Thursday, April 30, 2009

Morgan Stanley Prime Income Trust Losses?

Investors in Morgan Stanley's Prime Income Trust (XPITX) have seen 2008 losses hit more than 35%. The fund employs a modest amount of leverage--it hasn't topped 10%--initiated as an opportunistic ploy in April 2008 hasn't helped, some of the fund's sector and loan selections have been central to its weakness.

Morgan Stanley Prime Income Trust made loans to the now-bankrupt Tribune and distressed gaming concern Harrah's were in the portfolio's top 10 holdings. And while the portfolio hasn't been wildly concentrated in any particular sectors the fund has taken a hit.

The fund's relatively high expense ratio -- approximately 1.34% -- doesn't help. If you were solicited to purchase shares of Morgan Stanley's Prime Income Trust -- XPITX -- and have suffered losses call us to discuss your options.

Maker of Valvoline Motor Oil takes Legal Action against Oppenheimer for the Sale of Auction-Rate Securities

Ashland Chemical Company, Inc., the maker of Valvoline motor oil, filed a lawsuit against Oppenheimer & Co., in 2009 for the sale of nearly $194 million worth of auction rate securities during 2007 and early 2008. According to the complaint by Ashland Inc., Oppenheimer misrepresented the risks and liquidity related to the securities

When the market for auction-rate securities collapsed in February 2008, Ashland, like thousands of institutional and retail investors, found itself stranded with an illiquid investment that no one wanted to buy. Several months later, in an effort to settle investigations by state and federal regulators, many Wall Street firms, including Citigroup, UBS and Merrill Lynch, agreed to buy back billions of dollars of auction-rate securities from investors. Oppenheimer, however, opted not to participate in the ARS buy-back programs, contending it didn’t issue or underwrite the securities but only sold them.

Ashland filed its lawsuit against Oppenheimer on April 17, 2009 in the U.S. District Court for the Eastern District of Kentucky. Prior to this in November 2008, Massachusetts’ Secretary of State William Galvin sued the firm and charged them with fraud and dishonest and unethical conduct in connection to its auction-rate securities business. Galvin requested that Oppenheimer rescind all sales of auction-rate securities and make full restitution to investors who already had sold their securities. In addition, Galvin also sought to fine the company and several senior-level executives, specifically Oppenheimer Chairman and CEO Albert Lowenthal, whose broker-dealer license he wanted revoked.

FINRA Adminsters ARS Arbitrations After Selling Its Own Auction Rate Securities

The Financial Industry Regulatory Authority (FINRA) which administers investor arbitration cases over auction-rate securities, skirted losses from the securities by selling its holdings months before the market collapsed.

It has been reported that FINRA which is responsible for educating and protecting investors, owned as much as $862.2 million of the debt before exiting the market in the spring of 2007, less than six months before auctions began to fail, according to spokesman Herb Perone. The Washington-based group is conducting arbitration hearings filed against banks by bondholders stuck in the $176 billion market.

Investors who were sold the securities as money-market alternatives say Finra, a non-profit corporation owned by banks that oversees 5,000 brokerage firms and 659,000 brokers, failed to protect them. The market froze in February 2008 when banks, which had supported the debt for two decades through periodic dealer-run auctions, stopped buying bonds that investors didn’t want as losses from subprime mortgages spread.

Wednesday, April 29, 2009

Drier to Plead Guilty

Marc Dreier, the New York law firm founder charged with defrauding hedge funds, will plead guilty to federal charges including conspiracy and wire fraud on May 11, his lawyer said.

Dreier sold more than $700 million in phony promissory notes to at least 13 hedge funds and three individuals, according to an indictment unsealed against him last month in federal court in New York. Victims lost more than $400 million, according to the charges.

Dreier, a graduate of Yale College and Harvard Law School, was arrested on Dec. 8 and charged with conspiracy, securities fraud and wire fraud. Prosecutors said he faces 30 years to life in prison if convicted.

Tuesday, April 28, 2009

Fairfield Greenwich Faces New Investor Fraud Claims

Fairfield Greenwich Group, the hedge fund that steered $7 billion to Bernard Madoff, faces new claims of fraud by investors who previously alleged negligence against co-founders Walter Noel, Jeffrey Tucker and Andres Piedrahita.

The class-action suit, first filed in January in Manhattan federal court, was amended April 24 to include claims that the three co-founders and the firm acted so recklessly in placing client money with Bernard L. Madoff Investment Securities LLC that their actions constituted fraud. The amended complaint relies on documents filed by Massachusetts Secretary of the Commonwealth William Galvin, who filed an administrative complaint against Fairfield Greenwich and its Sentry Funds April 1, and other investigation by the plaintiffs.

The investors’ complaint, which seeks damages for their losses, claims that Fairfield Greenwich and its executives had no basis to tell investors that their historical profits were real, that Madoff’s “split-strike conversion strategy” was legitimate, or that the firm conducted adequate due diligence.

