Breaking News:
Taking Aim at the Brokers
October 19, 2009
Investors burned by brokers are getting a better shot at winning redress.
UBS Sold Unsuitable Lehman Securities, New Hampshire Alleges
June 4, 2009
UBS AG, Switzerland’s largest bank, recommended unsuitable investments to clients who bought securities underwritten by Lehman Brothers Holdings Inc., New Hampshire securities regulators said.
UBS Downgrades Lehman Bros. (LEH) to Neutral
March 17, 2009
Lehman Brothers Holdings Inc. (Lehman Brothers) serves the financial needs of corporations, governments and municipalities, institutional clients and high-net-worth individuals worldwide.
Pension boards set sights on Merrill Lynch
January 30, 2009
Two Pensacola pension funds are taking aim at Merrill Lynch for what they claim are millions of dollars in losses to employee retirement funds. The board of trustees of the Firefighters' Pension Fund has filed suit in U.S. District Court in Pensacola against the brokerage company and one of its former senior vice presidents. The board claims bad advice and conflicts of interest led to the plan losing more than $3 million over seven years.
Merrill Lynch Charged with Misleading Pension Clients
January 30, 2009
The Securities and Exchange Commission charged Merrill Lynch, Pierce, Fenner & Smith, Inc., along with former Merrill Lynch investment adviser representatives, Michael Callaway and Jeffrey Swanson, with securities laws violations associated with the firm’s pension consulting practices. The charges stem from the firm’s relationships with money managers hired to control portions of pension fund portfolios. Specifically, the firm misled pension consulting clients about its money manager selection process and failed to disclose conflicts of interest when recommending money managers.
Merrill Lynch neglected to inform its clients of arrangements whereby money managers were executing the majority of their trades through Merrill Lynch, allowing managers and advisers to increase fees at the cost of the pension plan. SEC officials noted that this case should remind all pension consulting businesses that they must disclose all material conflicts of interest to their advisory clients.
Bank of America Failed to Disclose Merrill’s Position
January 22, 2009
Bank of America executives recently revealed their failure to provide shareholders with complete information before their December vote to acquire Merrill Lynch. Specifically, company executives did not disclose the losses already sustained by Merrill Lynch prior to the merger. Since the transaction, Bank of America has received an assistance package from the government including a $20 billion infusion. On the news of its omissions and its $1.79 billion fourth quarter loss, Bank of America shares fell 45% in only five days.
Hyperion Changes Closed-End Fund Names and Symbols
December 18, 2008
Continuing the management transition for the Closed End Mutual Funds formerly managed by James Kelsoe, Hyperion Brookfield has announced several name and symbol changes. The RMK Advantage Income Fund (RMA) is now the Helios Advantage Income Fund (HAV). The RMK High Income Fund (RMH) is now the Helios High Income Fund (HIH). The RMK Multi-Sector High Income Fund (RHY) is now the Helios Multi-Sector High Income Fund (HMH). The RMK Strategic Income Fund (RSF) has also been changed to the Helios Strategic Income Fund (HSA). The name changes are designed to create a unified brand across all Hyperion Funds.
US Officially in Recession
December 1, 2008
The National Bureau of Economic Research announced that the US economy has officially been in recession since December 2007. The official announcement was a confirmation of what many Americans already knew. The confirmation triggered a 7.7% drop in the Dow Jones industrial average. Forecasters are predicting a prolonged recession that may set a postwar record for length.
Lehman CEO Terminated
November 5, 2008
Lehman Brothers announced that its Chief Executive Officer, Richard Fuld, will leave the company at the end of the year. Fuld, who made $34 million in 2007, will not receive any severance or bonus upon his departure. Fuld was the company’s CEO from 1993 until the bankruptcy when the restructuring officer took over operations. When Lehman declared bankruptcy, it listed $613 billion in liabilities.
Preferred Stocks Perform Worst
October 29, 2008
The Winans International Preferred Stock Index shows that preferred stocks have dropped 37% over the last two years. The loss has returned the index to its 1985 level and is much larger than the drop in the Dow Jones Corporate Bond Index. In the last year the index value has dropped nearly 27%. The loss in value illustrates the downside risk associated with these investments.
