July 6, 2010

Court Orders Southridge Partners Limited Partnership Dispute to Arbitration

The Delaware Chancery Court is dismissing Aris Multi-Strategy Fund LP's action to obtain access to Southridge Partners LP books and records and sending the case to arbitration. Aris is a Southridge limited partner. According to Chancellor William Chandler III, arbitration for this case is contractually mandated.

Aris is seeking access to Southridge’s records and books. Aris claims that Southridge has not responded to requests for information.

According to the court, because this dispute is one regarding “the partnership,” it is subject to the LP Agreement terms that mandate arbitration. The court also noted that the arbitration provision doesn’t limit the arbitrator from resolving disputes other than those involving the LP Agreement. Also, while parties may ask that an arbitrator limit its authority only to disputes involving the agreement, the arbitrator can say no. This means that the arbitrator is allowed to determine whether to resolve the books and records dispute.

Judge Chandler determined that the Delaware Revised Uniform Limited Partnership Act lets partners contractually agree to enter books and records actions to arbitration. The court also says that Aris’s contention that inspection rights cannot be determined by an arbitrator because the Chancery Court has exclusive jurisdiction is incorrect. It stated that 6 Del. C. §17-109(d) lets a limited partner wave its right to bring actions involving a limited partnership’s internal affairs or organization to the Delaware Courts as long as it agrees to arbitrate its actions.

Related Web Resources:
Aris Multi-Strategy Fund LP v. Southridge Partners LP, Del Court Opinion (PDF)

Delaware Revised Uniform Limited Partnership Act

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June 22, 2010

As BP Oil Spill Reaches Crisis Mode, A Number of Wall Street Analysts Placed “Buy” Rating On the Company’s Plunging Shares

When BP oil spill in the Gulf Coast first became news, the company’s shares started to drop. According to the Huffington Post, the unfolding crisis incited a mad dash on Wall Street, with dozens of securities analysts encouraging investors to “buy, buy, buy” BP (BP.L: Quote, Profile, Research, Stock Buzz) (BP.N: Quote, Profile, Research, Stock Buzz).

Among those to jump into the fray were Credit Suisse, Citigroup, and Morgan Stanley. Thomson Reuters says that of 34 analysts that rated the BP shares as recently as May 11, 27 gave “buy” or “outperform” ratings. 7 rated the shares with a “hold.” None of the analysts gave the shares an “underperform” or “sell” rating.

As estimates of how much oil was being spilt grew and was coupled with news of BP’s unsuccessful efforts to stop the leak, BP stock kept dropping, destroying some $100 billion in shareholder wealth. Unfortunately, when Wall Street makes mistakes, it is the investors that end up losing money.

Some experts saying that with so many analysts making the wrong call, the BP crisis has exposed the problems that continue to plague the sell-side analyst community despite all the reform that has been implemented in the last 10 years. Some investment firms are afraid to be left out, which can contribute to what appears to be an existing “group think” mentality. Analysts may also be unwilling to challenge companies for fear of jeopardizing their relationship with leading executives—a classic case of conflict of interest.

Meantime, the analysts are coming to their own defense. They say that the Deepwater Horizon oil spill was unprecedented and therefore it was hard to predict its outcome and related financial ramifications. Granted, as the risks became more obvious, many on Wall Street downgraded their buy ratings to more cautious notes. Natixis and Goldman were among those that lowered their ratings from “buy” to “hold” or neutral.” There were also a small group of analysts that did accurately call the effects the oil spill would have on BP’s stock prices.

Related Web Resources:
Wall Street Said 'Buy, Buy, Buy' BP Stock As Gulf Crisis Unfolded, The Huffington Post, June 18, 2010

BP Stock Sinks Back Near Oil-Spill Low, The Street, June 22, 2010

A Timeline of the BP Oil Spill Crisis, WallStCheatSheet.com, May 6, 2010

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June 21, 2010

LPL Investment Holdings, Inc. IPO Registration Gives Evidence of Disparities Between Wirehouse Broker-Dealers and Independent Brokerage Firms

According to InvestmentNews, LPL Investment Holding Inc’s recent IPO registration is clear evidence that the 4 wirehouse brokerage firms still dwarf the approximately 1,200 independent contractor broker-dealers when it comes to controlling client assets. LPL is an independent broker-dealer.