Friday, April 24, 2009

Citigroup receives Claim from Braintree Laboratories for Sale of Auction-Rate Securities

The backlash from institutional investors over auction-rate securities ARS) is causing a world of problems for financial giant Citigroup. Braintree Laboratories, a large Pharmaceutical manufacturer is suing the bank for selling more than $33 million worth of auction-rate securities. Braintree is disputing the sale, which occurred in 2008, and alleging that is was orchestrated at the very same time that federal and state regulators were investigating Citigroup for fraudulent marketing practices relating to auction-rate securities.

In August 2008, in an effort to settle the investigations, Citigroup agreed to buy back as much as $20 billion worth of auction-rate securities from individual investors and small businesses. In addition, the bank paid a $100 million fine. Citigroup also agreed to provide loans to more than 2,500 institutions that held some $12 billion of the securities.

At issue in the Braintree case is the timing of the auction-rate securities sale. As reported in an April 17, 2009 article by Bloomberg, Citigroup apparently sold some of the securities to Braintree on Aug. 6, 2008, just one day prior to its settlement agreement with regulators.

Following the implementation of their buyback program, Citigroup refused to repurchase the auction-rate securities from Braintree which in turn meant that the instruments would remain illiquid and unredeemable until the year 2030. According to the complaint filed by Braintree, Citigroup described the auction-rate securities to Braintree as “seven day rolls” and “government-backed money market investments that could be sold at par at any time on seven days’ notice.”

Indiana Money Manager Mentally Fit For Trial

A troubled Indiana money manager accused of trying to fake his death and escape financial ruin by parachuting before crashing his plane is competent for a June trial, a federal judge ruled Thursday.

U.S. District Judge Roger Vinson ruled Marcus Schrenker, 38, should face trial on charges of intentionally crashing the single-engine Piper Malibu on Jan. 11 and placing false distress calls.

Schrenker also faces millions of dollars in judgments and penalties in Indiana related to his failed business dealings. Prosecutors in Indiana are waiting to try Schrenker until the Florida charges are resolved.

Authorities say the amateur daredevil pilot bailed out over Birmingham, Ala., and took a motorcycle he had stashed in a nearby storage unit to a remote Panhandle campground where federal marshals tracked him three days later. They found him with his wrist slashed and drifting in and out of consciousness after an apparent suicide attempt.

The plane drifted 200 miles on autopilot toward the Gulf of Mexico, but ran out of fuel and crashed into a marshy area behind a Panhandle neighborhood near Milton.

Thursday, April 23, 2009

SEC Charges California Promoter for Affinity Based Ponzi Scheme

The SEC alleges that Clelia A. Flores and Maximum Return Investments Inc. (MRI) primarily targeted California's Hispanic-American community and promised returns of up to 25 percent within 30 to 45 days. Flores and MRI used millions of dollars from new investors to pay principal and returns due to earlier investors, and misappropriated investor funds to pay personal expenses for Flores and finance a lavish party for MRI to celebrate the company's alleged financial success.

The SEC's complaint, filed in U.S. District Court in Los Angeles, alleges that Flores and MRI attracted more than 150 investors in seven states between late 2006 and early 2008. Flores and MRI solicited investors in the Hispanic-American community through word of mouth and referrals, and promotional documents were produced in Spanish and English. Flores paid a 10 percent commission to "referral partners" who solicited new investors, and she relied heavily upon testimonials by other investors in the Hispanic-American community. Throughout 2007, MRI also hosted conferences in hotels to attract new investors.

According to the SEC's complaint, Flores claimed all investor funds would be used to invest in MRI's risk-free, high-yield investment programs, and she touted to investors that their principal would be "guaranteed safe." Promotional materials falsely represented that an investor's principal would be fully secured by a bank-endorsed guarantee and MRI's promissory notes claimed the investment was insured. However, the SEC alleges that Flores and MRI neither guaranteed nor insured the $23 million raised from investors, and only used $5.6 million of this amount to invest in high-risk ventures and start-up companies that had never paid MRI any returns.

California Sues Wells Fargo Over Auction Rate Securities

California sued units of Wells Fargo & Co. today, claiming they sold investors $1.5 billion of auction-rate securities and deceptively advertised them as being as safe as cash.

A complaint filed in state court in San Francisco names Wells Fargo Investments LLC, Wells Fargo Brokerage Services LLC and Wells Fargo Institutional Services LLC as defendants.

The complaint wasn't immediately available to the public, however, the California AG's office said the lawsuit seeks to recoup losses to investors.

Wednesday, April 22, 2009

GM Likely To Miss Debt Payment

General Motors Corp is unlikely to make a $1 billion debt payment due June 1 because it expects to be in the process of restructuring its debt through a voluntary exchange or bankruptcy court by that point, a spokeswoman for the automaker said on Wednesday.

