Stock Broker Fraud Blog

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

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

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

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

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

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

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

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

Morgan Stanley

Continue reading "Morgan Stanley Court Case Demonstrates Why Securities Arbitration is Often a Better Forum" »

In the US District Court for the Southern District of New York, UBS AG was named as a defendant in a class action lawsuit alleging that the company engaged in a tax scam designed to help rich US investor avoid federal taxes. The plaintiff in the case is the New Orleans Employees Retirement System, which includes purchasers that publicly traded UBS securities between May 4, 2004 and January 26, 2009.

The 120-page complaint says that UBS would encourage analysts and investors to consider “new net money” that came to the investment bank during each reporting period as a major indicator of the company's performance and future prospect. The securities fraud class action lawsuit, however, contends that UBS employed a fraudulent scam to lure a material amount of this “new net money.” This scheme also helped extremely rich US investors avoid federal taxes by placing billions of their dollars in undeclared Swiss bank accounts.

The New Orleans Employees' Retirement System claims the investment bank's Swiss bankers acted improperly and violated Securities and Exchange Commission regulations when they sold securities in the United States even though they lacked the necessary licensing. The plaintiff contends that UBS's fraudulent actions led to the firm generating fees worth hundreds of millions of dollars each year and that these funds were used to create more loans through fractional lending.

The lawsuit also accuses UBS of taking action to conceal the tax scam from investors, the Internal Revenue Service, and the Department of Justice while purposely making it appear that the firm’s Wealth Management division was growing at an unprecedented pace.

The plaintiff says UBS's claims that it had “robust internal controls” and “state of the art risk management tactics” were misleading and false because while UBS was providing these reassurances to investors, it was in fact engaged in its tax evasion scam.

In addition to UBS, defendants in the class action case include Marcel Ospel, Phillip Lofts, Peter Wuffli, Mark Branson, Peter Kurer, Martin Liechti, Peter Kurer, and Raoul Weil.

The putative Class is seeking billions of dollars in damages.

Related Web Resources:
The New Orleans Employees' Retirement System, Through Its Counsel Labaton Sucharow LLP, Files Class Action Lawsuit Against UBS AG in Connection With Tax Haven Scheme -- UBS, Trading Markets, January 30, 2009

UBS AG

New Orleans Employees' Retirement System v. UBS AG, Justia Docket

Continue reading "UBS Sued by New Orleans Employees’ Retirement System for Alleged Tax Scam that Helped the Rich While Causing Investor Losses " »

In New York, a judge has approved the decision by investors of a Citigroup Falcon Fund to drop their lawsuit asking for more data about how the bank plans to liquidate the fund.

On February 22, Citigroup announced it was providing the Falcon Funds a $500 million line of credit and consolidating $10 billion in liabilities and assets.
Citigroup began suspending distributions and redeptions and started closing down the fund in March. The fund’s value dropped by 80% and Citigroup offered to pay investors 45 cents for every dollar.

The investors had been asked to tender shares of Falcon Strategies Two LLC, but they wanted corrections made to the offering memo because misleading and missing information made it impossible for them to value their stakes. U.S. District Judge Sidney Stein, who this week approved the withdrawal of the investors' class action suit, rejected their motion to push forward the lawsuit about the tender offer. He said the plaintiffs were trying to turn the securities laws' anti-fraud provisions into provisions of broad disclosure.

The Falcon Funds mainly invested in fixed-income securities and other debt instruments, and they may have been exposed to weaknesses in the mortgage, credit, and bond markets. Citigroup brokers are accused of recommending the funds to investors looking for conservative investments when, in fact, the funds may have been accompanied by a high level of risk.

Related Web Resources:

The Law Firm of Shepherd, Smith, Edwards & Kantas LLP Investigates Losses in Falcon Hedge Funds, Primenewswire.com, July 2, 2008

Citigroup Alternative Investments LLC : Falcon Strategies Two B LLC Hedge Fund, Stanford Law School

Continue reading "Judge Approves Citigroup Falcon Fund Investors’ Decision to Withdraw Lawsuit" »

Lawyers have filed a class action suit against Morgan Stanley for a group of former Eastman Kodak employees they say were persuaded to retire early and invest their retirement assets through Morgan Stanley.

According to the Dow Jones News Wire, the class action is seeking nearly a half billion dollars in damages from Morgan Stanley because its brokers advised the Kodak employees retire early with promises of financial security that never materialized. One of the attorneys estimates 1,000 investors or more are involved. If so, the claim seeks approximately $500,000 per former Kodak retiree.

Firms which report the results of class action cases estimate that recovery in securities class action cases is LESS THAN THREE PERCENT of the actual losses to investors! If one were to assume that 1,000 Kodak retirees lost, on average, $500,000, each may receive LESS THAN $15,000 according to this average.

Claims against brokerage firms for enticing employees to retire early in order to invest their retirement assets are not uncommon. In fact, such retirees’ claims are usually much more likely to be successful than those of other investors. A few have even resulted in awards of full recovery of losses, plus the retiree’s legal fees and costs. Securities attorneys report that brokerage firms are often likely to settle such individual claims for the majority of the losses.

As well, individual claims for investment fraud victims usually take much less time than lengthy class actions. For example, claim forms are now being sent to Enron investors based on their losses from 1997 to 2001. Eight to ten years is a long time to wait and, in fact, many Enron shareholders have likely misplaced or destroyed their records.

