2005, and had two job interviews prior to issuance of others, none of which was disclosed in the reports.

The NASD’s sanctioning order states that the analyst was then offered a position at Cadence to earn over $300,000, plus Cadence stock and options, which she disclosed to the Wells Fargo and its head of research. Yet, weeks later Wells Fargo published a third research report favorable to Cadence, without disclosure of the hiring.

"The actions announced today should remind brokerage firms and research analysts of the importance of full disclosure of conflicts of interest in research reports," said the NASD’s Head of Enforcement. "There is no doubt that, where a research analyst is pursuing employment or has accepted a job with a covered company, NASD rules require that information concerning such a clear conflict of interest must be disclosed in research reports."

The analyst was also charged over her alleged role but is fighting the charges. Her lawyer called the allegations a "departure from the industry's current understanding of the rules," adding that the charges "ignore the plain language of the rules, which place the burden of disclosure in a member's research report on the member itself", meaning the disclosures were Wells Fargo’s duty, not that of the analyst.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Analysts , NASD Enforcement , Wells Fargo

Call for a Free Consultation
(800) 259-9010

Contact Us

The code above is for the protection of your information.

Browse

  • Topics
  • By Date
  • Search
Topics
By Date
Search

Recent Entries

Legal Blogs