GM has been given until June 1 to win sweeping concessions from creditors, including bondholders and the United Auto Workers union, under the terms of its U.S. government supervised restructuring.

Spokeswoman Renee Rashid-Merem said GM was working to offer a bond exchange that would reduce the $28 billion in debt owed to bondholders. Such an exchange could still be in progress as of June 1, precluding the bond payment, she said.

SEC Amends Complaint Against Political Party Leader and Hedge FUnd Manager For NY Pension Kickback Scheme

In an amended complaint filed in federal district court in Manhattan, the SEC alleges that Raymond Harding, who is a former leader of the New York Liberal Party, and Barrett Wissman, a former hedge fund manager, participated in a scheme that extracted kickbacks from investment management firms seeking to manage the assets of the New York State Common Retirement Fund. The SEC previously charged Henry "Hank" Morris and David Loglisci for orchestrating the fraudulent scheme to enrich Morris and others with close ties to them. Specifically, the SEC alleges that Wissman arranged some of the payments made to Morris, and Wissman was rewarded with at least $12 million in sham "finder" or "placement agent" fees. Harding received approximately $800,000 in sham fees that were arranged by Morris and Loglisci.

The SEC's amended complaint alleges that the payments to Morris, Wissman, Harding and certain others were kickbacks that resulted from quid pro quo arrangements or that were otherwise fraudulently induced by the defendants. Loglisci ensured that investment managers that made the requisite payments - to Morris, Wissman, Harding, and certain other recipients designated by Morris and Loglisci - were rewarded with lucrative investment management contracts, while investment managers who declined to make such payments were denied fund business. Morris, Wissman, Harding and the others who received the payments at issue did not perform bona fide placement or finder services for the investment management firms that made the payments.

Tuesday, April 21, 2009

SEC Sues Pennsylvania Based Advisor Tony Young

The Securities and Exchange Commission filed civil fraud charges against Tony Young, a Pennsylvania investment adviser and polo player, for stealing about $20 million from investors, a person familiar with the matter said.

A federal judge granted a temporary restraining order and asset freeze against the investment fund late Friday, when agents from the Federal Bureau of Investigation also executed search warrants. No criminal charges against Mr. Young have been filed.

The SEC alleges that since 2006, Mr. Young stole about $13 million from investors to fund an extravagant lifestyle that included the purchase of a home in Florida, a boat, several cars and horses for his polo hobby. Then his fraud turned into a Ponzi scheme; the SEC alleges Mr. Young used money coming in from new investors to pay other investors who sought to withdraw funds, this person said.

Service Employees International Union President Enraged by Corporate Bonuses

President of the Service Employees International Union (SEIU), Andy Stern, has sent a critical and scornful letter to multiple financial services firms regarding their decisions to issue bonuses tied to inflated profits on investments that ultimately turned out to be worthless. The companies, which included American International Group (AIG), Citigroup, Morgan Stanley, and JP Morgan Chase, were called upon to either pay back the bonuses immediately or be prepared to face a slew of lawsuits.

The SEIU’s pension fund, known as the SEIU Master Trust, wants the firms’ boards of directors to review more than $5 billion in bonuses and stock option awards that were given to their companies’ top five executives since 2005. In addition, the pension fund is demanding the companies overhaul their executive compensation practices.

“The collective choices of top executives to reward themselves despite their failure to deliver a profit on their investments negatively impacted our pension fund and left our economy in shambles,” said SEIU’s Stern in an April 20, 2009 article by Bloomberg. “It’s as if these guys got a windfall payoff for betting the family’s savings on the wrong horse.”

Compensation issues. Leading the pack is financially troubled AIG, which has been bailed out by the U.S. government multiple times and received more than $185 billion in funds. Despite the taxpayer-funded rescue, as well as a $62 billion fourth-quarter loss, the insurer turned over $165 million in executive bonuses in 2008.

Meanwhile, pension funds investing in AIG and in other firms that awarded over the-top bonuses to executives while their companies struggled financially have lost billions of dollars.

In March of 2009, Congress created legislation in response to the news of AIG’s bonuses. The legislation would establish a 90% tax on bonuses at any company receiving $5 billion in government aid. At the time in question the SEIU Master Trust held investments in 29 financial services firms that received a letter from Stern.

Monday, April 20, 2009

Lehman Brothers Principal Protected Notes Hit Bank of Kaohsiung Hard

Dozens of clients of the Bank of Kaohsiung (BOK) yesterday gathered at the Kaohsiung City Council trying to claim compensation from the BOK for the losses they suffered from unknowing investments in the structured noted issued or guaranteed by the bankrupt Lehman Brothers. The BOK solicited some 780 clients to purchase close to NT$700 million worth of Lehman Brothers structured notes. But the investments finally amounted to nothing after Lehman Brothers filed for bankruptcy with the U.S. courts in September 2008.

