Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The recent market volatility has exposed imprudent allocations in accounts that have resulted in significant losses to many investors. When asked about why account values have dropped, brokers often respond by blaming it on the market instead of recognizing that inappropriate allocations are actually to blame.
Oil and Gas Investment Schemes
Oil and gas investment scams are alive and well. High oil prices have created a heightened interest in investments in energy-related business ventures. Most oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations. However, as in many other investment opportunities, it is not unusual for unscrupulous promoters to attempt to take advantage of investors by engaging in fraudulent practices.
FANG Sector Losses – Facebook, Amazon, Netflix, Google parent Alphabet
October ended as one of the worst months since the 2008 financial crisis. The S&P 500 lost $1.91 trillion in October. Losses were spread widely across industry sectors. October was the worst month for the S&P 500 since September 2011. Big technology stocks — most well-known as FANG were among the hardest hit. Amazon ended the month down 20.2 percent, and Netflix ended down 19.3 percent. Investors fled both after earnings reports. Facebook and Alphabet finished October down 7.7 percent and 9.7 percent, respectively.
GPB Capital Holdings Losses
Aidikoff, Uhl & Bakhtiari is investigating the brokerage firms and sale practices regarding the sale of GBP Capital Holdings investments in high risk private placements. GPB Capital Holdings is a New York-based investment firm that offered nine different private placements: GPB Automotive Portfolio, LP; GPB Cold Storage LP; GPB Holdings, LP; GPB Holdings II, LP; GPB Holdings III, LP; GPB Holdings Qualified, LP; GPB NYC Development, LP; and GPB Waste Management Fund, LP.
Volatility Trade Losses - VIX, XIV, SVXY, ZIV, VMIN
In the last few years volatility has been the hottest trade on Wall Street. Banks have cobbled together investments linked to volatility in the stock market, these products have grown in size. Now with the most recent downturn in the markets investors face stiff losses as a result of a moment in the VIX.
LJM Preservation and Growth Fund Losses
LJM Partners, a Chicago-based hedge fund, suffered losses on spiking volatility, a trade that has claimed more than one scalp in the last few trading days. Their mutual fund, known as the LJM Preservation and Growth Fund, collapsed by 82 percent over the last week and was closed to new capital on Wednesday.
Timary Delorme and Wedbush Securities Inc.
It was announced by the Securities and Exchange Commission’s Division of Enforcement that Wedbush Securities, Inc. has instituted administrative proceedings pursuant to Section 15(b) of the Securities Exchange Act of 1934. The charges against Wedbush Securities Inc. are for failing to properly supervise employee Timary Delorme after the broker-dealer ignored numerous red flags indicating that Delorme was involved in a long-running pump-and-dump scheme targeting retail investors. Delorme agreed to settle fraud charges stemming from the same scheme.
The Woodbridge Group of Companies, LLC
Woodbridge Wealth, a California-based firm, sells structured financial products to investors, often through intermediary brokers. Woodbridge has reportedly raised over $1 billion by selling investors instruments known as First Position Commercial Mortgages (“FPCMs”). Woodbridge’s FPCM sales have resulted in certain actions and/or investigations by regulators, including state regulators in Pennsylvania, Michigan, Massachusetts, and Colorado, as well as the U.S. Securities and Exchange Commission (“SEC”).
Merrill Lynch Market-Linked Notes
Market-Linked Notes were recommended by Merrill Lynch financial advisors to customers as a stable source of income. In many instances, Market-Linked Note investments tracked oil prices, energy pipelines, or commodity baskets and have resulted in significant investor losses.
Master Limited Partnerships
Master limited partnerships, or MLPs, have become big business and more prevalent in investor portfolios over the past couple of years. They provide investor exposure to the growing oil and gas infrastructure of America, and they come with attractive distributions for investors seeking dividend income and capital flows.
Inland American – InvenTrust
Inland American, now InvenTrust, has been the largest issuer of non-traded REITs in the U.S. Non-traded REITs are not traded on a stock exchange. They have large up-front sales fees, and ongoing fees. Inland American’s executives have been sued for self-dealing. They allegedly paid excessive management fees to the company’s affiliated management company and sold their own stock at inflated prices.
Aequitas Capital Investigation
Recent news reports revealed that Aequitas, blaming “liquidity challenges”, cash flow issues, and a shortage of new investments, has failed to repay investors on schedule and has suspended any repayment of investors’ Aequitas private notes. These recent news reports also revealed sudden, massive layoffs by Aequitas, as well as investigations of Aequitas by the Securities and Exchange Commission and the federal Consumer Financial Protection Bureau.