When class action claims are filed, class members can instead chose to hire their own attorney. By doing this, they often recover far more than victims who simply accept whatever outcome is obtained in the class action.

Class action cases for a few hundred or a few thousand dollars in losses by each victim can make sense. Even a small recovery is better than none. Yet, those with claims of $50,000 or more should instead discuss their options with an attorney skilled that area of the law and in representing victims in their own claims. Free consultations can be available to do this.

The securities fraud speicialists at Shepherd Smith and Edwards law firm have represented thousands of investors in securities arbitration against hundreds of securities firms, including Morgan Stanley and other major U.S. stock brokerage firms. Our experienced attorneys and staff assist retirees and other victims of wrongdoing of investment brokers, advisors or their firms. If you or someone you know might be a victim of such conduct, contact Shepherd Smith and Edwards for a free case evaluation by one of our attorneys.

Usually lawsuits must be filed within a few years after the wrongful acts, or when one knew or should have known of the wrongdoing. For example, federal and most state securities laws require lawsuits to be filed by 2 or 3 years after the problem is known or made public, but no later than 5 years in any event.

However, if a class action is filed on behalf of shareholders, this “tolls” the limit for filing a case for those the case seeks to represent. If, for example, if a shareholder decides to “opt out” of the class action, or it is later decided the class action can not be maintained, the “window” for such shareholders to file their own cases remains open. (Caution: The remaining time to file a case may then be quite short.)

WorldCom Inc. bondholders were in this position. A class action was filed, including a class of bondholders. Some of these bondholders decided to file their own case before the class was “certified” (when the court decides whether the class members have claims common to all of them, etc.) Using strange reasoning, the federal judge presiding over their case decided that, because these bondholders did not wait for the class to be certified, they could not use the tolling benefit of the class action. Because the case was otherwise filed too late, it was dismissed.

The U.S. Court of Appeals for the Second Circuit disagreed and reversed that decision. (In re WorldCom Securities Litigation, 2d Cir., No. 05-6979-cv, 7/26/07). The appeals court said that the initiation of a class action puts defendants on notice of the claims, whether or not plaintiffs choose to become part of the class and whether or not they file their cases before the class is certified.

Victims of securities fraud are often included in class actions without their knowledge. Often they are notified of class actions years later. Either way, class actions can keep the window open to file lawsuits for as long as a decade. Currently Enron shareholders await word from the U.S. Supreme Court whether the recent dismissal of their case against Merrill Lynch and others will become final. If so, they could individually or in small groups sue Merrill Lynch and the other defendants. All Enron shareholders should already be in contact with an attorney.

Shepherd Smith and Edwards represents victims of securities fraud. If you, your company or pension fund, or someone you know lost in Enron, it is worthwhile to learn whether it is too late to act. For more information contact us today to arrange a free consultation with one of our attorneys.

WIth securities class actions being dismissed at an alerming rate and charges being filed against high-profile securities class action attorneys, it's not suprising that securities class action filings fell 42% in the first half of 2007. In fact, this is the fourth consecutive semi-annual drop in filings of such cases, according to the Stanford Law School Class Action Clearinghouse and Cornerstone Research.

The study group has propounded a variety of possible theories for the precipitous drop in securities class actions. One absolutely preposterous theory, unsupported by data, is that securities fraud has dropped because of prior settlements and fines. A spokesman from the Stanford group states: "Economic theory suggests these factors should lead to a decline in the incidence of fraud--exactly what we have seen occur since the middle of 2005."

Another of the group's questionable explanations for the decrease in securities class action filings is a "strong stock market" hypothesis. Under that hypothesis, decreased levels of class action filings correlate to a strong stock market with low volatility. Yet, historical data also does not support this hypothesis.

Meanwhile, no mention was made in the group's report of the chilling effect of the wholesale dismissal of large numbers of class action cases by Wall Street friendly judges, for example, the case filed by Enron shareholders against Merrill Lynch and other firms. One Stanford Group spokesmen mentioned, but dismissed, any possible effect of indictments, guilty pleas and threats currently persued against leading class action attorneys by politically appointed federal prosecutors.

Judging from its irrational thinking, this study must have either been conducted in Stanford’s “Ivory Tower” or, more likely, the study group is funded by Wall Street, insurance companies and/or other anti-lawsuit factions.

Although securities class action claims may soon be extinct Shepherd Smith and Edwards specializes in representing clients one at a time. We have served thousands of individual and institutional victims of misconduct by members of the securities industry. Hiring an experienced law firm can greatly increase your chance of recovery. To learn whether your or your firm's investments were mishandled contact us to arrange a free consultation with one of our attorneys.

Related Web Resources:

The Stanford Group's latest mid-year report of securities class action claims.

Defrauded Enron shareholders recently lost again, this time as victims of federal judges who seem intent on helping Wall Street crooks rather than Wall Street victims. With their case before the U.S. Supreme Court, the Enron shareholders lost yet again when the SEC and Bush Administration, who had indicated they would intervene, missed a deadline. Now, three former SEC Commissioners are asking the Supreme Court to allow them to intervene to help.