The protesting investors said that the BOK originally introduced them to purchase “South African funds,” but actually what the bank purchased for them were structured notes issued or guaranteed by Lehman Brothers.

One of the investors suffered a loss of up to NT$80 million, making his life savings evaporate to nothing.

Nevertheless, the BOK has yet to take actions to settle their investment losses, forcing investors to form a self-relief team to demand compensations from the BOK run by the Kaohsiung City Government.

Madoff Trustee Brings Suit to Recover More Money

The trustee appointed to liquidate Bernard L. Madoff Investment Securities LLC sued Kingate Management Ltd. for the return of $255 million transferred to the firm’s funds in the months before Madoff’s collapse.

Irving Picard, appointed under the Securities Investor Protection Act, filed a complaint April 17 in U.S. Bankruptcy Court in New York stating that transfers of $100 million to Kingate Global Fund Ltd. and $155 million to Kingate Euro Fund Ltd. from Madoff firm accounts in October and November were improper.

Saturday, April 18, 2009

UBS AG Client Pleads Guilty in Tax Fraud Crackdown

A UBS AG client pleaded guilty as part of a U.S. crackdown on the Swiss bank’s assistance of wealthy Americans hiding assets from the Internal Revenue Service, U.S. Justice Department spokesman Charles Miller said.

Robert Moran entered his plea yesterday in federal court in Fort Lauderdale, Florida, to a charge of filing a false tax return, Miller said.

UBS, the largest Swiss bank, avoided U.S. prosecution on Feb. 18 by agreeing to pay $780 million in penalties, admitting it helped taxpayers hide money in Swiss accounts, and strengthening its compliance programs. The bank also gave more than 250 client names to the IRS.

Thursday, April 16, 2009

Citigroup Spain Sued Over Lehman Products

Citigroup Inc.’s Spanish unit improperly sold investment products for Lehman Brothers Holdings Inc., according to lawyers who say they filed a lawsuit on behalf of as many as 122 clients.

Citigroup used aggressive marketing campaigns to sell the products, failed to diversify client investments and didn’t advise customers of what was happening at Lehman, said Zunzunegui Securities Lawyer and Jausas, two law firms that are representing the customers. The suit seeks 3 million euros($4 million), the firms said in an e-mailed statement.

The law firms said they are also attempting to reach a settlement with other banks, including Banco Santander SA, on behalf of customers affected by the collapse of Lehman. Lehman- related claims against Spanish banks may reach 100 million euros, the law firms said.

Wednesday, April 15, 2009

Carlyle Group Under Investigation

Carlyle Group is being probed by New York prosecutors and the U.S. Securities and Exchange Commission over whether the world’s second-largest private- equity firm made illegal payments to intermediaries to secure $1.3 billion in investments from the state’s pension fund, according to a person with knowledge of the matter.

New York Attorney General Andrew Cuomo and SEC lawyers are investigating Carlyle, hedge funds and other private-equity firms that did business with New York’s employee pension fund, according to the person, who declined to be identified because the probe isn’t public.

The probe is related to civil lawsuits and criminal charges filed last month by Cuomo and the SEC against former New York state Deputy Comptroller David Loglisci and political adviser Hank Morris for allegedly soliciting millions of dollars in kickbacks from firms managing the state’s retirement fund.

Morris was a so-called placement agent for Searle & Co., a registered broker-dealer that arranged deals between Carlyle and the New York State Common Retirement Fund, the person said. Morris allegedly pressured the investment firms to use Searle’s services and received millions of dollars in payments in exchange, court filings show.

Loglisci arranged for the pension fund, the third-largest in the U.S., to invest $5 billion with private-equity firms and hedge-fund managers that paid “sham” finder fees to Morris and others, the SEC said in last month’s complaint filed in federal court in Manhattan. Loglisci told managers the payments were required to do business with the fund, the regulator said.

Tuesday, April 14, 2009

SEC's New Top Enforcer

The new top cop at the U.S. Securities and Exchange Commission is viewed as the best hope in years to root out financial fraud and convince fuming investors that the regulator that missed Bernard Madoff's massive fraud is up to the job.

Former federal prosecutor Robert Khuzami was picked to lead the SEC's enforcement division at a time when investor confidence had been shattered during the worst financial crisis in decades.

It was bad enough that trillions of dollars evaporated from global markets and the government had to rescue Wall Street firms, but then it emerged in December that the SEC had failed to uncover Madoff's $65 billion Ponzi scheme despite warning signs and complaints.

Oregon Sues Oppenheimer

Oregon sued OppenheimerFunds Inc., charging the New York money manager with understating the risk it took with a bond fund in Oregon's state college-savings plan.

On Monday, Oregon sued the firm for losses of $36 million incurred by participants in the Oregon College Savings Plan, which Oppenheimer manages. The accounts, known as "529" plans, are a way for individuals to save tax-free for college expenses.

