The Financial Industry Regulatory Authority announced Tuesday that it was “conducting sweeps” of firms involved in several recent municipal bond collapses with an eye toward future investigations and possible disciplinary actions.
The regulator, known as Finra, an industry-funded group that polices Wall Street, is seeking information from financial firms involved in several recent market problems — firms that underwrote securities tied to derivatives that were sold to municipalities and those that sold so-called municipal gas bonds that were guaranteed by the defunct Lehman Brothers and are now distressed securities.
The sweeps are part of a new scrutiny of the $2.7 trillion municipal bond market, which has been shaken by a rise in defaults and increased pressure from a weakened economy. Finra will be looking at a broad range of practices, including interactions with retail investors, and will collect data on sales, marketing, pricing, disclosure and consumer complaints.
“Finra is taking concerted action to ensure that investors are aware of both the risks and the benefits that might be associated with a muni bond investment,” said Richard G. Ketchum, chief executive of Finra.
Highly complex instruments like derivatives were often marketed to municipalities as a way to lower their borrowing costs through variable rate securities. But in many cases, these securities have had the opposite effect.
One case involves Jefferson County, Ala., which now faces bankruptcy after its interest on $3 billion of adjustable rate debt, rather than being lowered, rose to 10 percent.
In the case of the gas bonds, Finra is seeking information from firms that sold the bonds to retail investors. The bonds were underwritten and guaranteed by Lehman Brothers, and quickly lost value when they, too, became distressed securities.
Thursday, July 2, 2009
Wednesday, July 1, 2009
SEC Charges Prime Capital Services In Variable Annuity Sales Practice Case
The Securities and Exchange Commission today instituted an enforcement action against a Poughkeepsie, N.Y.-based firm and several representatives and supervisors for their alleged roles in fraudulent and unsuitable sales of variable annuities to senior citizens who were lured through free-lunch seminars at restaurants in south Florida.
The SEC's Division of Enforcement alleges that Prime Capital Services (PCS) and its parent company recruited elderly investors to attend the seminars, after which the seniors were encouraged to schedule private appointments with PCS representatives who then induced them to buy variable annuities. The sales pitches allegedly concealed high costs, lock-in periods, and other material information. While the firm and its representatives earned millions of dollars in sales commissions, the Division alleges that many of the variable annuities were unsuitable investments for the customers due to their age, liquidity, and investment objectives.
Further information including the administrative proceeding can be found by clicking here.
The SEC's Division of Enforcement alleges that Prime Capital Services (PCS) and its parent company recruited elderly investors to attend the seminars, after which the seniors were encouraged to schedule private appointments with PCS representatives who then induced them to buy variable annuities. The sales pitches allegedly concealed high costs, lock-in periods, and other material information. While the firm and its representatives earned millions of dollars in sales commissions, the Division alleges that many of the variable annuities were unsuitable investments for the customers due to their age, liquidity, and investment objectives.
Further information including the administrative proceeding can be found by clicking here.
Monday, June 29, 2009
Madoff Sentenced to 150 Years
Convicted swindler Bernard Madoff was sentenced to 150 years in prison Monday for fraud so extensive that the judge said he needed to send a symbolic message to those who might imitate his fraud and to victims who need relief.
Applause broke out in the crowded Manhattan courtroom after U.S. District Judge Denny Chin issued the maximum sentence to the 71-year-old defendant, who said he sought no forgiveness and knew he must live "with this pain, this torment, for the rest of my life."
Chin rejected a request by Madoff's lawyer for leniency and said he disagreed that victims of the fraud were seeking mob vengeance.
"Here the message must be sent that Mr. Madoff's crimes were extraordinarily evil and that this kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll," Chin said.
The judge said the estimate that Madoff has cost his victims more than $13 billion was conservative because it did not include money from feeder funds.
"Objectively speaking, the fraud here was staggering," he said.
Before Chin announced the sentence, Madoff, wearing a dark suit, white shirt and a tie, sat and listened as emotional witnesses described how he spoiled their security.
The jailed Madoff already has taken a severe financial hit: Last week, a judge issued a preliminary $171 billion forfeiture order stripping Madoff of all his personal property, including real estate, investments, and $80 million in assets his wife Ruth had claimed were hers. The order left her with $2.5 million.
The terms require the Madoffs to sell a $7 million Manhattan apartment where Ruth Madoff still lives. An $11 million estate in Palm Beach, Fla., a $4 million home in Montauk and a $2.2 million boat will be put on the market as well.
