Arbitration

Published on: April 6, 2012

Improper Variable Annuity Sales Practices Lead to Fine, Restitution Order by FINRA

The Financial Industry Regulatory Authority (FINRA) recently fined one of the United States’ largest independent broker-dealers, Cadaret Grant. Grant must pay a $200,000 fine in addition to restitution to investors because of improper sales practices of variable annuities to elderly investors. According to investment fraud lawyers, improper sales of variable annuities are a common cause for securities arbitration claims.

Improper Variable Annuity Sales Practices Lead to Fine, Restitution Order by FINRA

According to investment fraud lawyers, variable annuities are popular investment vehicles for retirement. Essentially, they are insurance contracts that are joined with an investment product. They have insurance-like properties but function as tax-deferred savings vehicles by providing a tax deferral using the insurance policy. The combination of the investment product and insurance contract provides four appealing features: a tax deferral on earnings, the ability to name a beneficiary for the account, the ability to use your life expectancy to receive payments for life and the ability to receive guarantees based on the insurance component. However, variable annuities are also a common vehicle for investment fraud, according to securities arbitration lawyers.

One of the registered representatives for Cadaret Grant sold 13 elderly clients unsuitable death benefit riders to variable annuities from 2006-2008, according to FINRA’s decision announcement. All 13 of the clients were age 77 or older. Apparently, the death benefit was only effective through age 80. Furthermore, despite the fact the death benefit did not apply beyond age 81, it cost the clients 25 additional basis points in fees for the duration of the policy. Apparently, four of the clients could not benefit from the rider in any way.

Published on: April 5, 2012

News: Citi International Fined by FINRA for Excessive Markups, Markdowns

by InvestorLawyers

On March 19, 2012, the Financial Industry Regulatory Authority (FINRA) announced its decision to fine Citi Financial Services LLC for charging excessive markups and markdowns and related supervisory violations. In addition to a $600,000 fine, FINRA ordered Citi Financial to pay $648,000 in restitution and interest to wronged customers. Over 3,600 customers were charged excessive markups and markdowns, according to FINRA. Securities fraud attorneys appreciate FINRA decisions such as this one, which hold firms responsible for the fees they charge their customers.

News: Citi International Fined by FINRA for Excessive Markups, Markdowns

According to FINRA’s findings, from July 2007 through September 2010, Citi International charged excessive markups and markdowns on corporate and agency bonds. These markups and markdowns, which were as low as 2.73 percent and as high as more than 10 percent, are considered excessive within the given market conditions, value of the services rendered and cost of transaction execution. Furthermore, from April to June 2009, reasonable diligence was not given to the purchase or sale of corporate bonds in order to present the most favorable price to customers. Citi International, a subsidiary of Citigroup Inc., neither confirmed nor denied the charges.

FINRA’s Executive Vice President of Market Regulation, Thomas Gira, stated, “FINRA is committed to ensuring that customers who purchase and sell securities, including corporate and agency bonds, receive fair prices. The markups and markdowns charged by Citi International were outside of appropriate standards for fair pricing in debt transactions, and FINRA will continue to identify and address transactions that violate fair pricing standards, regardless of whether a markup or markdown is above or below 5 percent.”

Published on: March 28, 2012

Ziegler Healthcare Real Estate Fund Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are investigating possible Financial Industry Regulatory Authority (FINRA) claims against broker-dealers who improperly recommended the purchase of Ziegler Healthcare Real Estate Funds (ZHREF). ZHREF is one of many risky private equity funds that have been improperly recommended and could result in loss recovery through securities arbitration.

Ziegler Healthcare Real Estate Fund Investors Could Recover Losses

A series of four private equity funds, ZHREF are investments designed to take part in the development and ownership of medical office buildings and other medical facilities. ZHREF I was formed in May 2005, and is fully invested. Its portfolio includes 8 buildings, totaling 221,000 square feet and approximately $54 million. ZHREF II was formed in March 2006, and is fully invested. Its portfolio includes 8 buildings, totaling 340,000 square feet and approximately $76 million. ZHREF III was formed in June 2007, and is fully invested. Its portfolio includes 6 buildings, totaling 133,000 square feet and approximately $34 million. ZHREF IV’s portfolio currently contains two properties. In total, these funds are comprised of 23 properties across 12 states.