At least four other states had hired Oppenheimer to manage parts of their college-savings plans, including Texas, New Mexico, Illinois and Maine. A spokeswoman for Illinois's state treasurer said the state is working with the other states, "to try to negotiate a settlement."

The Oregon lawsuit, filed by its attorney general on behalf of the state treasurer in a county court, says that its 529 plan lost money due to risky investments made by Oppenheimer, which weren't disclosed to the state.

Oregon charges that Oppenheimer Core Bond fund, which was in the state's 529-plan options billed as "conservative," became significantly more risky starting in late 2007 or early 2008. The fund lost 36% of its value in 2008, but its benchmark index, the Barclays Capital Aggregate Bond Index, rose 5.2%.

"The Core Bond Fund was no longer a plain bond fund," the complaint says. "It had become a hedge-fund like investment fund that took extreme risks."

The complaint says the fund veered into credit-default swaps and other derivatives, which the state called "high-risk bets that were plainly inappropriate for those saving for college."

Monday, April 13, 2009

Madoff Investors Force Involuntary Bankruptcy

Madoff investors filed an involuntary bankruptcy petition against the convicted money manager to ensure that all of his assets are used to pay victims of his $65 billion Ponzi scheme.

The petition, filed by five investors today in U.S. Bankruptcy Court in Manhattan, seeks to push Madoff into Chapter 7 bankruptcy. It was filed by attorneys for the investors: Blumenthal & Associates Florida General Partnership, Martin Rappaport Charitable Remainder Unitrust, Martin Rappaport, Marc Cherno and Steven Morganstern. They said they hold $64 million in claims against Madoff, who pleaded guilty last month to directing the largest Ponzi scheme in U.S. history.

Saturday, April 11, 2009

SEC Won't Take Madoff Money

The Securities and Exchange Commission says any money recovered from the sale of Bernard Madoff's assets will go to his investors rather than to the U.S. Treasury.

The SEC made the statement in papers filed Wednesday in federal court in Manhatan. The commission said some investors who fear otherwise want to force Madoff personally into bankruptcy court to recover assets.

The SEC said bankruptcy proceedings brought about by investors who lost billions of dollars to Madoff would create unnecessary confusion and cause costly and potentially wasteful litigation.

The commission said it believes the court should continue its order prohibiting the filing of a personal bankruptcy case against Madoff.

Friday, April 10, 2009

SEC Charges Georgia Attorney With Ponzi Scheme Fraud

The SEC alleges that Robert P. Copeland promoted investment opportunities verbally and through written materials with false claims of earning interest of 15 to 18 percent in a year or less. Copeland fraudulently raised more than $35 million from at least 140 investors in Georgia and several other states. Copeland actually used very little of the investor funds in connection with real estate acquisition or development, and instead deposited investor funds into four bank accounts in the name of his law firm. He used new investor funds to make payment obligations to earlier investors, and misappropriated millions of dollars for such personal expenses as his residence, vehicles, and expensive artwork.

According to the SEC's complaint, filed in the U.S. District Court for the Northern District of Georgia, Copeland perpetrated the scheme from at least 2004 to January 2009 through entities that he controlled. Copeland directed the unregistered offer and sale of promissory notes evidencing investor loans, and represented to investors that the loans were safe and secured by real estate. The notes were often collateralized by security deeds to which Copeland signed the names of fictitious persons.

The SEC's complaint alleges violations of the registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to a permanent injunction against future violations, the SEC's complaint also seeks disgorgement of ill-gotten gains plus prejudgment interest and financial penalties.

Californian Sentenced to 20 Years for $32 Million Ponzi Scheme

A California man was sentenced to 20 years in prison for running a Ponzi scheme that bilked 500 investors out of

$32 million he used in part to fund his record company, federal prosecutors said.

Henry Jones, 54, was sentenced April 3 in Los Angeles, U.S. Attorney Thomas O’Brien said in an e-mailed statement. Two other defendants, a Portland, Oregon, man and a pastor from Perris, California, were sentenced in November to nine and 12 years in prison, respectively, according to the statement.

The three men solicited investments in a coal-mine venture and a purported transaction involving the sale of 20,000 tons of gold between Israel and the United Arab Emirates, prosecutors said. Conference calls on which the investments were solicited included group prayer and claims the gold transaction was “divinely inspired,” prosecutors said.

About $21 million of the investors’ money was used for Jones’s music business in Marina Del Rey, California, and to buy houses and sports cars, according to the statement. In all, investors lost $28 million, prosecutors said.

Thursday, April 9, 2009

District Judge Trims Some Class Claims Against Countrywide

A federal judge in Los Angeles has thrown out shareholder claims of insider trading against all but one former executive of Countrywide Financial Corp.