In 2001, the total value of Enron shares plummeted from over $80 billion to almost zero. Enron officials and its auditors were indicted, several persons were convicted and some are now serving jail terms. The auditing firm of Arthur Anderson was forced to close. The scandal then turned to several Wall Street firms which are claimed ot have played a large role in assisting Enron to falsify its books.

Several individuals and firms were accused - and four former Merrill Lynch Brokers were convicted of by a jury - for arranging loans to appear as sales in order for Enron to book the loans as profits. Yet, just as the Enron shareholders’ claims against Merrill Lynch were headed for trial, business-friendly appointed appellate judges dismissed the case.

The judges’ decision stated that the federal securities law simply does not allow investors to recover from Wall Street firms that assist companies to defraud them. (Changes by Congress in the last decade forbid securities class actions to be filed under any other law.) The Enron shareholders then appealed to the Supreme Court to try to reinstate their case.

Because this is the same law the SEC must use to regulate Wall Street participants, one would think the “Wall Street police” would object to being hamstring by this outcome. However, the politically appointed SEC commissioners now take the side of Wall Street firms rather than the investors it is designed to protect. In fact, the SEC did nothing on the Enron case until embarrassed by the press into stating it would intervene on behalf of the investors.

The SEC says it submitted documents to the Office of the U.S. Solicitor General, which speaks for the Bush administration before the Supreme Court. However, the Solicitor General’s office says it did not accept the SEC's position and instead allowed the deadline to pass for filing legal briefs in the case. That decision came after both President Bush and Treasury Secretary Henry Paulson said that if the Enron shareholders were allowed to win this would put U.S. companies at a disadvantage to foreign rivals and expose businesses to liability for fraud.

Shocked by the situation, a bipartisan group of former SEC leaders, including former SEC Chairmen William H. Donaldson (R) and Arthur Levitt (D), and former SEC Commissioner Harvey J. Goldschmid (D), have now asked the Supreme Court for permission to submit their own post-deadline brief on behalf of the Enron shareholders calling this a "critical" case.

"Holding liable wrongdoers who actively engage in fraudulent contact that lacks a legitimate business purpose does not hinder, but rather enhances, the integrity of our markets and our economy," wrote their lawyers, New York University law professor Arthur R. Miller and former SEC lawyer Meyer Eisenberg. "We believe that the integrity of our markets is their strength."

Federal Prosecutors in the Bush Administration also seek to put the Enron shareholders' lead attorney in jail and recently indicted his former firm and law partners.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. If they fail in their appeal, we plan to represent many of the Enron shareholders in individual claims against Merrill Lynch and others. To learn whether we can assist you in a claim contact us to arrange a free confidential consultation with one of our attorneys.

According to the Government Accounting Office (GAO) Americans over 65 hold more than $15 trillion in assets and, with "Baby Boomers" soon reaching retirement age, that figure will likely balloon. As financial firms, including insurance companies, design products aimed at this pot of gold, scam artists lick their chops for a piece of the action. Unfortunately, their paths cross.

As we very recently reported, a federal judge in Hawaii dismissed a class action suit against Midland National Insurance saying that, because different sales pitches were used by different salespersons, the claims by elderly Hawaiians can not go forward. Meanwhile, regulators warn that scam artists are selling insurance products to the elderly. Thus, it appears that insurance companies can simply look the other way while con artists victimize the elderly using their annuities. [OUR FIRM PURSUES CLAIMS ONE AT A TIME TO AVOID THIS PROBLEM.]

A NY Times article today reports that a Massachusetts insurance agent became a "certified senior adviser" then advertised this and other credentials to retirees. Yet, he did not mention how easily he received that title: He paid $1,095 for a correspondence course, then took a multiple-choice exam with dumbed-down questions. The agent, and over 18,700 other applicants since 1997, passed the course.

The article further states that insurance companies, eager for sales representatives, embraced this agent as they have thousands of other such newly credentialed advisers. As his retiree business boomed, insurers paid the agent commissions over $720,000 the following year.

Massachusetts regulators then stepped in, filing a lawsuit claiming the agent improperly sold annuities and other products to the elderly. While the agent denies any wrongdoing, one of his clients - a 73-year-old widow caring for a son with Down syndrome - said he tricked her into buying complicated insurance contracts that left her unable to pay dental and home-repair bills. "His office was filled with things saying he was certified to help seniors," she said

According to the Times article, this salesman is one of tens of thousands of financial advisers who work hand-in-hand with insurance companies to reach "older Americans using impressive-sounding credentials like 'certified elder planning specialist,' 'registered financial gerontologist,' 'certified retirement financial adviser' and 'certified senior adviser'."

In only a few days, titles are obtained sounding similar to "certified financial planner" (CFP), and other credentials that require years of study, difficult tests and extensive background checks. "The degree isn't worth the paper it's written on," said another Massachusetts financial adviser, who took the certified senior adviser exam but does not use the credential. "It's a scam - a way to put a title on a business card that impresses gullible seniors," he said.

Advocates of the elderly complain that scam artists, many using such credentials, often give financial advice they are not qualified to offer. Yet, an overwhelming number are being paid by country's largest insurance companies - including Allianz Life, Old Mutual Financial Network and American Equity Investment Life Insurance - to sell elderly clients complicated investments that economists say most retirees should never own.

