Securities Fraud & Unsuitable Investments

FINRA Fines Three New York Based Broker-Dealers For Mischaracterizing Customer Fees

September 8, 2011 | Malecki Law Team

New York securities law saw quite the news day, as the Financial Industry Regulatory Authority (FINRA) issued a news release on September 7, 2011 announcing fines against five Broker-Dealers, three of them based in New York, for mischaracterizing fees charged to customers. The three New York based firms were John Thomas Financial of New York, NY, A&F Financial Securities, Inc. of Syosset, NY and Salomon Whitney, LLC of Babylon Village, NY. FINRA alleged that the firms understated commissions but charged additional handling fees to make up transaction based income for the firm. FINRA found that by structuring their fees this way, the firms ended up charging fees significantly higher than the actual cost of the services the firms provided.

In making their findings, FINRA reiterated that broker-dealers must accurately disclose commissions earned. By settling these charges with FINRA, the firms did not admit or deny wrongdoing, but they did consent to the entry of FINRA’s findings and also agreed to implement actions sufficient to remedy the handling-fees violations.

Such mischaracterization of handling-fees is one example of how broker-dealers can put their own interests ahead of the interests of their clients, and represent what is essentially securities fraud. If you held an account with one of these firms or you think your broker-dealer may have charged fees in excess of what they disclosed to you, your entire portfolio may need a thorough review for suitability.

Is my account down because of the market, or is it something else?

September 2, 2011 | Malecki Law Team

In rough economic times such as these, many investors have seen their accounts suffer large losses. As New York securities lawyers, we’ve seen some investors’ accounts lose 25-50% over the course of a few months or years, while others have seen their accounts lose such large amounts seemingly overnight. A large drop in account value is unsettling for every investor, but for those nearing retirement or senior citizens living off their savings, large losses are extremely alarming and can be devestating. Regardless of their age or situation, investors who have suffered large losses often find themselves asking the same questions, “Is my account down because of the market, or is it something else?”

Investors who are approaching retirement or who are already retired are typically risk-averse – i.e. willing to accept lower returns to avoid the possibility of devastating losses. However, many of these investors find themselves being sold on “sure thing,” “big winner,” “can’t lose,” and “have your cake and eat it too” investment strategies that seem, and in fact are, too good to be true. Those who buy into these false promises can find themselves unknowingly invested in products and strategies that are much riskier than what they wanted, and most importantly, what they should have been invested in. Unfortunately, good times in the market can hide these risks from the average investor. It is not until a downswing in the market that these risks come to light, often taking the form of large, unexpected and crippling losses.

Many people who want to invest seek out professional guidance in handling their savings and their investments because they feel safer in the hands of professionals whom they trust and whom they believe are looking out for their best interests. Unfortunately, this trust can be abused and investors often find themselves in accounts that are not suitable for their financial needs and the amount of risk they are willing to take with their investments.

Malecki Law Announces Investigation of IRA Services Trust Company and Fiserv, Inc. Arising Out of Investments with the Van Zandt Agency

August 25, 2011 | Malecki Law Team

Malecki Law, a New York securities law firm based in Manhattan, is currently investigating claims against IRA Services Trust Company and Fiserv, Inc. arising out of investments solicited and promissory notes issued through the Van Zandt Agency in relation to real estate investments in the Bronx, New York and elsewhere.

The Attorney General of the State of New York is currently investigating the practices of the Van Zandts and on April 6, 2011, filed an application in the Supreme Court of the State of New York for an order of discovery and preliminary injunction against the Van Zandts and other related agencies.

Based on the initial inquiry of the securities fraud lawyers of Malecki Law and the Attorney General’s investigation, there are questions about whether or not the Van Zandt Agency broke the law by engaging in the fraudulent issuance, promotion offer and sale of securities to the public in the State of New York. It is believed that hundreds and possibly thousands of investors may have lost money invested with the Van Zandts.

