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Published on: November 21, 2011

Chase Ordered to Pay $1.9 Million to Customers

On November 15, the Financial Industry Regulatory Authority (FINRA) announced its decision to order Chase Investment Services Corporation to pay more than $1.9 million to customers who incurred losses because of Chase’s recommendation of unsuitable sales of UITs, or unit investment trusts, as well as floating-rate loan funds. In addition, Chase was fined $1.7 million for its actions.

Chase Ordered to Pay $1.9 Million to Customers

According to the FINRA press release, “A UIT is an investment product that consists of a diversified basket of securities, which can include risky, speculative investments such as high-yield/below investment-grade or ‘junk’ bonds. Floating-rate loan funds are mutual funds that generally invest in a portfolio of secured senior loans made to entities whose credit quality is rated below investment-grade, or ‘junk.’”

The results of FINRA’s investigation concluded that the purchase of UITs and floating-rate loan funds was recommended by Chase brokers to “unsophisticated customers with little or no investment experience and conservative risk tolerances, without having reasonable grounds to believe that those products were suitable for the customers.” This is a clear violation of the suitability standard that brokers adhere to, which states that brokers must make recommendations that are suitable for their clients. In addition to this violation of the suitability standard, Chase did not have adequate supervisory procedures in place to monitor the sales of these investment products.

Published on: November 17, 2011

A Notice to LaeRoc Income Funds Investors

by InvestorLawyers

LaeRoc Funds, a real estate investment firm that, according to its website, has managed assets totaling more than $650 million over the last 23 years, is currently attempting to raise another $12 million to $15 million to pay off debt for its LaeRoc 2005-2006 Income Fund. The fund’s debt totals at least $49 million. This “cash call” could be a negative sign for individuals invested in the fund. In addition, an article in Investment News states that, “The fund’s leaders have said that they will foreclose on one of its holdings, the Country Club Plaza shopping center in Sacramento, Calif., by the end of the year if they can’t raise enough money.”

A Notice to LaeRoc Income Funds Investors

The due diligence and sales practices of FINRA-registered brokerage firms who solicited this fund, along with the LaeRoc 2002 Investment Fund, are currently being investigated. In total, the two LaeRoc Funds purchased eight properties, costing a total of more than $180 million, and still owe mortgage debt totaling $105 million.

According to investors of the fund, the investment was represented as fixed income and conservative. If it can be proven that the investments were misrepresented, or the full extent of the risks associated with them were not disclosed, investors who believed the investment to be conservative may have a claim for a securities arbitration case. FINRA Rules state that firms must perform a “reasonable” investigation of the securities recommended as private placements, like the LaeRock Fund. Private placements — offerings made under Regulation D of the Securities Act of 1933 — are not exempt from the federal securities law’s antifraud provisions, even though exemptions are provided by Regulation D from registration requirements of Section 5 of the act.

Published on: November 16, 2011

2010 Saw 51 Percent Rise in Securities Fraud Enforcement Actions

by InvestorLawyers

The North American Securities Administrators Association (NASAA) released its annual report last month on enforcement actions to fight securities fraud. The report compares the data on securities fraud enforcement actions from 2010 to that of 2009. According to the report, the number of actions pursued in 2010 rose 51 percent, a major jump from 2009. In addition, the report notes a 10 percent increase of securities fraud violations, a 9 percent increase in unregistered securities violations and a 24 percent increase in unregistered individual violations.

Other reported statistics include:

7,000 total investigations, 3,475 of which led to enforcement actions

Published on: November 14, 2011

Morgan Stanley Fined $1 Million, Plus Restitution

by InvestorLawyers

According to a recent press release from the Financial Industry Regulatory Authority (FINRA), Morgan Stanley & Co. Inc. and Morgan Stanley Smith Barney LLC, together were fined $1 million in securities arbitration. Furthermore, Morgan Stanley was ordered to pay $371,000 in restitution and interest. The restitution and interest will go to Morgan Stanley customers because of supervision violations and excessive markups and markdowns that were charged on their municipal bond transactions.

