Category Archives: Uncategorized

On April 30, 2020, the Financial Industry Regulatory Authority (FINRA) issued an a report (“Protecting Senior Investors 2015-2020, An Update on the FINRA Securities Helpline for Seniors, Other FINRA Initiatives and Member Firm Practices”), which highlighted the fact that seniors, who “make up an increasingly large share of the American population and hold higher levels of wealth than other generations,” are “an attractive target for financial exploitation, with evidence suggesting that such exploitation has been increasing in terms of both scope and magnitude.”

This report further noted the reality that “while seniors sometimes fall victim to financial exploitation by strangers, they are often exploited by individuals they know and trust”, such as family members, caregivers and financial professionals, and that “senior investors who are isolated or suffering from cognitive decline may be particularly vulnerable to harm.”

FINRA has “maintained a longstanding commitment to protecting senior investors and continues to work to address risks facing this investor population” as part of its regulatory mission.

This commitment is particularly noteworthy when it comes to suitability – the obligation to ensure that an investment is appropriate for an investor in view of his or her investment objectives, risk tolerance and investment profile.

Among the factors that FINRA advises firms should consider when it comes to suitability issues in the context of senior investors are “providing disclosure of additional risks or limiting products being marketed to senior investors; having a clear, up-to-date understanding of investment objectives as a customer nears or begins retirement (e.g., importance of generating income, preserving capital or accumulating assets for heirs); understanding a senior customer’s sources of income (e.g., whether the customer is living on a fixed income or anticipates doing so in the future); gaining an awareness of how much income a senior customer may need to meet fixed or anticipated expenses; asking about health care insurance and whether the customer may need to rely on investment assets for anticipated or unanticipated health costs; addressing additional concerns for senior investors, such as shortened time horizons, potentially decreased risk tolerance and additional significant liquidity needs; and if applicable, considering potential cognitive decline when making recommendations to senior investors, and making additional efforts to explain the features and risks of products.”

If you are a senior investor who has any concerns about your investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).

On April 16, 2020, the Financial Industry Regulatory Authority (FINRA) issued an alert which stated that “there is no higher priority for FINRA than protecting senior investors from financial exploitation. Thus, every year we bring dozens of enforcement actions against brokers who harm senior investors, either through fraud schemes, conversion, churning of accounts, or otherwise.”

In this alert, FINRA highlighted “one pattern we have seen with increasing frequency in which certain brokers have exploited their senior customers” – brokers who are “appointed beneficiaries, executors or trustees, or holding a similar position for customers.”

Being named a customer’s beneficiary, executor or trustee, or holding a power of attorney or a similar position for or on behalf of a customer may present significant conflicts of interest for investment professionals. Conflicts of interest can take many forms and can result in registered persons taking advantage of being named beneficiaries or holding positions of trust for personal monetary gain. Problematic arrangements may not become known to the member firm or customer’s beneficiaries or surviving family members for years. Senior investors who are isolated or suffering from cognitive decline are particularly vulnerable to harm.

As noted by FINRA, “at best these arrangements present potential conflicts of interest, at worst they provide the opportunity for massive financial exploitation of (often) vulnerable senior customers.”

To counter this increasing concern, FINRA has proposed a new rule limiting the circumstances under which a broker may be named a customer’s beneficiary, executor, or trustee or hold a power of attorney for a customer. If approved, this rule will create a new national standard to better protect investors.

If you are a senior investor who has any concerns about your investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).

If you have suffered investment losses in oil and gas bonds and stocks or other energy investments, you may be able to recover compensation.

For many years, brokers and investment advisors sold energy company bonds and other energy-related investments as safe, secure, and income generating investments for investors. In particular, brokers and investment advisors sold oil and gas bonds and stocks, master limited partnerships (MLPs) and exchange traded funds (ETFs) that invested in MLPs to seniors interested in generating income during their retirement years.

However, over the past few months as the price of oil has dropped, many investors have experienced substantial losses.

