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Published on: March 15, 2012

Investors of C-Tracks ETN Citi Volatility Index Total Return Could Recover Losses Through Securities Arbitration

Investors who suffered losses as a result of their broker’s recommendation of C-Tracks ETN Citi Volatility Index Total Return are seeking the help of investment attorneys in recovering those losses. Reportedly, a unique methodology has caused a severe decline in the Volatility ETFdb Category. The C-Tracks ETN Citi Volatility Index Total Return combines short exposure to the S&P 500 Total Return Index to directional exposure of large cap stocks through third and fourth month futures contracts positions on the CBOE Volatility Index. When volatility spiked over the summer, this strategy worked well. However, CVOL has struggled over the long-term. Reportedly, the C-Tracks ETN Citi Volatility Index Total Return is down 48 percent, the most severe decline year-to-date.

Investors of C-Tracks ETN Citi Volatility Index Total Return Could Recover Losses Through Securities Arbitration

Luckily, investors who suffered significant losses may have a valid securities arbitration claim.

Brokers, and brokerage firms, have a fiduciary duty to their clients. They must research an investment prior to making a recommendation to an investor in order to establish that the investment is suitable. It must be appropriate for each individual investor, taking into consideration the investor’s investment objectives, investment experience, net worth and age. The Financial Industry Regulatory Authority has a dispute resolution form where investors can settle disputes with their brokerage firms relating to unsuitability and other forms of stock broker fraud.

Published on: March 14, 2012

Is Your Broker a Psychopath?

by InvestorLawyers

According to an upcoming issue of trade publication CFA Magazine, 1 in 10 Wall Street employees likely is a clinical psychopath. According to Sherree DeCovny, journalist and author of the story, “A financial psychopath can present as a perfect well-rounded job candidate, CEO, manager, co-worker, and team member because their destructive characteristics are practically invisible.”

Is Your Broker a Psychopath?

It comes as no surprise that some psychopathic traits are magnets for stock broker fraud. And the relatively high number of psychopaths on Wall Street may explain why securities fraud runs rampant.

DeCovny’s story points to the research of several psychologists. It’s important to note that the term “psychopath” is not synonymous with rampaging murderers and should not instantly conjure up images of Norman Bates, she says. Rather, according to DeConvy, clinical psychopaths are charming, gregarious and bright. But they have no trouble lying and do so often. Furthermore, they may not feel empathy for others. She states that psychopaths are also more likely to take risks because they either don’t understand or don’t care about the consequences.

Published on: March 12, 2012

Investors of Mars CDO I Could Recover Losses Through Securities Arbitration

by InvestorLawyers

Investment attorneys are seeking Merrill Lynch customers who purchased Mars CDO I, as they could potentially recover their losses through securities arbitration. Mars CDO I was sold to institutional and high net worth customers of Merrill Lynch. The Mars CDO I was underwritten by Merrill Lynch in 2007. However, each of the 30 CDOs underwritten by Merrill Lynch in 2007 was either in technical default, had its best-rated portion cut to junk, was in danger of being liquidated or was in the process of being liquidated by the summer of 2008. Stock fraud lawyers are now investigating how Mars CDO I was marketed and sold by Merrill Lynch.

Investors of Mars CDO I 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 Mars CDO I. Furthermore, the value of Mars CDO I may have been inflated and over-stated 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: March 9, 2012

Investors of Chase Floating Rate Loan Funds and UITs Could Potentially Recover Losses

by InvestorLawyers

Investors of Chase Investment Services Corporation’s unit investment trusts and floating rate loan funds may be able to recover losses through securities arbitration. Chase Investment Services’ sales practices involving these securities are currently being investigated by investment attorneys.

Investors of Chase Floating Rate Loan Funds and UITs Could Potentially Recover Losses

In a recent Financial Industry Regulatory Authority (FINRA) ruling, Chase Investment Services was ordered to reimburse customers over $1.9 million in losses. These losses were incurred because of the unsuitable recommendation of UITs, or unit investment trusts, as well as floating loan funds. In addition to the $1.9 million reimbursement, Chase was fined $1.7 million. According to FINRA’s investigation, unsophisticated customers with conservative risk tolerances were recommended UITs and floating rate loan funds by Chase brokers. In addition, the brokers did not have reasonable grounds for belief that these recommendations were suitable for their customers. Furthermore, Chase failed to provide its brokers with adequate guidance and training regarding the suitability and risks of floating rate loan funds and UITs.

As a result of nearly 260 unsuitable recommendations of UITs made by Chase brokers, $1.4 million in losses were incurred by unsophisticated investors with conservative investment portfolios. Investors also suffered losses as a result of floating rate loan funds, which were subject to substantial credit risks. In addition, some of the funds may be illiquid. Investor losses amounting to almost $500,000 because of the unsuitable recommendations of floating rate loan funds remain unreimbursed.

Published on: March 8, 2012

Investors of Reef Oil and Gas Partnership Could Recover Losses

by InvestorLawyers

Investors who suffered losses as a result of a Reef Oil and Gas partnership investment may be able to recover losses through securities arbitration. Investment attorneys are investigating potential claims on behalf of individuals who invested in Reef Oil and Gas partnerships based on the unsuitable recommendations of various broker-dealers. Reef Oil and Gas partnerships are risky and, therefore, not suitable for many investors, especially those with a conservative portfolio.

The general partner of Reef Oil and Gas Companies, Reef Oil & Gas Partners L.P., engages in the developing, producing, and exploiting of oil and natural gas. Furthermore, it operates wells that are, or will be, drilled. Reef Oil and Gas Partners L.P. is based in Richardson, Texas and was founded in 1987.

