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Archive for August, 2010


FINRA Fines HSBC For CMO Sales to Retail Customers

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined HSBC Securities (USA) Inc. $375,000 for recommending unsuitable sales of inverse floating rate Collateralized Mortgage Obligations (CMOs) to retail customers. HSBC failed to adequately supervise the suitability of the CMO sales and fully explain the risks of an inverse floating rate or other risky CMO investment to its customers.

FINRA’s investigation found that HSBC recommended the sale of CMOs, including inverse floating rate CMOs, to its retail customers. As a result of HSBC not implementing an adequate supervisory system and procedures relating to the sale of inverse floating rate CMOs to retail customers, six of its brokers made 43 unsuitable sales of inverse floaters to retail customers who were unsophisticated investors and not suited for high-risk investments. In addition, HSBC’s procedures required a supervisor’s pre-approval of any sale in excess of $100,000; FINRA found that 25 of the 43 CMO sales were in amounts exceeding $100,000 and that in five of these instances, customers lost money in their inverse floating rate CMO investments. HSBC has paid these customers full restitution totaling $320,000.

“Firms must adequately train their brokers on all of the products that they are selling and must reasonably supervise them to ensure that every security recommended is suitable for the particular customer,” said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. “The losses incurred by HSBC’s customers likely would have been avoided had the firm sufficiently trained its brokers on the suitability and risks of inverse floating rate CMOs and reasonably supervised their brokers to ensure that they were making suitable recommendations.”

A CMO is a fixed income security that pools mortgages and issues tranches with various characteristics and risks. CMOs make principal payments throughout the life of the security with the maturity date being the last date by which all of the principal must be returned. The timing of the return of principal payments can vary depending on interest rate changes.

One of the more risky CMO tranches is the inverse floater, a type of tranche that pays an adjustable rate of interest that moves in the opposite direction from movements of an interest rate index, such as LIBOR. Since 1993, FINRA has advised firms that inverse floating rate CMOs “are only suitable for sophisticated investors with a high-risk profile.”

Leveraged Municipal Arbitrage Funds Under Investigation

Aidikoff, Uhl & Bakhtiari announced today that it is investigating potential claims on behalf of investors who invested in the following municipal arbitrage funds:

1861 Capital Management
Citigroup’s Mat and ASTA Funds
Aravali Fund
Blue River Asset Management
GEM Capital
Havell Capital Enhanced Municipal Income Fund
Rockwater Hedge Fund, LLC
Stone and Youngberg Municipal Advantage Fund
TW Tax Advantaged Fund

Aidikoff, Uhl & Bakhtiari represents high net worth investors who sustained losses in leveraged municipal bond arbitrage hedge funds sold by brokerage firms and banks across the country.

The municipal bond arbitrage strategy employed by these funds was risky and exposed investors principal losses.

For more information please visit our website or contact an attorney.

ASTA and Mat Municipal Arbitrage Claims Continue to Be Investigated by Aidikoff, Uhl & Bakhtiari

Aidikoff, Uhl & Bakhtiari announces it’s continuing investigation into the ASTA/Mat municipal arbitrage funds launched by Citigroup Global Markets, Inc. and sold through Smith Barney, part of Citigroup’s (NYSE:C) Global Wealth Management Group. The ASTA/Mat funds were first rolled out in 2002 and imploded in February 2008 causing catastrophic losses to investors.

“The Mat funds were marketed to clients as a fixed income product producing a couple of extra points above municipal bonds,” according to Philip M. Aidikoff. “In truth, the Mat funds were a highly risk leveraged bet subjecting clients of the firm to losses that could possibly exceed 100 percent or more of an investors initial capital.”

In May 2010 two Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panels awarded more than $2.2 million to clients of Aidikoff, Uhl & Bakhtiari representing a return of 100 percent of the clients’ principal losses.

“The municipal arbitrage strategy employed by the Mat funds was risky and exposed investors to 2 times more volatility than the S&P 500 and 7 times more volatility than a traditional portfolio of municipal bonds,” stated Ryan K. Bakhtiari.

Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions. More information is available at www.securitiesarbitration.com or to discuss your options please contact an attorney below.

1861 Capital Investigation Continues…

Aidikoff, Uhl & Bakhtiari announces an investigation into the 1861 Capital Management municipal arbitrage funds sold by UBS and other broker dealers. The 1861 Capital funds imploded in February 2008, causing catastrophic losses to investors.

“1861 municipal arbitrage funds were marketed to clients as a fixed income product producing a couple of extra points above municipal bonds,” according to Philip M. Aidikoff. “In truth, the 1861 funds were a high risk leveraged bet subjecting clients to a significant loss of principal.”

In May 2010 two Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panels awarded more than $2.2 million to clients of Aidikoff, Uhl & Bakhtiari, representing a return of 100 percent of the clients’ principal losses in cases involving the Citibank ASTA/Mat municipal arbitrage funds which are similar to the 1861 product.

“The municipal arbitrage strategy employed was risky and exposed investors to about 2 times more volatility than the S&P 500 and about 7 times more volatility than a traditional portfolio of municipal bonds,” stated Ryan K. Bakhtiari.

UBS Hit With $81 Million Auction Rate Securities Award By FINRA Arbitration Panel

A FINRA arbitration panel ordered UBS AG on Tuesday to pay $81 million in damages to a Bethesda, Maryland-based cellphone marketer that purchased auction-rate securities through the U.S. brokerage.

FINRA documents posted online showed a panel comprised of three public arbitrators ordered to pay the damages to Kajeet Inc, which purchased student-loan auction-rate securities that lost value during the credit crisis.

Kajeet, which sells pay-as-you-go cell phones aimed at children, had claimed $110 million in losses.

State and federal regulators have forced UBS to repurchase $22.7 billion of auction rates from individual investors. The Securities and Exchange Commission continues to investigate the role of individual executives at the firm.

In March, UBS agreed with a coalition of state securities regulators to purchase up to $200 million in auction-rates from investors not covered by the initial agreement.

Pennsylvania Files Complaint Against TD Ameritrade For Reserve Yield Plus Fund

Pennsylvania regulators filed a civil complaint against broker-dealer TD Ameritrade, alleging it committed fraud in the sale of Reserve Yield Plus Fund.

The Pennsylvania Securities Commission’s enforcement division alleges that TD Ameritrade and Amerivest Investment Management LLC repeatedly told investors, in calls that were recorded, that the fund was a money-market fund. It actually was a cash-enhanced mutual fund with more risks than a money-market fund, the June 17 complaint said. Both TD Ameritrade and Amerivest Investment Management are subsidiaries of TD Ameritrade Holding Corp.

TD Ameritrade said it is “cooperating with any investigation or request.”
.According to the complaint, TD Ameritrade and Amerivest continued to sell the fund even after senior management at TD Ameritrade determined around November 2007 that the fund’s net asset value might dip below the $1-a-share level that money-market funds strive to maintain, known as “breaking the buck.”

A TD Ameritrade spokeswoman said the firm is “cooperating with any investigation or request.” She said Reserve Yield Plus Fund has distributed about 95% of its assets to investors. She declined to comment further.

The fund, which once held $1.2 billion in assets, was frozen just after the bigger Reserve Primary Fund told investors it was unable to redeem their money. That news, amid the financial crisis in September 2008, sent shock waves through the money-fund industry.

About $39.7 million remains in Yield Plus fund, most of it set aside by the fund’s trustees to cover potential claims and fees.

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