At Maddox Hargett & Caruso, P.C. , we represent individual and institutional investors who have suffered losses in oil, gas, and other energy bonds and stocks. If your broker or advisor is at fault, we can win appropriate compensation. The following are just some of the more common examples of issues leading to compensable energy investment losses:

Fraud and Investment Scams

Many oil and gas bonds and stocks and other energy investments are heavily marketed to individuals – and often to senior citizens. In many cases, brokers and advisors have promised significant yields with little risk based upon the stability of the energy companies backing the bonds. In many cases, these promises are either fraudulent or part of an outright investment scam.

However, recent events have shown that the energy sector is not immune to market volatility, and many investors in energy bonds have suffered significant losses. Yet, fraudsters, scam artists, and self-interested brokers continue to peddle these bonds as “low-risk, high-reward” investments.

Negligence

In some cases, brokers and advisors have led investors off course not intentionally, but as a result of negligence. The energy market is extraordinarily complex, and brokers and advisors who recommend bonds and other securities must make sure that they are knowledgeable about the risks involved. If you suffered losses in energy bonds or other energy investments, your broker or advisor may be to blame – and may be liable for the damage to your portfolio.

Over-Concentration

In some instances, brokers and investment advisors have recommended that individual investors – many of them retirees who rely on modest investment income to pay their bills – pour nearly their entire investment portfolios into oil and gas bonds and other energy-sector investments. This is a risky, even reckless, practice that puts investors at the mercy of the energy market.

Unsuitability

Even if an investor’s portfolio is not over-concentrated in the energy market, energy bonds still may not be suitable investments based upon the investor’s financial needs and investment goals. Brokers and investment advisors are required to recommend “suitable” investments based on these factors, as well as each individual investor’s personal tolerance for risk. With the volatility of the energy market, oil, gas, and other energy investments will not be suitable for many investors’ short- or long-term investment strategies.

Have You Lost Money in Energy Bonds?

With the volatility of the energy market – and the oil sector, in particular – many investors are continuing to suffer substantial losses in energy and oil-related bonds and stocks, MLPs and other investments. If you have suffered unexpected and unexplained losses in energy investments, it is important to seek legal help right away. At Maddox Hargett & Caruso, P.C., we offer free consultations to all harmed investors, and we do not charge any fees unless we win your case.

To find out if you may be entitled to recover your investment losses, please contact Mark Maddox for your free consultation. Call 317-598-2040 to discuss your situation today.

On April 3, 2020, in a research note to clients (“Navigating Credit Risks in the Midstream Sector”), Bank America – Merrill Lynch noted that the rating agency Standard & Poors believes that “over 40 producers” in the midstream energy sector “will be rated in the CCC category” and that it “sees potential for bankruptcies or defaults near-term” in the sector.

S&P expressed a concern “about commodity prices, storage limitations and shut-ins. S&P believes the solvency of producer customers in assessing midstream ratings is a relevant question given the potential for Chapter 11 or even Chapter 7 cases.”

As we have previously noted, the recent decline in valuations in the midstream and master limited partnership (MLP) energy sectors has been more rapid than during the 2008 financial crisis and the 2015-2016 energy market stress.

In fact, over a 45-day period since mid-February 2020, which is a typical market value exposure period for CEFs, the Alerian MLP index has decreased 69%, almost double its 37% decline during the worst 45-day period in 2008 and more than double the 30% decline in 2015-2016.

Master Limited Partnerships (MLPs) are pass-through entities structured as publicly traded partnerships (PTPs). MLPs pay no corporate-level taxes and taxes are instead paid at the individual unitholder level. In addition to avoiding double taxation, a portion of the cash distribution paid by an MLP is typically tax deferred at 50-100%. MLPs usually have a limited partner (LP) and general partner (GP). MLPs pay out the bulk of operating cash flows as distributions to LP and GP unitholders. Energy MLPs predominantly operate in the midstream energy sector including: transportation (pipelines), storage (terminals), gathering, processing, and other methods of handling natural gas, crude oil, and refined products. There are also other types of Energy MLPs engaged in oil and gas exploration and production (E&P), oilfield services and refining.

