New York Securities Lawyer Blog

Published on: February 25, 2015

Brokers May Soon Be Subject to Fiduciary Duty to Their IRA Investors

A leaked White House memo supports imposing fiduciary duties on brokers in their dealings with IRA investors, as reported by the New York Times.

Current rules provide a weaker standard for brokers. The memo estimates that the absence of adequate investor safeguards penalizes IRA holders by as much as $17 billion per year. Hopefully, this development indicates that a rule imposing a fiduciary standard will be promulgated by the U.S. Labor Department soon. The securities industry has been vigorously fighting this requirement for years, some threatening to stop offering IRAs that would be subject to the rule. Of primary concern to investors are built in conflicts of interest that brokers often have in recommending IRA investments that may be lucrative to the broker but not right for the investor. The government should err on the side of investor protection in this dispute because the securities industry has the knowledge and resources to protect future retirees, whereas many investors lack the knowledge to protect themselves in the arena of complicated investment products.

http://www.nytimes.com/2015/02/14/your-money/fiduciary-duty-rule-would-protect-consumers-and-target-investment-brokers.html?_r=0

Published on: February 19, 2015

Securities Arbitration Award Against Merrill Lynch Upheld

By Lax & Neville LLP

This week, the New Jersey Supreme Court denied the appeal of an arbitration award against Merrill Lynch by the Associated Humane Societies Inc. of Tinton Falls, N.J. In the original FINRA arbitration, the society alleged that certain of its investments were improper, it improperly sustained penalties and other charges when the investments were liquidated, its accounts were improperly managed and churned, and it was overcharged for management of its accounts. The society sought $10 million in punitive damages, $872,171 in compensatory damages and $544,299 in attorneys’ fees. After an 18-day hearing, the FINRA panel found in favor of the society, but awarded it only $168,103 in compensatory damages and $126,077 in punitives.

The society appealed. A 3-judge appellate division panel upheld the award in October, finding that the FINRA panel did not abuse its discretion. Associated Humane Societies, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. L-4376-13 (Oct. 29, 2014). The New Jersey Supreme Court denied any further appeal on Feb. 17, 2015.

Though the society was ultimately disappointed with the size of the award, the decision shows the reluctance of courts to disturb FINRA arbitration awards.

Published on: February 19, 2015

Brokers Must Consider New Market Realities When Determining the Suitability of Asset Allocation for Young Investors

By Lax & Neville LLP

Does the conventional wisdom regarding asset allocation hold up in today’s economy? The New York Times recently featured an article suggesting that a portfolio teeming with risky stocks, derivatives, and other exotic investments may, in fact, not be suitable for even young investors. The Times points out that these young investors experience higher rates of unemployment and are more likely to cash out their 401(k)’s and other investments when they switch jobs. An appropriate suitability analysis under FINRA Rule 2111 would take these factors into account. It is highly likely that many brokers are still using a one-size-fits-all asset allocation formula for their young customers.

Investors may have a variety of claims against such brokers who fail to take into account current market conditions, including unsuitable investment advice, fraudulent misrepresentations and omissions, and failure to supervise.

Published on: October 25, 2013

UBS in Web of Puerto Rico Bond Funds Suffering Massive Losses

By Lax & Neville LLP

Puerto Rico bond funds have been suffering massive losses recently and regulators have already taken action. According to the SEC, UBS Financial Services of Puerto Rico Inc. (“UBS”) misled thousands of its retail investors in 23 of its closed-end mutual funds. While UBS has already spent more than $26 million to settle the SEC’s charges, investors are now starting to pursue their own actions against the institution to recover potentially millions in losses.

Starting in 2008, UBS began soliciting investors in its Puerto Rico bond funds by promoting the funds’ market performance and high premiums to net asset value as the result of supply and demand in a competitive and liquid secondary market. However, UBS knew about a significant “supply and demand imbalance” and internally discussed the “weak secondary market.” UBS misled investors, failing to disclose that it controlled the secondary market. In 2009, UBS withdrew its market support and sold its inventory to unsuspecting customers. At the same time, it failed to disclose that it was drastically reducing its inventory, and undercut customer orders so that UBS’s inventory could be liquidated first.

Investors may have a host of claims against UBS including fraudulent misrepresentations and omissions, unsuitable investment advice, and failure to supervise.