FINRA Issues Regulatory Notice 11-39 to Address Business Use of Social Media Websites

August 23, 2011 | Malecki Law Team

The talk among New York securities lawyers this week was all about the Financial Industry Regulatory Authority (FINRA) release of Regulatory Notice 11-39 addressing business use of social media website in the wake of surging popularity of social media tools such as Facebook and Google+. These social media tools make connecting with friends, colleagues and third-parties easy, but also raise novel questions related to the extent to which associated persons may use these sites for business use and registered principals must supervise such use.

Securities Exchange Act Rule 17a-4(b)(4), which requires the retention of copies of communications between members, brokers or dealers and the public of “business as such,” underlies Regulatory Notice 11-39. Thus, a firm’s or an associated person’s communications with the public through social media posts may require pre-approval by the firm and/or registered principal, and be subject to regulation by FINRA, depending on whether the communication is related to the firm’s “business as such” and is “static” as opposed to “interactive.” Generally, all communications related to a firm’s business as such must be recorded and preserved, while all static posting is deemed an advertisement requiring the firm’s pre-approval under NASD Rule 2210.

Regulatory Notice 11-39 begins to address the grey area of posting to message boards. Associated persons, be they advertising in the first place or responding to questions via such message boards, are limited to what they can say and claim. Thus, postings in static forums or blogs on websites would require pre-approval of all statements made relating to the firm’s business.

FINRA Warns Investors to Watch Out For Hot Investments

July 26, 2011 | Malecki Law Team

FINRA issued a warning to investors yesterday to about the risks of seeking higher yield with structured products, junk bonds and floating-rate bank-loan funds. It is a reality of New York securities law that with fixed income yields at historic lows, many investors who want to avoid the volatility of the stock market have found themselves with seemingly nowhere to go.

Many of these investors have found themselves lured in by structured products promising of higher yield with “principal protection” or junk bond funds promising higher yield with “professional management”. FINRA reports that there have been significant increases in sales of high-yield bond funds, floating rate funds and structured products. These products have seen more than $100 billion in increased sales since interest rates fell.

However, average investors often don’t look into or have trouble understanding the risks and fees associated with these investments. Investors typically only focus on the higher returns that these investments offer but should also be aware that these products typically have higher risks and fees associated with them.

Embedded Regulators Increase Wall Street Enforcement Efforts

June 24, 2011 | Jenice L. Malecki, Esq.

William S. Burroughs famously said “Sometimes paranoia’s just having all the facts.”

And the fact of the matter is in today’s regulatory environment you might be surrounded by regulators in the elevator, as the Wall Street Journal so aptly put it. Our New York Securities Lawyers understand the added pressure faced by many banks and investment companies in the wake of the economic collapse. In true government fashion, the increased scrutiny does not necessarily mean increased training or increased resources. Instead, it’s just as likely to mean “rush to judgment.” As an employee, it’s more important than ever to keep proper documentation, to avoid shortcuts, and to not give in to pressure.For investors weary of the seemingly weekly stories about Ponzi schemes and cases of securities fraud in New York and elsewhere, increased regulatory enforcement is a step in the right direction. However, possible conflict-of-interests continue to exist, as evidenced by the often cozy relationship between regulators and their charges. Restrictions are needed to prevent investigators from taking high-paying jobs from the very people they have been charged with regulating.

The Journal reports the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency are increasing the number of examiners who go to work every day for the companies they regulate. Such regulators embed themselves at companies like Bank of America and Goldman Sachs Group.

HSBC Pays $62.5 Million to Settle Allegations of Securities Fraud in New York

June 9, 2011 | Jenice L. Malecki, Esq.

New York securities lawyers are taking notice at the decision rendered to have HSBC pay $62.5 million in a class-action lawsuit claiming the bank was negligent as the custodian of client money lost in Bernie Madoff’s investment scam, according to Erik Larson and Linda Sandler’s article “HSBC Agrees to Pay $62.5 Million to End Madoff Civil Case” in Bloomberg’s Businessweek.