Before Madoff became a symbol of Wall Street greed, he had earned a reputation as a trusted money manager with a Midas touch. Even as the market fluctuated, clients of his secretive investment advisory business — from Florida retirees to celebrities such as Steven Spielberg, actor Kevin Bacon and Hall of Fame pitcher Sandy Koufax — for decades enjoyed steady double-digit returns.
Applause broke out in the crowded Manhattan courtroom after U.S. District Judge Denny Chin issued the maximum sentence to the 71-year-old defendant, who said he sought no forgiveness and knew he must live "with this pain, this torment, for the rest of my life."
Chin rejected a request by Madoff's lawyer for leniency and said he disagreed that victims of the fraud were seeking mob vengeance.
"Here the message must be sent that Mr. Madoff's crimes were extraordinarily evil and that this kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll," Chin said.
The judge said the estimate that Madoff has cost his victims more than $13 billion was conservative because it did not include money from feeder funds.
"Objectively speaking, the fraud here was staggering," he said.
Before Chin announced the sentence, Madoff, wearing a dark suit, white shirt and a tie, sat and listened as emotional witnesses described how he spoiled their security.
The jailed Madoff already has taken a severe financial hit: Last week, a judge issued a preliminary $171 billion forfeiture order stripping Madoff of all his personal property, including real estate, investments, and $80 million in assets his wife Ruth had claimed were hers. The order left her with $2.5 million.
The terms require the Madoffs to sell a $7 million Manhattan apartment where Ruth Madoff still lives. An $11 million estate in Palm Beach, Fla., a $4 million home in Montauk and a $2.2 million boat will be put on the market as well.
Before Madoff became a symbol of Wall Street greed, he had earned a reputation as a trusted money manager with a Midas touch. Even as the market fluctuated, clients of his secretive investment advisory business — from Florida retirees to celebrities such as Steven Spielberg, actor Kevin Bacon and Hall of Fame pitcher Sandy Koufax — for decades enjoyed steady double-digit returns.
Wednesday, June 24, 2009
NH Pursues UBS - Lehman Principal Protected Notes
Mark Rufo said he thought he had found a “good conservative investment” for his 88-year-old mother when, in 2007, he put $26,000 of her money with UBS Financial Services in Concord.
The Nashua lawyer bought Asian Currency Basket Principal Protected Notes. Asian currencies appeared stable at the time, especially compared with the debacle of a decade earlier. In addition, Rufo said, he was assured by both the name of the investment and his broker that the principal would be protected.
Last Sept. 10, as the stock market started heading south, he checked with his broker, who he said assured him that he wasn’t exposed. Two days later, he learned about Lehman Brothers was facing bankruptcy.
“Boy, I’m glad I’m not tied up with Lehman Brothers,” Rufo said he told to himself. Minutes later, his broker told him that actually he was – or at least his mother was – because it was Lehman that was backing the principal.
Rufo said he asked the broker how much was left in the currency basket that he had purchased, and he said he was told, “There aren’t really any Asian currencies in the basket. There are derivatives.”
When the broker couldn’t adequately explain to Rufo the nature of these derivatives, Rufo said he replied, “If a year ago, if you said, ‘Mark, I want you go buy something I don’t understand, I wouldn’t have bought it.”
Multiply the Rufo case – which is in Merrimack County Superior Court – by 42, and you have the cease and desist order case filed June 4 by New Hampshire Bureau of Securities Regulation against UBS.
The bureau alleges that state investors lost $2.5 million in various structured products backed by Lehman Brothers, which filed for bankruptcy on Sept. 13, 2008. By not adequately disclosing these risks, UBS engaged in “dishonest and unethical business practices,” the bureau charges.
“UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions,” said Jeff Spill, the bureau’s deputy director for enforcement. “The safety of these products was exaggerated. We believe UBS engaged in unfair and unlawful sales practices when presenting these investments.”
UBS, however, said in a disclosure that it did point out the risk in the prospectus and “followed all regulatory requirement, well-established sales practices and client disclosure guidelines.”
According to the bureau’s complaint, UBS, through its “structured product working group,” developed the idea behind the products and put them out to bid to companies like Lehman. In addition, UBS acted as an agent for Lehman-issued structured products.
The Northeast consultant for the structured product group acted as a consultant out of the Manchester and Concord offices of UBS, according to the securities bureau.
UBS’ local offices were “pushing” the sale of such products, selling 65 products to 42 investors, according to the complaint. UBS continued to “push” the sale, even after the near failure of Bear Stearns earlier in 2008 made it clear how risky such products were when backed by companies with large subprime loan portfolios.
