June 1, 2016

Proposed Rule Would Let Consumers Sue Banks

A new rule proposed by the Consumer Financial Protection Bureau would let consumers sue banks over a variety of financial products, including bank accounts, private student loans, money-transfer services, installment loans, payday loans, prepaid cards, and credit cards, and certain types of loans. The proposed rule would also prohibit arbitration clauses in consumer financial contracts, again giving more power to consumers.

The CFPB wants to prevent financial companies from employing mandatory arbitration clauses so as to inhibit class action securities cases involving significant quantities of plaintiffs. However, they would still be allowed to obligate consumers to resolve individual disagreements in arbitration. Companies that decide to include arbitration clauses in their contracts would have to notify the CFBP about the specifics of cases, including any awards and claims.

The CFPB said that according to a study it conducted in 2015, arbitration clauses were found in “hundreds of millions of consumer contracts” used by credit card users, private student loan lenders, banks taking insured deposits, as well as in prepaid card agreements and payday loan contracts in certain states.

Continue reading "Proposed Rule Would Let Consumers Sue Banks " »

March 17, 2016

GL Capital Partners Ex-CEO Pleads Guilty to $15M Fraud

Daniel Thibeault, the ex-CEO of GL Capital Partners, has entered a guilty plea to criminal charges accusing him of bilking fund investors of $15M. According to the Securities and Exchange Commission, Thiebeault used funds that were in the GL Beyond Income Fund to make fake consumer loans.

Meanwhile, investors were led to believe that their money was going toward buying or making real consumer loans. They hoped to make a return from the interest. Instead, the fake loans were reported as GL Beyond Income Fund assets to hide the money that Thibeault was misappropriating.

Continue reading "GL Capital Partners Ex-CEO Pleads Guilty to $15M Fraud" »

February 10, 2016

Chesapeake Energy Corp. Stops Investor Payouts After Its Shares Plummets

U.S. natural gas driller Chesapeake Energy Corp. (CYC) has been halting investor payouts and cutting jobs to keep its cash flow from drying up. Now, with its shares dropping 51% following reports by Debtwire that the company has hired restructuring attorneys to help deal with its $9.8 billion debt, investors may have a reason to worry. During the first hour of trading alone on Monday, $838M in market value was eliminated.

Chesapeake has a debt load that is eight times larger than its market value. Even though it pumps more gas in the U.S. than any driller besides Exxon Mobil Corp., Chesapeake has $1.3B in debts that are scheduled to mature by the end of next year.

Last month, Standard & Poor’s reduced Chesapeake’s credit rating to CCC+, while issuing a negative outlook that gas and oil prices would stay on the weak end. S & P declared the natural gas driller’s debt leverage “unsustainable.

Investors are not the only ones at risk now that Chesapeake is in trouble. Oil and gas pipeline companies, many of which are master limited partnerships, with contracts worth billions of dollars could also take a hit. Companies with contracts with Chesapeake include Kinder Morgan Inc., Williams Companies Inc., Marathon Petroleum Corp's unit MPLX LP, Columbia Pipeline Partners LP, and Spectra Energy Partners LP. Reuters reports that according to federal filings, Chesapeake said it is on the line for about $2B a year for pipeline space run by MLPs.

Continue reading "Chesapeake Energy Corp. Stops Investor Payouts After Its Shares Plummets " »

February 4, 2016

Plummet in Oil Prices is a Worry to Investors

With oil prices plummeting, investors may have reason for concern. This week, ConocoPhilip cut its dividend by two-thirds because of the drop in oil prices to $30/barrel. Its dividend went from 74 cents/share to 25 cents/share

And Conoco isn’t the only company whose dividends are in trouble because of cheap oil. In January, Noble Energy slashed dividend payout by 44%. Last year, Eni (E) in Italy also made a substantial dividend cut, as did pipeline company Kinder Morgan with a 75% cut in December. Investors are worried that big oil companies, such as Chevron (CVX) and ExxonMobil (XOM), may be next.

Such speculation wasn’t helped by the abrupt liquidation of a $600M leveraged fund bet on falling prices. According to Reuters, unknown investors in the VelocityShares 3x Inverse Crude Oil Exchange Traded Note left the fund after jumping in just last month. Over 1.8M shares of $602M were redeemed, which, according to FactSet Research data, is the largest ETN outflow over the past year. Credit Suisse (CS), the ETN’s issuer, was forced to repurchase short positions in quick measure.

Continue reading "Plummet in Oil Prices is a Worry to Investors" »

January 31, 2016

Diversified Stock Funds Drop in Value

A number of diversified stock funds posted significant losses at the end of the January. For example, funds seeking underpriced stocks saw their holdings lose value as did value funds. Here is a list (From Morningstar):

· PIMCO RAE Fundamental Plus EMG (PEFIX)

· Templeton Foreign A

· Vanguard International Value (VTRIX)

· Dodge & Cox Stock (DODGX)

· Longleaf Partners (LLPFX)

· DFA International Value I (DFIVX)

· Fairholme (FAIRX)

· Pacific Advisors Small-Cap Value (PASMX)

· Russell Emerging Markets S (REMSX)

· Longleaf Emerging Partners International (LLINX)

· FPA Capital (FPPTX)

· Vanguard International Value Inv (VTRIX)

· Longleaf Partners (LLPFX)
Sequoia (SEQUX)

· Templeton Developing Markets A (TEDMX)

· Royce Opportunity Invmt (RYPNX)

· Doge and Capital International Stock (DODFX)

· Templeton Foreign A (TEMFX)

Concentrated funds, which did well last year, are also doing poorly so far this year.