Currently, there are approximately 114,000 independent reps and about 55,000 wirehouse reps. Yet even though there are so many less wirehouse reps, they still are in charge of a larger pool of client assets than their independent counterparts. While wirehouse reps manage $3.95 trillion in client assets, independent reps handle about $1.8 trillion. This means that a wirehouse broker, on average, manages $71.8 million in assets, and independent reps manage about $16 million in assets.

Also, while both wirehouse and independent reps make about 1% in commissions and fees on client assets, wirehouse reps get a 40% average payout of the fees and commissions, while independent reps get about 85%. While the average independent rep makes under $134,000 annually, the average wirehouse rep makes about $287,000 a year.

LPL rep’s earn an average payout of about $155,360. Acquired by two private equity firms in 2005, LLP states in its IPO registration that due to its efficient operating model and scale, its payout to independent contractors far exceeds that of wirehouse firms. InvestmentNews says it is unclear how many of the $1 million plus-producing brokers joined LPL because they wanted the higher payout.

LPL is owned by private equity firms Hellman & Friedman LLC and TPG Capital. The brokerage firm has filed to raise up to $600 million in its IPO.

Related Web Resources:

Does LPL's filing reveal an unspoken truth about indie B-Ds?, Investment News, June 21, 2010

TPG-Backed LPL Investment Holdings Files for $600 Million IPO, Bloomberg Businessweek, June 4, 2010

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June 17, 2010

House and Senate Negotiators Can’t Seem to Agree on Fiduciary Standard in Financial Regulatory Reform Bill

According to InvestmentNews, negotiators in the Senate and the House have reached an impasse regarding the fiduciary standard provision found in the financial regulatory reform bill. While the House wants the US Securities and Exchange Commission to impose a universal standard of care that would be applicable to anyone offering personalized investment advice to retail clients, such as investment advisers, insurance agents, and broker-dealers, to reveal conflicts of interests and act in clients’ best interests—the Senate only wants the SEC to examine the issue for a year before proceeding to rulemaking.

According to Securities Fraud Lawyer William Shepherd, “Virtually all advisory professionals have a fiduciary duty to their clients, and brokerage firms claim to be professionals. Having a ‘fiduciary duty’ means professionals cannot put their own interests ahead of their clients. All types of ‘financial advisors’ were considered fiduciaries, until some Wall Street-friendly judges said otherwise. Congress needs to pass a law restating that brokers are fiduciaries. If not, rest assured that Wall Street will use lack of clarification as proof they do not owe an affirmative duty to their own clients.”

While speaking before the Financial Industry Regulatory Authority on May 27, US Deputy Treasury Secretary Neal Wolin says that the White House is strongly in favor of making retail brokers subject to the toughest possible consumer protection while also having them abide by a fiduciary duty. Wolin also says that the Obama Administration wants heightened regulation of credit rating agencies, Volcker rule limits on banks’ proprietary trading activities, and effective resolution authority against failed companies.

Stockbroker Fraud Attorney Shepherd says “It is preposterous to even say that stockbrokers are not fiduciaries. The law (Investment Advisors Act of 1940) says that those who advise clients regarding securities are held to a fiduciary standard. Meanwhile, stockbrokers insist they are not just order takers – which people pay $8.00 to get online - but are instead ‘advisors,’ ‘financial consultants,’ etc. who can charge 10 to 100 times what online trades cost. Wall Street wants to make the big bucks, but not have any duties to their clients. It’s simple as that.”

Related Web Resources:
House-Senate negotiators hit impasse on fiduciary standard, InvestmentNews, June 17, 2010

Treasury’s Wolin Vows Fight for Broker Fiduciary Duty in Reform Law, Investment Advisor, May 27, 2010

Financial Regulatory Reform, New York Times, June 15, 2010


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May 12, 2010

Supreme Court Nominee Elana Kagan Took Investors Side on Two Significant Securities Cases

The Wall Street Journal reports that as Solicitor General of the United States, US Supreme Court nominee Elana Kagan has sided with investor interests in two high profile lawsuits. In one securities fraud complaint that looked at when shareholders can sue mutual–fund mangers that had allegedly charged fees that were excessive, her office submitted a legal brief supporting investors. Kagan contended that a lower-court ruling make sure that there was enough of a check on potentially exorbitant fees. In another securities case, the Solicitor General’s office argued that Merck & Co. Inc. shareholders did not wait too long to file lawsuits accusing the pharmaceutical company of misrepresenting the safety of VIoxx. This spring, the US Supreme Court unanimously agreed with Kagan’s position in both cases.