The substantial risks of oil and gas partnerships make them investments that are only appropriate for sophisticated investors. Nevertheless, many broker-dealers have recommended them to investors for which the investment was unsuitable. Under the rules of fiduciary duty, broker-dealers must adequately disclose the investment’s risks before recommending an investment. Furthermore, they must perform adequate due diligence in determining whether or not the investment is suitable for each investor, given their individual risk tolerance and investment objectives. If a broker does not perform these necessary actions, they have committed broker misconduct in the form of making an unsuitable recommendation and can be penalized and required to return investors’ losses through securities arbitration with the Financial Industry Regulatory Authority. According to investment attorneys, many brokerage firms appear to have failed to perform due diligence when recommending oil and gas partnership investments to investors.

Published on: March 7, 2012

Investors Who Suffered Losses as a Result of W.P. Carey REIT May Have Valid Securities Arbitration Claim

by InvestorLawyers

Investors of W.P. Carey REIT may be able to recover losses through securities arbitration, investment attorneys say. A recent Financial Industries Regulatory Authority (FINRA) announcement stated that it is paying close attention to the way REITs are being marketed and sold by broker-dealers. In many cases, brokers made unsuitable recommendations of REITs and marketed the investments as safe, despite the risk level of the investments.

Investors Who Suffered Losses as a Result of W.P. Carey REIT May Have Valid Securities Arbitration Claim

Typically, REITs carry a high commission, which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as the W.P. Carey REITs, carry a relatively high dividend or high interest, making them attractive to retired investors.

However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. This becomes a major problem for investors, especially retired individuals, who may need to access their funds when the need arises. In addition, frequent updates of the investment’s current price are not required of broker-dealers, causing misunderstandings about the financial condition of the investment. Because frequent updates are not required, investors may believe the REIT is doing much better than it actually is.

Published on: March 5, 2012

Stock Broker Misconduct: When Losses are the Result of Fraud

by InvestorLawyers

Sometimes losing money in the stock market and yelling “Fraud!” is a little like smelling smoke and yelling “Fire!” Just as smelling smoke might only mean dinner’s burning, losing money doesn’t always mean stock broker fraud has occurred. It is important for investors to be able to tell the difference between losses resulting from fraud and plain old bad luck. To that end, here are some common types of broker misconduct and tips on how to tell if you’ve been a victim:

Stock Broker Misconduct: When Losses are the Result of Fraud

Unauthorized Trading: Unauthorized trading occurs when a broker makes trades without permission. This is surprisingly common and brokers will often defend their actions by saying that the investor either agreed to the trade or ratified it by raising no objection when they received a confirmation.
Unsuitable Investments: Surprisingly, it is common for brokers to be unable to accurately measure risk. As a result, investors may have a portfolio that is far more risky than is appropriate. Brokers must, by law, take into account the risk tolerance and investment objectives of each client and make suitable recommendations based on those criteria. Unsuitable investments include investments that carry a risk that is not in keeping with the investor’s risk tolerance, as well as inadequate diversification and improper asset allocation. Churning, which generates excessive commissions through excessive trading, is also a form of unsuitable investments. Investors who suspect the trading on their account is excessive will most likely have to consult an investment attorney for an analysis of their portfolio.

Published on: March 2, 2012

News: FINRA Files Complaint Against Ex-broker

by InvestorLawyers

On February 9, 2012, ex-broker James Scott McKee was charged with aggravated theft in the first degree. As a result of his broker misconduct, McKee faces four charges of theft. In addition, a complaint has been filed against him with the Financial Industry Regulatory Authority (FINRA). McKee was formally affiliated with LPL Financial LLC, Morgan Stanley Smith Barney LLC and Berthel Fischer & Co. Financial Services Inc. According to the complaint filed with FINRA, McKee’s victims included a local church, an 81-year-old retiree and other unsophisticated investors.

McKee convinced an LPL client to invest $400,000. This investment took place in April 2007 and was put into a real estate venture. However, according to the FINRA complaint, McKee failed to notify or receive approval from LPL for the venture. Following a heart attack, which subjected the investor to significant medical expenses, she contacted McKee to have her money returned. McKee received two checks for $200,000 in February 2008 but failed to return the money to the investor. Instead, he told the client the funds remained invested and then used them for his own use. The money has not yet been returned to the client.

According to the police statement on the matter, McKee “committed aggravated theft by deception and fraud with respect to securities or securities business” from February 2008 to the present. According to Oregon officials, McKee sold unregistered securities, conducted unauthorized liquidation of investment account monies, concealed the liquidation and made an unauthorized deposit of said funds into his personal bank account.

Published on: March 1, 2012

FINRA Investor Alert: Inspecting Account Statements Helps Investors Detect Securities Fraud

by InvestorLawyers

Securities fraud often goes undetected because investors either don’t understand or don’t closely inspect their account statements from their securities firm. On February 23, 2012, the Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called “It Pays to Understand Your Brokerage Account Statements and Trade Confirmations.” This Investor Alert is designed to help investors to better understand their account statements. A careful inspection of account statements can help investors detect errors and broker misconduct, including overcharges and unauthorized transactions.

FINRA Investor Alert: Inspecting Account Statements Helps Investors Detect Securities Fraud

FINRA’s Vice President for Investor Education, Gerri Walsh, in a FINRA press release about the Investor Alert stated, “Investors whose portfolios have taken a hit might not be keen to open their account statements, but investors should review their statements carefully. Investors should also review trade confirmations as soon as they receive them because a single keystroke can make the difference between 100 and 1,000 shares.”

The Investor Alert uses plain language to detail to investors their account statements’ key elements and “red flags” that could indicate to investors that misconduct or mistakes may have occurred. Investors should also look for their investment objective, which is listed on many account statements. This investment objective will indicate the investor’s strategy and will contain words such as “conservative” or “growth.” This description – and the account activity – should accurately reflect the goals of the investor.

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.