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Category Archives: Bond Losses

The Main Street Natural Gas Bond Debacle

The story of Main Street Natural Gas Bonds serves as an invaluable lesson on the Wall Street-Main Street connection. Marketed as a supposedly “safe” investment, Main Street Natural Gas Bonds have spurned a cadre of lawsuits from investors who allege that brokerage firms misrepresented the safety of the bonds and omitted other key material facts about them. 

Among those facts: The Main Street Natural Gas Bonds shared very little in common with the safety of traditional municipal bonds. That’s because the Main Street bonds were connected to a gas supply contract of Lehman Brothers Holdings. When Lehman Brothers filed for bankruptcy protection in September 2008, the fate of the bonds was immediately put into jeopardy because their “safety” depended on the fiscal viability of Lehman Brothers.

In turn, individual and institutional investors were subsequently wiped out after Lehman’s commodities unit stopped delivering gas to the nonprofit corporation. 

Many of the investors who purchased Main Street Natural Gas Bonds did so because they were looking for a safe, tax-free income-producing investment backed by a municipality. What they got was far different than what they had in mind. 

The Financial Industry Regulatory Authority (FINRA) has launched an investigation into whether banks and brokerages that sold various issues of Main Street Natural Gas Bonds were forthcoming with investors about the true state of Lehman Brothers’ deteriorating financial condition. 

“One interesting firm ran a bunch of senior citizens’ sales seminars where they promoted these particular bonds as good,” said Malcolm Northam, FINRA’s director of fixed income securities, in a Sept. 24 Bloomberg article. “Maybe they were, at the time they were promoted. I don’t know. It raises interesting questions.” 

It’s also raising lawsuits. One Florida investor sued a broker, claiming the Main Street bonds were falsely touted as general obligation bonds guaranteed by the state of Georgia. 

If you invested in Main Street Natural Gas Bonds, you may have a viable claim to recover any investment losses you suffered following Lehman’s bankruptcy. Please contact our firm to tell us your story.

Main Street Natural Gas Bonds Not Cooking For Investors

Main Street Natural Gas Bonds have proven to be an investor’s worst nightmare after they became subject to the bankruptcy of Lehman Brothers Holdings.

Marketed and sold by a number of brokerages as safe, conservative municipal bonds, Main Street Natural Gas Bonds actually were complex derivative securities backed by Lehman Brothers. When Lehman filed for bankruptcy protection in September 2008, the trading values of the Main Street bonds plummeted.

Many investors who put their money in Main Street Natural Gas Bonds have come forth with claims alleging they were never told that the viability of the Main Street investments was dependent on the viability of Lehman Brothers’ fiscal health. Investors didn’t know because they never received a prospectus on the bonds nor did their broker reveal the Lehman Brothers connection.

When a broker recommends an investment on behalf of a client, he has a legal obligation to adhere to that client’s specific investing objectives and risk tolerance levels. When this doesn’t happen, the broker has failed to uphold his fiduciary and due diligence duties.

If you were told Main Street Natural Gas Bonds were safe, low-risk municipal bonds, you may have a claim against the brokerage firm that sold the investment. Please contact our firm to tell your story.

Yield Plus Losses Result In Charles Schwab Lawsuit

Yield Plus and the words, Charles Schwab lawsuit, are becoming one and the same these days. Hundreds of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA) over charges the San Francisco brokerage made false and misleading statements about the Yield Plus Funds and the extent to which investments were made in high-risk, speculative mortgage-backed securities.

Last week, Charles Schwab announced it had received a Wells notice from the Securities and Exchange Commission (SEC), in which the regulator outlined plans to recommend civil enforcement charges against the company over two Schwab bond funds.

Adding to the Schwab’s legal troubles: In August, a federal court in San Francisco certified a class action lawsuit on behalf of about 250,000 Yield Plus shareholders.

The Schwab Yield Plus Funds – the Schwab Yield Plus Funds Investor Shares (SWYSX) and the Schwab Yield Plus Funds Select Shares (SWYPX) – were initially offered as an safe, conservative investment alternative to money market accounts. Contrary to those representations, however, Schwab managers invested more than 45% of the funds’ assets in the mortgage industry. When the housing market crashed, so, too, did the value of the funds.

