Arbitration

Published on: January 25, 2012

Securities Arbitration May be Only Choice for Defrauded Carlyle Group Shareholders

Earlier this month, a registration statement was filed with the Securities and Exchange Commission stating that The Carlyle Group L.P. shareholder disputes must be settled in securities arbitration proceedings conducted in Delaware. On January 10, 2012, the amended registration statement was filed as part of the company’s plan to raise a public offering this spring amounting to roughly $1 billion.

Securities Arbitration may be Only Choice for Defrauded Carlyle Group Shareholders

In the landmark arbitration ruling by the Supreme Court in AT&T Mobility v. Conception, the decision was made that courts could not refuse to enforce mandatory arbitration provisions in a consumer agreement. This decision was made on the grounds that the Federal Arbitration Act preempts California law, which viewed these agreements as unconscionable. It is not clear how this ruling applies to shareholder litigation, but the Carlyle Group wants to find out.

The Carlyle IPO is a partnership offering limited partner interests for sale. Because of the partnership structure, common unitholders are more limited than normal shareholders. According to the registration document, unitholder disputes must be conducted by three arbitrators in Wilmington Delaware in individual arbitrations. In the event that the amount at issue is under $3 million, only one arbitrator is necessary.

Published on: January 23, 2012

FINRA Ruling: Citigroup Global Markets Fined $725,000

by InvestorLawyers

On January 18, 2012, the Financial Industry Regulatory Authority — the entity which handles securities arbitration on behalf of investors who have been the victims of stock broker fraud — announced its decision to fine Citigroup Global Markets Inc. for failure to disclose conflicts of interest. The conflicts of interest occurred in research reports and research analysts’ public appearances. From January 2007 through March 2010, Citigroup, in some research reports, failed to disclose certain conflicts of interest related to its business relationships. In addition to the failure to make required disclosures in research reports, Citigroup research analysts did not disclose the same potential conflicts in relevant public appearances that mentioned the covered companies.

“Citigroup failed to make required conflict of interest disclosures which prevented investors from being aware of potential biases in its research recommendations,” says FINRA Executive Vice President and Chief of Enforcement Brad Bennett. “Firms need to provide investors with full and accurate information so they will be able to take it into consideration before making an investment decision.”

Conflicts of interest not included in research reports and analysts’ public appearances included the fact that Citigroup and/or Citigroup affiliates co-managed or managed public securities offerings, would make a market in the related securities, received revenue and/or investment banking from the related securities and/or had ownership in covered companies that amounted to 1 percent or more.

Published on: January 5, 2012

FINRA Decision: Barclays Capital Fined $3 Million

by InvestorLawyers

A major concern in the investment industry is that investors should be, but often are not, provided with sufficient and accurate information on their investments which will allow them to make informed investment decisions. A recent Financial Industry Regulatory Authority (FINRA) securities arbitration case resulted in Barclays Capital Inc. being fined for failure to adequately supervise the issuance of residential subprime mortgage securitizations, plus misrepresentation of delinquency data. Of the case, FINRA Executive Vice President and Chief of Enforcement Brad Bennett stated, “investors were supplied inaccurate information to assess future performance of RMBS investments.”

FINRA Decision: Barclays Capital Fined $3 Million

According to FINRA, “historical performance information for past securitizations that contain mortgage loans similar to those in the RMBS being offered to investors” must be disclosed by issuers of residential subprime mortgage securitizations. This information is vital to investors’ attempts to determine if the failure of mortgage holders to make payments could disrupt future returns. Therefore, without this information, investors cannot make an adequately informed decision about their investment.

According to FINRA’s investigation, the historical delinquency rates of three subprime RMBS, for which Barclays was underwriter and seller, were misrepresented from March 2007 through December 2010.

Published on: January 4, 2012

Potential Loss Recovery for Weyerhaeuser Stockholders

by InvestorLawyers

A recent securities arbitration proceeding regarding Weyerhaeuser stock has investors seeking representation for potential claims. According to the recent claim, which was filed with the Financial Industry Regulatory Authority, a retiree who held a concentrated position in Weyerhaeuser stock sustained $200,000 in damages. The claimant inherited the stock upon the passing of his mother; he then sought investment advice from Merrill Lynch.