A number of energy MLPs have already been forced to deliver their balance sheets and have started to slash their amount of distributions. Just recently, for example, Plains All American Pipeline LP (NYSE-PAA) cut their May distribution to $0.18 from the $0.36 that it paid in February, Enable Midstream Partners LP (NYSE-ENBL) cut their May distribution to $0.16525 from the $0.3305 that it paid in February and DCP Midstream LP (NYSE-DCP) cut its May distribution to $0.39 from the $0.78 that it paid in February.

If you are an investor who has any concerns about your MLP investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).

On March 17, 2020, Fitch Ratings downgraded senior notes to ‘A’ from ‘AAA’ and preferred shares to ‘BBB’ from ‘AA or ‘A’ of 10 midstream energy closed-end funds (CEFs) following severe declines in portfolio values that eroded the funds’ asset coverage ratios. Fitch also placed all securities on Rating Watch Negative reflecting the potential for additional unrealized losses as a result of asset price declines and/or realized losses in the event the funds are required to sell further assets in order to deleverage.

The recent decline in valuations in the midstream and master limited partnership (MLP) energy sectors has been more rapid than during the 2008 financial crisis and the 2015-2016 energy market stress.

In fact, over a 45-day period since mid-February 2020, which is a typical market value exposure period for CEFs, the Alerian MLP index has decreased 69%, almost double its 37% decline during the worst 45-day period in 2008 and more than double the 30% decline in 2015-2016

Master Limited Partnerships are pass-through entities structured as publicly traded partnerships (PTPs). MLPs pay no corporate-level taxes and taxes are instead paid at the individual unitholder level. In addition to avoiding double taxation, a portion of the cash distribution paid by an MLP is typically tax deferred at 50-100%. MLPs usually have a limited partner (LP) and general partner (GP). MLPs pay out the bulk of operating cash flows as distributions to LP and GP unitholders. Energy MLPs predominantly operate in the midstream energy sector including: transportation (pipelines), storage (terminals), gathering, processing, and other methods of handling natural gas, crude oil, and refined products. There are also other types of Energy MLPs engaged in oil and gas exploration and production (E&P), oilfield services and refining.

As most MLPs are focused on a single industry or industry segment, investors have concentrated exposure to the volatility of that industry or segment. Changes in the price of commodities in that industry could impact the amount of income that an MLP generates or the ability of the MLP to maintain or expand its operations. Because most MLPs are currently in the energy sector, particularly in the pipeline or energy storage industries, MLPs can be acutely sensitive to shifts in oil and gas prices as have been recently experienced.

If you are an investor who has any concerns about your MLP investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).

As the Wall Street Journal noted this morning (‘Investors, Fearing Defaults, Rush Out of Junk Bonds’), “the specter of widespread corporate defaults in the coming months has caused a massive selloff in junk bonds around the world, as many debt-laden companies face the prospect of going weeks or months with virtually no revenue.”

In fact, “investment-grade ratings plunged at their fastest pace in history in March, money managers said, stunning investors and hitting levels that portend a deep recession with scores of company failures. While some junk-bond prices recovered slightly in recent days, investors say the broad declines – of about 20% this month alone – have been exacerbated by Wall Street’s reluctance to help cushion the market by stepping in to buy the bonds and risk getting stuck with them on their books.”

Just a few months ago, “the junk bond market was priced to perfection at the start of 2020. Risky companies were borrowing at near record-low rates relative to U.S. Treasury yields, the culmination of a years’ long reach for higher returns by investors world-wide. They poured cash into a range of risky assets, pushing returns down. Companies took advantage of the flood of money by issuing more non-investment-grade debt.”

According to the WSJ, “U.S. junk bonds are on average trading at about 81 cents on the dollar, after bouncing off recent lows of 79 cents, according to an ICE Bank of America index. In early March, the average price was close to 100 cents. More than 1,400 bonds – 43% of those tracked in an influential $2.1 trillion index of global junk bonds – are currently trading at what investors consider distressed levels, with yields that are more than 10 percentage points above those on risk-free U.S. Treasuries, according to a global ICE index. Less than three weeks ago, before the rout began, that number was below 450. The wide spreads indicate the market expects default rates to climb significantly.”

In fact, earlier this month, Moody’s Investors Service said that in a “pessimistic scenario,” close to 10% of speculative grade issuers could default.”