Shepherd Smith Edwards and Kantas, LTD LLP is a stockbroker fraud law firm. If you suspect that your investment losses are a result of securities fraud, contact our law firm today.

Some big diversified stock funds in full bear mode, InvestmentNews, January 19, 2016

November 11, 2015

Oil Companies Expected to Default

Unpaid debt incurred by oil companies to pay for new drilling equipment and rigs could lead to a number of them defaulting. According to CNN, many of these companies had expected prices for oil to hit the $100 range when they incurred the debt and are now contending with oil prices of about $45 and no sign of the original expectation being met in the near future.

Unlike a year ago, when low interest rates and junk bond markets helped spur the energy boom in the United States and inexpensive credit let companies invest in new technologies for oil drilling, there has been a rise in credit costs. At ETF.com’s recent Fixed Income Conference, DoubleLine Capital founder Jeffrey Gundlach said that while US production of oil has slowed, the inventories for domestic crude oil levels have stayed high.

In August, Moody’s Investors Services said that it expected more US oil companies to default because banks have become stricter about lending standards and contracts that had committed to higher crude prices for production in the future get set to expire. The credit rating agency said that the energy sector would be a main default driver in 2016.

Continue reading "Oil Companies Expected to Default " »

May 18, 2015

U.S. Supreme Court Rules on 401K Lawsuit, Gives Investors More Protections

The nation’s highest court has just made it easier for workers to sue their 401k plans for charging excessive fees for investments. The case is Tibble v. Edison International, and the U.S. Supreme Court ruled unanimously for the ex-workers of Edison International.

The plaintiffs contended that the plan fiduciaries’ decision to choose six retail-class mutual funds (out of the forty selected for the retirement plan) was based on the higher fees that these funds charged, compared to institutional class funds that were also allegedly available to investors. Under the Employee Retirement Income Security Act (ERISA), retirement plans that are sponsored by an employer have a fiduciary obligation to choose investments that are appropriate and remove any that cease to meet the criteria set up in the investment policy statement.

Five years ago, the U.S. District Court for the Central District of California awarded the plaintiffs a $370,732 judgment over damages involving the high fees in three of the retail share class funds at issue. The claims against the other three funds are the ones that went to the 9th U.S. Circuit Court of Appeals and now the Supreme Court.

This court essentially found that it is the job of plan fiduciaries to regularly assess retirement plan investments and get rid of imprudent ones. The justices said that this duty separate from a trustee’s obligation to be prudent when choosing the investments for a plan.

The case raised questions over ERISA’s six-year statute of limitations for breach of fiduciary duty and whether this protects fiduciaries that kept imprudent investments in the plans even if they were added over six years ago. Tibble was filed in 2007. The holding of the Supreme Court broadens how much time investors have to file this type of case because it determined that the six-year statute didn’t start running right when the investments were bought.

The court has sent the lawsuit back down to the 9th circuit, which will determine how to calculate that deadline. The appeals court will also decide how frequently and intensely fiduciaries must go over their plans’ investments in order to fulfill their monitoring obligations. It was the 9th circuit that threw out TIbble because it was filed after the six-year statute.

Our stockbroker fraud law firm has helped thousands of investors recoup their losses. We would like to offer you a free case evaluation. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Tibble v. Edison International

Employee Retirement Income Security Act

February 6, 2015

U.S. Department of Labor’s Fiduciary Rule for Retirement Advisers Hits Another Snag

Just as the Department of Labor appeared poised to push out its proposal to impose a fiduciary standard on retirement advisers, financial industry members have once more stepped forward to try to implement certain changes.

Last month, financial industry trade groups met with White House aide Valerie Jarrett to express their worries. The groups are concerned that certain restrictions will limit how much compensation brokers that sell investments for IRAs would be able to get for their services. They believe that this will stop representatives from dealing with investors who have middle-range incomes.

Meantime, the DOL contends that the proposed rules are needed to protect retirees and workers from getting advice that may be tainted by conflicts of interest. For example, a broker might be tempted to sell a retirement investment product that comes with a high-fee, which could hurt a client’s savings.

The DOL had withdrawn its original version of the proposed rule in 2011. Now, the Obama Administration seems ready to back what would be the re-proposed version.

A memo leaked from the head of Obama’s Council of Economic Advisers indicates this support. It claims that excessive trading and expensive investments could cost investors anywhere from $8B to $17 billion annually.

Once the DOL sends the proposal to the Office of Management and Budget for examination, that office will have up three months to determine the regulatory impact. If OMB approves the proposal then the Labor department would put it out for the public to issue comment.

Financial industry players want the DOL to work with the SEC on any making of fiduciary rules.

Investors often depend on their retirement funds at a time in their lives when they no longer have a regular source of income. To sustain losses, especially because of excessive fees, can be costly both financially and emotionally, affecting not just an investor’s quality of living but also his/her ability to get medical and nursing care when older. At Shepherd Smith Edwards and Kantas, our retirement adviser fraud lawyers are here to help investors recoup their losses.