Some programs linked to insurance companies have taught agents to use abusive sales techniques, regulators say. Allianz, Old Mutual and American Equity have been listed as sponsors of seminars with names like the "Million Dollar Academy", where thousands of sales representatives were advised to scare retirees by saying, "I am all that stands between you and potential catastrophic loss." Other seminars instructed agents to "drive a wedge" between retirees and their established advisers.

"The insurers are happy to turn a blind eye to what salesmen are doing, as long as they make a sale," said Minnesota's attorney general, who is suing several companies, including Allianz, contending their products are inappropriate.

Allianz, Old Mutual and American Equity, whose revenues last year were a combined $163 billion, said they investigate the backgrounds of all agents, screen all sales to consumers to make sure they are appropriate, and have terminated representatives using improper sales methods. Those companies said they were not aware of abusive methods taught at any seminar they endorsed and otherwise distanced themselves from such tactics.

The North American Securities Administrators Association, an association of state regulators, reports that over one-third of all cases of financial exploitation of the elderly involve annuities. Hundreds of class actions have been filed against insurers over annuity sales to the elderly, including one in Minnesota against Allianz for nearly 400,000 plaintiffs. Yet, the latest ruling in Hawaii may change that.

Sales agents accused of wrongdoing say they followed the guidance of insurance companies. "I did what I was told," says the agent charged by Massachusetts regulators ..."If it was so wrong, why did everyone let me do it for so many years?"

Meanwhile, insurance companies pay commissions on annuities which are often two, three or even 10 times the amount paid on mutual funds, which have more strictly regulated cost disclosures. Such high and difficult to ascertain commissions are no doubt a factor in why annuities sales, according to the Insurance Information Institute, reached $182.8 billion last year.

Shepherd Smith and Edwards is a securities litigation firm dedicated to helping those who are victims of investment fraud to recover their losses. We have filed hundreds of claims involving improper sales of annuities to retirees and others. Contact us today to schedule a free consultation.

Related Web Resource:

Referenced New York Times Article

A judge in The U.S. District Court in Honolulu ruled that those who lost in annuities cannot bring a class-action suit against the annuity insurer, despite potential misleading and deceptive actions by the insurance firm. [Yokoyama et al. vs. Midland National Life Insurance Company.]

Lawyers representing the plaintiffs in the case alleged the defendant, Midland National Life Insurance Company, sold elderly Hawaiians inherently unsuitable, deceptive indexed annuity products that were designed to hide the true cost of an early contract cancellation.

The court cited two reasons it denied the class action against Midland. The first was that, whether or not Midland's actions were misleading or deceptive, different sales pitches by different insurance salespersons were made to those purchasing the annuities, therefore the investors did not have similar claims. The second, said the judge, was that the losses were not caused by the alleged misleading actions, but by changes in the securities market.

A comparison would be to say that: Although batches of tires were defective, the tire salespersons made different statements about how good the tires were and, although the tires exploded in the summertime, it was the heat not the tires that caused the explosions.

Sound Stupid? It is!

Yet, this is just another blow to investors who have been decimated court rulings over the past few years which have denied their claims against large financial firms. Once again, as the judge admitted, the court decision was based solely on procedural grounds, without any consideration of the actions which are claimed to have harmed those sold the annuities.

This is what those crying for "tort reform" and against "frivolous law suits" have been seeking all along: Change the law so insurance companies will not have to pay grandpaw when he is sold an annuity as a safe place for his pension savings, only to have the annuity lose half its value.

This may not have what you had in mind when you voted for those who said the the court system should be changed - but it is what you got. The question now is: How many legal rights will Americans have to give up before they "Get it?"

By: William S Shepherd

William Shepherd is the founder of the law firm of Shepherd Smith and Edwards a securities law firm that represents investors seeking recovery of losses in their accounts at investment firms. Cases such as these DO NOT prevent nvestors from seeking their own indivisual cliams against those who have decieved them. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

A Texas judge dismissed a shareholder class action against the directors of energy firm TXU, holding that, under Texas law, shareholders of a company can not sue that company's directors. Thus, shareholders can only sue the company itself, which is really suing themselves. Meanwhile, the company can sue the board members but, since the board members would decide that, what is the likelihood? (An arcane action known as a shareholders derivative suit can be filed by the shareholders, if they can demonstrate the board should have initiated the action - against themselves - but did not.)

The lawsuit filed by the TXU shareholders claimed the directors violated their fiduciary duty in agreeing to acquisition of TXU by a private equity firm for $45 billion paid to the shareholders. Were the shareholders cheated? We will never know, will we, because the suit was dismissed, meaning that these and other shareholders can't sue a company’s directors - at least not in Texas.

If you learn of job openings for Corporate Directors, apply fast – and give me a call!

By: William S Shepherd

William Shepherd is the founder of the law firm of Shepherd Smith and Edwards a securities law firm that represents investors seeking recovery of losses in their accounts at investment firms. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

As a former Vice President and registered representative at several major brokerage firms for 20 years, I witnessed Wall Street in action. My assessment of Wall Street is that the majority of the 600,000+ registered representatives at over 5,000 brokerage firms are fairly honest people who seek the best interest of their clients. Unfortunately, there are some “bad apples” in that barrel – brokers who seek to line their own pockets with little regard for their clients.