However, The solicitor general’s office is siding with the business side in another investor lawsuit that awaiting resolution by the Supreme Court. She is contending that foreign investors shouldn’t be able to file a US securities lawsuit against National Australia Bank Ltd, which is a foreign company.

The Wall Street Journal says that by choosing Kagan as the latest Supreme Court nominee, the Obama administration is taking “a friendlier approach” when it comes to investor cases.

Related Web Resources:
Kagan Sided With Investors in Two Notable Securities Cases, The Wall Street Journal, May 10, 2010

Does Elena Kagan Support Shareholder Rights?, The Big Money, May 11, 2010

A Climb Marked by Confidence and Canniness, NY TImes, May 10, 2010

Office of the Solicitor General

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Posted In: Miscellaneous , Securities Fraud

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May 3, 2010

Ranking Broker-Dealers According to Highest Average AUM Per Rep

Below you will find Investment News' list of the average assets under management per rep at the biggest independent broker-dealers. The information was compiled from data that came from the investment firms that took part in a yearly survey.

Ranked in the Top 10 were:

1. Wells Fargo Advisors Financial Network, with a $48,322,148 average AUM/rep
2. Commonwealth Financial Network, with a $39,208,423 average AUM/rep
3. Raymond James Financial Services Inc., with a $36,046,959 average AUM/rep
4. First Allied Securities Inc., with a $30,315,640 average AUM/rep
5. Uvest, a unit of LPL Investment Holdings Inc., with a $29,505,358 average AUM/rep
6. FSC Securities Corp., a unit of Advisor Group, with a $28,705,827 average AUM/rep
7. Ameriprise Financial Services Inc., with a $28,511,100 average AUM/rep
8. VSR Financial Services Inc., with a $28,089,888 average AUM/rep
9. M Holdings Securities Inc. (M Securities), with a $27,684,707 average AUM/rep
10. Securities America Inc., with a $27,418,520 average AUM/rep

“The average commission on money under management is about one percent (except for bond accounts which is lower), which means that brokers in the $50 million under management should generate about $500,000 in gross commissions per year (they receive 30% to 60% of this), says Shepherd Smith Edwards and Kantas Founder and Securities Fraud Lawyer William Shepherd. “Considering that one doesn’t even need a high school diploma to become a financial advisor, making an average income of $150,000 to $300,000 is not bad at all. Last time I looked, brokers at the large financial firms, on average, made a little less than doctors, but far more than lawyers. Seven years of education does not do much for professionals does it?”

Related Web Resources:
Ranking Broker-Dealers According to Highest Average AUM Per Rep, Investment News,

National Association of Independent Broker Dealers

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April 15, 2010

The Truth about the Financial Reform Bill Proposed by the Majority Leaders

The Restoring American Financial Stability Act, a bill on financial reform, is expected to go to the Senate floor for a vote in a few weeks. Introduced by Senate Banking Committee Chairman Chris Dodd, the bill cleared that panel during a party-line vote.

The bill would set up safeguards against financial system collapses, put into place an independent and new consumer financial protection unit at the Federal Reserve, and consolidate significant regulatory agencies. Certain aspects of the bill, such as funding for system-critical companies and procedures for liquidation, are still under debate.

Yesterday, Senator Dodd spoke on the US Senate Floor. He said the bill “ends bailouts." He noted that for the first time someone would be tasked with monitoring the financial system and can warn of any risks before a meltdown results. Dodd said that Wall Street companies that create the risks will have to contend with tougher standards.

According to Shepherd Smith Edwards and Kantas founder and stockbroker fraud attorney William Shepherd, “This bill does exactly the opposite of what its critics are saying it does. This bill provides for NO taxpayer bailouts. If a financial institution is failing, no matter how large, it will be taken over by the FDIC, which is that agency’s current role. The FDIC is financed by membership dues from all FDIC insured banks, which will be increased. Similar to the manner in which smaller banks are taken over by the FDIC, almost weekly, this is the process: The mega institution fails, its executives are fired, its shareholders get nothing and its assets are sold to other financial institutions. That is no bailout!”