DOL fiduciary rule stalls again as brokerage industry makes last-minute push against it, Investment News, February 6, 2015

Definition of the Term “Fiduciary” Proposed Rule, United States Department of Labor

More Blog Posts:
Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case, Stockbroker Fraud Blog, January 31, 2015

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses, Stockbroker Fraud Blog, January 21, 2015

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Securities Blog, January 12, 2015

September 7, 2014

Mortgage Transfers to Nonbanks Get Closer Regulator Scrutiny

In the last two years, millions of borrowers with mortgages have been moved from banks to nonbanks. This can result in problems for home loan borrowers.

A reason for this is that a lot of banks are getting rid of their mortgage servicing rights. 14 of the leading bank servicers, including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Bank of America (BAC) have sold off over $1 trillion of these rights in the last two years. The primary buyers are nonbank servicers, which now handle one in every seven mortgages.

The Consumer Financial Protection Bureau, which is engaged in the oversight of nonbanks, enacted regulations earlier this year that extended rules for banks to nonbank servicers that collect mortgage payments and deal with foreclosures and modifications. Last month, the bureau also put out guidance on new regulations that specifies the way loan transfers to nonbanks should be dealt with, including a provision mandating that buyers and sellers conduct meetings in at timely manner to talk about the continuity of service before a mortgage is handed off. Sales contracts also must stipulate that mortgage documents need to be given to the new servicer. However, a recently released CFPB statement reported that some nonbank services are billing customers incorrectly, not honoring approved modifications, and losing paperwork.

Bloomberg, in a recent article, wrote about the Chhibber family. They lost their Virginia home after a $1.3 billion mortgage deal was reached between Nationstar Mortgage Holdings Inc. (NSM) and Bank of America. After losing their business and a portion of their income, the family started working with the bank to modify their loan. However, before the loan was complete, Bank of America sold the Chhibbers' mortgage to Nationstar.

The Chhibbers reapplied to the nonbank servicer for a remodification, which it initially approved but then recanted. They say the reason given to them was that the value of the property had gone up beyond the mortgage balance during the modification process.

Nationstar claims there was no modification when it got the loan and that the process had to be restarted. (One of the rules that the CFPB has extended to nonbank servicers is that they are not allowed to make applicants begin the process again following a loan transfer.)

In other mortgage-servicing news, the U.S. Securities and Exchange Commission issued a subpoena to Ocwen Financial (OCN), a mortgage-servicing company, asking for documents involving a group of companies that it conducts business with. Benjamin M. Lawsky, the top banking regulator in New York State, had expressed concern that the firm and another company, Altisource Portfolio Solutions (ASPS), had hired the same risk officer.

Some investors reportedly don’t know whether companies are charging too much for their services and if the mortgage bond investors are the ones having to pay for the added costs. Earlier this summer, the Federal Housing Finance Agency voiced concern about how nonbank financial firms that process delinquent mortgages may not have sufficient funding.

Family Loses Virginia Home as Regulators Target Nonbanks, Bloomberg, September 4, 2014

Nonbank servicers further muddy the mortgage mess, Philly.com, September 7, 2014

FHFA Inspector General Cites Risks on Nonbank Mortgage Servicers, The Wall Street Journal, July 1, 2014

More Blog Posts:
Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million, Stockbroker Fraud Blog, September 5, 2014

Securities Lawsuit Accuses Deutsche Bank, JPMorgan Chase, Credit Suisse, and Other Banks of Manipulating ISDAfix, Institutional Investor Securities Blog, September 2, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

June 17, 2014

Retirees Hurt, Brokers Enriched by $300 Billion 401(k) Rollover Boom

According to Bloomberg.com, as 401(k) rollovers continue to boom, it is the brokers who are profiting while the retirees are sustaining losses. Now, these investors are speaking out.

It was in 2012 that former employees moved $321 billion from 401(K) plans to individual retirement accounts—a 60% rise from the last decade. Now, the IRA is holding about $6.5 million in 401(k)-like accounts.

Even though retirees typically can keep their savings in 401(K) plans, financial firm reps. do reach out to try and persuade them to move their funds to IRAs instead. Internet ads, cold calls, cash incentives, and storefront signs are used to draw retirees in, including the promise of wider investment choices compared to their current plans. In one example of an incentive promised, E*Trade (ETFC) Financial Corp. and Bank of America Corp.’s (BAC) Merrill Lynch offer anyone who rolls over a 401 (K) plan into an IRA up to $600. (However, this can result in additional expenses down the road.)

Bloomberg, which conducted a three-month probe, discovered that ex-employees at big companies, such as AT&T, United Parcel Service Inc., and Hewlett Packard Co., have complained that sales representatives approached them to move retirement funds into unsuitable IRA investments. The investigation included interviews with brokers and retirees and an examination of documents, including confidential arbitration records.

One ex-AT & T administrative assistant who talked to Bloomberg said her account balance has dropped from $390K to $100K since she made such a transfer. Now, she is worried about losing her home.

The woman was a client of Kathleen Tarr, then a Royal Alliance Associates broker. American International Group Inc. (AIG) owns that firm. Tarr visited the offices and homes of AT & T employees, encouraging them roll over their retirement money into high risk commission vehicles.

She and her business partner reportedly made hundreds of thousands of dollars in commission annually. Since then 37 of her clients have filed complaints naming her. Tarr and Royal Alliance maintain that they made the right recommendations to retirees.

