Warnings Keep Pouring In On Risks of Structured Products

Warnings against structured products abound these days. Recently, officials for both the SEC and FINRA warned investors against the products, and called the payout structures "difficult to understand" and the products themselves "expensive, risky, complex and illiquid."

SEC Probes Big Banks’ Forex Trading Activities

The SEC is probing deeper into the foreign-exchange trading activities of big “custody” banks undertaken on behalf of institutional investors.

SEC Proposes Rule to Ban Felons and "Bad Actors" from Private Placement Offerings

The SEC proposed a rule which would disqualify Regulation D offerings (private placements) involving certain "felons or other bad actors."

SEC Votes to Adopt New Whistle-Blower Program

The SEC voted 3-2 to adopt the new whistle-blower program included in last year's Dodd-Frank financial reform law.

SEC Says: More Money Needed to Fight Investment Fraud

SEC won’t have enough money to implement Dodd-Frank financial reforms next year unless Congress increases its budget says SEC Chairman Mary Schapiro.

LA Times: Hedge-Fund Manager Raj Rajaratnam Should Be a Warning to Wall Street

The conviction of hedge-fund manager Raj Rajaratnam should serve as a warning to Wall Street that the citizens of the U.S. are hungry for accountability.

Life Partners Faces Potential SEC Action in Sale of Life Settlements

The SEC may file a civil action against Life Partners Holdings, Inc. for allegedly misleading investors about the accuracy of its life-expectancy estimates.

SEC Says 12(b)-1 Fees Not Forgotten as Revision Gets Pushed Back Once Again

The SEC’s history of voicing concern over 12(b)-1 mutual fund fees while neglecting to actually do anything to revise them has continued unabated this year.

SEC Seeks Public Comments on the Effectiveness of Investor Education Programs

The SEC is currently seeking public comments regarding investor education programs in order to determine which programs are the most effective.

Citigroup Under Investigation by SEC for Activities Related to Financial Crisis

According to an annual report filed by Citigroup on Friday, the company is under investigation by the SEC and other regulators for activities related to its subprime mortgage bond business and the structuring and sale of collateralized debt obligations (“UPDATE 1-U.S. SEC investigates Citi's subprime business,” Reuters, Feb. 25, 2011). The SEC’s investigation into Citigroup’s CDO activities is partially based on allegations that Citigroup had undisclosed conflicts of interest in the structuring and sale of a CDO called Class V Funding III. According to a ProPublica article on the investigation, though Citigroup marketed the Class V Funding III CDO as an independently managed security it also allegedly picked some of the security’s underlying assets (“SEC Investigating Citigroup Mortgage Deal,” ProPublica, Nov. 18. 2010). It also has been alleged that Citigroup collected improper fees on the deal. In addition to the SEC investigation, a class action lawsuit has been filed against Citigroup by numerous investors who claim that it, and certain of its senior officers, committed securities fraud by allegedly covering up the CDO crisis and misstating its exposure to CDO risk. (Citigroup ended up losing almost $34 billion on mortgage CDOs.) Citigroup says it is cooperating with the investigations. Estimates by the company indicate that legal costs related to Citigroup’s activities may exceed the funds already placed in reserve by about $4 billion. About our law firm: The law firm of David P. Meyer & Associates represents individuals across the country who have been harmed by investment fraud. All of our cases are handled on a contingency fee basis and we never request a retainer of any kind. Contact us toll-free at 1.866.429.2360 for more information or complete the online form on the top of this page and we will respond promptly.