Lehman went on to report billions of dollars in losses, and e-mails circulated in UBS’ Maine and New Hampshire offices noted in June that “Lehman is smelling a bit to me.”
The bureau said it was told by UBS’ structured sales consultant that agents were told to make clear the risks involved with Lehman Brothers, but a local branch manager in New Hampshire said the office never received such instructions, according to the complaint.
The complaint also says that sales reps were rewarded with bonuses for the sales of such products, and the average commissions were sometimes three times the amount that on regular securities sales.
In addition to a potential cease and desist order, the company faces a $2,500 fine for each violation.‘Pattern’ of investments
This is the second securities action taken by New Hampshire securities regulators against UBS in as many years.
In 2008, the bureau alleged UBS had been advising the New Hampshire Higher Education Loan Corporation – the state’s largest student loan provider — to stay in the failing auction rate securities market at the same time UBS was preparing to extract itself from the market prior to the market’s collapse.
When UBS and other banks decided to stop supporting auctions in February 2008, the market froze and investors were unable to access their money, the bureau alleged. As a result, NHHELCO lost a large sum and was unable to provide loans for thousands of students, according to the bureau.
In April 2008, New Hampshire was part of a global settlement in which UBS paid $22.1 billion to repurchase auction rate securities from damaged investors or provide liquidity to the market. In addition, UBS paid $150 million in fines.
In a letter to the UBS chief executive Oswald Grubel, securities bureau director Mark Connolly charged that both allegations were part of a “pattern” of presenting volatile investments as safer than they actually were to investors. Connolly asked Grubel to intervene and settle the matter.
UBS has until July 3 to formally contest the charges, which could result in a hearing. In its statement, after the allegation, UBS said it would “defend itself vigorously in this matter.”
That’s two days after the July 1 hearing scheduled in Rufo’s case. UBS is arguing that the case go to mediation, Rufo said, but that process was “pretty much a racket controlled by the big brokerage houses.” Rufo said that when he first talked to UBS officials, all he wanted was his mother’s principal back, but in reality it was more a matter of principle.
“The money isn’t going to make any difference to her, because I can take care of her, but maybe there is some other 88-year-old mother out there who doesn’t have a son as a lawyer. I wouldn’t be able to do this if I wasn’t in the profession. If I went to a lawyer who charged by the hour, it wouldn’t be practical.”
The Nashua lawyer bought Asian Currency Basket Principal Protected Notes. Asian currencies appeared stable at the time, especially compared with the debacle of a decade earlier. In addition, Rufo said, he was assured by both the name of the investment and his broker that the principal would be protected.
Last Sept. 10, as the stock market started heading south, he checked with his broker, who he said assured him that he wasn’t exposed. Two days later, he learned about Lehman Brothers was facing bankruptcy.
“Boy, I’m glad I’m not tied up with Lehman Brothers,” Rufo said he told to himself. Minutes later, his broker told him that actually he was – or at least his mother was – because it was Lehman that was backing the principal.
Rufo said he asked the broker how much was left in the currency basket that he had purchased, and he said he was told, “There aren’t really any Asian currencies in the basket. There are derivatives.”
When the broker couldn’t adequately explain to Rufo the nature of these derivatives, Rufo said he replied, “If a year ago, if you said, ‘Mark, I want you go buy something I don’t understand, I wouldn’t have bought it.”
Multiply the Rufo case – which is in Merrimack County Superior Court – by 42, and you have the cease and desist order case filed June 4 by New Hampshire Bureau of Securities Regulation against UBS.
The bureau alleges that state investors lost $2.5 million in various structured products backed by Lehman Brothers, which filed for bankruptcy on Sept. 13, 2008. By not adequately disclosing these risks, UBS engaged in “dishonest and unethical business practices,” the bureau charges.
“UBS presented these notes as simple, safe investments when in fact they are highly volatile and are subject to shifting market conditions,” said Jeff Spill, the bureau’s deputy director for enforcement. “The safety of these products was exaggerated. We believe UBS engaged in unfair and unlawful sales practices when presenting these investments.”
UBS, however, said in a disclosure that it did point out the risk in the prospectus and “followed all regulatory requirement, well-established sales practices and client disclosure guidelines.”
According to the bureau’s complaint, UBS, through its “structured product working group,” developed the idea behind the products and put them out to bid to companies like Lehman. In addition, UBS acted as an agent for Lehman-issued structured products.
The Northeast consultant for the structured product group acted as a consultant out of the Manchester and Concord offices of UBS, according to the securities bureau.
