Investment Fraud Lawyer Blog

Over the last several weeks, various noted economists and financial experts have opined that significant problems will continue to confront the U.S. economy in the months ahead. Moreover, most of these economists and financial experts expect that tough economic times lie ahead for most of the major economies in the world.

The mood was particularly dismal at a recent conference in Germany featuring 14 Nobel Laureates in Economics. For example, Nobel Prize-winning Economist Myron Scholes told the audience that the credit crisis “is not over and I’m not exactly sure when it is going to end.” Daniel McFadden, another Nobel Prize-winning Economist, stated that “as the crisis continues, you will see a lot of business failures.”

Continue reading "More and More Experts Paint a Bleak Picture for the U.S. Economy" »

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Posted In: Brokerage Firms , Goldman Sachs , Market Developments , Merrill Lynch , Smart Investing Tools

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Today, Beth Healy of the Boston Globe reported that Bank of America warned the State of California about problems in the auction-rate securities markets late in 2007 while the firm was still marketing auction-rate securities to individuals and other investors without disclosing such risks. Among other things, Bank of America warned the State of California that there had been “significant dislocation” in the auction-rate securities marketplace, that demand for auction-rate securities was dropping, that many corporate clients were selling auction-rate securities, and that there was significant uncertainty in various parts of the auction-rate market. Reportedly, Bank of America also warned the State of California that it was “in a defensive position, facing capital constraints,” due, in part, to its high inventory of auction-rate securities.

Continue reading "Bank of America Withheld Important Information about Auction-Rate Securities from Investors" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Brokerage Firms , Citigroup/Smith Barney , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley

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Today the Securities & Exchange Commission and an auction-rate securities task force composed of various state regulators announced that they had entered into a tentative settlement with Wachovia which would require Wachovia to buy-back approximately $9 billion of auction-rate securities. This settlement is closely patterned after an earlier settlement entered into with UBS regarding its sale of auction-rate securities.

Continue reading "Wachovia Joins Auction-Rate Securities Settlement Parade" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Regulatory Developments , UBS , Wachovia

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Today, Morgan Stanley and JP Morgan announced that they were following the precedent set by UBS and Citigroup in order to settle part of their auction-rate securities problems. The tentative agreements which JP Morgan and Morgan Stanley have entered into with regulators which will require that the firms will repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having assets of $10 million or less), reimburse such retail customers for any losses that they sustained in selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay regulatory fines. The tentative agreements also provide that the firms would help their larger institutional clients (those with more than $10 million in assets) sell their holdings.

Continue reading "Morgan Stanley and JP Morgan Get in the Auction-Rate Securities Settlement Line" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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An array of recent reports strongly suggest that the economy is in for many months of rough sledding and that the current economic crisis is likely to last well into, if not through, 2009. In fact, the economy seems to be reeling on almost every front.

The real estate industry continues to experience serious setbacks and expectations are that these setbacks will continue for the foreseeable future. The number of bank repossessions and foreclosures has risen dramatically. For example, banks repossessed almost three times as many homes in July of 2008 as they had in July of 2007. Similarly, the number of homes receiving foreclosure notices has jumped 55% from a year earlier. Perhaps, more disturbing, even prime mortgages are starting to default at unusually high rates. For example, delinquency rates on prime mortgages of $417,000 or less are almost twice as high as they were a year ago, while delinquencies on larger prime loans are almost 4 times higher. Homeowners, in general, have much less equity in their homes than previously. As of June 30, 2008, the average homeowner owed 95% of the value of the home to lenders compared with 76% when the loan was made. Zillow.com, an internet-based provider of home valuations, recently reported that 29% of owners who purchased homes in the last five years, now owe more on their mortgages than their homes are worth. According to the S&P/Case-Shiller Home Price Index, the average home has dropped almost 20% from its high water mark in 2006. The projections are for more pain in the future. The Case-Shiller Housing Futures Index, traded on the Chicago Mercantile Exchange, currently anticipates that the average home will ultimately lose 33% of its value from the 2006 high water point. Respected bank analyst, Meredith Whitney, thinks things will be even worse. She projects that the average home price will ultimately drop 40%. None of this is good news for the economy. It does not appear that the real estate decline which lead us into the current credit crisis has come close to running its course.