A recent investor alert from FINRA addresses how alternative investments such as private equity funds are marketed and sold. Securities fraud attorneys warn investors that brokers often market these investments to clients as safe, despite the risks of private equity funds. Individuals with a conservative portfolio or low risk tolerance may have received unsuitable recommendations from their broker to invest in ZHREF. Individuals who suffered losses as a result of an unsuitable investment may be able to recover losses through securities arbitration.

Published on: February 29, 2012

Investors Recovering TIC Investment Losses Through Securities Arbitration

by InvestorLawyers

There has been a recent series of Financial Industry Regulatory Authority (FINRA) securities arbitration rulings in which panels have sided with investors who sustained losses because of TIC exchanges. TIC, or tenant-in-common, investments involve tax-deferred exchanges of property ownership interests. In the majority of these arbitration awards, the sale of TICs, along with other products, came from DBSI Inc. DBSI raised almost $1 billion from around 140 separate deals prior to its bankruptcy declaration in 2008.

Investors Recovering TIC Investment Losses Through Securities Arbitration

Securities Arbitration Commentator research and InvestmentNews reports indicate that $12.6 million in cases involving DBSI’s direct broker-dealer sales of TICs have been filed with FINRA.

LPL Financial LLC has also faced a FINRA panel because of TIC investments. Heinrich and Araceli Hardt, both 76 from San Diego, California, purchased two TIC exchanges from David Glenn, an LPL broker. According to the Hardts’ allegations, LPL and Glenn’s broker misconduct included elder abuse and securities fraud. On February 10, the FINRA panel awarded the Hardts $1.4 million. Claims were also filed on behalf of the Hardts against Orchard Securities LLC and Meridian Capital Partners. However, the claims against Meridian Capital and Orchard Securities were dismissed by the Hardts in December.

Published on: February 27, 2012

LPL Financial Investors of Direct Invest LLC May Be Eligible to Recover Losses Through Securities Arbitration

by InvestorLawyers

Investment attorneys are investigating claims on behalf of investors against LPL Financial regarding the sale of private placements. The many investors who sustained losses in private placements, specifically Direct Invest LLC, may be able to recover losses through securities arbitration. Earlier this month, a Financial Industry Regulatory Authority Arbitration Panel awarded two LPL investors $1.4 million as a result of losses they sustained from Direct Invest LLC. Their investments included Braintree Park LLC and Heron Cove LLC. In addition to the $1.4 million award, LPL was also ordered to pay hearing session fees totaling $35,700.

LPL Financial Investors of Direct Invest, LLC may be Eligible to Recover Losses Through Securities Arbitration

According to claimants’ allegations, LPL’s sale of investments in Direct Invest LLC was fraudulent in that the investments were marketed as private placements to retirees, promising that the investments could generate a consistent income stream. Claimants alleged that the sources of the projected distributions, the real estate market and the actual properties were misrepresented by LPL. Furthermore, claimants stated that they were told that their received distributions would come from real estate operations while, in actuality, a large part of the distributions came from the use of leverage or a return of their own investment.

The original FINRA claim also named Meridian Capital Partners LLC and Orchard Securities LLC as respondents. However, the claims against these firms were resolved with claimants prior to the FINRA panel’s ruling. Therefore, details of how the issues were resolved are not present in this case.

Published on: February 22, 2012

Bernoulli High Grade CDO-II Investors Could Recover Losses Through Securities Arbitration

by InvestorLawyers

Merrill Lynch customers who purchased Bernoulli High Grade Collateralized Debt Obligations could recover their losses through securities arbitration. Bernoulli High Grade CDO-II was sold to institutional and high-net-worth customers of Merrill Lynch. The Bernoulli High Grade CDO-II was underwritten by Merrill Lynch in 2007. However, all 30 of the CDOs underwritten by Merrill Lynch in 2007 were either in technical default, had their best-rated portion cut to junk, were in danger of being liquidated or were in the process of being liquidated by the summer of 2008. Stock fraud lawyers are now investigating how Bernoulli High Grade CDO-II was marketed and sold by Merrill Lynch.