In the last couple of years, federal regulators have been cracking down on rollover abuse. In 2013, the US Government Accountability Office discovered that conflict of interest was a reason for IRA growth. Congress’s investigative arm said that financial companies that issue 401(K) plans even misled government investigators that pretended to be employees who were retiring. Representatives from these companies told the individuals that they should move their funds to IRAs that their firms managed.

Municipal bonds and non-traded real estate investment trusts are among the risky investments that retirees got involved in because of such recommendations. When Puerto Rico’s municipal bonds tanked badly last year, retirees who entrusted brokerage firms such as UBS (UBS) to move their funds into an IRA suffered huge losses to their life savings.

As for non-traded REITs, FINRA has already issued an alert warning that these instruments are difficult to cash in, aren’t as diversified as other real estate investments, and can come with commissions and other costs.

Retirees Suffer as $300 Billion 401(k) Rollover Boom Enriches Brokers, Bloomberg, June 17, 2014

Public Non-Traded REITs—Perform a Careful Review Before Investing, FINRA

Government Accountability Office

More Blog Posts:
Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case, Stockbroker Fraud Blog, June 11, 2014

Regulator Headlines: SEC Commissioner Stein Wants Updated Capital Rules for Brokerage Firms, FINRA’s BrokerCheck Link Proposal Faces Opposition, & CFTC Appoints New Enforcement Head, Institutional Investor Securities Blog, June 12, 2014

JPMorgan Investment Management’s Shareholders Claim The Firm Charged Excessive Mutual Fund Fees, Institutional Investor Securities Blog, June 13, 2014

June 14, 2013

Radio Host Dave Ramsey and Financial Advisers Get Into Twitter Fight

Dave Ramsey, a well-known radio host, recently got into a twitter war with fee-only financial advisers. The advisers had criticized the radio personality, who is also an author, for telling his readers to expect a 12% investment return and for promoting brokers who are commission-based. Ramsey hosts the popular “The Dave Ramsey Show,” which is a program about money and life.

One adviser, Carl Richards, Tweeted that Ramsey’s advice was “dangerous.” Ramsey responded to his critics also via Twitter, saying that he provides assistance to more people in minutes than all of these advisers ever will.

Another adviser, David Grant, questioned whether the investment professionals that Ramsey recommends on online pay the host for that endorsement. Ramsey did not respond. However, his website does state that local providers that are endorsed do pay a fee for the “local advertising.” All recommended providers, however, have to be Financial Industry Regulatory Authority Inc. members.

Commenting on the Twitter spat, Forbes contributor Tim Maurer said that beneath this social media disagreement is an even bigger problem, which is that the factions in the “financial kingdom” have incentive to work against each other, rather than together, which limits their “collective benefit.” Maurer was also quick to point out that this brawl only includes two of the factions that exist and they aren’t even the most powerful ones.

The financial planner and educator proceeded to offer his take on the industry’s most powerful, with banks, broker-dealers, and insurance companies among the most influential, followed by independent RIAs (Registered Investment Advisory firms). Then, there are FINRA, the SEC, the Certified Financial Planner Board, the Financial Planning Association, the National Association of Personal Financial Advisors, and the financial media.

Maurer talked about how what sells is differentiation, with little impetus to fine commonality. He did, however, suggest that there should some unifying principals that the public could depend on from these different factions if they would be willing.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities lawyers are versed and experienced in securities law, arbitration, and the securities industry. We help investors, both individual and institutional clients, recoup their financial losses caused by unsuitable recommendations, misrepresentations, omissions, financial fraud, Ponzi scams, inadequate supervision, failure to execute trades, negligence, breach of promise, margin account abuse, insider trading, registration violations, elder financial fraud, unauthorized trading, and other types of securities fraud.

We know how important it is to choose the right stockbroker fraud law firm, which is why we would like to offer you a free, no obligation, case assessment. Contact us today. We have successfully worked with thousands of clients via FINRA arbitration and the courts.

Dave Ramsey's Online Brawl Shows Problematic Divisions In Finance World
, Forbes, June 4, 2013

Dave Ramsey flames advisers on Twitter, Investment News, June 9, 2013

Dave Ramsey, Twitter

Dave Ramsey

More Blog Posts:

Muni Bonds Draw Investors But Come With Serious Risks, Stockbroker Fraud Blog, June 11, 2013

As Their Prices Hit a 2-Year Low, Gold ETFs Liquidate En Masse, Institutional Investor Securities Blog, June 10, 2013

AIG Drops RMBS Lawsuit Against New York Fed, Fights Bank of America’s $8.5B MBS Settlement
, Institutional Investor Securities Blog, June 5, 2013

May 30, 2013

Morgan Stanley Unveils Trade Flow Insights Product to Give Brokers Better Sales Data

Morgan Stanley (MS) has a new trade tool to help brokers better understand who is buying and selling what financial products. Trade Flow Insights was recently rolled out to over 16,000 financial advisers.

The tool provides information on leading sales and purchases that have been executed, in addition to asset allocation. Advisers can even filter data to determine which products were the most popular in the last week or month. Client age, asset class, and household assets are just some of the filter categories.

Not only will Trade Flow Insights let representatives know what products are most in demand, but also it will inform them of which financial instruments their coworkers are most successful with. Some brokers are saying that having this type of insight is beneficial, helping them become aware of current trends while causing them to probe more deeply into the investment options out there before making a buy for an investor.