UBS’ local offices were “pushing” the sale of such products, selling 65 products to 42 investors, according to the complaint. UBS continued to “push” the sale, even after the near failure of Bear Stearns earlier in 2008 made it clear how risky such products were when backed by companies with large subprime loan portfolios.
Lehman went on to report billions of dollars in losses, and e-mails circulated in UBS’ Maine and New Hampshire offices noted in June that “Lehman is smelling a bit to me.”
The bureau said it was told by UBS’ structured sales consultant that agents were told to make clear the risks involved with Lehman Brothers, but a local branch manager in New Hampshire said the office never received such instructions, according to the complaint.
The complaint also says that sales reps were rewarded with bonuses for the sales of such products, and the average commissions were sometimes three times the amount that on regular securities sales.
In addition to a potential cease and desist order, the company faces a $2,500 fine for each violation.‘Pattern’ of investments
This is the second securities action taken by New Hampshire securities regulators against UBS in as many years.
In 2008, the bureau alleged UBS had been advising the New Hampshire Higher Education Loan Corporation – the state’s largest student loan provider — to stay in the failing auction rate securities market at the same time UBS was preparing to extract itself from the market prior to the market’s collapse.
When UBS and other banks decided to stop supporting auctions in February 2008, the market froze and investors were unable to access their money, the bureau alleged. As a result, NHHELCO lost a large sum and was unable to provide loans for thousands of students, according to the bureau.
In April 2008, New Hampshire was part of a global settlement in which UBS paid $22.1 billion to repurchase auction rate securities from damaged investors or provide liquidity to the market. In addition, UBS paid $150 million in fines.
In a letter to the UBS chief executive Oswald Grubel, securities bureau director Mark Connolly charged that both allegations were part of a “pattern” of presenting volatile investments as safer than they actually were to investors. Connolly asked Grubel to intervene and settle the matter.
UBS has until July 3 to formally contest the charges, which could result in a hearing. In its statement, after the allegation, UBS said it would “defend itself vigorously in this matter.”
That’s two days after the July 1 hearing scheduled in Rufo’s case. UBS is arguing that the case go to mediation, Rufo said, but that process was “pretty much a racket controlled by the big brokerage houses.” Rufo said that when he first talked to UBS officials, all he wanted was his mother’s principal back, but in reality it was more a matter of principle.
“The money isn’t going to make any difference to her, because I can take care of her, but maybe there is some other 88-year-old mother out there who doesn’t have a son as a lawyer. I wouldn’t be able to do this if I wasn’t in the profession. If I went to a lawyer who charged by the hour, it wouldn’t be practical.”
Tuesday, June 23, 2009
WSJ - Securities Arbitration is Faulted
From the Wall Street Journal today --
Attorneys who represent investors have asked the Securities and Exchange Commission to drop a requirement that a securities-industry representative sit on arbitration panels.
Investors who open a brokerage account generally sign away their rights to sue the broker or the firm for bad advice. They have to settle disputes through arbitration run by the Financial Industry Regulatory Authority, which is funded by the industry.
Cases where the amounts in dispute are at least $100,000 are heard before a three-person panel, one of whom must be an industry arbitrator. The other two are independent arbitrators. The proposed rule changes -- put together by the Public Investors Arbitration Bar Association -- resemble a pilot program Finra started last year that will let some investors choose a panel of three independent arbitrators.
A spokesman for the Securities Industry and Financial Markets Association says PIABA's petition is premature without waiting for the pilot program's results. Finra and SEC Representatives declined to comment. Brian Smiley, the lawyer group's president, says, "The perception of people who go through the arbitration process is that they don't get a fair shake."
Attorneys who represent investors have asked the Securities and Exchange Commission to drop a requirement that a securities-industry representative sit on arbitration panels.
Investors who open a brokerage account generally sign away their rights to sue the broker or the firm for bad advice. They have to settle disputes through arbitration run by the Financial Industry Regulatory Authority, which is funded by the industry.
Cases where the amounts in dispute are at least $100,000 are heard before a three-person panel, one of whom must be an industry arbitrator. The other two are independent arbitrators. The proposed rule changes -- put together by the Public Investors Arbitration Bar Association -- resemble a pilot program Finra started last year that will let some investors choose a panel of three independent arbitrators.
A spokesman for the Securities Industry and Financial Markets Association says PIABA's petition is premature without waiting for the pilot program's results. Finra and SEC Representatives declined to comment. Brian Smiley, the lawyer group's president, says, "The perception of people who go through the arbitration process is that they don't get a fair shake."
