NASD Lawsuit & News Blog

Auctions ARS as Investments: Good, Bad, and Ugly

Mon, 1 Sep 2008 07:14:35 -0400

The thrill of it all: Long-term investments like auction rate securities (ARS) have a short-term twist -- the interest rates or dividends they pay are reset at frequent intervals through auctions.

That's not necessarily a bad thing but recently the credit market has caused many auctions to fail. ARS investors who thought these securities were a ready source of cash are now short on funds. Loss of liquidity does not mean that you cannot ever get your money back. But, if you need money now, any illiquid investment can be a financial hardship.

ARS auctions can fail when supply exceeds demand-when there are not enough bids to purchase all the securities offered for sale in the auction. When an ARS auction fails, current investors will continue to hold their securities and will generally receive an interest rate or dividend set above market rates for the next holding period-up to any maximum disclosed in the offering documents.

Due to the failing credit market-a significant number of auctions have failed, leaving some investors who counted on immediate access to their funds wondering - what next?
Hold on if you don't need the money right away

Borrow money but this is not without risks and great expense - read the fine print. The brokerage firm you are dealing with can force the sale and also may sell without contacting you or may increase their house maintenance without contacting you.

Liquidate other investments. Beware of tax consequences.

Ask your broker whether any ARS you hold are eligible for redemption. If so, and if the redemption is partial, your brokerage firm should be able to tell you what procedures it is following to allocate shares among its customers.

If you think your broker has acted inappropriately, contact Anapol Schwartz. You may be eligible for a securities litigation lawsuit.

Source: FINRA

Investment Advisor Agrees to Pay $5 Million to Ohio Workers' Comp Fund

Mon, 9 Jun 2008 08:38:00 -0400

A hedge fund manager who was convicted of defrauding the Ohio Bureau of Workers' Compensation to the tune of $216 million has agreed to pay the Bureau $5 million plus court costs to end a civil suit filed against him.

Mark D. Lay of MDL Capital Management and MDL Active Duration Fund has not admitted wrongdoing, but made "'a business decision'" to stop contesting the state's civil lawsuit, his attorney told the Columbus Dispatch Newspaper.

"He has to swallow hard to put this behind him because he needs to move on," Columbus attorney Percy Squire said.

Tags: Mark D. Lay, MDL Capital Management, MDL Active Duration Fund, Ohio Bureau of Workers' Compensation, workers' comp fraud

Enron Case Tests SEC's Allegiances

Fri, 1 Jun 2007 06:40:12 -0400

When the Securities and Exchange Commission files a brief in legal disputes, it is usually a nonevent. But the cases usually don't involve Enron Corp. In recent weeks, the agency has been publicly and noisily pressured by a congressman, a union leader and a Democratic presidential candidate, amid increasing consternation the agency is favoring business interests in its decision making. As a result, the SEC's decision about whether to weigh in on a Supreme Court case as well as on a similar case seeking the high court's attention has become a test of its own motto: ‘investor protection.’ The cases revolve around a similar question: Can shareholders sue third parties, such as investment banks, for another company's fraud? The SEC hasn't been asked by the Supreme Court to file a ‘friend of the court,’ or amicus brief, but lobbying by high-po/wered plaintiffs lawyer Bill Lerach, who represents shareholders in the Enron case, has boxed the agency into a corner. Unless it sides with shareholders, the SEC could be criticized as an ally of business for wanting to restrict the number of ways investors can sue.

Kara Scannell, Wall Street Journal, ConsumerWatchdog.org 5/29/07
http://www.consumerwatchdog.org/corporate/nw/?postId=8004&pageTitle=
Enron+case+tests+SEC%27s+allegiances

UBS Brokerage Account Fee Fraud

Tue, 8 May 2007 07:19:06 -0400

The office of New York Attorney General Eliot Spitzer has filed suit against UBS Financial Services, Inc. (UBS), charging that the company defrauded thousands of customers through its InsightOne brokerage program.

The lawsuit details how UBS moved inappropriate clients from regular brokerage accounts into InsightOne, despite higher costs for these investors, by falsely promoting InsightOne as providing personalized advice and other financial planning services.

InsightOne charged its brokerage customers an asset-based fee instead of per-transaction commissions. Asset-based fee accounts are inappropriate for investors who rarely trade securities or hold significant amounts of cash, no-load mutual funds, or other similar assets.

The brokerage account fee fraud lawsuit says that UBS:

--Lured unsuitable investors with false promises, including the promise of an advice-based account.

--Created a conflict of interest for its brokers by giving them a financial incentive to enroll and keep investors in InsightOne even when the program was ill-suited.

