New York Securities Lawyer Blog

Published on: August 22, 2009

Citigroup Loses MAT Fund Arbitration

By justia.admin

Citigroup suffered its first loss in an arbitration related to its MAT fund. A FINRA arbitration panel in Miami, FL awarded a claimant $250,000 plus interest accruing from March 1, 2009 until the award is paid. The arbitration hearing took place over four days in July and is reportedly the first arbitration award against Citigroup handled by a PIABA attorney concerning the MAT funds. In 2008, Citigroup’s proprietary investment funds under the trade name ASTA, MAT and Falcon blew up in spectacular fashion. Citigroup presently faces numerous customer arbitrations (including some filed by our firm) related to the funds. It had won its first two reported arbitrations in Detroit and St. Louis.

Published on: July 24, 2009

Finra Warns About Inverse ETFs

By justia.admin

Finra filed an Investor Alert warning investors and reminding brokers and RIA’s that inverse ETF’s that offer leverage are very complex and are typically unsuitable for any retail investor who intends on holding them beyond one day.

Inverse ETF’s are designed to perform inversely to an index or a benchmark that they track. They can be useful in sophisticated trading strategies, but are very difficult for everyday investors to understand. The Investor Alert focuses on risk, cost and tax consequences. Here is a link to it: http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/MutualFunds/P119778

Published on: July 20, 2009

Morgan Keegan Receives Wells Notice Related to Bond Funds

By justia.admin

Morgan Keegan, whose bond funds imploded in spectacular fashion in 2008, disclosed that it received a Wells Notice from the SEC on July 7, 2009. A Wells Notice is notification that the SEC staff intends to recommend that it bring an enforcement action for possible violations of federal securities laws. The bond funds at issue were run by James Kelsoe, a portfolio manager at Region Morgan Keegan’s asset management arm. There are approximately over one hundred pending arbitration matters against Morgan Keegan related to the bond funds. Our firm presently represents investors from around the country who unfortunately invested in the funds. It will be interesting to see how the post-Madoff SEC handles the investigation and how it may potentially affect the pending arbitration proceedings.

Published on: July 1, 2009

Notes From Madoff’s Sentencing Hearing

By justia.admin

On June 29, 2009, Judge Denny Chin sentenced Bernard Madoff to 150 years in prison. Sitting in the courtroom that day was quite an experience. Below are my notes from that historic sentencing hearing.

Judge Chin’s sentencing of the maximum sentence drew cheers from the crowd after almost a full hour of very emotional presentations by Madoff’s victims. Judge Chin threw the book at Madoff calling it a “staggering fraud” and “not mob vengeance” as argued by Madoff’s counsel. He called the fraud a “massive breach of trust.”

One of the most amazing parts of the hearing was Judge Chin reporting that he had received not one single letter of support from family or friends of Madoff. That is astounding. I’ve never experienced a sentencing hearing in which at least one human being stood up for the character of the accused.

Published on: June 28, 2009

Private Equity Fraud? Pang Case First of Its Kind

By justia.admin

We’ve seen securities fraud, hedge fund fraud, now private equity fraud? Prosecutors have charged Danny Pang who ran Private Equity Management Group in California with an up to $654 million fraud. The Wall Street Journal reported Friday that Pang allegedly extracted at least $83 million in inflated fees. The Pang case is the first high profile private equity fraud publicly reported.

Considering the enormous size of the private equity market, institutional and individual investors should ensure that any private equity investments in their portfolios are with well established, reputable managers. Just like in the hedge fund world, private equity investments often lack complete transparency. The private investment structure leaves room for potential fraud. A place to start is by doing proper due diligence on a private equity funds’ auditor.
We expect as the hedge fund industry is heading toward greater regulation due to the recent string of Ponzi schemes such as Madoff, that the private equity space will attract its own share of fraudsters. Be careful.