In May 2007, Yield Plus had more than $13 billion in assets. By March 2008, it was down to $2.5 billion. Today it has about $210 million.

Our lawyers are actively advising individual and institutional investors concerning the Schwab Yield Plus Funds. We have created an alliance with other experienced securities arbitration lawyers. Learn more about your  Schwab Yield Plus Funds. Tell us about your Schwab Yield Plus investments by leaving a message in the comment box, or the Contact Us page. We will counsel you on your options.

Schwab YieldPlus Funds Hit With SEC Warning

A warning from the Securities and Exchange Commission (SEC) in the form of a Wells Notice could have a direct impact on how Charles Schwab addresses current and future lawsuits and arbitration claims by investors who suffered losses in the  Schwab YieldPlus Funds.

The San Francisco-based brokerage acknowledged earlier this week that it had received the SEC’s Well Notice, which outlined possible civil enforcement actions against Schwab Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the president of the YieldPlus funds for alleged violations of securities laws in connection to the two fixed-income mutual funds.

Companies that receive Well Notices are given a chance to respond to the SEC’s allegations before the commission decides whether to approve an enforcement action. The notice is not a formal allegation or finding of wrongdoing.

On Aug. 21, a California federal court certified an investor lawsuit involving the YieldPlus Fund Select Shares and YieldPlus Investor Shares as a class action. As reported Oct. 15 in an article by Investment News, the Oct. 14 Wells Notice plus other various supporting documents could very well serve as a road map for the class action lawsuit, which some analysts and attorneys contend dwarfs individual arbitrations by hundreds of millions, if not billions, of dollars.

Regardless of the outcome of the SEC’s investigation, Schwab YieldPlus investors are under a tight deadline to decide whether to stay in the class-action lawsuit or “opt out” if they wish to file an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA). (Individuals are generally in a class action unless they formally ask to be excluded.)

The deadline to submit opt-out requests is Monday Dec. 28, 2009. In addition, investors must:

•Provide a written statement requesting exclusion from the Schwab YieldPlus class-action lawsuit;
•Sign and date the request and include your mailing address; and
•Ensure the written request is received by the Notice Administrator no later than Dec. 28, 2009. The address to mail the opt-out request is: Schwab Corp. Secs. Litigation Exclusion, c/o Gilardi & Co. LLC, P.O. Box 808061, Petaluma, CA 94975-8061.

Between Sept. 1 and Oct. 1, the date on which the most current available decision with FINRA is posted, Schwab has lost seven out of 10 YieldPlus FINRA arbitration cases, according to the Investment News article.

We are very interested in your situation with Schwab YieldPlus. Leave us a message in the comment box or the Contact Us form. We want to counsel you on your legal options.

FINRA Rules Against Charles Schwab In YieldPlus Claim

A Financial Industry Regulatory Authority (FINRA) arbitration panel in Reno, Nevada, has ruled in favor of investors and their claim against Charles Schwab (SCHW) for financial losses suffered in the Charles Schwab YieldPlus Funds. In ruling against San Francisco-based Schwab, FINRA awarded Raymond and Elsie Kelly $74,430 plus interest, as well as $25,650 for attorney fees. In addition, FINRA assessed the entire costs of the arbitration proceeding – $5,250 – against Charles Schwab.

“Although Charles Schwab recommended the purchase of the Schwab YieldPlus Fund Select Shares (SWYSX) and the Schwab YieldPlus Investor Shares (SWYPX) as safe, conservative cash alternatives to investors, the evidence presented in this case clearly establishes that the funds were over concentrated in high risk, speculative mortgage-backed securities,” said the Kellys’ attorney Thomas Hargett of Maddox Hargett & Caruso, P.C.