--Kept many unsuitable investors in InsightOne by encouraging UBS brokers to churn their InsightOne accounts.

UBS brokers complained to their supervisors about the unethical practices but were met with deaf or threatening ears. Fee based or not, increasing transactions for the sake of increasing transactions (not for the benefit of the client) is called churning. The investor never wins with churning.

As a result of UBS fraudulent conduct, InsightOne customers paid tens of millions of dollars more in InsightOne fees than they would have paid in traditional brokerage account commissions.

The civil lawsuit, filed in New York Supreme Court charges UBS with violations of state anti-fraud laws, as well as common law fraud and breaches of fiduciary duty. The complaint seeks from UBS disgorgement, damages and restitution, as well as injunctive relief.

UBS Brokerage Account Fee Fraud - http://www.consumeraffairs.com/news04/2006/12/ny_ubs.html

Equity-Indexed Annuities (EIA): Bad Investments Especially for Seniors

Sat, 5 May 2007 08:15:52 -0400

Equity-Indexed Annuities (EIA): Bad Investments Especially for Seniors - http://www.forbes.com/columnists/columnists/free_forbes/2005/0919/240.html

Equity-indexed annuities EIA are contracts with insurance companies that pay investors part of the capital appreciation in a stock index and guarantee a minimum return if the contract is
held to maturity.

Even though the NASD has issued an investor alert about EIA sales practices and the SEC has warned investors about the complexity and hidden costs of EIAs, sales for these terrible investment products have soared to $20 billion per year.

Sales abuses are rampant because EIAs generate enormous commissions and are not regulated by the investment industry. Profit over people seems to be the rule of thumb when EIA sales are in the horizon.

Equity indexed annuities are purposefully complex making it impossible for investors to determine their true costs. EIAs have hefty surrender charges which can last throughout the contract's life. Equity indexed annuities guarantee a minimum rate of return, applied to the adjusted cash surrender value but often only if the annuity is held to term, typically six or seven years.

The EIA rules are many and complicated, certainly more complex than most average investors can comprehend and even seasoned investors.

There are three common indexing formulas used to translate the change in the index level into a gross return on the contract thus adding to the complexity of understanding EIAs..
.
Both the SEC and the NASD caution investors to review and understand the impact on returns of the various EIA features. No one who sells EIAs truly understands them; all they understand is the huge commission. Despite all the complex formulas and hidden costs and surcharges, EIAs still manage to be sold to investors.

Are you the victim of an unscrupulous EIA sales agent? Has someone promised you the world but you woke up to find out there are too many strings attached and no one has the answers?

If yes, we recommend that you talk to an investment lawyer who has handled similar cases and may be able to handle yours too. How can we help? Please answer a few questions so we can assess your situation.

Single Mother Wins Investment Misconduct Arbitration

Wed, 24 Jan 2007 08:56:15 -0400

Anapol Schwartz obtains settlement for investor victim defrauded by brokerage firm

PHILADELPHIA--Catherine Humphrey-Bennett, attorney for Anapol Schwartz law firm recently obtained a six-figure settlement in an NASD arbitration case in favor of a single mother with three children who sustained losses to her account due her broker inappropriately churning and over-concentrating her account in technology securities.

Brokers are obligated to carefully evaluate each client's investment goals to provide for adequate portfolio diversification. Concentration of a portfolio in any individual investment dramatically increases the risk of losses within that portfolio. If a broker places the vast majority of a client's total investment holdings in one sector, and this sector declines significantly, the broker may be liable. Since all investors are unique, careful strategies must be used to properly diversify a portfolio. Failure to do so can result in liability when that portfolio sustains significant losses.
Attorneys Catherine Humphrey-Bennett, Joel Feldman, and Adam Green have obtained numerous awards and settlements on behalf of individual investors defrauded by their brokerage firms.*

Have you suffered losses in the stock market? Anapol Schwartz can assist in evaluating your case. Please contact us for a complimentary legal consultation or call us toll-free at (866) 735-2792.

*Awards and settlements cannot be guaranteed in every case. The information found in this document should not be construed as legal advice and is not a substitute for professional legal consultation.

SOURCE: Anapol Schwartz, Weiss, Cohan, Feldman and Smalley, P.C.
CONTACT: Anapol Schwartz, Joel Feldman, 215-735-3716
About Anapol Schwartz P.C.

States Side with Enron Shareholders in Class Action Lawsuit

Fri, 12 Jan 2007 09:03:08 -0400

California and 29 other states have taken the side of Enron Corp. shareholders seeking damages from big investment banks in a federal case over the banks' alleged role in Enron's accounting fraud.