Related Web Resources:
Financial services regulatory reform bill heads to Senate, Business Insurance, April 14, 2010

Restoring American Financial Stability Act of 2010 (PDF)

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March 29, 2010

Most Bloomberg National Poll Participants Think the US Government Should Punish Bankers that Caused Recent Market Collapse

According to the Bloomberg National Poll, most of the people who were interviewed don’t like banks, Wall Street, and insurance companies. They also wish that the government would punish those responsible for the financial meltdown. 1,002 US adults took part in the March 2010 poll, which has a margin of error of approximately 3.1%.

Per the poll:

• 57% of Americans have a negative view of Wall Street.
• 67% of poll participants don’t think highly of Congress.
• 56% support the government in either limiting the compensation paid to the parties that helped cause the economic clause or completely banning them from the industry.
• 58% think that big financial companies are more committed to making themselves richer even if it means that regular people end up suffering.
• 40% of pollsters think that financial companies are key to fostering economic growth.
• Over 40% of participants think the government has exceeded its role with actions it has taken to repair the financial industry.
• 37% think the government can do more.
• Nearly 60% think Wall Street should do more to protect itself in the event of future financial disasters.

70% of those surveyed favor current banking regulation over President Obama’s proposal that an independent agency be established for consumer protection.
Americans seem wary of the setting up of a new federal agency that would be in charge of making consumer protection rules for credit cards and mortgages. Instead, they would rather increase the powers of our current regulators.

However, President Barack Obama is determined to keep pushing for a Consumer Financial Protection Agency that he says “will finally set and enforce clear rules... across the financial marketplace.” According to New York Times Columnist Bob Herbert, Obama’s efforts are not making the financial industry and big-money interests very happy.

Regardless of what type of regulatory system oversees the financial markets, our stockbroker fraud law firm is determine to make sure that victims of securities fraud recoup their losses.

Related Web Resources:
Wall Street Despised, Most Want Oversight, Poll Shows (Update1), Bloomberg/Business Week, March 24, 2010

Derailing Help for Consumers, The New York Times, March 26, 2010

Consumer Financial Protection Agency, Los Angeles Times, August 2, 2009

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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

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

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December 2, 2009

The Investor Protection Act is Approved by House Financial Services Committee

The US House Financial Services Committee has voted to pass the Investor Protection Act, which is part of a package of bills focused on widening financial industry oversight and investor protection. The bill increases the US Security and Exchange Commission’s authority and doubles the agency’s funding, giving it another $1.115 billion for the 2010 fiscal year.

HR 3817 has a clause that would exempt businesses with a $75 million or lower value from a Sarbanes-Oxley requirement that auditors must verify management’s declaration regarding a concern’s internal controls over financial reporting. The SEC had exempted small businesses from SOX”s Section 404(b) attestation requirement, and the exception was to be lifted in 2011. Another amendment added to the bill would confirm the SEC’s authority to rule on shareowners' right to vote on corporate board directors.

The Investor Protection Act also terminates the inclusion of mandatory arbitration in contracts in the event that investors wish to file securities fraud claims. It also enforces the fiduciary obligation that investment advisers and broker dealers have to make client’s interests their priority.

Whistleblowers would be given incentives for cases leading to sanctions of over $1 million. The SEC would be able to pay a reward of up to 30% of sanctions to the informants involved. The agency could also issue fines for cease-and-desist cases. It would also have greater subpoena powers.

The House Financial Services Committee has recommended other bills compelling a number of derivatives that are privately traded “over the counter” to pass through regulated exchanges and clearing houses. The bill also calls for dealers to be subject to more extensive transparency, business conduct, and capital requirements. It lets investors file lawsuits against investment firms that recklessly or knowingly publish ratings that are inaccurate and compels private equity and hedge fund advisers to register with the SEC.

Financial Services Committee Approves Investor Protection Act, House.gov, November 4, 2009

House Committee Approves Investor Protection Act, SocialFunds.com

House Financial Services Committee

Sarbanes-Oxley Act 2002

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November 20, 2009

Number of Securities Lawsuits Increased During 3rd Quarter

According to commercial insurance consulting firm Advisen, 169 securities lawsuits were filed during 2009’s third quarter—an 11% increase from the 152 complaints that were filed during the previous quarter. 249 securities lawsuits were filed in the 1st quarter.

The most common kind of securities lawsuit filed this past quarter was securities fraud lawsuits that were brought by law enforcement agencies and regulators. 70 securities fraud complaints and 55 securities class actions were filed during 3Q. 50 securities fraud complaints and 38 cases were filed in the 2Q.