Morgan Stanley Fined $1 Million, Plus Restitution

Markups refer to the difference between the lowest current offering price of an investment for the dealer and the actual price the dealer charges the customer. According to the Municipal Securities Rulemaking Board, or MSRB, “MSRB rules require that the price at which a broker-dealer sells a municipal security to a customer be fair and reasonable, taking into consideration all relevant factors.” Though the MSRB does not set numerical guidelines for what constitutes a “reasonable” markup, they do acknowledge that whether the total price paid by the customer can be considered “fair and reasonable” can be affected by the mark-up.

According to FINRA’s investigation, Morgan Stanley’s 5 percent to 13.8 percent markups and markdowns were higher than warranted when considering market conditions, value of services rendered to customers and the cost of executing the transactions. In addition, the supervisory system Morgan Stanley had in place for corporate and municipal bond markups and markdowns was found to be inadequate by FINRA. Inadequacies of the supervisory system included a failure to include markups and markdowns less than 5 percent — regardless of if they were excessive or not — and the firms’ policies and procedures.

Published on: November 11, 2011

TICs Dangerous for Many Investors

by InvestorLawyers

TICs, or tenancies-in-common, are complicated deals which allow real estate sellers to avoid capital gains tax by rolling their proceeds into other properties. TICs are also known as 1031 exchanges and, according to Jason Zweig, author of “In Real Estate, Simple Wins,” in a recent article in The Wall Street Journal, “were tailor-made for a real estate bubble.” From 2004 to 2008, $13 billion was spent by investors on TICs. These investments were untraded, privately-placed securities and stakes in each TIC could be sold to as many as 35 investors. Each investor would receive a stake in the potential sale and rental income of the property, which could be residential, retail or commercial.

TICs Dangerous for Many Investors

The positive side of TICs is that investors are able to avoid capital gains taxes, receive a regular income from the investment and, in the event of the investor’s death, the asset can be bequeathed to heirs. However, while TICs are suitable for some specialized clients, they are not appropriate for many investors. Regardless, these investments have been sold — with some disastrous results — as such.

“When there’s a simple way and a complicated way to solve a problem, the middleman will almost always make more money off the complicated solution — but you might not,” Zweig notes.

Published on: November 10, 2011

Investors Beware of Promissory Note Scams

by InvestorLawyers

One of the most prominent ways fraudsters are currently targeting investors is through promissory note scams. According to Pat Huddleston, former Security and Exchange Commission enforcer and author of the book “The Vigilant Investor,” promissory note scams are “exploding” — in no small part due to the nature of the scam, which appears to be a reasonable business investment opportunity.

Investors Beware of Promissory Note Scams

What makes promissory note scams so tricky is that investors assume the contract is legally binding. In addition, the fact that the promissory notes promise a return of your investment within nine months, plus interest, promotes the investment as safe. According to Huddleston, “It’s usually a one-page, simple contract that says, ‘I promise to pay the investor this amount of money with these amount of gains at this interest rate by this date.’”

To make the scam seem more reputable, the scammers frequently quote part of the Securities Act which appears to say that the note doesn’t have to be registered with the Securities and Exchange Commission provided its duration is nine months or less. While this is an actual section of the Securities Act, what most investors don’t know is that the exception only applies to the kinds of things that major corporations exchange, like high-grade commercial paper. This section of the act does not apply to the types of notes the average investor can invest in.

Published on: October 19, 2011

Your Nest Egg: Protect It With These Tips!

by InvestorLawyers

The biggest concern for many retired people, as well as those nearing retirement, is establishing and protecting their nest egg so that they are able to feel secure financially and enjoy their retirement. Market Watch recently featured an article that offered four tips for retirees and pre-retirees to protect their nest egg.

Your Nest Egg: Protect it with these Tips!