Published on: April 3, 2013

Lax & Neville LLP Investigating Claims Against UBS For Losses In The UBS Willow Fund LLC

By Lax & Neville LLP

Lax & Neville LLP is investigating claims on behalf of investors regarding possible misconduct in connection with UBS Financial Services, Inc.’s (“UBS”) sale and marketing of the UBS Willow Fund LLC (“UBS Willow Fund”). UBS recommended the Willow Fund to its investors as a distressed debt fund. In actuality, contrary to the representations made by UBS, the Willow Fund deviated from that investment strategy, and instead invested in speculative sovereign debt credit default swaps (“CDS”). The Willow Fund’s investment in sovereign debt CDS was much riskier and speculative than the investment strategy that UBS disclosed to its customers. Therefore, UBS customers were never informed of the true nature of the Willow Fund’s investment strategy. Due to this undisclosed strategy, the Willow Fund’s value and worth drastically declined, causing investors to suffer significant losses, which could be as high as 70%.

Published on: March 19, 2012

“ARAVALI FUND LOSSES -TIME MAY BE RUNNING OUT”

By Lax & Neville LLP

Lax & Neville LLP has been retained by several investors who lost money in the Aravali Fund claiming it was inappropriately sold by Deutsche Bank Securities and other brokerage firms in 2006 and 2007. The Aravali Fund was sold to investors who were seeking income and safety of principal as an alternative to a portfolio of municipal bonds. In reality, the Aravali Fund was a very risky interest rate arbitrage hedge fund, and not long after inception, the fund plummeted in excess of 90% in value and was liquidated. A large FINRA arbitration award was rendered against Deutsche Bank for sales practice abuses concerning the selling and marketing of the Aravali Fund. The FINRA arbitration panel found Deutsche Bank liable for the investor’s losses in the amount $803,850, which appears to represent about half of the client’s investment loss in the Aravali Fund. Lax & Neville has been successful in obtaining significant settlements for its clients who invested in the Aravali Fund. Investors only have (6) six years from when they purchased the Aravali Fund to file a claim. Once the (6) six years have elapsed, an investor’s claim is no longer eligible for submission to FINRA arbitration. If you have lost money investing in the Aravali Fund or have information about Deutsche Bank’s marketing of the Aravali Fund, please call Lax & Neville LLP, (212) 696-1999.

Published on: December 9, 2011

Bloomberg Update on $383M Client Case v. Citigroup

By Lax & Neville LLP

Below is a piece by Bloomberg on our firm’s $383 million claim against Citigroup. There’s more on this case on the firm’s website at https://www.riklawfirm.com/

Citigroup’s Mathur Said to Depart With Hybrid Traders as Pandit Cuts Jobs By Donal Griffin – Dec 9, 2011

Citigroup Inc. (C), the third-biggest U.S. bank, is shrinking a team of traders who deal in “hybrid” products as Chief Executive Officer Vikram Pandit cuts Wall Street jobs, two people familiar with the matter said.

Published on: December 1, 2011

American Lawyer Piece on Firm’s Citigroup Case

By Lax & Neville LLP

Below is an American Lawyer piece which explains our clients’ pending $383 million FINRA arbitration against Citigroup. It goes on to talk about how there are more and more large and complex cases at FINRA. It’s true. As partner John Rich points out at the end of the article, our firm is involved in other multi-million dollar matters at FINRA. In fact, we handled the Bayou v. Goldman FINRA arbitration case which generated a $20.6 million award, and is mentioned in the article. We think FINRA arbitration will continue to attract sophisticated legal disputes because it is more efficient and timely than court litigation.

Too Big for Their Britches?

Nate Raymond

Published on: November 30, 2011

Bloomberg Piece on $383M Client Case v. Citigroup

By Lax & Neville LLP

Below is Bloomberg piece about our client’s $383 million FINRA arbitration claim against Citigroup Global Markets, Inc. related to hedge funds, private equity, and derivatives.

Bloomberg

Citigroup Saudi Deal Haunts Pandit By Donal Griffin – Nov 30, 2011

Published on: November 23, 2011

Private Shares Market – Little Disclosure

By justia.admin

Last week, we wrote about private shares fraud and how we think there may be significant litigation and/or arbitration in the future in this space. Today’s NY Times has a very good Dealbook piece (below) by the “Deal Professor” about the lack of disclosure in the private shares markets of SharesPost and SecondMarket. The most important sentence: “The lack of information combined with this illiquidity contributes to the volatility and mispricing of shares.” That’s spot on. We’re talking about large investments in unregistered shares within an unregulated market. Major exposure to potential fraud. Major.

November 22, 2011, 4:37 pm Private Markets Offer Valuable Service but Little Disclosure By STEVEN M. DAVIDOFF Harry Campbell

Information is the lifeblood of capital markets. In the movie “Wall Street,” Gordon Gekko demanded confidential information from a young would-be Master of the Universe, Bud Fox, played by Charlie Sheen. The value of stocks is based on information, which is why securities laws are intended to ensure that all investors have at least minimum amounts of information.