Attorneys general from the 30 states used the SEC's legal arguments in 2002 Enron litigation to make the case that Merrill, Credit Suisse, and the other investment banks should be held liable as participants in accounting fraud.

The lawsuit on behalf of Enron shareholders seeks billions of dollars in damages from the investment banks. The federal judge presiding over the litigation, U.S. District Judge Melinda Harmon in Houston, has granted it status to proceed as a class-action suit. (http://www.latimes.com/business/la-fi-wrap10.1jan10,1,1406010.story?coll=la-mininav-business)

Allianz Life Misled Seniors on Deferred Annuities

Fri, 12 Jan 2007 07:42:32 -0400

Allianz misled seniors on annuities

See if you have a case against Allianz Life. Learn More below. Or ask one of our lawyers for help and advice.

Since 2000, Allianz has sold more than 4,900 deferred annuities, worth about $260 million, to Minnesotans over the age of 70.

When a 73-year-old man contemplated using his life savings to buy a deferred annuity policy from Allianz Life Insurance Co. in 2001, he asked his agent what would happen if he needed some of the money to pay his wife's medical bills. The agent told him to buy an Allianz Flex-Dex Bonus annuity and assured him that the product was flexible enough to accommodate his needs. So the man used the $40,000 he had tucked away to do exactly that.

But when he tried to dip into those funds to pay the medical bills he knew were coming, he was told he'd have to pay a whopping surrender charge of $6,000 because the annuity hadn't matured.

Attorney General Lori Swanson sued Golden Valley-based Allianz, accusing the company of violating Minnesota law by offering and selling annuities to senior citizens that were unsuitable for their financial needs. Swanson said her office had been investigating Allianz Life for some time and had attempted to settle with the company.

The attorney general's suit, filed in Hennepin County District Court, alleges that Allianz didn't adequately disclose to seniors purchasing the deferred annuities that their money could be tied up for as long as 15 years, that they could not cash in their annuities early without paying a hefty penalty, and that payments advertised as immediate bonuses also were not payable for up to 15 years. The suit claims Allianz failed to properly supervise the sales of such products and paid agents lucrative commissions to sell them.

This is something that AARP is very interested in - protecting investors, especially older consumers who are frequently the primary victims of this kind of fraud.

Deferred annuities are investment products designed to provide income over a period of years. The investor doesn't begin receiving payments until after a certain period of time, called a maturity date.

But Allianz isn't the only company accused of preying on seniors. In 2004, the attorney general of California and that state's insurance commissioner sued a group of companies, one in Des Moines, Iowa, and two in California, for allegedly tricking retirees into investing their retirement money in annuities.

In 2005, New Jersey regulators put into place the Senior Citizen Investment Protection Act, which limits how long insurance companies can charge surrender fees on annuities. Also in 2005, Charlotte, N.C.-based Bank of America, under pressure by the Massachusetts secretary of state, agreed to give consumers 78 or older the chance to get out of their annuities penalty free. (Read More About Allianz Deferred Annuities)

Security Frauds Fall to a 10-Year Low in 2006

Thu, 11 Jan 2007 09:01:38 -0400

Securities fraud suits fell to a 10-year low in 2006 due to a rising stock market, increased corporate controls, and the indictment of one of the top investor law firms on charges it paid illegal kickbacks to clients.

Shareholders sued 120 companies for stock fraud this year through Dec. 29, according to data compiled by Bloomberg and the Stanford Law School Securities Class Action Clearinghouse. The total is the lowest since 1996, a year after Congress passed laws aimed at curbing securities fraud litigation.

The decline may stem from increased corporate governance rules and fraud prosecutions since 2002. That year, stock fraud suits hit a record-high of 267 after an accounting scandal forced Enron Corp. to file the second biggest bankruptcy in U.S. history.
(http://www.bloomberg.com/apps/news?pid=20601109&sid=aVjHYaMwi1.E&refer=home)

Another Day, Another Boss Facing Securities Fraud

Tue, 9 Jan 2007 09:02:26 -0400

The former CEO of Aspen Technology has appeared in court to face securities fraud charges. Prosecutors claim that David McQuillin, 48, of Sudbury was seeking to impress the board of Aspen as he tried to get the top job at the company. They claim he fraudulently inflated the company's software revenues between January 2001 and September 2002 in a bid to make himself look good.

McQuillin and unidentified co-conspirators cooked the books by entering side agreements with a customer to control when certain beans would be counted. McQuillin is also said to have backdated software sales agreements into earlier financial quarters and provided false information to its auditors.

McQuillin was charged with one count of conspiracy to commit securities fraud and one count of securities fraud.

If convicted, he could face up to 25 years in prison and more than $5 million in fines. (http://www.theinquirer.net/default.aspx?article=36808)