Wells Fargo Growth Award
Wells Fargo developed and presented the Growth Award to its FAs in an effort to retain financial advisors leaving for competitors of Wells Fargo. Eligible FAs qualified for the Growth Award if they grew their revenue by 15% in at least one year during the performance period, which was the four-year period between January 1, 2012 and December 31, 2015. Aidikoff Uhl & Bakhtiari (“AUB”) and The Law Offices of Patrick R. Mahoney, P.C. (“PRM”) have teamed up to launch a comprehensive investigation of all issues surrounding Wells Fargo’s obligations to its financial advisors through its Growth Award program.
United Development Funding Investigation
Securities fraud class action lawsuits were recently filed on behalf of investors in United Development Funding IV ("UDF IV") who purchased UDF IV securities between June 4, 2014 and approximately December 10, 2015, inclusive. This follows after the Securities and Exchange Commission began its investigation into United Development Fund in 2014 and after famed hedge fund manager Kyle Bass, who predicted the 2008 subprime mortgage crisis, alleged on his website that UDF is using new investor money to pay existing investors, therefore perpetuating a Ponzi-like scheme.
Third Avenue Focused Credit Fund
Third Avenue Management LLC has parted ways with Chief Executive Officer David Barse after the collapse of the company's Focused Credit bond fund. The collapse of Third Avenue's Focused Credit Fund jolted Wall Street and renewed worries about the difficulty of trading securities on the U.S. bond market. The blow-up of the Focused Credit Fund was the biggest mutual fund failure since the financial crisis.
Morgan Stanley's Recommendations of Cobalt International Energy and Seadrill Ltd.
Aidikoff, Uhl & Bakhtiari is investigating potential claims of unsuitability and over-concentration relating to Morgan Stanley Smith Barney's recommendations of Cobalt International Energy and Seadrill Ltd. The share prices of Cobalt and Seadrill have dramatically dropped in the preceding months causing substantial monetary losses to holders of these stocks.
Wells Fargo’s High Pressure Sales Culture
On May 5, 2015 Los Angeles City Attorney Mike Feuer announced the filing of a lawsuit against Wells Fargo for allegedly opening unauthorized customer accounts. The lawsuit, filed by City Atty. Mike Feuer, alleged that the bank’s high-pressure sales culture set unrealistic quotas, spurring employees to engage in fraudulent conduct to keep their jobs and boost the company’s profits.
LPL Financial, LLC Non-Traded REITs
Aidikoff, Uhl & Bakhtiari announces the launch of an investigation of the sales practices of LPL Financial, LLC in recommending non-traded REITs to their clients. The investigation follows the recently filed complaint by the Commonwealth of Massachusetts Securities Division into similar non-traded REIT sales practices. The Massachusetts complaint charged LPL with dishonest and unethical business practices.
Many investors purchased Behringer Harvard REIT funds at the recommendation of their financial advisor. The Behringer Harvard funds were sold to customers as suitable low risk, fixed income investments. On August 23, 2012 reliable news sources reported that Behringer Harvard Strategic Opportunity Fund I and II would report catastrophic losses to investors.
Business Development Companies (BDCs)
The latest “hot” product being offered from Wall Street to Main Street investors is an investment in Business Development Companies (BDCs). Unfortunately, many financial advisors have pitched these products to their retail clients without having conducted the necessary due diligence on them or, of equal importance, without having an informed appreciation for the potential pitfalls of BDCs as their higher yields are typically also associated with significantly higher risks – many of which are being concealed from investors.
REITs - Real Estate Investment Trusts
With the collapse of the housing markets and real estate sector, REIT fraud has become more apparent. Investors are bringing claims against their brokerage firm or financial advisors that recommended unsuitable or fraudulent REITs that were Ponzi schemes or for failing to disclose the high fees and commissions associated with the sale of REIT investments.
LPL Financial terminates Houston based broker, James “Jeb” Bashaw
Former LPL Financial branch manager James “Jeb” Bashaw was fired on September 24, 2014 for several allegations, including participating in private securities transactions without providing written disclosure to and obtaining written approval from LPL Financial, according to his report on CRD (Central Registration Depository).
Municipal Fixed Income Investments Containing Puerto Rican Bonds
Aidikoff, Uhl & Bakhtiari is currently investigating certain municipal fixed income funds containing significant percentages of Puerto Rican bonds. The presence of these bonds in many mutual funds appears to have led the Secretary of the Commonwealth of Massachusetts to launch an investigation. According to the Wall Street Journal, Fidelity, UBS and Oppenheimer Funds received letters of inquiry from Massachusetts. It has also been reported that some Puerto Rican bonds have traded as low as 60 cents on the dollar and that funds such as the Oppenheimer Rochester Massachusetts fund may have concentrated fund assets as much as 26% in Puerto Rican bonds.