Advisen Executive Vice president Dave Bradford says the percentage of securities fraud lawsuits is expected to grow now that the Securities and Exchange Commission appears to be increasing its securities fraud enforcement initiatives under President Barack Obama. The SEC has been attempting to recoup from its failure to detect the $50 billion Ponzi scam that Bernard Madoff ran for years.

One reason for the decline in securities lawsuits during the 3rd quarter may be due to a drop in credit crisis- and Madoff-linked lawsuits. Only 6 securities cases related to Madoff were filed in 3Q—compare that to the 54 lawsuits filed during 1Q and the 17 complaints submitted in 2Q. Since December 2008, at least 109 Madoff-related securities lawsuits have been filed.

Advisen reports that some 335 credit-crisis securities lawsuits have been filed. 46 complaints were filed in the 1Q, 24 in 2Q and 9 in 3Q.

During the 3rd quarter, 63 securities cases were awarded or settled. The average award or settlement was $11.6 million.

Securities Fraud Lawsuits
To increase your chances of recouping your investment, it is important that you speak with an experienced securities fraud law firm about your case.


Related Web Resources:
Securities lawsuits increase in third quarter: Advisen, Business Insurance, October 14, 2009

Feds say Bernard Madoff's $50 billion Ponzi scheme was worst ever, NY Daily News, December 13, 2008

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Posted In: Class Action Lawsuits , Madoff Ponzi Scheme , Miscellaneous , Securities Fraud

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November 18, 2009

Obama Administration Supports Investors' Securities Fraud Lawsuits Against Merck

Taking the side of investors who are suing Merck for securities fraud, the Obama Administration filed an amicus brief last month arguing that the plaintiffs did not wait too long to file their complaints against the drug manufacturer. use. The painkiller drug was taken off the market in 2004. However, investors are accusing the company of misrepresenting how safe Vioxx was for use.

Investors are suing Merck for billions. They claim that they ended up paying inflated prices for Merck stock because the drug maker downplayed clinical trial test results that appeared to link Vioxx with a greater risk of heart attack. The investors filed one of several securities fraud lawsuits in 2003. At issue in the US Supreme Court case is whether investors should have realized sooner that fraud might have occurred.

Merck claims that investors should have filed their complaints earlier since by late 2001 there was already a lot of information out there alluding to possible misstatements by Merck about Vioxx. Merck has said it acted properly and in a timely manner when it did tell the scientific community and the US Food and Drug Administration about the Vioxx-related info.

The amicus brief, filed by U.S. Solicitor General Elena Kagan, is another indicator that the Obama administration may be more supportive than the Bush Administration of investor lawsuits. According to Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Attorney William Shepherd, “It is an oddity to see our government take a legal position on behalf of investors! This may be the first time in a decade that I have seen an official legal position that is contrary to the vested position of Wall Street.”

Kagan says that the investment fraud lawsuits were filed in a timely manner because the plaintiffs did not know and could not have known about Merck’s alleged Securities Exchange Act Section 10(b) violations more than two year before they filed the complaints. She wants the Supreme Court to affirm the appeals court’s ruling that the shareholder complaint was timely. Per federal law, plaintiffs must file their securities fraud complaint within two years after finding out about the violation.

Related Web Resources:
Obama Sides With Investors in Merck Lawsuit, SmartMoney, October 26, 2009

U.S. Supreme Court to Hear Merck Appeal on Reinstated Investor Lawsuit, Insurance Journal, May 27, 2009

Merck & Co.

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March 31, 2009

US Supreme Court Won’t Hear InfoSpace Founder's Appeal Requesting to Sue Attorneys and Stock Management Company for Allegedly Botching Insider Stock Trading Case

The US Supreme Court has decided not to listen to an appeal filed by InfoSpace founder Naveen Jain requesting that he be allowed to sue JP Morgan Securities and his former attorneys for allegedly mishandling an insider stock trading lawsuit.

What happened was that InfoSpace Inc. INSP shareholder Thomas Dreiling filed a derivative action against Naveen and his wife, InfoSpace cofounder Anuradha. Dreiling contended that they violated short-swing trading prescriptions that prevent corporate insiders from selling and buying or buying and selling company stock during a six-month period.

The federal court ruled in Dreiling’s favor and the Jains were ordered to pay $246.1 million in disgorgement. The lawsuit was eventually settled for $105 million.