The Sentencing of Bernard Madoff
Bernard Madoff's lawyer has told a judge scheduled to sentence the disgraced financier next week that 12 years in prison will be sufficient punishment for the man who swindled tens of billions of investor's dollars in one of history's biggest frauds.
Attorney Ira Sorkin also said in court papers made public Tuesday that his 71-year-old client "will speak to the shame he has felt and to the pain he has caused" when U.S. District Judge Denny Chin sentences him on Monday.
"We seek neither mercy nor sympathy," Sorkin wrote. But he urged Chin to "set aside the emotion and hysteria attendant to this case" as he determines the sentence.
Madoff faces up to 150 years in prison after pleading guilty on March 12 to 11 felony counts including securities fraud and perjury. He admitted operating a massive Ponzi scheme for decades.
Sorkin said a sentence of a dozen years in prison would acknowledge Madoff's voluntary surrender, full acceptance of responsibility, meaningful cooperation efforts and the nonviolent nature of his crime.
Still, the lawyer added that a prison term of 15 to 20 years would not disproportionately punish Madoff compared to sentences given other white collar criminals.
"Indeed, such a range will appropriately eliminate concerns for disparate treatment among similarly situated nonviolent offenders," he wrote.
The lawyer included in his submission to the court late Monday an analysis of sentences given to defendants in fraud-related cases between 1999 and 2008 that concluded the average sentence when leniency was not provided was 15.3 years in prison.
He also noted that Madoff's age would leave him with an average life expectancy of 12.6 more years.
Attorney Ira Sorkin also said in court papers made public Tuesday that his 71-year-old client "will speak to the shame he has felt and to the pain he has caused" when U.S. District Judge Denny Chin sentences him on Monday.
"We seek neither mercy nor sympathy," Sorkin wrote. But he urged Chin to "set aside the emotion and hysteria attendant to this case" as he determines the sentence.
Madoff faces up to 150 years in prison after pleading guilty on March 12 to 11 felony counts including securities fraud and perjury. He admitted operating a massive Ponzi scheme for decades.
Sorkin said a sentence of a dozen years in prison would acknowledge Madoff's voluntary surrender, full acceptance of responsibility, meaningful cooperation efforts and the nonviolent nature of his crime.
Still, the lawyer added that a prison term of 15 to 20 years would not disproportionately punish Madoff compared to sentences given other white collar criminals.
"Indeed, such a range will appropriately eliminate concerns for disparate treatment among similarly situated nonviolent offenders," he wrote.
The lawyer included in his submission to the court late Monday an analysis of sentences given to defendants in fraud-related cases between 1999 and 2008 that concluded the average sentence when leniency was not provided was 15.3 years in prison.
He also noted that Madoff's age would leave him with an average life expectancy of 12.6 more years.
Monday, June 22, 2009
Brokers and Their Fiduciary Duty
Investment advisers and consumer advocates have applauded President Obama's proposal to establish a fiduciary duty for broker-dealers offering investment advice.
“We think it's great,” said Diahann Lassus, chairwoman of the National Association of Personal Financial Advisors in Arlington Heights, Ill. “There should be a fiduciary standard for all advisers.”
Richard Salmen, president of the Denver-based Financial Planning Association, agrees.
“I'm encouraged by the fact that the administration is proposing a fiduciary standard for all that provide advice to the public,” he said. “That's a positive sign.”
The proposal was part of a historic reform package unveiled by the White House last Wednesday that is intended to overhaul nearly every aspect of Wall Street in order to prevent another financial crisis.
Both the FPA and NAPFA have been ardent proponents of requiring brokers offering investment advice to be brought under a fiduciary standard, which would require that they put their clients' interests ahead of their own. Currently, brokers are required to meet a suitability standard, meaning the advice and products they offer have to be suitable for their clients
“We think it's great,” said Diahann Lassus, chairwoman of the National Association of Personal Financial Advisors in Arlington Heights, Ill. “There should be a fiduciary standard for all advisers.”
Richard Salmen, president of the Denver-based Financial Planning Association, agrees.
“I'm encouraged by the fact that the administration is proposing a fiduciary standard for all that provide advice to the public,” he said. “That's a positive sign.”
The proposal was part of a historic reform package unveiled by the White House last Wednesday that is intended to overhaul nearly every aspect of Wall Street in order to prevent another financial crisis.
Both the FPA and NAPFA have been ardent proponents of requiring brokers offering investment advice to be brought under a fiduciary standard, which would require that they put their clients' interests ahead of their own. Currently, brokers are required to meet a suitability standard, meaning the advice and products they offer have to be suitable for their clients
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