The civil securities fraud claim in New York was filed against HSBC and other defendants by investors in the Ireland-based Thema International Fund Plc. HSBC admitted no wrongdoing as a result of the settlement.New York securities attorneys have seen a slew of cases alleging investment fraud since the beginning of the economic downturn. Of course, the Madoff scandal has made international news. But there have been hundreds of others involving securities, real estate investments and other investment vehicles. In many cases, people simply made bad investments or were caught holding an investment when the bottom fell out of the market.

In other cases, mid-level executives are facing allegations of failure to supervise, failure to execute or breach of fiduciary duty. In all cases, the best defense is to bring in a New York securities law firm as early as possible once allegations have been made or an investigation has been initiated.

Goldman Sachs Pays $10 Million to Settle Allegations of Questionable Investor Relations

June 9, 2011 | Jenice L. Malecki, Esq.

Goldman Sachs Group Inc. will pay $10 million after Massachusetts securities regulators contended its “research huddles” were dishonest and unethical, according to a Wall Street Journal article “Goldman Fined $10 Mln By Massachusetts Over Research ‘Huddles'” by Liz Moyer that has New York securities lawyers singing the court’s praises.

The state said the “huddles,” which included communications between top analysts and top clients, gave special access, information and tips to select clients, which other clients did not receive. Goldman admitted no wrongdoing; investigations by the Securities and Exchange Commission and the Financial Industry Regulatory Authority are ongoing.New York securities attorneys note the increasing number of investigations into the advice investment firms are doling out in the wake of the economic collapse; some have been accused of touting the safety of real estate securities even as they were moving top clients and funds out of real-estate-backed products.

An experienced law firm should be brought in to handle audits and investigations in New York at the earliest possible stages of such cases. In many cases, how you handle requests for information and respond to investigative entities — both formally and informally — can have a dramatic effect on the outcome of your case. As Peter Henning at the New York Times recently reported in “Zealous Advocacy vs. Obstructive Conduct”, there can be a fine line between zealous advocacy and obstruction — a fact both executives and their attorneys must always be aware. At the same time, you need a law firm with the knowledge, experience and resources to stand up for your rights — not to cave to government intimidation.

Outrageous ETFs: Not Appropriate for All Investors

June 7, 2011 | Malecki Law Team

Forbes.com recently published an article entitled “The 15 Most Outrageous ETFs“. The article highlights the explosion in the Exchange Traded Fund (“ETF”) market and the growing trends in ETF development: the kinds of funds that have New York securities attorneys up in arms.

Since 2006, over 900 new ETFs have been launched. These funds utilize various complex structured products and derivatives to help their performance track their target index. Many funds also employ various techniques to increase their returns, called “leveraging”. However, these techniques also increase the risk of these investments.

Some ETFs on the market today that employ leveraging include Direxion Daily Semiconductor Bull 3x Shares, Direxion Daily Financial Bull 3x, Direxion Daily Small Cap Bear 3x, and Direxion Daily Energy Bear 3x. While these funds promise to return three times the return of their target index, many fall short. For example, during a seven month period just this past year, the Direxion Daily Semiconductor Bull 3x ETF returned a loss of 6.25% despite a positive return of 5% on its target index.

Tourre/Goldman Sachs Face New York Securities Fraud Case with More Questions than Answers

June 3, 2011 | Jenice L. Malecki, Esq.

The New York securities fraud case against Fabrice Tourre stands out for a number of reasons — not the least of which is because he is the only person charged with connection with the sale of mortgage-backed securities, which were instrumental in the nation’s economic collapse. Now, evidence apparently found on a trashed laptop raises all kinds of legal and ethical issues.

As HuffPost Tech reports, it’s a cautionary tale that data never dies. To say nothing of the fact that the case creates a poster child for the worst way of disposing of old computers with sensitive information.But a New York Securities Lawyer would be quick to note that there is a big difference between what might be found in the trash — or published in the newspaper — and what makes it into a court of law. In this case, the computer was found in the trash and was still importing e-mails between Tourre and his attorney, as they discussed how to handle the criminal and civil accusations surrounding him. Such communications would also be protected under attorney-client privilege.

Editor and Publisher reports the New York Times has denied hacking Tourre’s e-mail account.