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Archive for May, 2009


Recover Preferred Stock Losses in Fannie Mae and Freddie Mac

Clients of financial service firms may be able to recover some, or all, of their investment losses in Fannie Mae and Freddie Mac preferred stocks.

Financial advisors and brokers at firms like Merrill Lynch, Citigroup Smith Barney, Wachovia and AG Edwards pitched preferred stocks in Fannie Mae and Freddie Mac to over 1 million investors nationally as an conservative investment that was appropriate and suitable for elderly clients or clients in or nearing retirement. The preferred shares also paid a regular dividend.

Clients were often told that they either could not lose money, or would not lose investment principal in the Fannie Mae and Freddie Mac preferred stocks. These types of representations were made to investors as an inducement to invest significant sums into these preferred stocks. Would be investors were told by their full service brokers that in the unlikely event Fannie Mae or Freddie Mac defaulted, the U.S. government would step in and make investors whole or otherwise cover their investment losses. This simply wasn’t the case. While bond holders in Fannie Mae and Freddie Mac would be protected, the common share holders and the preferred shareholders would not be offered any protections. To state otherwise is highly misleading and a misrepresentation under most state security laws.

The real, undisclosed risks to Fannie Mae and Freddie Mac preferred stocks holders were not properly discosed to may investors who may have recourse.

UBS Sued By Spanish Investor Over Madoff

A Spanish investor asked a court to order UBS AG’s Luxembourg unit to release documents to help show alleged wrongdoing by the bank over losses tied to Bernard Madoff.

UBS’s Luxembourg unit, custodian bank of now defunct Luxembourg Investment Fund, should hand over documents including “an operational memorandum” mentioning UBS, the fund and Bernard L. Madoff Investment Securities LLC, Guy Perrot, lawyer for Spanish investment firm Castalia Ahorro Sicav, told a Luxembourg court yesterday.

The lawsuit is one among dozens of similar cases that investors have filed against the local unit of the Swiss bank since Madoff’s arrest on Dec. 11. Rulings involving UBS in similar cases over documents connected to LuxAlpha Sicav- American Selection have been mixed.

9,000 Madoff Claims and Counting….

A court-appointed trustee unraveling Bernard Madoff’s massive fraud signaled Thursday that he may go after the disgraced financier’s family to pay victim claims, which have grown to almost 9,000.

Legal action against the family “is a matter that’s being looked into,” trustee Irving Picard said during a telephone conference call with reporters.

Picard already has filed lawsuits in bankruptcy court in Manhattan to try to force hedge funds and other large investors to return $10.1 billion in fictitious profits paid by Madoff’s firm, alleging they should have known about the fraud. As of Wednesday, there were 8,848 customers claiming losses, he said.

“I have a duty to investigate and to go to court to recover from persons and entities who received more than their share,” he said. “In actual fact, persons who are subject to these recovery efforts actually received money stolen from others.”

Stephen Harbeck, head of Securities Investor Protection Corp. or SIPC, also vowed to get tough with anyone else in on the scheme, including Madoff family members.

“Wrongdoers should pay for their wrongdoing,” Harbeck, who’s working with Picard, said during the call.

In court filings, Picard has alleged that Madoff’s inner circle — his wife, two sons, brother and key employees — wantonly used investor money to fuel a lavish lifestyle. Madoff has claimed the others were in the dark, and their lawyers also have denied that they were complicit.

Madoff, 70, pleaded guilty in March to charges his secretive investment advisory operation was a massive Ponzi scheme — what Picard called “the largest and most complex securities fraud in history.”

In his plea, Madoff admitted that he never invested the billions of dollars given to him by thousands of clients. Instead, he used the money from new investors to pay returns to existing clients.

The investors were told in phony statements from last November that their accounts had grown to nearly $65 billion. Picard said Thursday that so far he has only identified about $1 billion in assets that can be used to help cover claims.