Research Shows Morgan Keegan Misrepresented Risk
October 27, 2008
A research paper by former SEC economist Dr. Craig McCann reveals that several RMK funds formerly managed by Morgan Asset Management claimed that many of the funds underlying securities were riskier than portrayed. Dr. McCann found that many of the funds’ recent losses were caused by low-quality, high risk, and obscure securities that the average investor would be unable to discern. McCann’s research found many of the underlying holdings in foreign markets. Dr. McCann’s funded the research effort internally.
US To Take Some Ownership of Banks
October 14, 2008
In the latest move by the federal government to ward off continuing economic trouble, the treasury announced a bank rescue plan that will purchase $250 billion in preferred bank stock. The move is intended to prevent a liquidity crisis by encouraging banks to make loans in hopes of preventing a liquidity crisis. The plan invests half of the $250 billion in the nine largest banks in the country and the other half is available to regional banks and any bank that receives government investment will have to agree to limit executive compensation. To further encourage liquidity, the Federal Reserve will also being buying commercial paper from companies with adequate credit ratings.
RMK Multi-Sector Receives Non-Compliance Notice
October 7, 2008
The RMK Multi-Sector High Income Fund, once managed by Jim Kelsoe, received notice from the New York Stock Exchange that it was not in compliance with the exchange’s requirement that a security maintain an average price above $1 over a thirty day period. The fund managers have six months to cure the price ‘deficiency’ and the fund will remain on the exchange throughout this period.
Bailout Plan Finalized
October 3, 2008
The House of Representatives voted in favor of the $700 billion bailout package, already approved by the Senate, which became law with the President’s signature. The bill authorized the Treasury to begin buying troubled securities and also raised the amount of savings per account insured by the Federal Deposit Insurance Corporation to $250,000 from $100,000. The legislation was constructed based on Treasury Secretary Henry Paulson and Fed Chairman Ben Bernake’s advice that the American economy was on the verge of collapse and that intervention was required to stabilize the financial markets.
U.S. Stock Futures Slide as Rescue Plan Stalls; WaMu Tumbles
September 26, 2008
U.S. stock-index futures tumbled after the government's $700 billion financial rescue plan stalled in Congress and Washington Mutual Inc. was seized in the largest bank failure in the nation's history.
AIG Bailed Out for $85 Billion
September 17, 2008
The Federal Reserve took action and purchased 80% of American Insurance Group, the nation's largest insurance company, in order to prevent the firm's collapse. AIG had previously earned attention for its $18 billion in losses in the last year. The company insures $441 billion in fixed income investments throughout the world and the Fed contends that failures related to those holdings would cause drastic repercussions throughout the financial markets. At the time of the takeover AIG shares were trading for a little above $2 a share, down from over $70 in October 2007.
Major Financial Institutions Tumble
September 15, 2008
The continuing financial crisis stemming from bad mortgages and real estate investments claimed two more major victims this past weekend. Lehman Brothers announced it would file for Chapter 11 bankruptcy in New York signaling the end of the company’s attempts to find a buyer. The filing marks the largest failure of an investment bank in nearly two decades.
Bank of America purchased Merrill Lynch for $50 billion as Merrill Lynch executives feared further repercussions in the financial markets following Lehman’s struggles. The $50 billion price tag represents a considerable drop in value for the investment bank that was estimated to be worth $100 billion in 2007.
Analysts are not convinced that the financial crisis has ended, and many are looking at AIG or Washington Mutual expecting further contractions.
Fannie Mae and Freddie Mac Placed in Conservatorship
September 7, 2008
The federal government announced a bailout plan for Fannie Mae and Freddie Mac, the government backed mortgage giants, that will place the companies into conservatorship, ideally protecting them from continued major losses due to continuing trouble in the mortgage markets. The arrangement, designed by Treasury Secretary Paulson, and similar to a bankruptcy, calls for reorganization and new management for both companies. Paulson stressed that the government rescue was necessary as a failure for either company could result in tumultuous markets throughout the world.
UBS General Counsel Resigns amid Probe
August 4, 2008
The General Counsel for UBS, David Aufhauser, quit his post at the Zurich-based investment bank. Aufhauser is one of seven executives mentioned by the lawsuit filed by the New York Attorney General on July 24. The suit alleges that the executives shed $21 million in personal auction rate security investments while the investment bank was promoting the products to individual investors.