U.S. District Judge Mariana Pfaelzer allowed the allegations contained in a shareholders' lawsuit to remain against former Countrywide chairman and CEO Angelo Mozilo. The lawsuit says he sold $478 million in shares between 2004 and 2008.

The judge says some modifications made to his automatic stock sale plan were unusual.

However, the judge said Monday the lawsuit failed to support allegations that former Chief Operating Officer Stanford Kurland and other executives illegally traded stock.

Countrywide was once the largest U.S. mortgage lender. It is now part of Bank of America Corp.

New York charges Madoff 'feeder' Ezra Merkin with fraud

New York Atty. Gen. Andrew Cuomo today charged money manager J. Ezra Merkin with civil fraud in the Bernie Madoff Ponzi scheme, alleging that Merkin funneled more than $2.4 billion in clients’ funds to Madoff while ignoring "glaring red flags."

Merkin, a well-known New York philanthropist and the former chairman of General Motors Corp.’s financing arm, GMAC Financial Services, "profited enormously from Madoff’s scheme, reaping huge commissions while investors lost all their money," Cuomo said in a statement.

Merkin earned $470 million in management and incentive fees over time by steering money to Madoff, Cuomo said.

"Merkin duped individual investors, non-profits, and charities into believing he was responsibly managing their investments, when in actuality he was dumping them into history’s largest Ponzi scheme," Cuomo said.

A call to Merkin’s attorney wasn’t immediately returned.

Merkin, 55, has said he was stunned by Madoff’s scheme. He is already facing suits from other clients, including New York University and Mort Zuckerman, publisher of the New York Daily News.

Merkin’s funds, including Gabriel Capital and Ariel Fund, were "feeder" funds for Madoff. Cuomo alleges that Merkin presented himself to clients as an "investing guru," but says his true role was "master marketer."

In his statement accompanying the suit filed in New York State Supreme Court, Cuomo alleges that Merkin knew that investment professionals were suspicious of Madoff because, "beyond Madoff’s uncommonly steady returns, there were fundamental questions about Madoff’s money management business that suggested fraud."

Wednesday, April 8, 2009

SEC Continues To Deliberate On Short Sale Options

Federal securities regulators are considering several ways to place restrictions on traders who bet that stock prices will fall.

One option the Securities and Exchange Commission put forward for public comment Wednesday is restoring a Depression-era rule that prohibits short sellers from making their trades until a stock ticks at least one penny above its previous trading price. The goal is to prevent selling sprees that feed upon themselves -- actions that battered the stocks of banks and other companies over the last year.

Short-selling is legal and widely used on Wall Street. But as the market has plunged, investors and lawmakers have pressed the SEC to reinstate the rule. They say its absence since mid-2007 fanned market volatility, prompting bands of hedge funds and other investors to target weak companies with an avalanche of short-selling.

The SEC meeting marked the second time in less than a week that financial relief measures pressed by Congress were taken up by independent overseers. The Financial Accounting Standards Board on April 2 gave companies more leeway in valuing assets and reporting losses, a move that sent financial stocks and the broader market soaring.

Both sets of changes would especially benefit banks and other financial institutions, whose balance sheets have been battered in the financial crisis and whose stocks have been targeted by short sellers.

At the same time, the Obama administration has proposed to Congress a sweeping overhaul of the nation's financial rule book meant to prevent a repeat of the banking crisis that toppled iconic institutions and wiped out trillions of dollars in investor wealth. It includes requiring larger hedge funds, and other private pools of capital, to register with the SEC and open their books to federal inspection.

The SEC could settle on one short-selling plan of the five advanced Wednesday and formally approve it sometime after a 60-day comment period.

SEC Chairman Mary Schapiro said Wednesday agency was beginning "a thoughtful, deliberative process to determine what is in the best interests of investors" before taking final action.

Tuesday, April 7, 2009

States Investigate Oppenheimer Champion Fund

OppenheimerFunds Inc., a unit of Massachusetts Mutual Life Insurance Co., is under scrutiny by attorneys general in five states for investment losses in college-savings accounts that used its bond funds.

Officials in Illinois, Maine, New Mexico, Oregon and Texas began last month to jointly explore whether OppenheimerFunds violated its fiduciary duty to investors in the so-called 529 plans, said Scott Burnham, a spokesman for Illinois State Treasurer Alexi Giannoulias. Investors lost $85 million last year in Illinois-sponsored accounts run by the firm, whose managers bought mortgage-linked securities before prices plunged along with the residential real estate market.

Illinois, Oregon and Texas have pulled college-savings money from OppenheimerFunds. Oregon is seeking bids to replace the company as a manager.

The inquiry undertaken by the civil enforcement offices of the attorneys general is focusing on accounts that invested in Oppenheimer Champion Income Fund, which fell 79 percent in the past year, and Oppenheimer Core Bond Fund, which lost 41 percent. Oppenheimer Limited Term Government Fund and U.S. Government Trust are also being investigated.