Still, other advisers are concerned that their trades and strategies will no longer become private. Respecting these concerns, Morgan Stanley has designed Trade Flow Insights so that single-day activity won’t be accessible. Activity surrounding a certain investment will only show up when at least 50 advisers have been involved in at least 4,000 client accounts.

The tool could also be beneficial for newer advisers, who may be able to avail from the experiences and knowledge of their more seasoned counterparts.

Securities Fraud
If you suspect that your investment losses are a result of unsuitable recommendations, unauthorized trading, misrepresentations and omissions, inadequate supervision, breach of duty, failure to execute trades, overconcentration, negligence, registration violations, and margin account abuse, you may have grounds for a securities fraud claim or lawsuit. Contact our securities lawyers today.

Morgan Stanley Gives Advisers a Peek at What Peers Buy, The Wall Street Journal, May 13, 2013

Morgan Stanley rolls out Trade Flow Insights tool, Investment News, May 26, 2013

More Blog Posts:
Morgan Stanley & Goldman Sachs Settle Federal Homeowner Foreclosure Complaints for $557 Million, Stockbroker Fraud Blog, January 16, 2013

Morgan Stanley Hit with $5 Million Securities Fraud Lawsuit Involving Alleged Superannual Account Losses Related to Risky Option Trading, Institutional Investor Securities Blog, May 18, 2013

May 17, 2013

Number of Banks At Risk of Failing Goes Down

According to The Dealmaker’s Journal, the list of banks in danger of failing has gotten smaller. Bank observers are speculating whether the failures have decreased because of election year politics, the industry is becoming more robust, regulatory agencies have changed leadership, or other factors.

Regulators tend to shut down banks with low capital, and last month alone, data analysis firm Trepp reported a rise in bank failures. That said, the rate of failures has gone down in the last few years. Last year 51 banks failed. By April for this year, 10 banks had failed. However, 651 institutions are still on the Federal Deposit Insurance Corp’s list of problem banks.

Over just the course of a quarter following exams and credit writedowns, there have been banks that have gone from appearing well capitalized to seized. This was especially true 2009 and 2010 when certain bankers were reluctant to admit that credit quality had gone down until regulators forced them to lower the value of their portfolios.

During times when there aren’t many banks with capital ratios at levels that are critically low, the risk of failures become less likely. Granted, this might pose a for healthy banks wanting to buy inexpensive franchises, but also it makes it easier for them to buy a bank that, although beleaguered, is also somewhat stable and may be able to enhance their business.

Our securities fraud lawyers recover the lost funds of individual and institutional investors. Your initial case evaluation with us is free. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Bucket of Likely Bank Failures Nearly Empty, American Banker, May 10, 2013

Federal Deposit Insurance Corp.

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Standard & Poor’s Seeks Dismissal of DOJ Securities Fraud Lawsuit Over RMBS and CDO Ratings Issued During the Financial Crisis
, Institutional Investor Securities Blog, May 9, 2013

April 13, 2013

AIG Wants to Stop Former CEO Greenberg From Naming It as a Defendant in Derivatives Lawsuit Against the US

American International Group is asking a federal judge to prevent Maurice Greenberg, its former chief executive, from suing the federal government on its behalf. The insurer had already decided it wasn’t going to file a lawsuit against the federal government over its bailout that took place during the economic crisis.

Greenberg, who has filed a $25 billion securities lawsuit against the US, is pursuing derivative claims for the company. He claims that the bailout’s “onerous” terms cost the insurer’s investors billions.

While AIG isn’t trying to stop Greenberg from suing on his behalf or for other shareholders, the insurance giant has made it clear that suing the government over the rescue isn’t where it wants to focus its energy and resources. In its filing, AIG notes that according to Delaware Law, Greenberg, through Starr Investment, cannot take over the right of the AIG board to make the call on whether/not to sue.

All of AIG’s directors were unanimous in their decision not to have AIG join Greenberg’s securities lawsuit. He, however, claims that they succumbed to government pressure.

In its filing, AIG argues that its decision not to sue makes sense, seeing as the board believes that securities claims that Starr is making on its behalf may not be ‘slam dunk… winner,’ contrary to his claims. The insurer says that its own counsel thinks that chances of the derivatives lawsuit proving to be a success are “low.” They also believe that such litigation would harm AIG’s image, brand, and relationships with regulators, shareholders, customers, and elected officials while negatively impacting its attempts to rebuilding itself and pay back everything it owes the government.

A.I.G. Says It Will Not Join Lawsuit Against Government, New York Times, January 9, 2013

AIG Request to Bar Greenberg Derivative Lawsuit, Scribd

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January 7, 2013

IOSCO Complex Products Report Does Not Get SEC Commissioners’ Approval Votes

The Securities and Exchange Commission has failed to approve the International Organization of Securities Commission’s final report on the suitability requirements for distributing complex financial products. Commissioners Troy Paredes and Daniel Gallagher say they disapprove of its release. They don’t think it accurately portrays relevant law and that the US regulatory regime should not conform to it.

IOSCO believes that the 2008 economic collapse brought up serious concerns about how the increasing complexity of certain financial products has made it harder for clients to see the risks involved.

The report lays out nine principals to make sure there is proper customer protection related to complex financial instruments. Among the principals: intermediaries must implement policies to note the difference between non-retail and retail clients as they relate to financial instruments and execute “reasonable steps” to handle conflicts of interest, while exposing the risks should the client’s interest potentially be compromised; firms have to set up specific internal policies that support suitability requirements; and that intermediaries that recommend certain complex instruments have to take reasonable steps to make sure that their counsel is grounded upon a reasonable assessment that the financial product’s risk-reward profile and structure is aligned with the customer’s knowledge, experience, investment goals, inclination toward risk, and capacity to handle loss.