Hyperion Brookfield Announces New Pricing Policies
August 1, 2008
Hyperion Brookfield, the new manager of several Regions Morgan Keegan Bond mutual funds, has announced new pricing policies. The company announced that fund holders will notice a drop in net asset values on July 31st reflecting the change in procedure. Hyperion Brookfield notes that additional pricing changes may be possible. The effected funds are the RMK Advantage Income Fund, the RMK High Income Fund, the RMK Multi-Sector High Income Fund, the RMK Strategic Income Fund, the Regions Morgan Keegan Select High Income fund, the Regions Morgan Keegan Select Short Term Bond Fund, and the Regions Morgan Keegan Select Intermediate Bond Fund.
Citigroup Subpoenaed in Continuing ARS Probe
August 1, 2008
Citigroup Inc. announced in an SEC filing that it has received subpoenas from state, federal, and industry regulators relating to sales of auction rate debt. Citigroup acted as the primary dealer for about $72 billion in auction rate securities, often buying unsold securities, until the market froze in February. Regulators in several states, including Massachusetts, New York, and Texas, are responding to complaints from individual investors who were sold auction debt as a suitable cash alternative.
House Financial Services Committee to Hold Auction Rate Security Hearing
July 31, 2008
House Financial Securities Committee chairman Barney Frank intends to ask auction rate security issuers, regulators, and investors to testify before his committee. The September 18 hearing will probe how the $330 billion auction rate securities market collapsed and how participating firms are compensating investors. UBS, Merrill Lynch, Bank of America, Wachovia, and Citigroup are all currently under investigation from state and federal regulators.
Merrill Lynch Accused of Fraud by Massachusetts
July 31, 2008
Massachusetts Secretary of State William Galvin is suing Merrill Lynch & Co. over its auction rate security practices. In a statement, Galvin said that the investment bank aggressively marketed the securities while encouraging research analysts to downplay the known risks in the market. Galvin noted that Merrill’s auction rate investors were the last to know about the trouble in the market. Merrill joins a host of other major investment banks charged with violations in their marketing and sales of auction rate securities.
UBS Adds $1 Million to Settlement to End AG Investigation
July 30, 2008
UBS will pay an additional $1 million to the State of Massachusetts on top of the $35 million it has already agreed to pay to municipalities and other authorities throughout the state. Massachusetts Attorney General Martha Coakley was pleased with the settlement noting that the primary goal was to refund cities and towns the money they had invested with UBS. The settlement closes the Massachusetts AG probe into whether UBS provided accurate guidance to municipal officials about whether auction rate securities were suitable.
Hyperion Brookfield Asset Management Assumes Control of Morgan Keegan Funds
July 29, 2008
After being hit hard by troubles in the mortgage and credit markets, several Regions Morgan Keegan mutual funds have changed their management. The RMK Advantage Income Fund, the RMK High Income Fund, the RMK Multi-Sector High Income Fund, the RMK Strategic Income Fund, the Regions Morgan Keegan Select High Income Fund, and the Regions Morgan Keegan Select Intermediate Bond Fund, previously managed by Morgan Asset Management will be managed by Hyperion Brookfield effective July 29.
Texas to Consider Suspending UBS
July 24, 2008
Securities regulators for the state of Texas have scheduled a September hearing to decide whether to suspend UBS AG’s broker-dealer and financial services divisions. Officials cite complaints from investors that the investment bank misrepresented or omitted key information when marketing and selling auction rate securities. The Texas State Securities Board is also considering administrative fines and cease and desist orders.
NY Attorney General Files Suit Against UBS
July 24, 2008
NY Attorney General Andrew Cuomo brought charges against UBS relating to its marketing of auction rate securities. Similar to the suit filed against UBS in Massachusetts, Cuomo alleges that UBS undertook an ‘aggressive marketing campaign’ to push auction rate bonds onto individual investors. The firm’s promotion of auction rate securities was called ‘fraudulent.’ Cuomo notes that even as the auction market began to crumble, UBS continued to sell the investments, and bank executives managed to shed some $21 million in personal holdings. The Attorney General also mentioned that the investment bank’s July 16 offer to buy back $3.5 billion in auction-rate preferred shares is insufficient.
Lawsuit Dropped Over Citigroup Falcon Tender Offer
July 23, 2008
Investors dropped a class action suit against Citigroup’s Falcon Strategies hedge fund that was seeking information on Citigroup’s offer to redeem Falcon shares. A U.S. District Judge rejected the investors’ bid to halt the investment bank’s repurchase offering. The Falcon fund has lost 80 percent of its value since its inception and investors who purchased shares at a $1 initial value have been offered redemptions at 45 cents per share. Those involved in the lawsuit sought more information on the redemption offer, claiming they could not value their holdings due to misleading and omitted information from Citigroup Alternative Investments in the offering memorandum. Despite the lawsuit, investors are still unable to determine the actual value of the shares they hold.