Yet, it is not so much the apples but the “orchard” that is most troubling today. When I began my investment career in 1970, those running investment firms sought to take care of their clients and maintain their firm’s image. Over the following 20 years, I witnessed their profit motive increasingly outstrip those goals.

Today, it is clear that most financial firms pay little more than lip-service to their clients' welfare. In the past decade, those who run these firms have discovered an important fact: Crime pays on Wall Street! The best example is the widespread research scandal which led to massive investigations, fines and lawsuits.

Yet, the fines paid were relatively small and most of the lawsuits were dismissed. Heavy duty lobbying by Wall Street had changed laws, for example to limit class actions to claims for fraud under federal laws in federal courts, with no recovery allowed from those who assist in the fraud. To make matters worse, the first case was decided by a 96 year old judge in the heart of Wall Street, who stated that the vast majority of investors just wanted to gamble anyway.

The bottom line is that the Wall Street firms identified in the investigations generated well over $100 billion as they misled investors to increase their profits, but have paid about 5% percent of those revenues for their transgressions. Meanwhile, as other major scandals continue to surface, the investment firms involved continue to make record profits.

How many in the public know that primary regulation of Wall Street firms is by an association owned and operated by those firms? The Securities and Exchange Commission is the government's agency created to protect investors, but it is instead busy lowering restrictions on investment firms and lending its weight on the side of firms sued by investors, including at the U. S. Supreme Court.

Fortunately, individual claims filed by investors have fared better than class actions. Although the mandated securities arbitration process investors must use to recover from brokerage firms is another subject of concern for those who fight for investors, it does offer a fighting chance of success.

Meanwhile, the quality of fruit on Wall Street is not likely to change until that orchard is “fumigated for bugs" through legislative changes.

By: William S Shepherd:

When I left the securities industry in 1990, I agumented a law degree with a Master of Law (LLM) in Securities Regulation from Georgetown Law School. I then founded the law firm of Shepherd Smith and Edwards. We have since represented investors in almost 1,000 securities arbitration claims nationwide and are one of the largest in the U.S. specializing in such claims. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

Today was "Black Friday" for Brookstreet Securities, as it closed for business. The firm's 650 independent contractor brokers have been terminated, says Stanley Brooks, President of the firm. Brookstreet clients are left in limbo, many with huge losses in their accounts.

As reported earlier this week, Brookstreet Securities Corp, based in Irvine, California, told its agents that "disaster" had struck and it was in eminent danger of folding. The e-mail communication (previously posted on this site) claimed this was as a result of mark-downs on collateralized mortgage obligation securities (CMOs) by Fidelity's National Financial Services (NFS), which cleared trades and maintained accounts for Brookstreet.

Some of Brookstreet's clients report that their accounts continued to fall in value this week. Yet, if they attempted to do anything NFS told them they must to talk to their (Brookstreet) broker, but their broker was not answering the phone. Meanwhile, Some of these clients' margin accounts slipped into the "red", meaning not only have these investors' funds disappeared but NFS now claims the investors owe it money!

Brooks said the firm had a value of about $17 million at the end of May which has evaporated. He said he turned down several tentative offers to recapitalize the firm. "I am flabbergasted," said Brooks, 59. "My life's work is gone."

William S. Shepherd, founder of Shepherd Smith and Edwards a law firm which represents investors nationwide in claims against financial firms states:

"I have met with and had favorable dealings with Mr. Brooks in the past and consider him to be a decent person. I would be surprised to learn he personally cheated his clients. However, there are apparently many Brookstreet investors whose accounts have also 'evaporated'. Many lost retirement and other savings, meaning their own "life's work is gone". These victims likely face a financial situation worse than that of Mr. Brooks."

We at Shepherd Smith and Edwards have claims pending against Brookstreet Securities, are in the process of filing new claims and are taking steps toward a class action. If you or someone you know has suffered losses, contact us to arrange a free confidential consultation with one of our attorneys.

More information about the situation at Brookstreet Securities

Claims are being filed and steps are being taken toward a class action to assist investors recover their losses after Brookstreet Securities reportedly advised its 500 brokers via E-mail that "disaster" had struck which could soon close the firm! Text of the firm's internal e-mail is as follows:

"Disaster, the firm may be forced to close...

"Today, the pricing system used by National Financial has reduced values in all Collateralized Mortgage Obligations. Many of those accounts were on margin and have suffered horrendous markdowns and unrealized as well as realized losses.

"National Financial and the regulators expect Brookstreet to pay for realized liquidated losses and take a capital charge for unrealized mark to market losses. This firm has done a valiant if not Herculean job of managing the liquidations and capital charges to the firm's net worth and net capital. We had reduced the margin balance significantly; we had liquidated and reduced exposure by 80%.

"That still left a $70,000,000 margin balance against around 85,000,000 of value. Unfortunately the pricing service used by NF revalued many CMO positions downward last night. We went from a positive net capital of 2.4 million, down from 11 million at the end of May, a negative net capital of 2.1 million. It would take a capital infusion of at least $5,000,000 to keep the company in compliance with no guarantee that additional markdowns will not be forth coming.

"I cannot in good conscience request that anyone put money in the firm, I think $10,000,000 could be a minimum without consideration of the horrific customer complaints to follow.