“In the worldwide race to the bottom to see which countries will protect their investors the least, the SEC is our champion, leading the charge for the United States of America to surely win a medal in this event,” says Shepherd Smith Edwards and Kantas, LTD, LLP founder and stockbroker fraud lawyer William Shepherd.

IOSCO Report on Complex Products Fails to Attract Votes for SEC Approval, Bloomberg/BNA, January 24, 2013

More Blog Posts:
District Court in Texas Dismisses Securities Fraud Case Against Sports Franchisor, Stockbroker Fraud Blog, December 15, 2012

SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas, Stockbroker Fraud Blog, November 24, 2012

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

July 30, 2012

FINRA, SEC Need to Employ Better Oversight Over Investor Education Funds, Says District Court

The U.S. District Court for the Southern District of New York says that the Securities and Exchange Commission is not a doing a good enough job in providing oversight of $55 million in investor education funds and the way that the money is being disbursed. The funds come from the $1.4 Global Research Analyst Settlement that was reached with top investment banks, including Citigroup (C), JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), and others, in 2003, over securities research that had been allegedly flawed and biased. The case is SEC v. Bear Stearns & Co.

Now, Judge William H. Pauley III, who is tasked with supervising how the settlement is implemented, is contending that the SEC should have been raising red flags about the FINRA Investor Education Foundation’s “opaque” project spending and operational expenses. The court is asking the foundation and the SEC to turn in certain information, including detailed accounting of receipts and spending for 2011 and 2010, by the end of August. The foundation also has provided additional details about its operating costs.

The court has said that disbursing the funds has been a challenging process. After the Investor Education Entity, which was created to use the funds, failed to take off, in 2005 the court let the SEC move the $55 million to the foundation under the premise that the regulator would provide oversight while turning in quarterly reports.( As of December 31, 2011 the foundation had given out approximately $44.7 million of the funds through education and grant programs.)

However, in an opinion that issued in 2009, the court questioned why the foundation paid $800,000 in administrative expenses while giving just $6.5 million to grantees. And in this most recent decision, the court is once again asking why, considering the type of projects involved, the foundation seems to spend a “disproportionately high” amount. Pauley pointed to several examples, including a daylong seminar involving 130 attendees in West Virginia that cost $58,000 and a financial fraud conference last November that the foundation co-sponsored in DC that took place at a posh hotel.

The court also said that the quarterly reports that it has received are “bereft” of the details that they should provide, and it is wondering why the eight “primary” states that have been the target of the foundation’s educational activities don’t necessarily appear to be the ones with the “greatest investor education needs.”

FINRA Investor Education Foundation spokesperson George Smaragdis has said that the foundation will give over the information that the court is asking for but that it doesn’t agree with the majority of the court’s statements.

SEC v. Bear Stearns

FINRA Investor Education Foundation

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The SEC Penalties Act of 2012 Would Create Tough Financial Punishments for Securities Fraud, Stockbroker Fraud Blog, July 29, 2012

SEC’s Delay in Adopting Conflict Minerals Disclosure Rule is Impeding the Development of Initiatives for Issuer Compliance, Says GAO, Stockbroker Fraud Blog, July 27, 2012

Stanford Ponzi Scam Investors File Class Action Lawsuit Suing The Securities and Exchange Commission, Stockbroker Fraud Blog, July 25, 2012

Continue reading "FINRA, SEC Need to Employ Better Oversight Over Investor Education Funds, Says District Court " »

July 12, 2012

NYSE Proposal for Retail Order Execution Pilot Program Gets SEC Approval

The Securities and Exchange Commission has approved the New York Stock Exchange LLC and NYSE Amex LLC proposal for a pilot program that lets them set up for one year a private trade execution venue for retail investors. The “retail liquidity program” will go up against internalizing brokerage firms for retail order flow while offering price improvements at mere fractions of a penny. (Currently retail brokers send most of their orders through broker dealers that internalize or execute them in over-the-counter markets instead of bilateral exchanges.)

According to NYSE Euronext (NYX), the program will be implemented on the NYSE MKT and NYSE on August 1 and is complimentary to the trade execution options that currently exist for retail investors. The program is for direct use by retail brokerages and market intermediaries that work with retail order flow providers.

In a release issued last week, NYSE Euronext executive vice president Joseph Mecane said that giving improved prices for retail orders in an exchange environment lets individual investors afford new economic incentives while creating greater liquidity, transparency, and competition through the US cash equities marketplace. The program will set up two new market participant classes at NYSE exchange: 1) retail member organizations that will turn in retail orders to the exchanges and 2) retail liquidity providers that will have to give price improvements as interest that is more competitively priced than the exchange’s best protected bid/offer as a tradeoff for specific economic benefits. A NYSE member can qualify as a liquidity provider by obtaining approval as a market maker or supplementary liquidity provider on the exchange, while demonstrating that it can meet retail liquidity provider requirements.

According to the SEC, a lot of commenters were opposed to the NYSE pilot program. One common concern is that segmenting retail orders might get in the way of making sure that non-retail investors get fair access, and, as a result, end up establishing a two-tiered market. There is also worry that the program might cause sub-penny trading to grow.