SEC Adopts New Disclosure and Review Requirements for Asset-Backed Securities

Last week, the SEC adopted two sets of new rules that will affect disclosure and review requirements for asset-backed securities (ABS), according to a Jan. 20 SEC press release. Asset-backed securities are securities backed by bundled loans (i.e. student loans, mortgages, commercial loans, etc.) that are sold to investors. Problems arose during the financial crisis when many investors suffered significant losses from the securities and began to question the accuracy of the required “representations and warranties” made about the underlying loans. Typically, an ABS issuer or lender can be required to repurchase or replace a loan from the security if it turns out the loan does not meet the “representation of warranty” in the securities agreement. To explain the need for the new rules, the press release quoted SEC Chairman Mary L. Schapiro: “At one time, the securitization market provided trillions of dollars of liquidity to virtually every sector of the economy. However, during the financial crisis, ABS investors suffered significant losses, causing the market for securitization to rapidly decline. These rational measures are designed to help revitalize the important asset-backed securities market by encouraging better disclosure for investors." According to the release, the “Disclosure for Asset-Backed Securities Related to Representations, Warranties and Repurchase Histories” rule will require ABS issuers to: File with the SEC a history of any requests received and repurchases made that are related to a currently outstanding ABS; File quarterly reports with the SEC that lists the repurchase history for all outstanding ABS, including non-registered ABS transactions, and the history of all fulfilled and unfulfilled repurchase requests; and Include in each ABS prospectus the recent three-year repurchase history for ABS of the same asset-class. The second rule adopted last week is the “Issuer Review of Assets Underlying Asset-Backed Securities” rule. As reported in the release, the new rule will require issuers of ABS to conduct a review of they underlying assets of all registered asset-backed securities and to disclose both the nature of the review and the review’s conclusions to potential and current investors. Issuers are given the choice of whether to perform their own reviews or to hire a third-party to review the assets. Any information obtained during the review that indicates that an underlying loan differed from the loan underwriting criteria listed in the ABS prospectus, or that an underlying loan failed to meet the loan criteria listed and was still included in the security, must also be disclosed. The new rules will take effect within 60 days of publication in the Federal Register. About our law firm: The law firm of David P. Meyer & Associates represents individuals across the country who have been harmed by investment fraud. All our cases are handled on a contingency fee and we never request a retainer of any kind. Contact us toll-free at 1.866.429.2360 for more information or complete the online form on the top of this page and we will respond promptly.

Investor Concerns Grow Over State and Local Government Finances

Investors in the $2.9 trillion municipal bond market are becoming increasingly anxious – and angry – over delayed financial disclosures, according to an article by The Wall Street Journal (“Bondholders Left in the Dark,” Jan. 26, 2010). In 2010, individual investors owned at least 70 percent of the municipal securities market. Now, many of those investors are worried about the financial health of the U.S.’s state and local governments. As reported in the article, a recent analysis conducted by DPC DATA Inc., a specialist in municipal disclosure, found that at least a third of the 17,000 bonds studied failed to file financial statements in three out of five years. And, the percentage of non-filers appears to be growing alongside the increase in government credit and financial problems. Peter Schmitt, chief executive of DPC, told the WSJ: “This works out to insufficient ongoing disclosure information for more than $2 trillion of the $3 trillion in outstanding bonds.” Last year, Arthur Levitt, SEC Chairman from 1993 to 2001, told Bloomberg News that enforcement of the municipal securities market "was terribly neglected in recent years" and that municipal fraud and incompetence “has never been greater.” (“Can the SEC Get Its Street Cred Back?” Bloomberg News, April 1, 2010) Now, to help protect investors, the SEC is increasing its scrutiny over the largely unregulated market. In 2010, the SEC set up a new municipal-bond enforcement unit, headed by Elaine Greenberg. Greenberg believes the lack of disclosure is a problem for investors, particularly when financial problems tend to mean municipalities disclose less information later – information that investors need now. In the WSJ article, Greenberg was quoted as having said: “If a municipality is in dire financial straits, we want to know if that information was disclosed to bond holders in a timely fashion. It's not good enough to put the information out there late. Investors need information that is current, not stale, to make informed investment decisions." To address the problem, the new SEC unit is investigating cases where municipalities allegedly failed to disclose their financial problems to bond holders. New Jersey authorities recently settled such a case, and Illinois is currently facing an inquiry about public statements authorities made about its pension funds, according to the WSJ article. Additional inquiries into other municipalities are expected. About our law firm: The Ohio-based law firm of David P. Meyer & Associates represents clients who have been harmed by investment fraud. Contact us toll-free at 1.866.827.6537 for more information.

SEC Recommends "Universal Fiduciary Duty"

Late Friday night, the SEC submitted a report to Congress that recommended the fiduciary standard of care be expanded to include any financial professional that provides personalized investment advice to retail customers. The "universal fiduciary duty" recommended by the SEC would supersede the "suitability standard" currently applied to broker-dealers. The change, a hot topic of debate in the industry, would likely mean increased protection for investors, many of whom don't understand the difference between the two standards

CGA Embroiled in SEC Inquiry, Alleged Financial Fraud

Ponzi schemes cost investors billions in losses each year. Read this article to learn about a recent SEC investigation and allegations of financial fraud surrounding China Green in the news. While on our website, order your FREE copy of renowned securities and investment fraud attorney David P. Meyer’s book, Five Signs of Investment Fraud and What to Do If It’s Happened to You.