Continue reading "Economic Forecast: Expect Things to Get Much Worse" »

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Posted In: Market Developments , Smart Investing Tools , Subprime Mortgage & Collateralized Debt Obligation Problems

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The state auction-rate securities regulators task force continued to pursue financial institutions involved in the auction-rate securities market aggressively. To date, state regulators have subpoenaed approximately 30 financial institutions over their auction-rate securities practices and continue to pursue investigations with all firms that have yet to settle. The states have already tentatively settled auction-rate securities claims against Citigroup and UBS. Moreover, the state task force has identified Morgan Stanley, JP Morgan Chase and Wachovia Securities as current targets of its investigation. In addition, Goldman Sachs, Bank of America, Wells Fargo, Lehman Brothers, RBC Capital Markets, and Raymond James are reported to be additional targets of the state investigations.

Recent reports indicate that the state task force is seeking regulatory settlements from each firm similar to those entered into by Citigroup and UBS. Under such arrangements, the brokerage firms would be required to repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having accounts of $10 million or less), reimburse such retail clients for any losses that they sustained by selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay appropriate regulatory fines.

Under these precedents, the one group that has been largely unprotected is larger corporate, pension and other institutional clients who are essentially being left to fend for themselves. Under announced arrangements, the Wall Street banks are only undertaking to use their “best efforts” to assist such institutions in achieving liquidity for auction-rate securities that they still hold. Since there are no formal requirements on the Wall Street banks to satisfy the claims of institutional investors, such investors are being left to pursue their own remedies to recover damages, if any, that they have sustained.

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Raymond James , Regulatory Developments , UBS , Wachovia

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Late yesterday, Morgan Stanley announced its intent to settle auction-rate securities claims with retail clients (identified as individual customers, charitable organizations and small businesses with accounts of $10 million or less) who purchased auction-rate securities from Morgan Stanley. Under Morgan Stanley’s proposal, beginning no later than September 30, 2008, it will repurchase auction-rate securities that it sold before February 13, 2008 at par value. In addition, Morgan Stanley will reimburse retail clients for any losses that they sustained from selling auction-rate securities. Morgan Stanley also vaguely announced that it will seek solutions for larger institutional investors prior to December 31, 2009.

State regulators responded quickly, saying that Morgan Stanley’s announcement was a positive first step but was not sufficient to resolve the regulators’ claims against Morgan Stanley. Previous actions by the regulators indicate that the regulators are demanding that all major firms follow the precedents set by UBS and Citigroup in resolving claims. These precedents would require remaining Wall Street banks to repurchase auction-rate securities from individual retail customers, charities, and small businesses, reimburse such clients for any losses that they sustained by selling after February 12, 2008, set up a resolution process for customers who sustained unusual damages, and pay significant fines for their misconduct.

Continue reading "Morgan Stanley’s Auction-Rate Securities Proposal – “Too Little, Too Late”" »

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Posted In: Auction Rate Securities , Brokerage Firms , Citigroup/Smith Barney , Morgan Stanley , Regulatory Developments , UBS

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Yesterday, Bloomberg News reported that Wall Street banks may be permitted to fund their auction-rate securities settlements with federal and state regulators using monies provided by the Fed. According to published reports, Wall Street banks may borrow as much as $100 billion from the Fed in order to fund settlements for their allegedly fraudulent activities in selling auction-rate securities.

Continue reading "The Fed's Plan to Fund Wall Street's Corruption" »

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Posted In: Auction Rate Securities , Brokerage Firms , Market Developments , Regulatory Developments

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Today New York Attorney General Andrew Cuomo urged JP Morgan Chase, Morgan Stanley and Wachovia Securities to take immediate steps to settle their auction-rate securities problems. According to reports, Cuomo’s office has sent a letter to each of these firms strongly suggesting that they enter into settlements with regulators resolving their auction-rate securities problems on terms similar to those previously agreed to by Citigroup and UBS.

