Monthly Archives: April 2014

Late last year, FINRA barred a former LPL broker for several industry rules violations relating to the sale of nontraded REITs from2009-2012. FINRA seems to be giving more regulatory attention to the improper sale of nontraded REITs, which permeated the industry from 2007-2011. Prior to last year, FINRA’s actions against brokers and firms were rare. As more investors have complained to regulators and filed arbitration cases about REITs, the regulators and the arbitration process have resulted in some restitution to them.

When investors have been mistreated by their stock broker, they often wonder about their options for recourse.  Among other options, investors can file an arbitration case with the Financial Industry Regulatory Authority (FINRA).  If an investor decides to file a FINRA arbitration case, however, most arbitration cases can last up to 18 months and will usually conclude with an in-person arbitration hearing in front of one or more arbitrators.

However, FINRA has another option for investors: filing a “simplified arbitration” case.  Simplified arbitration cases allow investors with damages of $50,000 or less the choice of having their case heard without a formal arbitration hearing.  Because simplified cases can be decided based on the paper submissions sent to the arbitrator, investors do not have to sit through a multi-day hearing or be cross-examined by the other side’s attorney.  Additionally, simplified arbitrations are usually decided in six to nine months, much quicker than formal arbitration cases.  While simplified arbitrations may not provide a good forum for all types of cases, they can be a good choice for some investors because they are significantly less burdensome (both in time and costs) than typical arbitration cases.

Maddox Hargett & Caruso has filed a number of simplified arbitrations on behalf of aggrieved investors.  If you have been wronged by your stock broker and are considering bring an arbitration case, please give us a call.

In an April 4, 2014 article in The Wall Street Journal (“The Great Life-Insurance Temptation”), customers are warned that they “could be in for a shock” as a result of the correlation between specific life insurance policies and the stock market.

The life insurance policies that are the focus of this article are the “variable universal life insurance” policy and the “indexed universal life insurance” policy.

A variable universal life insurance policy, often shortened to VUL, is a type of life insurance policy that purports to build cash value for the customer. Insurers typically offer a menu of investment options for these policies that often focus on stock and bond mutual-fund investments which, in a declining investment market, may not generate enough income to cover the annual fees.

A indexed universal life insurance policy is also a type of life insurance policy that is typically linked to stock market indexes such as the S&P 500 benchmark index. Insurers typically offer a cap on the maximum returns that can be earned through such policies while, at the same time, limiting their downside. Unfortunately, the value of these policies can still decline in value because of the fees and insurance charges that are associated with them.

As noted in the article, insurance agents and brokers can collect “rich commissions” for selling both types of policies which may provide a “powerful incentive” for the inappropriate promotion of both products. Furthermore, the marketing materials for these policies may “feature rosy projections of potential gains” that, based on historical stock market returns, do not “match reality.”

If you are an institutional or retail investor and believe you may have been misled regarding either a variable universal life or indexed universal life insurance policy, please contact us. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

The Securities and Exchange Commission is investigating a Wall Street boom in complicated bond deals. SEC investigators are looking at whether banks and companies are using the bond deals to hide certain risks illegally, said the people close to the probes. The probes could pose a new legal headache for banks, which have faced years of government investigations and large financial settlements involving their conduct leading up to the financial crisis. In previous investigations, the SEC primarily explored how the banks put the deals together. The new probes look at how these complex securities are being used and traded.

On March 24, 2014, an article in The Wall Street Journal (“SEC is Probing Dealings by Banks and Companies in Loan Securities”), disclosed that the Securities and Exchange Commission is investigating whether a Wall Street boom in complicated bond deals is creating new avenues for fraud.

According to the article, the SEC investigators are reportedly looking at whether banks and companies are using the bond deals to hide certain risks illegally and a parallel probe is focusing on how Wall Street banks sell the deals.

Both of these SEC investigations are homing in on a post-crisis resurgence in a type of deal called a collateralized loan obligation, or CLO, which is an investment based on pools of loans that financial firms make to companies with lower credit ratings that are sliced up, packaged and sold to deep-pocketed (and often unsuspecting) investors on the premise that they offer higher yields than other fixed-income investments tied to highly rated companies.

Sales of CLOs, which screeched to a halt in 2009, bounced back to $83 billion in the U.S. last year, according to S&P Capital IQ Leveraged Commentary & Data. So far this year, CLO issuance has reached $20.5 billion.

The probe is reportedly being led the “complex financial instruments” unit of the SEC which is the same SEC enforcement unit that spearheaded the agency’s financial-crisis CDO cases.

The SEC is also reportedly expanding its investigation into whether a number of Wall Street banks are cheating clients by mispricing certain bond deals, including bonds backed by residential mortgages, which often do not trade on a transparent market. The investment banks under scrutiny in that portion of the SEC’s investigation have been identified by The Wall Street Journal to include Barclays PLC, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Royal Bank of Scotland Group PLC and UBS AG.

In late March, Bank of America corp.  agreed to pay $9.5 Billion to settle claims that it issued bad loans to Fannie and Freddie during the housing boom, which contributed to the country’s financial crisis. Many investors were sold Fannie Mae preferred stock and/or Freddie Mac preferred stock in 2008 by many brokerage firms without realizing the precarious financial position of both companies. The Federal Housing Finance Agency, the agency that regulates both Fannie and Freddie, brought litigation against many of America’s largest banks, seeking compensation for the bad loans they originated. Many investors are pursuing their claims for losses in the Fannie and Freddie preferreds through FINRA arbitration.