Recent volatility in the financial markets have caused several investment banks, insurance companies, and government sponsored enterprises, such as Fannie Mae, Freddie Mac, Merrill Lynch, Bear Stearns, and AIG, to come to the brink of destruction before government bailouts. Similarly, Lehman Brothers was recently forced into bankruptcy. Investors holding securities involving the financial sector, including common stock, preferred stock, and fixed income, suffered significant declines in the security’s value.
FINRA (f/k/a NASD), the Financial Industry Regulatory Authority, requires financial advisers to make suitable, or appropriate, recommendations to their customers. These recommendations should be based on an individual’s risk tolerance, investment objectives, and financial situation. The “know your customer” rules require financial advisors to diversify an investor’s portfolio across multiple industry sectors. Diversification across multiple sectors reduces volatility and prevents significant losses due to concentration in one sector of the economy. Portfolios that were exposed to the financial sector without adequate diversification have experienced unwarranted losses.
Financial Advisors who have recommended unsuitable concentration in the financial sector have caused unnecessary financial loss in their clients’ portfolios. The recommendation and sale of unsuitable investments constitutes securities fraud and, if it caused a financial loss, may be the basis for a securities fraud claim. Levin, Papantonio, Thomas, Mitchel, Rafferty & Proctor, P.A. is currently accepting securities fraud claims due to concentrated positions in the financial sector. If your investments lost significant value due to concentrated exposure in the financial sector, contact Peter Mougey for a free consultation.
For more information on our firm, please visit our main website at www.levinlaw.com
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.
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.
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.
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.
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.
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.