General Motors Nearer to Possible Bankruptcy Filing

General Motors Corp is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters on Tuesday.

A plan to split the corporation into a "new" company made up of the most successful units, and an "old" one of its less-profitable units, is gaining momentum and is seen as the most sensible configuration, said another source familiar with the talks.

If the plan goes through, the new GM would be expected to assume some previous creditor debt from bankruptcy proceedings, such as secured debt, said the second source, adding that GM bondholders were likely to lose substantial value in bankruptcy.

Certain GM dealer and litigation claims would also be hurt if the new company structure is used as part of a company bankruptcy, said the second source.

Shares of GM fell almost 12 percent on the New York Stock Exchange to end at $2.00.

GM bonds were mixed in afternoon trading, with GM's benchmark 8.375 percent note up less than 1 cent on the dollar to 11.75 cents, yielding more than 70 percent, versus about 11 cents with a 75 percent yield on Monday, according to MarketAxess data. The bond had slipped in earlier trading.

Two other GM notes were slightly lower in late afternoon trading.

HSBC Luxembourg Unit Sued by the Herald Fund SPC for Loses With Madoff

HSBC Holdings Plc’s Luxembourg unit was sued by the Herald Fund SPC, which lost money invested with Bernard Madoff, for the assets that HSBC reported in its last calculation as custodian.

The fund is claiming assets valued at about 1.6 billion euros ($2.15 billion) that HSBC Securities Services Luxembourg SA held as the fund’s custodian in a Luxembourg account, said Andre Lutgen, a lawyer for the fund. He said the fund filed a lawsuit in Luxembourg on April 3.

“The board of directors has taken detailed advice and has concluded that the most appropriate course of action in the protection of the value of its shareholders’ investments is, as a first step, to commence these proceedings,” the funds’ directors said in an e-mailed statement. “We anticipate that other legal actions will be filed against other” firms.

The case is the second to target HSBC after several lawsuits sought documents or repayments from UBS AG, custodian bank for another fund that suffered losses through Madoff.

Monday, April 6, 2009

SEC May Reinstate Rule to Curb Short Selling

The Securities and Exchange Commission will meet this week to consider proposals for restricting abusive short selling of US stocks, with the reinstatement of some form of the so-called “uptick rule” expected to move a step closer.

The meeting of the US regulator, scheduled for Wednesday, comes as equity markets have staged a rally in recent weeks, leading some to question whether a return to the rule is necessary.

The SEC has been considering reinstating the uptick rule for some weeks after coming under political pressure to take action against short sellers, whom many hold responsible for driving down stock prices during the past 18 months.

The political pressure has remained, even as markets have staged a bear-market rally recently.

Last week, six US senators led by Ted Kaufman and Johnny Isakson wrote to Mary Schapiro, SEC chairman, saying they hoped the meeting would produce an “unambiguous commitment to promulgate and enforce regulations that put an end to naked short selling”.

The SEC has issued a brief agenda for the meeting but has not given details of what exactly it might propose. Most analysts expect that some form of the uptick rule will be in place by the end of this month.

Sunday, April 5, 2009

Large Recent FINRA Arbitration Awards A Sign?

Finra securities arbitration panels have handed investors two huge wins in recent months, but lawyers and industry observers are divided about whether such noticeable awards signal favorably for investors.

Regardless, the awards — from the three-member panels of the Financial Industry Regulatory Authority Inc. of New York and Washington — are among the largest ever.

Last month, Merrill Lynch & Co. Inc. was ordered to pay $39.8 million to a group affiliated with the Freemasons in a case that stemmed from the collapse of Refco Inc.

The arbitration panel ruled that Merrill Lynch of New York must pay $30.6 million in compensatory damages — plus interest — to the Trustees of the Masonic Hall and Asylum Fund in Utica, N.Y.

The interest on the claim began accruing in November 2005 and totals $9.2 million.

In February, STMicroelectronics, a chip maker based in Geneva, was awarded $406 million by a Finra arbitration panel in a dispute with Credit Suisse Group Inc. of Zurich, Switzerland, over the unauthorized purchase of auction rate securities.

Saturday, April 4, 2009

ARS Update - Texas Instrument Files Against Morgan Stanley and Others

Texas Instruments Inc (TXN.N) has sued Citigroup Inc (C.N), Morgan Stanley (MS.N) and Bank of New York Mellon Corp (BK.N), accusing the banks of misleading the chipmaker into buying $524 million of auction-rate securities that have become illiquid.

In a complaint filed Wednesday in a Texas state court in Dallas County, Texas Instruments said the banks falsely marketed the securities, which were backed by student loans, as a low-risk, liquid alternative to other short-term investments. It said the banks also failed to disclose the extent to which they participated in auctions to support the market.

As a result of the banks' actions, "Texas Instruments was unable to accurately analyze the risks and possible interest rates for the auction-rate securities it was purchasing or holding," the Dallas-based company said.