Regions Cuts Dividend
July 22, 2008
Regions Financial Corporation announced its plans to cut its dividend payment from 38 cents per share to 10 cents per share, a 74 percent reduction. The company says the steps were taken to save money and strengthen its capital ratios ‘after careful consideration of the effects of the current real estate credit cycle.’ Regions reported a net income of $206.4 million, a drop of nearly $250 million from the same quarter last year.
Investors Sue Bank of America for Auction Rate Security Practices
July 18, 2008
A class action lawsuit was filed against Bank of America concerning the firm’s marketing of auction rate securities. The suit, pending in Illinois, alleges that Bank of America failed to disclose the true nature of auction rate securities. Among other omissions, Bank of America did not tell investors that auction securities were not suitable cash alternatives, that any apparent liquidity was maintained by firms like Bank of America, and that the firm was planning to withdraw its support of periodic auctions. Bank of America joins several other major investment firms who improperly marketed auction rate securities to investors.
Wachovia Raided in Ongoing Auction Rate Securities Investigations
July 17, 2008
Wachovia's St. Louis corporate headquarters were searched by government officials as part of an ongoing examination of the company's sales, marketing, and internal evaluations of auction rate securities. It is estimated that $218 billion remain frozen in the auction market and Missouri officials have received over 70 complaints concerning frozen funds and the resulting inability to run businesses or pay tuitions. The team of regulators represented investigations from five states and served over a dozen subpoenas to Wachovia executives and agents.
Regions Bank Case Moves to Federal Court
July 11, 2008
In a move intended to delay justice, Defendant Regions Bank removed a securities fraud case filed by Levin Papantonio to a Louisiana Federal Court.
UBS Charged with Fraud for Sales of Auction Rate Securities
July 06, 2008
William Galvin, the Massachusetts Secretary of the Commonwealth, brought charges against UBS Securities LLC and UBS Financial Services Inc. accusing fraud and dishonest conduct. The charges relate to the financial company’s selling of auction rate securities to individual investors. The complaint specifically notices that UBS was clearing its own auction rate securities at the same time that it ramped up sales to its customers. Mr. Galvin released a statement saying that: “The game was fixed; only the customers were in the dark.”
The Massachusetts investigation uncovered a series of emails among UBS insiders stressing the importance of shedding the securities before they became illiquid. The global head of fixed income distribution, David Shulman, wrote an email in mid-December saying that “we need to move this paper and have to explore all angles possible…. We need to do this as quickly as possible.” The emails betray the bank’s priorities, namely protecting its own pockets at the expense of its customers.
Ex-Bear Stearns Fund Managers Indicted for Fraud
June 19, 2008
Two former Bear Stearns managers have been arrested in connection with the failure of a hedge fund that bet heavily on subprime mortgages.
Matthew Tannin was taken into custody outside his New Jersey home on Thursday, while Ralph Cioffi was arrested at his New York City home. They became the first executives to be criminally charged in the wake of the sub-prime market collapse. An FBI official strongly condemned the practice of the executives, saying they had "prostituted their client trust in order to salvage their personal wealth".
Since the beginning of March, over 400 people have been arrested in a Justice Department crackdown on US mortgage fraud in a sting dubbed "Operation Malicious Mortgage".
Citigroup Hedge Fund Manager Departs
May 21, 2008
Reaz Islam, a twelve year veteran of Citigroup, and the manager of the Falcon Hedge Funds, is leaving the firm. Citigroup did not give a reason, but undoubtedly the massive drops in the value of the Falcon and MAT Five Hedge Funds managed by Citigroup Alternative Investments spurned Mr. Islam’s departure. The Falcon funds have dropped in value by more than 75 percent.
Citigroup recently began marketing its hedge funds to individual investors advocating the funds’ stability and liquidity. Unfortunately, both the MAT Five and Falcon were highly leveraged funds with heavy concentrations in residential mortgages and other debt instruments. When subprime securities began failing, both funds’ value dropped dramatically, and Citigroup has since offered to bail investors out at prices considerably less than they paid.