While “the Federal Reserve earlier this week said it would help support the markets for highly rated corporate, mortgage and municipal debt to alleviate market strains and unusual dislocations, junk bonds weren’t part of the package, meaning that segment of the market has little backstop.”

Perhaps this is the reason that “large and small investors have pulled tens of billions of dollars out of high-yield bond funds, forcing asset managers to liquidate their holdings and deepening the slide in prices.”

Recently a number of corporate bond funds took substantial hits to their prices. For example, during the 2 week period between March 6th and 20th, the Invesco Corporate Bond Fund (ACCBX) declined from $7.89 to $6.75 per share which equated to a 15% loss; the Pimco Investment Grade Credit Bond Fund (PBDAX) declined from $11.37 to $9.68 per share which equated to a 15% loss; the Fidelity Corporate Bond Fund (FCBFX) declined from $12.77 to $11.12 per share which equated to a 13% loss; and the Vanguard Intermediate Term Corporate Bond Index Fund (VICSX) declined from $25.61 to $22.80 per share which equated to an 11% loss.

Will Wall Street attempt to dump these bonds on investors who are seeking more potential income in these uncertain times?

If you are an investor who has any concerns about your bond investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).

As the Wall Street Journal noted this morning (‘The Oil Crash is Hitting this Investment Hard’), “the plunge in crude-oil prices is sending shock waves through closed-end funds tracking the energy sector, highlighting how the market turmoil is hitting products popular with ordinary investors seeking to boost returns during the long bull market.
Shares of the Goldman Sachs MLP and Energy Renaissance Fund have fallen 78% this month, while shares of the Kayne Anderson MLP/Midstream Investment Co. and the Kayne Anderson Midstream/Energy Fund Inc. have fallen 74%, respectively. Shares of the Tortoise Energy Infrastructure Corp. and the Tortoise Midstream Energy Fund Inc. have lost more than 80% of their value.

A closed-end fund is similar to a mutual fund, but its shares trade on an exchange. A professional manager oversees the fund’s holdings, deciding what to buy and sell. Unlike mutual funds, closed-end funds issue a fixed number of shares, after which capital rarely flows in or out of the fund. Also, unlike mutual funds, they tend to use leverage to juice their payouts – borrowing at short-term interest rates and investing the proceeds in longer-term securities that pay higher returns.
That is a tactic that makes them attractive to investors when things go well, but one that can also amplify losses when markets sour. There are laws that cap the funds’ leverage, so when the value of their underlying securities falls, they often need to reduce their leverage by selling assets, as they cannot easily raise capital by issuing new shares.

That is what is happening now: As crude prices have plummeted, hurting shares of energy companies and the market value of the funds’ holdings, several have been forced to reduce their leverage by selling securities. That has cut down on the amount of money available to pay investors, which likely will lead to funds cutting their distributions, asset managers say.”

Although all brokers and investment advisors have the obligation to ensure that any investments held in a customer’s account are suitable and appropriate for their customers based on their investment objectives and risk tolerance, when significant price declines are experienced and/or dividends/distributions are substantially reduced, what may have been an appropriate investment a few months ago may now be inherently unsuitable.

If you are an investor who has any concerns about your energy investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).

As volatile market conditions continue and seem to be accelerating on a daily basis, questions are being increasingly raised regarding the risks posed to investors and the relationship of margin to those risks.

Generally speaking, investors who sign a margin agreement can borrow up to 50% of the purchase price of marginable investments (the exact amount varies depending on the investment). Said another way, investors can use margin to purchase potentially double the amount of marginable stocks than they could using cash. In the same way that a bank can lend you money if you have equity in your house, your brokerage firm can lend you money against the value of certain stocks, bonds and mutual funds in your portfolio. That borrowed money is called a margin loan, and it can be used to purchase additional securities.

Each brokerage firm can define, within certain guidelines, which stocks, bonds and mutual funds are marginable. The list usually includes securities traded on the major U.S. stock exchanges that sell for at least $5 per share, though certain high-risk securities may be excluded. Also, keep in mind that you can’t borrow funds in retirement accounts or custodial accounts.