Texas Instruments is seeking to rescind its auction-rate purchases and be awarded interest and other costs.

FINRA Faces Flurry of Investor Securities Arbitration Claims

Accused of lax oversight in the wake of recent financial frauds, FINRA, the largest nongovernmental regulator of securities firms, is now facing an explosion of arbitration claims stemming from troubles in the capital markets. Moving some of those claims into the FINRA arbitration process are about a dozen law school securities arbitration clinics across the country, which, say their directors, are fielding numerous requests for help, often from elderly investors. "It's really gone crazy in the last month," said Professor Curtis Pew, director of the clinic at Hofstra University School of Law. "We literally are getting a call a day, and from all over the country. Our funding limits us to people who are linked to our area at the time the claim arose or who are here presently. I just wish I had more money." FINRA -- the Financial Industry Regulatory Authority -- oversees nearly 5,000 brokerage firms, 173,000 branch offices and 659,000 registered securities representatives.

It describes its chief role as protecting investors by maintaining the fairness of the U.S. capital markets. The agency recently reported that the number of new arbitration claims filed in January and February was 90 percent more than the number filed in the same period in 2008: 1,065 through February 2009, as compared to 561 through February 2008.

"We don't have official projections for 2009, but if the trend continues, we're probably looking at a high that will match what we saw in '03 and '04," said FINRA spokesman Brendan Intindola.

Friday, April 3, 2009

SEC Approves Amendments Raising the Threshold for Single Arbitrator Cases to $100,000

Effective March 30, 2009, FINRA will raise the threshold for appointing a single chair-qualified arbitrator. The SEC approved amendments to FINRA Rule 12401 of the Code of Arbitration Procedure for Customer Disputes and FINRA Rule 13401 of the Code of Arbitration Procedure for Industry Disputes to raise the amount in controversy for appointing a single chair-qualified arbitrator to $100,000.

For more information click.

Ex-KPMG Partners Sentenced For Tax Shelter Scheme

Former KPMG LLP senior manager John Larson was sentenced to 10 years in prison and former partner Robert Pfaff got eight years for selling illegal shelters that helped wealthy clients evade more than $100 million in taxes.

Larson was also fined $6 million yesterday in Manhattan federal court, Pfaff was fined $3 million and both were immediately jailed. Lawyer Raymond Ruble, a former partner at Brown & Wood LLP, was given a 6 1/2-year sentence. The three were convicted on Dec. 17 of tax fraud and other charges.

The convictions, which the defendants said they will appeal, came in a case that narrowed significantly since 2005, when it began as the largest tax-shelter prosecution in U.S. history. The government initially accused 17 ex-KPMG executives, including former Deputy Chairman Jeffrey Stein, and several others of selling shelters that cost the Treasury $2 billion.

Thursday, April 2, 2009

Ex Credit Suisse Brokers Face New Subprime Related Charges

Two former Credit Suisse Group AG brokers accused of fraudulently selling clients subprime mortgages linked to auction-rate securities pleaded not guilty to a dozen new fraud charges.

Julian Tzolov and Eric Butler were first indicted last year on securities fraud and conspiracy charges in U.S. District Court in Brooklyn, New York. They are accused of falsely telling clients their products were backed by federally guaranteed student loans, according to a U.S. indictment filed in September. They allegedly said the investments were a safe alternative to bank deposits or money market funds.

The new charges include wire fraud stemming from e-mails the defendants sent. Tzolov and Butler, who remain free on bond pending trial, were also charged with conspiracy. Without telling customers, they allegedly began using client funds to purchase higher-yield, mortgage-backed collateralized debt obligations, known as CDOs, according to the indictment.

Wednesday, April 1, 2009

Massachusetts Charges Madoff Feeder Fund

Massachusetts' top securities regulator charged hedge fund firm Fairfield Greenwich Group with fraud for allegedly lying to investors about confessed swindler Bernard Madoff's phony management business.

The action on Wednesday marks the first charges against one of Madoff's feeder funds, which funneled billions of dollars into the disgraced Wall Street legend's long-running Ponzi scheme.

William Galvin, Massachusetts' secretary of state, accused Fairfield Greenwich, a prominent hedge fund firm in Connecticut, of failing to check how Madoff generated the strong and steady returns he said he made year after year.

"The allegations against Fairfield in this complaint outline a total disregard for such (fiduciary) responsibility which helped the Madoff scheme to stay afloat for so long," Galvin said in a statement.

Galvin wants Fairfield Greenwich to return the money that Massachusetts investors lost in the scheme and return the performance fees they paid the firm. He is also seeking an administrative fine against Fairfield.

Fairfield Greenwich's Sentry Funds had placed about $7.2 billion, or 95 percent of its assets, with Madoff, whose fraud appears to have totaled about $65 billion.