"I have told many of you that you are always in danger of not being paid on your last check when working for any broker dealer, which is why I have always paid twice per week and maintained huge net cash positions, generally in the realm of 15,000,000 on average. I will try to get enough money from our account at NFS to complete our upcoming payrolls.

"Since I have been writing this letter I have received three hurried inquiries about re capitalizing the company. I will negotiate an arrangement that guarantees that everyone gets paid, to the best of my abilities. Please stay at Brookstreet at least until Friday so I may do my best for each of you. Unfortunately we are on 'SELL ONLY.'

"I believe I will be able to reconstitute another opportunity for everyone that will result is a minimum of change and disruption. There will be disruption. Please give a day or so for us to come up with the best strategy. This has happened to us in one day, amazing. All of our family net worth is in the firm, please give me time to present a new plan."

Brookstreet operates through independent contractor brokers nationwide and last year generated approximately $70 million in gross revenue. The firm was founded by Stanley Brooks who, with family members, reportedly owns 75% of the firm.

The law firm of Shepherd Smith and Edwards represents investors nationwide in claims against investment firms. We have represented investors in claims against Brookstreet Securities and have a number of new clients who recently lost in their accounts at that firm. We have also taken steps to institute a class action. To learn whether we can assist you or inquire about joining a class action, contact us to arrange a free confidential consultation with one of our attorneys.

Shareholders of mutual funds Janus Capital Group may not pursue a class action claim that the company violated federal securities laws by permitting hedge funds to engage in market timing with the shares of mutual funds operated by Janus, the U.S. District Court for the District of Maryland ruled.

In recent years, the U.S. Congress has been persuaded to limit class actions involving securities only to claims under federal securities laws. Meanwhile, federal securities claims are limited to misrepresentations and omissions in the purchase and sale of securities and do not, for example, include claims for actions which are simply fraudulent or negligent. Furthermore, courts have decided that no one can be held liable for assisting, or "aiding or abetting", others in violating federal securities law. Such limitations enabled Janus avoid its responsibility and have the class action against it dismissed.

In their complaint, the plaintiffs, purchasers of Janus Group stock, alleged that the Janus Funds misstated in their fund prospectuses their policies regarding market timing and late trading.
Specifically, the prospectuses said the funds were "not intended for market timing or excessive trading" and that measures were in place to stop such practices.

The plaintiffs then claimed that in fact the mutual funds permitted several hedge funds to engage in market timing transactions. The plaintiffs further claimed that the price of Janus Group stock declined significantly after such practices were revealed to the public and investors began to withdraw money from the funds. T

In dismissing the "parent investor class action" filed under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the federal judge also that, since the shareholders were unable to sufficiently allege that Janus Capital Management -which manages the Janus Funds-- or made a false statement of material fact in connection with the shareholders' purchase or sale of a security that those claims should also be dismissed.

The judge further decided that, since the Janus Group did not actually make or prepare the prospectuses, or create the statements included in them, it
could not be held liable for fraud. Although the plaintiffs argued that
the fact that the prospectuses included Janus's logo, name, and Web site should make Janus Group liable for the allegedly misleading statements, the court said that such a proposition is "far from self-evident, and plaintiffs cite no authority in support of it."

The court also rejected the contention that the funds' dissemination of the prospectuses was sufficient to hold Janus Group liable for the misstatements, since it could not be held liable for aiding and abetting the fraud, for the reasons stated above, stating that courts have already "simply rejected the proposition that dissemination of a misleading document is tantamount to making a misstatement for securities fraud purposes."

However, investors who lost in the Janus mutual funds or other investments may be able to seek recovery of losses if their accounts were mishandled. The law firm of Shepherd Smith and Edwards represents investors nationwide in claims against stockbrokers, investment advisors and their firms. To learn whether we can assist you, contact us to arrange a free confidential consultation with an attorney.

Following the 2001 merger of AOL and Time Warner the stock price of the combined company, AOLTW, went into a year-and-a-half decline, and numerous shareholder class action securities fraud suits were filed. The various class actions were consolidated in a federal court in New York.

If the case is soon dismissed AOL Time Warner Inc. shareholders may be able to bring otherwise expired individual securities fraud claims against the company, but they must first wait for a decision on class certification in a pending lawsuit, a federal court in New York ruled.

When a class action is on file, the statute of limitations for an investor to file an individual claim will be "tolled" (extended while the class action is pending) but such tolling can not be used until "class certification" is approved by the court. The "standby suit"--anticipating the denial of certification-- was filed by the investor, but the court determined that, because the limitations periods had expired on the investor's individual claims his case, and the class action was still pending, tolling during the class action could not be employed and the case was dismissed.

The shareholder may not file a "standby suit"--anticipating the denial of certification--after his own limitations period has expired, the court said. Attorneys for investors warn that, although this case held that such a case may not be actually filed, investors should not delay contacting an attorney to assess the viability of and be prepared to file their own case. While class actions "toll" limitations periods, as short as two years after the fraud is exposed, much of that time has often passed prior to the date the class action was filed.

Shepherd Smith and Edwards is a securities law firm is committed to assisting those who have lost money in investments. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

The U.S. District Court for the District of Columbia dismissed class action claims against Goldman Sachs & Co. stemming from two Real Estate Mortgage Investment Conduit--or REMIC--deals with Fannie Mae.