Potential Loss Recovery for Weyerhaeuser Stockholders

Allegedly, despite the risk management strategies available to them — such as stop loss orders, exchange funds, a collar and/or protective put options —Merrill Lynch failed to protect some or all of the concentrated Weyerhaeuser stock positions under its advisement. Protective Puts allow the investor to create, at the put’s strike price, a price floor. This allows the investor to participate in the stock’s appreciation, customize the maturity of the put and stripe price, while providing downside protection. A collar, on the other hand, simultaneously Sells a call and purchases a put so that the proceeds and cost of the call and the put offset one another, which allows for hedging without requiring out-of-pocket expenses.

In addition to the company’s failure to utilize risk management strategies, Merrill Lynch failed to explain the risks associated with the holding of a concentrated stock position to clients. Merrill Lynch had a duty to protect the investment but failed to do so. This arbitration claim is still pending, but others who sustained losses as a result of the same mishandling of funds also are encouraged to seek the recovery of their losses through securities arbitration.

Published on: December 26, 2011

Variable Annuities and Variable Annuity Fraud

by InvestorLawyers

Investment attorneys are seeking investors who purchased variable annuities based on recommendations that were unsuitable and/or contradicted their investment goals. Because of the complicated nature of variable annuity contracts, many investors are uncertain of the risks or negative aspects associated with them.

Variable Annuities and Variable Annuity Fraud

What are Variable Annuities?

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.

Published on: November 23, 2011

Notice to MF Global Noteholders

by InvestorLawyers

Investors who purchased MF Global Notes should consider securities arbitration against the underwriter broker-dealer from whom they purchased the Notes as a way of possibly recovering their losses.

Notice to MF Global Noteholders

Though it is unsure when and how much MF Global noteholders will receive from the firm’s bankruptcy, Fitch Ratings stated in early November that the amount received by owners of MF Global’s senior unsecured debt could be as low as 10 percent of their investment. Fitch Ratings estimates the maximum investors will receive at only 30 percent. Investors who purchased MF Global 1.875 percent Convertible Senior Notes due in 2016, MF Global 3.375 percent Convertible Senior Notes due in 2018 and Global 6.250 percent Senior Notes due in 2016 may have a valid claim against the underwriters of these Notes. Jefferies, Bank of America, Merrill Lynch, Lebenthal & Col, Sandler O’Neill + Panthers, BMO Capital Markets, US Bancorp, Commerzbank and Natixis are some of the underwriters of MF Global Notes.

It is possible that the underwriters of MF Global Notes knew or should have known more about MF Global’s financial problems and may not have adequately disclosed material information in the Notes’ prospectuses. Reports that the prospectuses may have been misleading have led to an investigation.

Published on: October 26, 2011

Federal Appeals Court Decision May Undermine FINRA’s Authority

by InvestorLawyers

According to a ruling by the U.S. Court of Appeals for the Second Circuit, FINRA cannot enforce disciplinary actions by taking its members to court. The court’s decision comes after a long legal battle against Fiero Brothers, a penny stock brokerage firm, and John J. Fiero, the firm’s owner. In 2001, FINRA ordered Fiero and Fiero Brothers to pay a $1 million fine for naked short selling and other fraud statute violations. However, Fiero and Fiero Brothers refused to pay the fine imposed in securities arbitration.

Federal Appeals Court Decision May Undermine FINRA’s Authority

When Fiero and Fiero Brothers failed to pay the fine, FINRA took them to court. New York’s state court eventually ruled in FINRA’s favor, but the case was then taken to federal court by Fiero. Fiero attempted to get a declaratory judgment stating that pursuing the fine in court was not within the power of FINRA. Next, FINRA counter-sued.

FINRA’s 1990 housekeeping rule gives it the right to attempt to get monetary sanctions in court. But the federal appeals court ruling is now saying that the housekeeping rule and the foundational securities laws do not give them the right to use the court system to claim disciplinary fines. This ruling overturns the lower New York state court’s decision. The court also asserted that the housekeeping rule should be more formally examined.