Specifically, the Kellys’ arbitration claim (FINRA Case No. 08-02307) alleged that Charles Schwab marketed and sold the Schwab YieldPlus Funds as a conservative investment alternative to money market funds. In addition, the YieldPlus Funds supposedly offered a higher return potential with only marginally higher risks. In reality, the Schwab YieldPlus Funds held large concentrations of toxic subprime-related assets and other speculative products.

From June 2007 through June 2008, investors in the YieldPlus Funds lost 31.7%, while other ultra short bond funds experienced little or no losses.

Morgan Keegan Tries To Vacate Recent Arbitration Awards

Morgan Keegan & Co., the Memphis-based brokerage firm owned by Regions Financial Corp., is facing hundreds of arbitration claims by investors who lost billions of dollars in seven RMK mutual funds that made risky investments in mortgage-related securities. Now Morgan Keegan is asking a Birmingham court to overturn several recent arbitration awards that ruled in favor of investors and their claims against the troubled brokerage.

Morgan Keegan filed its most recent motion to vacate on July 22 over a $220,000 award. According to an Aug. 4 story in the Wall Street Journal, Morgan Keegan is basing its appeal on the fact that the arbitration panel chairman should have been removed from the panel because he resided on a prior arbitration panel that also ruled against Morgan Keegan. 

In another appeal filed in May, Morgan Keegan asked the court to vacate a $628,000-plus award. In that appeal, Morgan Keegan accuses arbitrators of misconduct for not postponing a hearing during which the investors presented suitability claims. The investors, Morgan Keegan says, had “disavowed” such claims. 

A third motion to vacate also was filed in May in which Morgan Keegan accused an arbitration panel of exceeding its authority by awarding more than $187,000 in damages, attorneys fees and costs. Steven B. Caruso, a New York attorney with Maddox Hargett & Caruso, represents the investor in that case.

Arbitration appeals are considered unusual and difficult to win. Moreover, the strategy always comes with a price tag.

“Who pays for it?,” asks Caruso in the Wall Street Journal article. “The shareholders of Regions Financial.”

Morgan Keegan Wells Notice Could Be A Good Sign For Investor Claims

The possibility that Morgan Keegan will face civil charges from the Securities and Exchange Commission (SEC) is welcome news for thousands of investors who have filed arbitration claims against the Memphis-based brokerage for losses in a group of collapsed bond funds.  

Regions Financial Corp., the parent company of Morgan Keegan, announced in early July it had received a Wells Notice from the SEC for possible violations of securities laws involving certain mutual funds. The SEC sends a Well Notice to people or firms as a way to formally alert them to the possibility that enforcement action will be brought against them.  

For investors, the Wells Notice could be a boon to their legal cases against Morgan Keegan. According to a July 31 article in the Wall Street Journal, securities arbitrators may now be more inclined to order Morgan Keegan to provide investors with copies of certain documents that could assist in their claims. 

“That notification has to influence arbitrations when the issue of discovery of regulatory documents comes up,” said Steven Caruso, a New York-based attorney with Maddox Hargett & Caruso, in the Wall Street Journal 

Even though the Wells Notice did not specifically name the funds in question, the SEC said they were managed by Morgan Asset Management Inc., which is part of Morgan Keegan. Seven former Morgan Keegan funds suffered massive financial losses in 2007 and 2008 because of their exposure to risky subprime securities and even more risky collateralized debt obligations. 

Between March 31, 2007, and March 31, 2008, losses in the RMK funds totaled more than $2 billion. 

In July 2008, Regions transferred management of several of the RMK funds in question to New York-based Hyperion Brookfield Asset Management.

Morgan Keegan The Target Of Possible SEC Lawsuit

Already facing hundreds of arbitration claims and lawsuits over a group of collapsed mutual bond funds, Morgan Keegan & Company is now the subject of Well Notice by the Securities and Exchange Commission (SEC). The notice typically signals the likelihood that the SEC could file civil charges in the near future for possible violations of federal securities laws. 

As reported July 16 by the Memphis Daily News, Morgan Keegan’s parent company, Regions Financial Corp., disclosed in a regulatory filing on July 15 that its investment subsidiary, Morgan Asset Management and three unidentified employees received a Wells Notice from the SEC last week.