All investors must be aware that the sudden change in the market value of a security may result in an unexpected margin call and a customer’s failure to meet the call may cause the firm to liquidate the securities in his or her account. The financial consequences of a margin call or an account liquidation may be most severe to customers with accounts at retail brokerage firms in view of the fact that their accounts may be more likely to be subject to liquidation.

Although all brokers and investment advisors have the obligation to ensure that any account which is being traded on margin is suitable and appropriate for their customers based on their investment objectives and risk tolerance, investors must recognize the significant risks that are associated with margin accounts.

These risks, which must be fully explained by brokers and investment advisors – and understood by their clients – include the fact that: you can lose more money than you have invested; you may have to deposit additional cash or securities in your account on short notice to cover market losses; you may be forced to sell some or all of your securities when falling stock prices reduce the value of your securities; your brokerage firm may sell some or all of your securities without consulting you to pay off your margin loan; you may not be entitled to choose which securities your brokerage firm sells in your accounts to cover your margin loan; your brokerage firm may increase its margin requirements at any time and may not be required to provide you with advance notice of the increase; and you may not be entitled to an extension of time on a margin call.

If you are an investor who has any concerns about your margin account investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).

Publicly available records provided by the Financial Industry Regulatory Authority (FINRA) show Jaime Westenbarger was fired by Securities America in September 2019. It is believed that Jaime Westenbarger was fired because he stole money from one or more customers. Westenbarger worked in the Grand Rapids, Michigan office of Securities America.

We are investigating potential securities law violations committed by Jaime Westenbarger while working for Securities America, Inc. These violations may include thefts from investors, unsuitable investments, and fraudulent or misrepresented investments.

If you or someone you know has questions or complaints regarding Jaime Westenbarger and/or Securities America, Inc., please call the experienced attorneys at Maddox Hargett & Caruso, P.C. at (317) 598-2040 for a free confidential consultation. You may be able to recover some or all of your lost funds.

Since 1991, Maddox Hargett & Caruso, P.C. has represented the interests of individual and institutional investors in cases involving financial losses due to investment fraud, stockbroker misconduct or professional negligence. If you are an individual or institutional investor with concerns about your investments with Jaime Westenbarger and/or Securities America, Inc., please contact Mark Maddox at (317) 598-2040 for a free confidential consultation regarding your claims.

On August 23, 2019, an extensive article in The Wall Street Journal (“UBS Faces Client Backlash over Options Strategy”), exposed a complex investment strategy pitched as low-risk by stockbrokers at UBS Group AG (NYSE – UBS) that has triggered a backlash from clients of its securities unit.

The strategy, called Yield Enhancement Strategy, or “YES,” has reportedly already generated at least $60 million in losses for clients and dozens of customer complaints.

The strategy involved the use of several option trades and borrowing, according to marketing materials, and faltered when volatility in the stock and bond markets intensified last year.

Although UBS’ marketing materials were reported to have stated that the “YES” program sought to “limit exposure” to extreme market moves, “in just one month late last year, the strategy had losses exceeding 13%” according to the WSJ – a decline which highlights the risks in highly leveraged financial investments during periods of heightened volatility in the markets.

According to the WSJ, “the YES strategy typically involved putting on four different options trades – relating to an underlying stock index, such as the S&P 500 – at different strike prices but with the same expiration date. The strike price can be the point at which the owner of a “call” option can buy or the owner of a “put” option can sell the underlying security. The sale of short-term, “out-of-the-money” puts and calls on an index – a situation when the underlying price of the index isn’t at or better than the option’s strike price – was coupled with the purchase of short-term below-market puts and above-market calls on the index to mitigate risk, UBS marketing materials show.

When the S&P 500 was relatively stable, for example, the options generated a positive return, but when the index gyrated, losses resulted. Because the strategy made use of borrowed funds – as much as $5 were borrowed and invested for every dollar put in by the client – investors had to either put up additional money or have their positions sold at a loss when the trades went against them.”

If you are an individual or institutional investor who has any concerns about your Yield Enhancement Strategy investments with UBS, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. 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).