Yet, despite the opposition, the SEC believes that the proposed rule changes could improve retail investors’ price orders while creating a chance for institutional investors to engage with retail order flow to which they currently don’t have access. The Commission disagrees that the program might create a significant “shift” in the structure of the market. It is convinced that the program will closely replicate existing OTC market trading dynamics and that this will create another competitive venue for the execution of retail order flow.

As part of its July 3 order approving the pilot proposal, the SEC gave NYSE a limited exemption from Rule 612 of Regulation NMS [National Market System] The sub-penny rule doesn’t allow exchanges to display or accept orders or quotations in any NMS stocks in price increments under a penny—unless the orders or quotations in stock are priced at under $1/share.

Over the years, our securities lawyers have helped thousands of individual and institutional investors recoup their losses. To schedule your free case evaluation, contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Read the SEC's Order (PDF)

SEC Approves NYSE Proposal to Set up Pilot Program for Retail Order Execution, Bloomberg/BNA, July 6, 2012

More Blog Posts:

Should Retail Investors Be Given Greater Access to IPO Information?, Stockbroker Fraud Blog, June 29, 2012

SEC’s Efforts to Reconsider a ’07 Proposal Over Broker-Dealer Financial Requirements Elicits Concerns From Some Market Participants, Stockbroker Fraud Blog, June 20, 2012

Will the JOBS ACT Will Expand Private Offerings But Hurt Public Markets?, Institutional Investor Securities Blog, July 6, 2012

June 29, 2012

Should Retail Investors Be Given Greater Access to IPO Information?

At a Senate Banking Subcommittee hearing last week, the topic of whether retail investors should get more access to IPO information to even out the initial public offering process for both institutional and ordinary investors was discussed. One of the reasons the hearing was called was to look at the issues involving the recent IPO of Facebook (FB), which opened on the Nasdaq a few weeks ago.

There are some who believe that the social networking giant’s underwriters gave favored clients negative material information prior to the offering while leaving other investors out in the cold. Soon after trading began, Facebook shares declined sharply. At the hearing, Securities Subcommittee chairman Sen. Jack Reed (D-RI) spoke about the need to make sure that ordinary investors and sophisticated investors are subject to the same rules, including providing everyone with access to the same disclosures and data (or, at the very least, equivalent versions of both).

Among the witnesses who support giving retail investors more access to information about IPO’s is DePaul University finance professor Ann Sherman. She suggested making issuers publish online at least two Q and A sessions from the IPO road show so that retail investors would be getting the same amount of information as the typical institutional investor that usually attends one such meeting. While she acknowledged that there are reasonable grounds for limiting how much access is given to analyst forecasts that tend to be “speculative,” she said that lawmakers should either make this data available to no one or to everyone.

Meantime, although Class V Group LLC principal and founder Lisa Buyer also said that posting Q & A sessions online would benefit retail investors, she noted that it would be “difficult” to ensure that the information was distributed equally. Both Buyer and Sherman, however, warned against giving retail investors a greater role in IPOs as it relates to the setting of price. Sherman argued that as a group, regular retail investors might not be able to fulfill the same role as institutional ones. She spoke about how any regulatory changes implemented so that greater retail investor participation can take place should consider such differences.

Another topic that came up for discussion was the Jumpstart Our Business Startups Act. Senator Reed expressed worries that the legislation, which was recently enacted, could hurt ordinary investors taking part in IPOs. The statute, which establishes an IPO on-ramp for issuers that satisfy the definition of an emerging growth company, gives the latter temporary exemption from the full disclosures that public companies usually have to give. Reed was concerned that allowing EGCs to turn in confidential draft registration statements with the SEC prior to a public filing created confidentiality until “very late in the process” and that this would hinder the process of making sure investors are getting information.

Securities Fraud
Shepherd Smith Edwards and Kantas represents retail investors that have been defrauded by members of the financial industry. Our securities lawyers work with clients throughout US, and over the years, we have helped thousands recoup their losses.

Retail Investors Need More Access To IPO Information, Some Experts Say, Bloomberg/BNA, June 21, 2012

Jumpstart Our Business Startups Act (PDF)

More Blog Posts:

SEC’s Efforts to Reconsider a ’07 Proposal Over Broker-Dealer Financial Requirements Elicits Concerns From Some Market Participants, Stockbroker Fraud Blog, June 20, 2012

Investment Advisers and Brokers Should Be Able To Explain in One Page Why an Investment Would Benefit a Retail Client, Says FINRA CEO Richard Ketchum, Stockbroker Fraud Blog, June 14, 2012

FINRA Initiatives Addressing Market Volatility Approved by the SEC, Stockbroker Fraud Blog, June 5, 2012

June 20, 2012

SEC’s Efforts to Reconsider a ’07 Proposal Over Broker-Dealer Financial Requirements Elicits Concerns From Some Market Participants

The Securities and Exchange Commission's efforts to revive a 2007 proposal, which would amend the rules under the 1934 Securities Exchange Act related to customer protection, net capital, notification, and books and records for broker-dealers, has some market participants upset. The proposal, which seeks to deal with areas of concern related to broker-dealer financial requirements and update the financial responsibility rules of these firms, was recently opened up again for comment by the SEC for a 30-day period through June 8, 2012 in the wake of the regulatory developments and economic events that have developed since 2007 and due to the public’s continued interest.