The Jains, however, then sought to get the amount they were fined for participating in illegal short-swing transactions from their stock management company and their attorneys. He and his wife had accused the defendants for the language in his company’s initial public offering prospectus that contributed to such a healthy judgment against them. Their lawsuit alleged breach of fiduciary duty, negligence, malpractice, and equitable indemnity.

Since then, the lower courts, including the Washington Court of Appeals, have thrown out their lawsuit because federal law bars complaints that blame security companies for such trades. The appeals court, in affirming the initial dismissal, noted that an insider who violates Section 16B of the Securities Exchange Act cannot receive indemnification from others for any liability that results. While the state court acknowledged that the rule against indemnification might protect some securities professionals from the repercussions of their misconduct, Congress still wants corporate insiders to be held strictly liable for short-swing violations.

Related Web Resources:
Supreme Court turns down appeal from InfoSpace founder, Seattle Times/AP, March 9, 2009

InfoSpace

Supreme Court of the United States

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March 7, 2009

Outcome of SEC Actions Appear to Favor Larger Broker-Dealers than Smaller Ones, Says Harvard Law School Study

The Securities and Exchange Commission may be “too close” to larger investment firms that they give them preferential treatment in SEC Actions, says a Harvard Law School study. One “tentative” explanation cited by the study is that SEC officials look to the larger broker-dealers—especially those located in New York—for future employment opportunities. The study also noted that the SEC was more likely to order smaller broker-dealers (than larger firms) to court, rather than merely slapping the firm with an administrative proceedings.

The Harvard study took a look at patterns the SEC exhibited when it enforced actions against investment firms in 1998, 2005, 2006, and Jan – April in 2007. Findings included:

• When large investment firms and smaller firms faced the same SEC violations for similar levels of harm, there was a 75% smaller chance that a big broker-dealer would have to go to court than one of its smaller counterparts.
• There was a 44% chance that employees from large broker-dealers would have to go to court to fight an SEC action, compared to a 73% possibility for employees of smaller broker-dealers.
• When facing SEC administrative proceedings, bigger firms were less likely to be banned from the industry. 25% of small firms defendants in such actions received permanent industry bans, compared to just 5% of large firm defendants.
• There did not appear to be a justifiable reason for why there was a disparity between the outcomes of SEC actions involving larger broker-dealers and smaller ones.
• However, both large and small firms were slapped with equivalent fines.

The study did not look at SEC enforcement actions in 1999 and 1920 because of worries the findings might be affected by the burst of the “dot.com bubble,” as well as the outcomes of SEC actions from 2008 that may have been impacted by the financial crisis.

Related Web Resources:
Securities and Exchange Commission
SEC Enforcement Actions

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Posted In: Broker-Dealers , Miscellaneous , SEC Enforcement

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December 10, 2008

US Treasury Department Extends Money Market Fund Guarantee Program Through April 2009

The US Treasury Department has announced that it will keep guaranteeing money market funds until the end of April 2009. The Temporary Guarantee Program for Money Market Funds was created because of worries that the funds’ net asset values would fall under $1 (a value drop known as “breaking the buck”).

The money market fund program guarantees a $1 minimum share price and insures the holdings of any publicly offered eligible funds that pay to take part in this temporary plan. The program, which covers over $3 million in assets, covers the participating funds’ shareholders up to the amounts that they held when business closed on September 19, 2008.

Only mutual funds that are currently taking part in the plan and meet the extension requirements can continue to participate in the program. To avail of the extended coverage, funds must submit a payment based on their net asset value since September 19. The extension notice must be sent by December 5.

The Temporary Money Market Fund Guarantee Program offers four kinds of Guarantee Agreements:

• Guarantee Agreement
• Guarantee Agreement (Single Fund)
• Guarantee Agreement (Stable Value)
• The Guarantee Agreement (Stable Value Single Fund)

It is important to investors hat the standard $1 net value asset for money market mutual funds remain. Worries that money market funds would “break the buck” increased global market turmoil and resulted in serious liquidity strains. These repercussions resulted in greater volatility in exchange markets and caused certain short term interest and funding rates to spike.