Published on: June 27, 2009

Securities Attorneys Multiply

By justia.admin

Securities arbitration attorneys seem to be everywhere. Since the market collapse last October and the high profile securities frauds committed by Bernie Madoff and Allen Stanford, the ranks of attorneys who represent investors has grown significantly. As other litigation areas have struggled in this new economic climate, securities fraud is alive and kicking. Many litigators who have little experience in securities fraud arbitration and litigation are now holding themselves as experts in the space. Be wary.

Representing investors who have been defrauded by brokerage firms, investment advisors, banks, hedge funds and trust companies is a very specialized practice area. Investors searching for counsel should ensure that any securities attorney they hire has been through the wars with the investment industry. Significant securities cases are often defended by the large Wall Street law firms. A neophyte will be exposed.

How does one find an experienced securities attorney? A good place to start is PIABA – the Public Investors Arbitration Bar Association (piaba.org). PIABA is a national organization of attorneys who represent investors in arbitration proceedings against Wall Street firms. The PIABA site has a listing of attorneys by state who handle these matters. Speak to multiple attorneys before you hire one. After being taking advantage of once by the investment industry, make sure you’re not making mistake number two. Hire attorneys who practice securities law for a living.

Published on: June 10, 2009

OTC Derivatives – A “Soft Approach” Coming?

By justia.admin

Over-the-counter (OTC) derivatives can be scary. Derivatives may pose an unsuitably high amount of risk for non-institutional investors yet are being sold by dealers around the world to investors who do not clearly understand the products.

According to Reuters yesterday, U.S. Representative Stephen Lynch said that “taking a ‘soft approach” to regulating OTC derivatives would be a mistake, but that appears to be the direction lawmakers are leaning.” Representative Lynch further said “by allowing a significant part of the derivatives market to just go off unregulated … we’re setting ourselves up to fail.”

After the meltdown of 2008 and 2009, now is the opportunity to address the concerns related to OTC derivatives. Hopefully, Representative Lynch’s perspective will prevail and public investors will be further protected.

Published on: June 9, 2009

Lehman Structured Notes – New Hampshire Sues UBS

By justia.admin

UBS was sued by the New Hampshire Bureau of Securities Regulation last week for selling unsuitable Lehman Brothers structured notes to retail investors as a conservative investment.

These structured notes were debt obligations that also contains an embedded derivative component with characteristics that adjust the security’s risk/return profile.

According to Bloomberg, Jeff Spill, deputy director of securities regulation for enforcement, said “The safety of these products was exaggerated” and “UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions.”

Published on: June 4, 2009

Employment Arbitration Award Confirmed – $4.1 billion

By justia.admin

An employment arbitration award worth $4.1 billion was confirmed this week by the Los Angeles County Superior Court. The arbitration was heard before JAMS and the defendants included iFreedom Communications International Holdings, Limited, and its founder, Timothy Ringgenberg.

This is one of the most significant employment awards ever rendered in arbitration. We have no information regarding the potential collection of said award.

For FINRA registered representatives in the securities industry, employment arbitration is mandatory. Many other industries are including pre-dispute arbitration clauses in their employment agreements as well. We expect to see a surge in employment arbitrations filed in the U.S. due to the declining economy.

Published on: May 30, 2009

Securities Arbitration – FINRA Withdraws Discovery Proposal

By justia.admin

Investors who file securities arbitrations received a quiet victory at the end of May. FINRA, the Financial Industry Regulatory Authority, quietly withdrew a proposal to the discovery rules in securities arbitrations that would have obliged investors to disclose even more of their financial histories than the present rules provide.

FINRA’s proposal was filed with the SEC in March and intended to increase the responsibilities of investors who file customer arbitrations to produce, among other things, complete tax returns (instead of certain pages and schedules) for five years prior to the first transaction identified in the statement of claim (instead of three years).

The SEC received more than 50 comment letters about the proposal, mostly from attorneys who represent investors who objected. FINRA filed a two-page notice with the SEC, withdrawing the rule proposal, on May 21.