Under such proposal, it appears that regulators are seeking to compel JP Morgan, Wachovia and Morgan Stanley to buy-back securities held by individual customers, charities and small businesses, reimburse those clients for any damages which they sustained in selling auction-rate securities, use best efforts to assist larger institutional customers in disposing of their auction-rate securities and pay fines.

Continue reading "More Auction-Rate Securities Settlements Ahead?" »

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Posted In: Auction Rate Securities , Bank of America , Bear Stearns , Brokerage Firms , Citigroup/Smith Barney , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , SunTrust , UBS , Wachovia

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Today UBS tentatively agreed to buy-back $19.4 billion in auction-rate securities in order to resolve regulatory actions initiated by the Massachusetts Secretary of State, other members of a state auction-rate securities task force and the SEC. In addition, the firm agreed to pay a $150 million fine to settle the regulatory claims. The full details of the settlement will be announced next week.

The regulatory investigation asserted that UBS pressured financial advisors to sell auction-rate securities as cash equivalents that were safe and liquid without disclosing significant risks to investors. At the same time that UBS was engaged in this aggressive sale campaign, the firm, internally, was extremely concerned about the auction-rate securities markets and was exploring exiting the same. Ultimately, investors sustained significant harm when UBS and other securities dealers stopped supporting the auction-rate securities markets and auctions froze. UBS’ legal exposure was particularly severe in light of the fact that various UBS insiders were simultaneously disposing of their own auction-rate securities while the firm was encouraging investors to purchase the same.

Continue reading "UBS Will Buy-Back $19.4 Billion of Auction-Rate Securities to Settle Regulatory Actions" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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Following on the heels of Citigroup’s tentative settlement with federal and state regulators, Merrill Lynch has announced that it will offer to buy-back, at face value, auction-rate securities which were sold to individual investors, charitable institutions and small businesses. Merrill Lynch’s offer will be effective January 15, 2009 and run through January 15, 2010 according to the firm. Merrill has estimated that this offer will cost the firm approximately $10 billion.

Unlike the tentative Citigroup settlement, Merrill’s offer has not been approved by state and federal regulators and may not resolve the firm’s auction-rate securities regulatory issues. In fact, Massachusetts’ Secretary of State, William Galvin, one of the leaders of the state task force investigating the sale of auction-rate securities who recently sued Merrill Lynch over auction-rate securities, stated that “It's not satisfactory from our point of view in terms of the timeliness of redemption. Therefore, clearly, we’ll pursue our complaint.” Among other things, Merrill still must negotiate any regulatory sanctions.

Continue reading "Merrill Lynch Follows Citigroup's Lead- Attempts to Resolve Certain Auction-Rate Securities Claims" »

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Posted In: Auction Rate Securities , Bank of America , Brokerage Firms , Citigroup/Smith Barney , Credit Suisse , Goldman Sachs , J. P. Morgan Chase , Lehman Brothers , Merrill Lynch , Morgan Stanley , RBC Dain Raucher , Regulatory Developments , UBS , Wachovia

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Today a task force of state securities regulators, the Securities and Exchange Commission and Citigroup announced a settlement, in principle, related to auction-rate securities marketed and sold by Citigroup. Under the settlement, Citigroup has offered to repurchase, for face value, all auction-rate securities that it sold to individual investors, small businesses (defined as institutions having brokerage accounts of $10 million or less), and charities. In addition, Citigroup has agreed to make whole any individual investors, small businesses and charitable organizations that sustained losses on auction-rate securities that they purchased prior to February 11, 2008 and sold after February 11, 2008. It is estimated that this resolution will cost Citigroup approximately $7.5 billion. This settlement is to be effected by November 5, 2008.

Continue reading "Citigroup Reaches Agreement, in Principle, to Settle Certain Auction-Rate Securities Claims" »

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Posted In: Auction Rate Securities , Brokerage Firms , Citigroup/Smith Barney , Regulatory Developments

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