Judge Richard Leon said that the plaintiffs--Fannie Mae investors–-failed plead a case which involved "direct acts" of securities fraud by Goldman. (In a court system friendly to those accused of securities fraud, claims are not allowed for aiding and abetting Federal Securities violations and class action claims involving securities fraud can no longer be filed under state laws.)

However, this court's decision does not prevent members of the former class action from now seeking their own claim against Goldman in court or arbitration. Clients of Goldman who purchased shares of Fannie Mae during this period would likely have the stronger claims. Such claims could include aiding and abetting, conspiracy and other claims under state laws which were not allowed in the class action. Fortunately, statutes of limitations on individual claims are usually preserved while a class action case is pending in court.

Federal National Mortgage Association (FNMA or "Fannie Mae") is a federally chartered government sponsored enterprise that provides funds for commercial and residential mortgages. Shares of FNMA trade on the stock exchange. The plaintiffs filed the class securities fraud suit on behalf of investors who purchased shares of Fannie Mae between April 17, 2001 and Sept. 27, 2005. In addition to Fannie Mae, the plaintiffs named three former senior executives; KPMG LLP, Fannie Mae's outside auditor during the class period; and Goldman, which designed and implemented two REMIC transactions in December 2001 and March 2002.

The plaintiffs asserted that Fannie Mae repeatedly violated generally accepted accounting principles, issued false financial statements, and made other actionable public disclosures, thereby " 'engag[ing] in one of the largest financial frauds in U.S. corporate history.'" The plaintiffs then contended that Goldman participated in a securities fraud because it proposed the two REMIC transactions; suggested that they could help Fannie Mae manage its income recognition for GAAP purposes, and performed unspecified functions as underwriter/dealer when the REMIC interests were offered to prospective purchasers of those interests.

The plaintiffs alleged that the two "unorthodox" REMIC transactions shifted $107 million of Fannie Mae's earnings into future years. The allegations stated that Goldman was willing to engage in these transactions because Fannie Mae was one of its largest trading clients, from which Goldman received millions of dollars in fees.

Shepherd Smith and Edwards represents investors nationwide who have been victims of investment fraud. If you have questions concerning claims, including those alleged in the above-described matter against Goldman Sachs, call for a free consultation at 1-800-259-9010 or contact Shepherd Smith and Edwards online.

When state securities regulators led by Elliot Spitzer of New York exposed a shocking level of crime and fraud on Wall Street, corporations and securities firms stepped up their campaign to gut state securities laws and the powers of state regulators. These special interests had already convinced Congress to forbid class action claims for securities fraud under state laws.

Meanwhile, many are accusing the SEC, with its commissioners all appointed by the President, of pandering to those same special interests. Despite its purpose to protect investors, the Securities Exchange Commission (SEC) has taken numerous actions to reduce its own restrictions and has taken positions on numerous court cases which are contrary to the interests of investors.

In its latest action, the SEC announced May 3 that, beginning May 24, securities listed on the Nasdaq Capital Market will be exempt from state "blue sky" registration requirements.

Nasdaq called the exemption, which was granted by the SEC in response to Nasdaq's own petition, "an important milestone in the evolution of the Capital Market" that will reduce the cost of raising capital for the affected listed firms and thus cut costs to investors.

Specifically, the SEC rule amendment designates securities listed on the Capital Market as "covered securities" under Section 18 of the Federal Securities Act of 1933, meaning these securities are exempt from state law registration requirements. This action by the SEC expands the exemption to include a broad base of lesser known and lesser capitalized issuers of securities. Many see this as an open invitation to those seeking to defraud investors.

"This watershed development is a reflection of the quality of NASDAQ's regulatory program and the degree of investor protection afforded by NASDAQ's listing requirements," Michael Emen, Nasdaq's senior vice president for listing qualifications, said about the exemption. He said the exemption will play an important role in facilitating the capital-raising process for smaller public companies.

However, such comments ring hollow considering that, despite their considerable resources, neither the NASDAQ nor the SEC has demonstrated its capability and/or desire to regulate the securities markets earnestly or tirelessly as state regulators.

The SEC release approving increased listing standards for the Nasdaq Capital Market is posted at http://www.sec.gov/rules/final/2007/33-8791.pdf.

As earlier reported, the securities firm of Edward Jones was ordered by the SEC to pay a total of $79 million to its clients and former clients. According to the SEC, the company failed to disclose kickbacks the firm received from various mutual fund companies, known as the “Preferred Fund Families.” The Preferred Families mutual funds are: American Funds; Federated Investors; Goldman Sachs Group; Hartford Mutual Funds; Lord Abbott Funds; Putnam Investments; and Van Kampen Investments.

Now, Edward Jones may be attempting to settle all potential civil claims against it “KNOWN OR UNKNOWN”, by its current or former clients FOR $18.00 PER CLIENT! The proposed settlement is as a result of a class action suit brought against the firm on behalf of millions of its current and former clients in the firm’s hometown of St. Louis, Missouri.

Language in the proposed settlement indicates the Edward Jones firm may be seeking to exempt itself from ANY AND ALL CLAIMS which could have been asserted by over 5 million of its current and former clients. Although, none of these clients would have actually signed such an agreement themself, any pending or future lawsuit, arbitration action or other legal claim could potentially be prejudiced by the final language in the settlement agreement.