Bernoulli High Grade CDO-II Investors Could Recover Losses Through Securities Arbitration

Securities that are backed by underlying pools of loans or bonds are CDOs, or collateralized debt obligations. While these investments are inherently risky, they are relatively common among “qualified investors.” Currently, stock fraud lawyers are also investigating if Merrill Lynch properly disclosed the CDO risks to investors in the sale of Bernoulli High Grade CDO-II. Furthermore, the value of Bernoulli High Grade CDO-II may have been inflated and overstated by Merrill Lynch. Many investment attorneys believe that Merrill Lynch either knew or should have known the 2007 CDO deals were bad in the existing mortgage market conditions, given the poor performance of the CDOs.

On January 31, 2012, a Financial Industry Regulatory Authority Arbitration Panel awarded $1.38 million to Bobby Hayes, an investor who purchased Collateralized Debt Obligations from Merrill Lynch in 2007. For more on this case, see the previous blog post, “After Securities Arbitration, Merrill Lynch Must Pay $1.4 Million to Investor Over CDO Loss.”

Published on: February 17, 2012

Securities Arbitration May Be Better Path for UBS Lehman Brothers Investors

by InvestorLawyers

Investment attorneys continue to seek investors who suffered significant losses in Lehman Brothers 100 Percent Principal Protection Notes and who wish to pursue securities arbitration claims in order to recover losses. Lehman Brothers 100 Percent Principal Protection Notes, also known as Principal Protected Notes, were issued by UBS Financial Services and have resulted in significant losses for many investors.

Securities Arbitration May be a Better Path for UBS Lehman Brothers 100% Principal Protected Notes Investors

Many claims have been filed on behalf of Lehman note holders in the Lehman bankruptcy proceedings, but there are many more investors who must take action if they wish to recover these losses. Though many investors hope to recover losses through the class action that has been filed, individual securities arbitration claims may prove to return a larger percentage of losses to investors. Based on the Third Amended Joint Chapter 11 Plan of Lehman Brothers, it appears that investors will only receive about 21 cents on the dollar through the class action lawsuit. Therefore, investors should attempt to recover losses by any means available to them, including securities arbitration. Furthermore, investors should act immediately due to potential statutes of limitations.

Customers of UBS Financial Services who suffered losses as a result of their investments in Lehman Brothers 100 Percent Principal Protection Notes are encouraged to contact a stock fraud lawyer immediately for more information about filing a securities arbitration claim with the Financial Industry Regulatory Authority’s Office of Dispute Resolution. One way to do this is to look for an attorney who is experienced at representing clients with these kinds of claims. You will want someone who knows the history of rulings relative to these claims, as well as someone who understands how to recover as much money as possible for his or her clients.

Published on: February 2, 2012

Citigroup’s Misconduct Comes to Light After Documents are Unsealed and Judge Refuses Request to Overturn FINRA Decision

by InvestorLawyers

Documents from the Financial Industry Regulatory Authority (FINRA) proceedings of Citigroup vs. Gerald D. Hosier, Jerry Murdock Jr. and Brush Creek Capital have been unsealed. The $54.4 million award granted in this case was the largest ever given to individuals in securities arbitration proceedings. A decision was made this month on Citigroup’s request to overturn FINRA’s decision.

Citigroup’s Misconduct Comes to Light After Documents are Unsealed and Judge Refuses Request to Overturn FINRA Decision

The details of the FINRA proceedings, which were confidential, have been unsealed following Citigroup’s request that the award be tossed out by a United States district court. The documents viewed by FINRA arbitrators show, according to the New York Times, that Citigroup rated the investments of the claimants at a 5 rating for risk on a scale of 1 to 5, with 5 being the highest risk rating. Investors went on to lose 80 percent of their investments, which is no surprise considering the risk rating.