JP Morgan Chase's Sale of Proprietary Mutual Funds
After the 2008 financial crisis allegations have surfaced that JP Morgan Chase turned to ordinary investors to make up for profits lost by the bank. Some current and former brokers say it emphasized its sales over clients' needs. Financial advisers say they were encouraged, at times, to favor JPMorgan's own products even when competitors had better-performing or cheaper options.
Citigroup's Falcon, ASTA and MAT Hedge Funds
The decline of Citigroup's fixed income hedge funds has led to investor claims and an investigation of Citigroup, Inc. (NYSE: C) according to a four-law firm legal team with nationally recognized securities law experience.
Municipal Arbitrage Losses in 1861 Capital Management
1861 Capital Discovery Domestic Fund, LP was marketed and sold by UBS and other broker dealers as a safe, secure, and low-risk municipal bond portfolio complement. In truth, however, 1861 was a fund, better described as a leveraged municipal arbitrage fund. The 1861 fund was organized as a Delaware partnership whose purpose and investment strategy is to generate attractive returns through trading in municipal bonds, and in residual certificates of tender option bond trusts backed by municipal bonds along with the use of hedging strategies.
LaeRoc Fund Losses
The LaeRoc Income funds were sold as income producing having invested in underlying income producing properties in the western United States with a focus on Southern California. Some of the funds, including the LaeRoc 2002 Income Fund, L.P. appear to be dissolving. Others including LaeRoc 2005 Income Fund, L.P. have issued capital calls to the investors.
Brokerage firms and banks have been issuing and marketing complex investments known in the industry as "structured products” to individual investors. Among these structured investment products are "reverse convertibles," which are popular in part because of the high yields they offer. Also known as "revertible notes" or "reverse exchangeable securities", these instruments are sold under a variety of proprietary names that may or may not use the term "structured" to describe the product. Reverse convertibles are debt obligations of the issuer that are tied to the performance of an unrelated security or basket of securities. Although they are sometimes described as debt instruments, they are more complex than traditional bonds and involve elements of options trading. Reverse convertibles expose investors to heightened risks not associated with bonds.
DBSI Inc., an Idaho-based commercial real estate investment company, is facing questions from investors after becoming insolvent. DBSI based much of its business on Tenants in Common (TIC) investments. In 2003, the Internal Revenue Service (IRS) amended rules so that investors could avoid capital gains tax by investing proceeds from a property sale into TIC investments. TICs allow individuals to become fractional owners of a single property. Unlike other legitimate TIC investments, DBSI appears to have been involved in circumspect activities.
Medical Capital Holdings and Provident Asset Management
On July 16, the Securities and Exchange Commission charged Medical Capital Holdings Inc. of Tustin, Calif., with fraud in the sale of $77 million of private securities in the form of notes. The same day, the Financial Industry Regulatory Authority Inc. of New York and Washington sent a sweep letter to broker-dealers looking for details into the sale of the product.
On July 7, the SEC charged Provident Asset Management LLC of Dallas with operating a fraud and a Ponzi scheme in the sale of $485 million of preferred stock and limited partnership offerings in oil and gas deals.
Striker Petroleum, LLC
The Securities and Exchange Commission (SEC) has filed a complaint against Striker Petroleum, LLC and its principal operators, Mark Roberts and Christopher Pippin. The complaint alleges that Striker's offering materials contained misrepresentations regarding the use of investor capital, the existence of an independent third party trustee for Striker's collateral, and the actual earnings and asset valuations of the company. Striker's business model involved the acquisition of oil and gas properties with the goal of increasing production.
Charles Schwab YieldPlus Fund
Charles Schwab's YieldPlus fund was once marketed as a safe alternative to cash and was Schwab's most popular bond fund. But Schwab stuffed mortgage-backed securities into YieldPlus' portfolio to pump up performance and it turned toxic.
Lehman Brothers Principal Protected Notes
Lehman Brothers Principal Protected Notes were recommended as a safe fixed income component with downside risk protection. Structured notes - sometimes known as hybrid financial instruments - are packaged by banks and primarily sold to retail customers.
Auction Rate Securities
In late 2007 and early in 2008, investors who purchased auction-rate securities — in the form of preferred shares in closed-end mutual funds, or corporate or municipal bond instruments — are discovering that these securities are hardly the safe, liquid, slightly higher-yielding, tax-exempt alternative to money-market funds that they were marketed as. We are currently investigating the representations made by Wall Street brokerage firms on behalf of institutional and retail customers.