Published on: September 12, 2011

FINRA Evaluating High Frequency Trading

by InvestorLawyers

High-frequency trading — a process in which computer algorithms are used to trade shares, foreign exchange and derivatives at superfast speeds — earns profits by extricating tiny price differences thousands of times a day, across trading platforms. The algorithms being used are treated by their owners as top secret; in fact, many have taken legal action against ex-employees who have allegedly stolen them. But this high-frequency trading may be a threat to market security.

Banks and other members of exchanges, along with broker-dealers, are being asked by the Financial Industry Regulatory Authority (FINRA) to hand over their high-frequency trading strategies and/or the software code so that the agency might watch for unusual trading patterns. Proponents of high-frequency trading claim that these strategies tighten the spread of market prices, but FINRA is concerned that they could hide potential market abuse.

FINRA, along with other securities authorities, has been trying to evaluate how high-frequency trading affects capital markets, and this request for strategy details and software code is just one more step toward that end. It would be possible for this technology to manipulate share prices, and so it is necessary for authorities to evaluate potential threats to prevent market abuse.

Published on: September 9, 2011

KHAN, BLUECHIP SECURITIES FINED BY FINRA

by InvestorLawyers

According to the Financial Industry Regulatory Authority’s “Disciplinary and Other FINRA Actions” report for August 2011, Bluechip Securities Inc. and Muhammad Akram Khan were disciplined and fined. Bluechip was censured and fined the amount of $15,000, while Khan was suspended from association with FINRA members for 18 months and fined $385,000. Both Khan and the firm consented to FINRA’s ruling but did not admit nor deny the findings.

Khan, bluechip securities fined by finra

Khan’s transactions generated just over $380,000 in commissions. According to FINRA’s findings, just under $400,000 of money from customer accounts was lost. Two customer accounts showed extreme commission-equity ratios of 22,131 percent in one account and 450 percent in the other. In addition, Khan executed unsuitable transactions, transactions at unfair prices, and could not reasonably believe that his customers were knowledgeable or experienced enough to evaluate the risks of the transactions on their own. Furthermore, they were not financially able to bear the risks associated with the transactions, none of the customers gave him written authorization to exercise discretion and none of the accounts were accepted by the firm as discretionary accounts.

Khan, who was also AML Compliance Officer for the firm, neglected to conduct an independent test of the program, did not retain accurate records, did not maintain minimum net capital for a securities business-violating SEC Rule 15c3-1-and filed inaccurate Financial and Operational Combined Uniform Single Reports. In addition, through sending and receiving text messages, Khan violated Securities and Exchange Act Rule 17a-3 because of a failure to preserve the electronic communications properly.

Published on: September 8, 2011

EX-BROKER AND WEDBUSH INC. ORDERED TO PAY $2.9 MILLION

by InvestorLawyers

Former broker Debbie Saleh and her former employer, Wedbush Inc., must pay $2.9 million to Southern California investor Rick Cooper. Saleh drained Cooper’s account between 2004 and 2009 through a process called “churning.” The churning generated a significant amount in commissions through the unauthorized purchasing and selling of annuities. According to the arbitration panel, Saleh’s broker misconduct included lying about the value of Cooper’s investments, sending false statements and forging his signature.

Ex-broker and wedbush inc. Ordered to pay $2.9 million

Cooper began investing with Saleh after his mother trusted her with her own finances. According to arbitration proceedings, Saleh had been invited into his mother’s home and she received gifts from Cooper at Christmas. Cooper, now living in a mobile home, expressed his thoughts of suicide when he lost everything and could not make payments on his condominium. The arbitration panel expressed its disgust by ordering Saleh to pay a $500,000 emotional distress payment and a $1 million elder abuse payment, a rarity for securities arbitration. In addition, Wedbush itself was ordered to pay $300,000, and its chairman another $200,000, for emotional distress. Together, Wedbush and Saleh will pay $390,000 for Cooper’s attorney fees and $471,000 in compensatory damages.

Wedbush failed to supervise and curb Saleh’s wrongdoing, making the firm partially responsible for her actions.