Taking a lump sum can be risky, so be cautious of a financial advisor that promises to maintain your principal and recommends a lump sum distribution.
When creating a portfolio, you should establish what types of investments you are willing to participate in. Many retirees tend to go with low-risk investments, in which their money most often is safer. If these types of investments are your goal and you see a questionable investment made by your broker or adviser, contact the firm immediately and question the purchase.

Published on: October 17, 2011

SEC Proposes Revision of Rule That Will Reduce ABS Conflicts

by InvestorLawyers

The U.S. Securities and Exchange Commission has introduced a proposal in which bets made by securitization participants and underwriters against ABS, or asset-backed securities, that cause a conflict of interest will be barred. The hope is that this bar will prevent possible harm to investors that are caused by these conflicts of interest.

SEC Proposes Revision of Rule that will Reduce ABS Conflicts

According to Investopedia, an asset-backed security is “a financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternate to investing in corporate debt.” While an alternate to corporate debt investment can be appealing to investors, asset-backed securities are not without their risks.

On September 19, a 4-0 vote by SEC commissioners passed the decision to seek comment on a Dodd-Frank Act-required rule. The clarification of this rule would “restrict those who package or sponsor asset-backed securities from engaging in deals that put their interests in conflict with buyers for a year after the first closing of a sale,” according to Bloomberg Businessweek.

Published on: October 7, 2011

FINRA Ruling: Raymond James & Associates, Raymond James Financial Services to Pay Restitution, Fines

by InvestorLawyers

In a press release issued on September 29, 2011, the Financial Industry Regulation Authority (FINRA) announced its securities arbitration ruling against Raymond James Financial Services Inc. (RJFS) and Raymond James & Associates Inc. (RJA). The firms were charged with “unfair and unreasonable commissions on securities transactions.” RJFS and RJA were ordered to pay $1.69 million in restitution as well as a total of $425,000 in total fines. Of those fines, RJFS will pay $200,000 and RJA will pay $225,000.

Title of the Post Goes Here

FINRA’s findings showed that RJFS and RJA used automated commission schedules from January 1, 2006 until October 31, 2010 for equity transactions. These automated commission schedules affected more than 15,500 customers and 27,000 transactions. In total, nearly $1.69 million was charged in excessive commissions. In most cases, the excessive commissions were charged on low-priced securities. According to FINRA’s press release, “The firms’ supervisory systems were inadequate because the firms established inflated schedules and rates without proper consideration of the factors necessary to determine the fairness of the commissions, including the type of security and the size of the transaction.”

In addition to the restitution and fees, the firms must conform to the requirements of the Fair Prices and Commissions Rule by revising their automated commission schedules. Once the automated commission schedules have been revised, the firms must calculate and repay any additional overcharges that occurred from November 1, 2010, until the date the schedules were corrected.

Published on: October 5, 2011

Social Networking Isn’t Safe for Investors

by InvestorLawyers

Affinity fraud is nothing new in the investment word. It involves targeting faith-based organizations, professional associations and community service groups. The victims of affinity fraud are tied together through common interests, professions, faith, hobbies and lifestyles. Scammers then use this common ground to establish a relationship with their victims, making stealing much, much easier. Now affinity fraud has become even easier for scammers with social networking sites like Facebook, LinkedIn, Twitter and even online dating sites like eHarmony.

SOCIAL NETWORKING ISN’T SAFE FOR INVESTORS

Online social networking is good news for scammers because they don’t have to worry about that pesky “sixth sense” some people get when they are physically near someone who is up to no good. Limiting the social interaction to online encounters in the beginning helps scammers get past the initial phase of their plan — gaining your trust. Not only is it easier to gain your trust, but they can work at it any time and from anywhere.

According to Melanie Woods, the Indiana Investor Education Coordinator, the average Facebook user has connections with 80 community pages, events and groups. Each one of these connections is an opportunity for scammers to take advantage of the individual.