The investments in question were municipal arbitrage portfolios, or ASTA/MAT. They were sold by Citigroup Global Markets through MAT Finance LLC. Internal emails show that the investments began their decline in value in early 2008, following which Sally Krawcheck requested the risk rating of the MAT. Despite the fact that documents showed a risk rating of 5, she was told the risk rating was “3-5.” In addition, Citigroup did not disclose the investments’ 5 rating to investors. Furthermore, according to The Times, the portfolio manager was instructed not to discuss information the internal guidelines — which differed from the investors’ prospectus — in a conference call that involved the brokers of clients that had sustained losses.

Published on: January 30, 2012

Investment Attorneys Seeking Defrauded Investors Following Two Securities Arbitration Cases Against Merrill Lynch

by InvestorLawyers

Investment attorneys are investigating potential claims on behalf of investors against Merrill Lynch and the Phil Scott Team. Over the last seven months, the Financial Industry Regulatory Authority has awarded defrauded investors, in two separate securities arbitration proceedings, around $2 million. The $2 million awarded includes compensatory damages, attorney’s fees, forum fees, costs and interest. The first case, decided in June 2011, resulted in an award to claimants of around $880,000. The second case, decided in January 2012, resulted in an award to claimants of about $1.2 million.

Investment Attorneys Seeking Defrauded Investors Following Two Securities Arbitration Cases Against Merrill Lynch

According to claimant allegations, Phil Scott (a/k/a Walter Schlaepfer) recommended they place their assets in portfolios which were invested in 100 percent equities, an unsuitable recommendation. The portfolios recommended were the Merrill Lynch Phil Scott Team Portfolios. In addition, one claimant had pledged nearly two-thirds of the portfolio to three different Merrill Lynch loans, increasing the risks associated with the portfolio and leading to a forced liquidation of securities as a result of the declining market value on the account.

Two claimants, Douglas and Kristin Mirabelli, claimed Scott’s broker misconduct included breach of fiduciary duty and misrepresentation. The Mirabellis’ case, decided this month, was the case in which $1.2 million was awarded by the FINRA Arbitration Panel. According to one of the Mirabellis’ attorneys, Scott should have diversified the claimants’ money rather than placing it into the Merrill Lynch Phil Scott Team Income Portfolios.

Published on: January 27, 2012

FINRA Awards Claimants More Than $9 Million

by InvestorLawyers

Securities Arbitration recently concluded in a private placement suit between CapWest and 30 claimants. The initial filing with the Financial Industry Regulatory Authority (FINRA) took place in December 2009 and was amended in February 2010 and June 2010. Claimants asserted breach of contract, breach of fiduciary duty, negligence and failure to treat claimants in an equitable and just manner. The allegations of the claimants arose in connection with their investments in Medical Capital Corporation, DBSI, Inc. and Provident Royalties LLC.

FINRA Awards Claimants More Than $9 Million

Including the investments issued by the three companies, tens of millions of dollars in private placements were sold by CapWest. CapWest’s closing in September 2011 was prompted by these private placements. The onset of the “Great Recession” marked the point at which the private placement securities became toxic and many investors holding them suffered substantial losses, they argue.

The claimants have demanded the following amounts in compensatory damages, respective to each company, plus interest, costs and attorney’s fees: $6,055,763, $7,465,763 and $8,300,763. A comment on the decision stated that, “On September 23, 2011, the Panel conducted a hearing to consider Claimants’ motion for sanctions and to preclude. Respondent did not appear. The Panel determined that an attempt was made by the conference operator to contact Mr. H Thomas Fehn, counsel for Respondent, that Mr. Fehn had been notified by FINRA of the date and time of the hearing, and that the operator was unable to reach Mr. Fehn at the phone number provided.” The Securities Arbitration Panel ultimately found CapWest liable and ordered it to pay $7,925,763.00 in compensatory damages, $1,188,863 in attorneys’ fees, and $5,840 in costs. In addition, CapWest was ordered to pay 8 percent per annum interest on the sums awarded.