However, as our securities fraud law firm just mentioned, not everyone is welcoming this move with open arms. Earlier this month, BOK Financial Corp. (BOKF) wrote a letter to the SEC arguing that the proposal doesn’t factor in certain significant changes that have taken place since 2007 and that “key justifications” for specific proposed modifications appear to be based more on that time period rather than “current conditions.” Also voicing its disapproval was the National Investment Banking Association, which noted that the proposal fails to include numerical values or statistics that represent the present atmosphere. NIBA also pointed to the “unprecedented changes” that have followed since the proposal was introduced five years ago.

J.P. Morgan Trading Services is also not pleased with the SEC’s decision to revise this 2007 proposal. It is calling on the Commission to use other prudential rules that it believes would do a better job. Meantime, the Securities Industry and Financial Markets Association is warning that certain of the proposed requirements might up the financial osts for industry participants.

The proposal mandates that broker-dealers with the proprietary accounts of other broker-dealers maintain reserve funds to deal with claims stemming from these accounts. It also would prevent broker-dealers from including as part of these funds cash that was placed at affiliated banks, as well as some of the cash that was deposited in banks that are not affiliated.

That said, there are those that support this proposal. In a letter to the SEC, the Public Investors Arbitration Bar Association said that it believes the proposed measures would “marginally increase” broker-dealers’ financial stability while decreasing the risk of public investors that succeed in FINRA arbitration proceedings not being able to collect the damages that they are awarded through these proceedings. PIABA even believes that the proposal should additionally require that all broker-dealers have errors and omissions insurance to cover client claims to make sure that these financial firms are able to pay these arbitration awards.

Some Voice Concern at SEC Bid to Revive 2007 B-D Financial Responsibility Proposal, BNA/Bloomberg, June 18, 2012

Comments on Amendments to Financial Responsibility Rules for Broker-Dealers, SEC

More Blog Posts:

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty, Stockbroker Fraud Blog, April 14, 2012

Despite Reports of Customer Satisfaction, Consumer Reports Uncovers Questionable Sales Practices at Certain Financial Firms, Stockbroker Fraud Blog, January 7, 2012

FINRA May Put Forward Another Proposal About Possible SEC Rule Regarding Fiduciary Duty, Institutional Investor Securities Blog, November 28, 2011

Continue reading "SEC’s Efforts to Reconsider a ’07 Proposal Over Broker-Dealer Financial Requirements Elicits Concerns From Some Market Participants" »

June 14, 2012

Investment Advisers and Brokers Should Be Able To Explain in One Page Why an Investment Would Benefit a Retail Client, Says FINRA CEO Richard Ketchum

At the Financial Industry Regulatory Authority’s yearly conference, the SRO’s CEO, Richard Ketchum, talked about how investment advisers and brokers that sell complex instruments to retail clients should be able to write on a “single page” the reasons why the product is in the best interest of that investor. Ketchum made his comments less than a month after FINRA fined Citigroup Inc. (C), Wells Fargo & Co. (WFC), UBS AG (UBS), and Morgan Stanley (MS) $9.1 million for their alleged failure to correctly train sales employees about the features of and risks involved with leveraged and inverse exchange-traded funds.

Shepherd Smith Edwards and Kantas, LTD, LLP Founder and FINRA Arbitration lawyer William Shepherd disagrees with this ‘single page’ approach. “Despite its name, one should know that FINRA is a self-regulatory association owned and operated by securities dealers,” he said. “A one page statement as to why an investor is being sold an investment is likely designed to become a disclaimer such as the one found on a toaster or other product. This one-pager could then be used to shift the burden of suitability from the broker to the investor. Retirees who lose their savings can then be told. ‘It is your fault, not ours.’ Beware of securities self-regulators bearing gifts.”

Ketchum also talked about how reps should talk to investors about how a product will likely do in different markets and that investment losses could result. He also suggested that broker-dealers provide more training to brokers about financial products so that they can also better explain any costs involved. Acknowledging that conflicts of interests do exist, Ketchum spoke about the need for brokerage firms to self-assess regarding which is higher priority to it: the best interests of investors or that of their own employees?

Meantime, Securities Industry and Financial Markets Association general counsel and senior managing director Ira Hammerman has spoken in favor of a uniform fiduciary standard” for both investment advisers and brokers. He said it was key that new disclosures articulate in simple English the material risks, conflicts of interest, and possible rewards.

“As for standardizing the breach of fiduciary standard in the securities industry: The goal is to water-down ‘settled law’ regarding fiduciary duty,” said Stockbroker fraud attorney William Shepherd. “Other professionals, including lawyers, have lived with this duty for centuries. Since 1945, investment advisors have existed with the current legal definition of ‘fiduciary duty.’ Wall Street brokers should simply be held to the same standard.”

FINRA Annual Conference 2012

Securities Industry and Financial Markets Association

More Blog Posts
FINRA Initiatives Addressing Market Volatility Approved by the SEC, Institutional Investor Securities Blog, June 5, 2012
FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker Fraud Blog, April 8, 2011

Fiduciary Standard in Securities Industry Doesn't Need New Definition, Stockbroker Fraud Blog, November 26, 2010

Continue reading "Investment Advisers and Brokers Should Be Able To Explain in One Page Why an Investment Would Benefit a Retail Client, Says FINRA CEO Richard Ketchum" »