According to the Notice of Proposed Settlement forwarded to these clients and former clients, based on the information provided the Plaintiffs by Edward Jones, the estimate of recovery per Class Member is approximately 17.99 in cash per former client and $19.86 in "credit vouchers" per current client. However, the actual amount any class action member might receive would vary based a based on a large number of factors.

According to the Notice of Proposed Settlement, CLIENTS AND FORMER CLIENTS OF EDWARD JONES MUST TAKE IMMEDIATE ACTION BEFORE JUNE 11, 2007, to avoid being included in this settlement. In class actions, THOSE WHO TAKE NO ACTION prior to the "opt out" date almost always ARE PREVENTED FROM SEEKING ANY OTHER RECOVERY for claims which are ultimately exemped as part of the class action settlement agreement.

[NO INVESTOR SHOULD ACT TO OPT OUT OF A CLASS ACTION OR DECIDE TO REMAIN A PART OF THE ACTION WITHOUT LEGAL ADVICE REGARDING THEIR OWN SITUATION. THE INFORMATION PROVIDED HEREIN IS NOT INTENDED AS SUCH LEGAL ADVICE.]

Numerous times ours law firm has been unable to assist investors with viable claims - some for hundreds of thousands or even millions of dollars - because these investors failed to take prompt action to be removed from class action cases prior to the deadline. These investors usually later receive either a TOKEN SUM from the class action settlement OR NOTHING AT ALL if they later fail to submit the required claim forms.

Shepherd, Smith and Edwards is a law firm that has represented thousands of investors nationwide to recover losses caused by misconduct of investment firms and their brokers. We offer free consultations and can be reached toll-free at (800) 259-9010 or via email at firm@sselaw.com

As class actions against investment firms face dismissal, attorneys for investors plan to go forward with claims for individual shareholders against those same firms. After the U. S. Court of Appeals for the Fifth Circuit decided that cases in Houston against Merrill Lynch and other investment banking firms could not go forward as class actions, the door was left open for victims of Enron stock fraud to file their own claims in court or arbitration against these investment firms.

The class actions stopped the clock for filing individual claims against the defendants until appeals are completed. Also, through the class actions substantial information was learned regarding the role of these investment firms in the Enron debacle.

Meanwhile, that same Court of Appeals affirmed a district court's order allowing Texas accounting regulators to gain access to confidential discovery material in the Enron Corp. shareholder litigation (Newby v. Enron Corp., 5th Cir., No. 05-20462, 3/16/06). The massive amounts of discovery material related to the Enron litigation led to a stipulation by parties that discovery be housed on a Web site. The district court overseeing the litigation issued a confidentiality order covering the deposition transcripts and other material, barring disclosure except to parties, their counsel, witnesses, a depository administrator, a court-appointed mediator, and a few others.

The board, which licenses and disciplines CPAs in the state, sought permissive intervention in the Enron litigation as a way of gaining access to materials protected by the district court order. It sought the materials as part of its investigation of suspected audit failures that may have contributed to Enron's collapse and bankruptcy and potential misconduct by CPAs licensed in Texas. The district court then allowed access by the accountants' board and the appelate court upheld that order.

Financial management and advisory company Merrill Lynch has settled three class action lawsuits involving 400 investors who claim that the company gave them misleading analyst information regarding Internet companies. The investors are buyers of mutual funds, and they will get about $40 million—6.25% of the original $645 million they had first requested in 2002. The damage amount that will be paid, however, is at the “higher end of the range of reasonableness of recovery in class actions securities litigation,” according to Southern District of New York Judge John F. Keenan who approved the settlement agreement He also says that the class has had an “overwhelmingly positive reaction” to the settlement that was reached.

The three lawsuits are among several class actions that Merrill Lynch has had to deal with since 2002, ever since New York’s then-Attorney General Eliot Spitzer investigated an alleged scheme by Merrill Lynch’s research division to publish misleading or bogus analysis regarding Internet stocks to increase investment banking business. The class action settlements reached earlier this month are the first ones to be approved in connection with the alleged wrongdoing.

Merrill Lynch paid the government $100 million over its alleged actions in 2002. Back then, the company also said it would immediately enact important reforms to further protect its securities research analysts from being influenced unnecessarily by investment banking.

Acts of reform included:

· Severing the compensation connection between analysts and investment banking.
· Barring investment banking from providing input regarding analysts’ compensation.
· Setting up a monitor to make sure that the agreement is followed.
· Establishing a new investment review committee to make sure that all research recommendations meet strict standards and are independent from the analysts and investment banking.
· Reveal in research reports whether it has received or will receive compensation from a covered company over the last 12-month period.
· Issue a statement of contrition and acknowledge that it failed to address conflicts of interest.

Shepherd Smith and Edwards is one of the leading law firms that is committed to helping investors recover their losses due to the wrongful or negligent actions of stockbrokers and their firms. If you are an investor who feels you have been a victim of fraud or negligence on Wall Street, contact Shepherd Smith and Edwards to schedule your free consultation.

Merrill Lynch and Mutual Funds Settle Suits Over Internet Companies, New York Law Journal, February 2, 2007

Spitzer, Merrill Lynch Reach Unprecedented Agreement To Reform Investment Practices, Office of the New York State Attorney General, May 21, 2002

Related Web Resource:

Read Judge Keenan's Decision (PDF)