Related Web Resources:
Treasury’s Temporary Guarantee Program for Money Market Funds

Read the Extension Notice (PDF)

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Posted In: Miscellaneous , Money Market Funds

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October 2, 2008

Almost 7,000 Broker-Dealers from FSC Securities, AIG Financial Advisors, and Royal Alliance Associates Will Be Part of AIG Advisor Group Sale, Says Source

A source in investment banking who is choosing to remain anonymous says that the futures of nearly 7,000 financial advisors and registered representatives responsible for generating some $1.3 billion in fees and commissions in 2007 will be decided by American International Group Inc’s large scale asset sale. Details of the sale could be announced as early as Friday by new AIG head Edward Liddy.

Published reports also say that AIG New York is thinking of selling over 15 business lines to repay the federal government for an $85 billion emergency loan.
AIG Advisor Group is made up of FSC Securities Corp, AIG Financial Advisors Inc., and Royal Alliance Associates Inc.

The unnamed source is also predicting that Liddy will retain the services of a Wall Street company to conduct a quiet auction for the broker-dealers and that aggressive bids from different firms, including Raymond James and LPL Financial are likely. According to other sources and recruiters, the Financial Services Network of San Mateo, California, which is one of the largest advisor groups affiliated with FSC Securities, could end up with LPL or one of its subsidiaries.

In an interview with the Wall Street Journal last month, AIG Chairman and CEO Liddy said that he expects the company will emerge from its current financial turmoil. Liddy was appointed to his new post two days after the federal government’s loan, intended to keep AIG from bankruptcy.

Related Web Resources:

AIG Sale Decided in Weeks, says Chief, CourierPress.com, September 20, 2008

Another Bailout: Government Lends AIG $85 Billion, NPR.org, September 17, 2008

AIG Advisor Group

Continue reading "Almost 7,000 Broker-Dealers from FSC Securities, AIG Financial Advisors, and Royal Alliance Associates Will Be Part of AIG Advisor Group Sale, Says Source" »

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September 29, 2008

FBI Investigates Former HFI Securities Inc. Vice President After Gold and Silver Coins Worth Millions of Dollars Found in His Basement

The FBI is currently investigating Don Weir, a broker and former vice president of investment firm St. Louis-based HFI Securities Inc. The federal probe comes after silver and gold coins worth millions of dollars were found in the basement of Weir’s former home.

The authorities confiscated the bouillon after Weir’s estranged wife contacted the president of HFI Securities and suggested that he visit the home. According to an attorney for HFI, the coins were being held for investors that worked with Weir. However, HFI's attorney also says that the firm was not aware that Weir had purchased the coins and that he was stashing them in the Missouri basement.

So far, no criminal charges have been filed. Weir, who has been a brokerage firm representative for over 20 years, however, is now unemployed. He reportedly tried to commit suicide soon after the coins were discovered. In the meantime, HFI is trying to determine which of its customers may be the owners of the silver and gold coins.

If you are an investor that has lost money because of a broker's misconduct, you should speak with a stockbroker fraud lawyer immediately.

Million dollar stash of coins found in St. Louis broker's basement, BND.com, September 21, 2008

Related Web Resource:
HFI Securities, Inc.

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September 23, 2008

Court Upholds that New Jersey Division of Investment Cannot Hire External Pension Fund Investment Managers

According to the New Jersey Superior Court, Appellate Division, the New Jersey Division of Investment went beyond its authority with its rules allowing the division director to hire external managers to oversee pension fund investments. The panel however, did uphold the rules allowing the division to invest in private equity funds, hedge funds, as well as other alternative investment vehicles.

In June 2005, the New Jersey Securities Investment Council adopted regulations allowing investments in hedge funds or an absolute return strategy, as well as private equity funds. Soon after, pension funds were committed to private equity partnerships Warburg Pincus IX LLC, Blackstone Capital Partners V L.P., Quadrangle Capital Partners II L.P., and Oak Hill Capital Partners II L.P.

In 2006, the SIC put into effect procedures to bring in external investment managers to supervise pension funds in publicly traded securities. In 2007, the SIC adopted rules allowing the Division of Investment and the director to hire the managers.

The New Jersey Education Association and the Communication Workers of America appealed the actions made by the SIC, the New Jersey Treasurer, and the Division of Investment to adopt and implement the rules. After looking at the statutes, the New Jersey Court found that while the Director has the authority to invest, he or she does not have the authority to give that power to another party. Therefore, not only were any regulations giving the director this authority invalid, but any agreements made by the external managers because of such regulations were also not valid.

The court noted that while the director had the authority to invest in private equity funds and alternative investment management strategies, the director was subject to specific limitations, per N.J.S.A. 52:18A-89c.