Financial Fraud on the Rise, Says SEC

The Securities and Exchange Commission (SEC) stated last month that investment fraud schemes are on the rise nationwide. The statement came as the SEC and the Justice Department disclosed the results of the largest fraud sweep ever conducted in the United States: Operation Broken Trust. The three-and-a-half-month-long sweep focused on an estimated $10.4 billion lost due to securities fraud by more than 120,000 individual investors. Enforcement actions were brought against 343 criminal defendants and almost 200 civil defendants.

Critics of the SEC's Whistleblower Program May Be Blowing Hot Air

In a recent Forbes.com article, James Kaplan, of Audit Integrity, tore down the arguments voiced by critics (such as former SEC chairman Harvey Pitt) of the SEC's revised whistleblower program. Pitt's concern, as quoted in a November NY Times article, was that the SEC's new program would undermine the internal compliance departments of various corporations. As argued by Kaplan, Pitt's concern is invalid at best and intentionally deceptive at worst.

SEC Proposes Enhanced Disclosures to Protect Investors in Asset-Backed Securities

Last week the SEC issued a proposal that would change the way issuers of asset-backed securities provide information to investors by requiring the issuers to perform and disclose a review of the products' assets, according to an Oct. 13 SEC press release. Asset-backed securities are products sold to investors in which the securities are backed by bundled loans. The underlying loans are often residential mortgage loans, commercial loans, and/or student loans.

SIPC Considers Overhaul to Rules to Protect Individual Investors

Most people are aware of the FDIC (the Federal Deposit Insurance Corp.), which insures individuals' deposit accounts for up to $250,000 per insured bank. The SIPC is similar. Funded by member broker-dealers, the nonprofit organization protects most stock investors for up to $500,000 in securities and cash (with a maximum of $100,000 in cash) in the event a brokerage firm files bankruptcy or closes due to financial problems.

Former CEO of MCSi, Inc. Pleads Guilty to Securities Fraud

On August 11, former CEO of MCSi, Inc., Michael E. Peppel, pled guilty in federal district court to one count each of securities fraud, conspiracy, and money laundering, according to a Press Release by the Department of Justice. Peppel's criminal activities were part of a scheme to inflate the company's stock price by improperly reporting company revenues.

FINRA Proposes to Prohibit Non-Regulated Custodians

In order to more effectively detect investment fraud, FINRA recently proposed a rule to prohibit the use of non-FINRA-regulated institutions as custodians

The Hard to Understand "12b-1" Fees May be Overhauled

12b-1 fees are distribution and/or service fees that are considered an annual marketing expense of a mutual fund. The fees, normally 0.25-1% of a fund's net assets, are named after the 1980 SEC rule that authorized them. Typically, the fee is used to compensate brokers and others who sell fund shares, along with paying for marketing and advertising expenses.

SEC Attempts to Address Problems with Target-Date Mutual Funds

A target-date fund is a mutual fund that automatically adjusts the portfolio's mix of stocks, bonds, and cash equivalents according to a selected time frame chosen by the investor. The name of the fund often reflects the investor's planned retirement year (i.e. the Fidelity Freedom Fund 2020). As the retirement year approaches, the fund's asset allocation is supposed to reflect a more conservative investment strategy.

Investment Advisers’ Disciplinary Records Now Available Online

The disciplinary records of individuals licensed as investment adviser representatives (IARs) are now available online for the first time. Investors may now visit the U.S. Securities and Exchange Commission (SEC) Investment Adviser Public Disclosure website to search for reports on IARs. The SEC website previously only provided information on investment adviser firms, but not individual investment advisers. Also, until now, only information on those registered as brokers was available through the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck. Investors can now access BrokerCheck records on IARs directly from the SEC’s website. BrokerCheck is a free tool that gives investors the capability to look up brokers and brokerage firms, and now also provides information on IARs. Through BrokerCheck, you can view records of previous complaints or regulatory actions. If a broker is reluctant to provide you with his or her CRD number, that should be a red flag and an indication that you might want to think twice about hiring this person. To learn more about protecting yourself against unscrupulous investment professionals, read our post on “Reducing Your Odds of Financial Loss Starts with Choosing the Right Investment Professional.”

SEC Files Complaint to Halt $300 Million Ponzi Scheme Involving Supposed Gold Mining Investments

Last week, the United States Securities and Exchange Commission ("SEC") filed a complaint against several individuals charging that they perpetrated a $300 million Ponzi scheme, selling promissory notes to over 3,000 investors in the United States and Canada which were allegedly being used to fund gold mining operations.

Settlement Talks Heat Up Between SEC and Goldman Sachs

Settlement Talks Heat Up Between SEC and Goldman Sachs on Securities Fraud Civil Fraud Charges