Morgan Keegan Bond Mutual Fund and Closed End Funds
As of December 31, 2007 Regions Morgan Keegan suffered losses as high as 65 percent of NAV for a one year period. Funds, including Regions Morgan Keegan Select Intermediate Bond Fund, Regions Morgan Keegan Select High Income Bond Fund and other affiliated closed end funds suffered losses as a result of portfolio manager Jim Kelsoe's subprime "intoxication."
Jefferson County Alabama Bond Failure
The credit crisis and the failure of auction rate securities have wreaked financial havoc to individual investors and communities across the country. Jefferson County, Alabama is at the top of that list.
Problems for Jefferson County, which has more than 650,000 residents and includes the state's largest city, Birmingham, began when county commissioners unsuccessfully tried to refinance $3.2 billion of sewer system debt. Approximately 3 years ago, Jefferson County, with the direct assistance of J.P. Morgan and other brokerage firms, began employing high risk interest rate swaps which are essentially derivative contracts that allow participants to trade exposure to floating rate and fixed debt. Jefferson County sought to lower their borrowing costs in repairing the county's sewer.
Bear Stearns Hedge Funds
In July 2007, the Bear Stearns High Grade Structured Credit Strategies and the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Fund announced catastrophic losses in Mortgage Backed Securities (MBS) trading.
Because there is little trading in the securities, current prices may not reflect the highest rate of mortgage delinquencies in MBS securities causing further write downs at the expense of investors.
TICs - Tenant In Common Investments
A Tenant in Common property (“TIC”) allows the seller of real estate to qualify for a 1031 tax free exchange of the property sold in exchange for an ownership interest in another investment property. Brokerage firms have begun selling fractional ownership interests in real estate to persons who have recently sold or are considering the sale of an appreciated piece of property as an alternative investment vehicle that preserves the tax free status of a property exchange.
State Street Bank and Trust Company and State Street Global Advisors, Inc.
Assets in State Street's five bond mutual funds were down sharply in 2007. As of October 2007 assets in the five funds suffered losses of 43% for 2007. The funds were marketed to institutional investors as safe, conservative investments. Investors in the funds included non-profit organizations, private and public sector pension funds and other instructional investors.
CSO Partners Hedge Fund
Citigroup has stopped investor redemptions in its London based hedge fund, CSO Partners. An alliance of securities law firms is representing institutional investors harmed by the subprime crisis and the collapse of mortgage backed securities.
The Fidelity Ultrashort Bond Fund (FUSFX)
The dismal state of Ultrashort bond funds has wreaked havoc on investors and created massive financial losses. Fidelity Ultra-Short Bond Fund, symbol: FUSFX is the subject of investigation, as well as lawsuits from investors who say the funds were marketed to them as safe investments that would provide "higher potential returns than money market funds, with only marginally higher risk." The fund has plummeted in value under the weight of securities backed by subprime mortgages.
Recent turmoil in the credit markets has begun to expose the lack of disclosure and in some cases misleading sales presentations made by brokerage firms to their customer regarding the sale of Mortgage Backed Securities (MBS) or Asset Backed Securities (ABS).
The Aravali Fund was recommended by Deutsche Bank and other brokerage firms to income oriented investors who also sought to preserve their capital.
Deutsche Bank told its clients that the Aravali Fund was a safe investment that purchased investment grade or highly rated municipal bonds and acted as a municipal bond replacement fund. The Aravali fund was in fact a highly speculative fund engaged in a complex arbitrage strategy which involved a significant short position in treasury bonds, interest rate swaps and a leveraged pool of municipal bonds.
Berkshire Resources, LLC
On June 8th, 2009, in Indiana, the Securities and Exchange Commission (SEC) filed a complaint against Berkshire Resources, LLC and its affiliates. The charges included violations of securities registration and broker-dealer registration. Berkshire offerings appear to have siphoned $15.5 million from investors.
CIT Group Inc. InterNotes
Bonds issued by recently bankrupt CIT Group Inc. have caught the attention of regulators. An investigation is being made regarding the representations made to investors regarding the risk associated with CIT's InterNotes. Investors who were sold this product may have been led into believing that such an investment was a suitable and stable investment, when the truth has shown CIT InterNotes to be anything but. Banks and brokerage firms who sold CIT InterNotes had a duty to their clients to accurately represent the risks associated with this investment and perform the due diligence necessary to ensure that such representations were correct prior to marketing them to investors.
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