Colorado Settles ARS Dispute With Wachovia

Colorado settled with Wachovia Securities, which is changing its name to Wells Fargo Advisors this month, regarding its sale of auction-rate securities, the state’s securities commissioner announced.

St. Louis-based Wachovia, formerly A.G. Edwards & Sons Inc., agreed to buy back $157 million of auction-rate securities from Colorado investors by June 30, Commissioner Fred Joseph said in a news release. The settlement followed an investigation into allegations that Wachovia misled investors by telling them the securities were as safe and accessible as cash.

Investors in some of the $330 billion of auction-rate securities, long-term debt with the interest rate reset weekly or monthly, have been caught with bonds they couldn’t sell since the market collapsed in February 2008. Colorado’s accord is part of a $13 billion multistate agreement first reached in August.

Wells Faro announced May 4 that Wachovia Securities is changing its name to Wells Fargo Advisors. On Dec. 31 Wells Fargo & Co. acquired Wachovia Corp., parent of Wachovia Securities.

FINRA Settles ARS Complaint With Four Firms

The Financial Industry Regulatory Authority (FINRA) announced today that it has entered into final settlements with four additional firms to settle charges relating to the sale of Auction Rate Securities (ARS) that became illiquid when auctions froze in February 2008. To date, FINRA has concluded final settlements with nine firms, imposing a total of $2.6 million in fines and guaranteeing the return of more than $1.2 billion to investors. Investigations continue at a number of additional firms.

The settlements announced today are with NatCity Investments, Inc. of Cleveland, which was fined $300,000; M&T Securities, Inc. of Buffalo, which was fined $200,000; Janney Montgomery Scott LLC of Philadelphia, which was fined $200,000 and M&I Financial Advisors, Inc. of Milwaukee, which was fined $150,000. All four firms agreed to initiate or complete offers to repurchase ARS sold to their customers where the auctions for the ARS had failed.

FINRA also announced that SunTrust Investment Services, Inc. and SunTrust Robinson Humphrey, Inc., both of Atlanta, determined not to finalize previously announced settlements in principle with FINRA. FINRA’s investigation into both firms’ ARS-related activities is continuing.

“Firms have an obligation to use fair and balanced marketing materials when selling any security, including Auction Rate Securities,” said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. “This includes full disclosure of liquidity risks, which unfortunately became a reality in the ARS market last year. As with our previous ARS settlements, FINRA’s top priority was to assure investors’ access to the millions of dollars they invested in ARS.”

FINRA’s investigation found that each firm sold ARS using advertising, marketing materials or other internal communications with its sales force that were not fair and balanced and therefore did not provide a sound basis for investors to evaluate the benefits and risks of purchasing ARS. In particular, the firms failed to adequately disclose to customers the potential for ARS auctions to fail and the consequences of such failures. FINRA’s investigation also found evidence that each firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with the securities laws and FINRA rules with respect to the marketing and sale of ARS.

In the actions announced today, the firms agreed to a comprehensive settlement plan that has been applied in FINRA’s previous ARS settlements. That plan includes several elements, including offers to repurchase at par ARS that were purchased by individual investors and some institutions between May 31, 2006, and Feb. 28, 2008. The firms have also agreed to make whole individual investors who sold ARS below par after Feb. 28, 2008.

In addition to individual retail ARS investors, the buy-back offers include non-profit charitable organizations and religious corporations or entities, trusts, corporate trusts, corporations, pension plans, educational institutions, incorporated non-profit organizations, limited liability companies, limited partnerships, non-public companies, partnerships, personal holding companies and unincorporated associations that made individual ARS purchases and whose account value did not exceed $10 million.

Each firm is required to provide notice to its eligible customers promptly. Repurchases must begin no later than 30 days after the settlement is approved and must be completed no later than 60 days after settlement approval. Beginning no later than six months after settlement approval, each firm has also agreed to make its best efforts to provide liquidity to all other investors who purchased ARS during the same time period but who were not eligible for the initial repurchase.

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