“We knew it was just a matter of time before the SEC and probably other state regulators (brought) the hammer down,” said Indianapolis attorney Mark Maddox, in the Memphis Daily News article. Maddox is one of dozens of attorneys across the country who has won arbitration cases against Morgan Keegan in the past year for investor losses connected to the mutual funds.

The claims against Morgan Keegan involve at least seven bond funds (collectively known as the “RMK Funds”) that the Memphis-based company formerly managed and which plummeted in value because of the underlying investments made by Morgan Keegan. The investments included untested types of subprime mortgage securities, collateral debt obligations (CDOs) and other risky debt instruments. Losses in the funds entailed more than $2 billion between March 31, 2007, and March 31, 2008.

Meanwhile, investors in the RMK funds say Morgan Keegan misrepresented the funds as corporate bonds and preferred stocks, giving them the illusion of diversification and low risk levels. 

FINRA Tells Brokers To Revisit Selling Tactics Of 529 College Savings Plans

Stock brokers and brokerage firms are being warned by the Financial Industry Regulatory Authority (FINRA) to rethink their selling strategies of 529 college savings plans.  At a recent compliance meeting in Florida, FINRA reportedly urged the brokerage community to step up its due diligence of 529 plans, as well as assume responsibility to watch over money managers associated with the plans.

In recent months, 529 plans across the country have faced increased scrutiny from state and federal regulators. In April, Oregon sued OppenheimerFunds, charging the money manager of understating the risks it took with a fund in Oregon’s college-savings plan. The fund was the Oppenheimer Core Bond Fund, and Oregon is suing OppenheimerFunds for losses totaling $36 million. 

The Oppenheimer Core Bond fund lost 36% in 2008, compared with the benchmark index, the Barclays Capital Aggregate Bond index, which rose 5.3%.

Five other states – Illinois, Maine, Nebraska, New Mexico and Texas – currently are investigating whether OppenheimerFunds breached its fiduciary duty to investors in state-sponsored 529 plans when it failed to disclose the fund’s exposure to risky mortgage-backed securities and derivatives.  In June, the Illinois treasurer’s office announced a tentative agreement to recoup $77 million from OppenheimerFunds. All five states are in talks with the company, according to a July 9 story in Pensions & Investments

A More Investor-Friendly FINRA Arbitration Process

Tumultuous upheaval in the financial markets has led to a rash of arbitration claims from retail and institutional investors on charges their financial advisors and brokerages misrepresented the risk levels of certain investment products. Some of the central players in these claims: Morgan Keegan & Company and Charles Schwab.

In the case of Memphis-based brokerage Morgan Keegan, investor complaints involve a group high-yield bond funds that the company allegedly marketed and sold as conservative investment options – products designed to provide high yields without excessive credit risks. Instead, the RMK funds made large investments in illiquid and toxic securities, including asset- and mortgage-backed securities and collateral debt obligations (CDOs).

Other funds responsible for the influx of arbitration claims include Charles Schwab & Co.’s YieldPlus funds. 

For more than a year now, investors nationwide have complained to the Financial Industry Regulatory Authority (FINRA), as well as the Securities and Exchange Commission (SEC), that Charles Schwab represented the YieldPlus funds as investments similar to money-market funds, while failing to disclose the fact they held large concentrations of toxic products like mortgage-backed securities. Ultimately, these holdings caused the YieldPlus funds to lose up to 80% of their value.

As reported July 6 by the Wall Street Journal, aggrieved individuals who do file claims with FINRA for their investment losses are likely to experience a more “investor-friendly” process than in the past because of recent changes to how an arbitration hearing is conducted and the composition of the arbitration panel.

Specifically, FINRA launched a pilot program in October 2008 that allows 276 cases against 11 participating brokerage firms to be heard annually by an all-public, three-person panel versus having one of the panel members associated with the securities industry. The program is a win for investor advocates, who contend having an industry-affiliated arbitrator reside on an arbitration panel not only can create bias but also sway other panel members against the investor.


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