Related Web Resources:

Court: No outside hedge fund managers for N.J., Pensions and Investments, August 25, 2008

Court Says US Pension Funds Can Invest in Alternatives, Online Financial News, August 26, 2008

Division of Investment, State of New Jersey Department of the Treasury

Continue reading "Court Upholds that New Jersey Division of Investment Cannot Hire External Pension Fund Investment Managers" »

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June 10, 2008

State Regulators Investigate World Financial for Deceptive Sales Practices

Security regulators in Missouri, Utah, and a number of other US states are accusing World Financial Group of making variable annuities sales that are unsuitable and misrepresenting investment returns. A number of World Financial customers have filed private arbitration claims making similar allegations.

World Financial is owned by Dutch insurer Aegon NV. World Financial's agents sell annuities, life insurance, and mutual funds. Unlike more traditional sales teams, however, agents make money based on a pyramid-like multilevel sales system. The agents receive most of their compensation from their recruitment of new agents rather than products sales, including a portion of the commissions that the new agents make.

In a 2006 investor presentation, Aegon USA CEO Patrick Baird called World Financial a “real recruiting machine.” The company reportedly has over 18,000 licensed insurance agents and brokers and, according to an Aegon executive in 2006, about 80,000 “producers,” which includes unlicensed and part-time members. Those who meet sales goals are awarded jewelry and trips to the top of the Transamerica Building in San Francisco that is owned by Aegon. Clients are sometimes invited to join the company’s sales force.

Some state securities officials, including those in Iowa, Alabama, and Minnesota, have filed lawsuits to bar inappropriate sales practices by World Financial. In 2006, Missouri’s securities commissioner fined World Group Securities and broker Jolee Martin $150,000 for enticing seniors to invest $1.2 million in “unsuitable” variable annuities.

Martin and World Group Securities earned $98,000 in commissions from these transactions. Martin accepted the sanctions, including a four-month suspension and a five-year bar from handling accounts or selling variable annuities to anyone over 65 years of age, but did not admit or deny wrongdoing.

Utah’s Division of Securities has cited at least four World Group Securities brokers since 2006. One couple, Robert and Raleine Allen, filed an NASD arbitration claim against World Group Securities last year alleging misrepresentation that caused them to lose over $500,000 on products that were unsuitable for their risk tolerance. A judge forced the company into arbitration over the proceedings, and a settlement with the Allens was reached.

If you are the victim of inappropriate investment sales practices or any other kind of broker misconduct, contact Shepherd Smith and Edwards today.

Related Web Resources:

World Financial Group Inc.

Aegon NV

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Posted In: Broker Fraud , Miscellaneous

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June 6, 2008

Former SEC Commissioner Nazareth Says The US Not Keeping Up with Evolving Investment Markets

Former Securities and Exchange Commissioner Annette Nazareth says that those in charge of overseeing the US financial markets are years behind when it comes to “rethinking regulation” and modernizing the structure required to keep up with the changing investment markets. Nazareth voiced her concerns to the US Chamber of Commerce during a forum about financial regulation last month and talked about how US regulation was lacking compared to other “respectable jurisdictions with robust economies that have rethought regulation.”

Recently, the US Treasury Department recommended the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission as part of a “blueprint” to restructure financial regulation. Nazareth did not directly endorse this recommendation, but she did talk about how a lot of existing regulation either leaves gaps or is redundant.

Nazareth also noted that while Sarbanes-Oxley imposed “burdensome” regulations, Congress has deregulated the futures markets. She said that there is a lot of business that exists on the cusps of securities and futures and that major issues that are key to the economy are not being systematically tackled.

The former SEC commissioner called for a return to “first principles,” including a renewed focus on the issues of who should regulate, why regulation is necessary, and who the regulations there to protect. She suggested that policy makers forego ego concerns and focus on what is good for the economy and for the markets.

Another former SEC Chairman, Harvey Pitt, was also part of the panel. He criticized the current focus on enforcement and regulation, which he says appears to blame and punish more than focus on what will help the capital markets work better. He also recommended that regulated entities work together with their regulator to ensure that everyone is aware of expectations and how to meet them.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents the victims of investor fraud. Your first consultation with one of our securities fraud attorneys is free.

Treasury Recommends SEC, CFTC Merge, CCH Wallstreet, April 7, 2008

Sarbanes-Oxley

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Posted In: Miscellaneous

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