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.

An increase in fraudulent private placement offerings has state regulators pushing for tougher regulatory reforms that will give them more control and oversight of private placement issuers. In particular, states securities regulators want authority to control those issuers that have prior convictions for securities fraud or other offenses. Case in point: Medical Capital Holdings.

The Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital in July for private placement sales totaling $77 million. In the complaint, the SEC accuses Medical Capital and its principals of defrauding investors and misappropriating about $18.5 million of investor funds. The regulator also alleges that Medical Capital misrepresented the private placements by failing to inform investors that it had defaulted on loans connected to prior offerings, as well as was late in making payments to investors on principal and/or interest.

Following the SEC’s charges, it’s been determined that a number of broker/dealers knowingly marketed and sold unregistered Medical Capital notes to thousands of unsuspecting investors.

As reported Dec. 1 by Investment News, examples of private placement deals like those involving Medical Capital are one reason state regulators are calling for more authority over private-offering issuers with prior convictions for securities fraud. As it currently stands, private placements are generally exempt from review, which means state have no power to shut down issuers with past problems from selling private placements in the future.

“Before the North American Securities Administrators Association (NSMIA), if John Brown wanted to do a private placement but he had been convicted of securities fraud, he couldn’t use the exemption,” said Texas Securities Commissioner Denise Crawford, who is president of NASAA. “After NSMIA, the same John Brown could use the exemption” to sell private placements without registering,” the Investment News article said.

On Jan. 14, 2010, state regulators from across the country appeared on Capitol Hill to voice their concerns over private placements to the Financial Crisis Inquiry Commission. The Commission, which was created in May 2009 by President Obama, has been charged with dissecting the root causes of the nation’s financial meltdown. The consensus among state regulators who provided testimony thus far: Give states back the authority to police private-placement offerings or be prepared to see more private placement frauds down the road.

IIf you were ill-advised about the risks of investing in private placement offerings, contact our securities fraud team. We will evaluate your situation and explain your options.

The Behringer Harvard REIT and other unlisted real estate investment trusts like it are generating a myriad of questions by investors who say their broker/dealer misrepresented the products as safe investment vehicles that offered guaranteed dividends and little to no volatility.

Some broker/dealers and their financial reps may have been motivated by the large commissions – 15% is typical – tied to sales of unlisted REITs. Investors, however, may be unaware of these hefty fees. They also may not clearly understand the liquidity and valuation issues associated with unlisted REITs versus publicly traded REITs.

Unlisted REITs – also referred to as non-traded REITs – are registered with the Securities and Exchange Commission (SEC) but they don’t trade on national stock exchanges or over counter. Retail investors who invest in unlisted REITs purchase shares through a broker/dealer, with the idea that they will collect a steady dividend check from their investment.

It’s the fine print surrounding unlisted REITs that often comes back to haunt investors. Unlisted REITs can tie up investors’ money for years. In other words, an investor’s money essentially is “illiquid” until the end of the investing term. That means any shares in the REIT cannot be sold before that specified date.

In addition, it’s more and more common for unlisted REITs to deny redemption requests altogether if too many investors attempt to redeem their investments at once.

It’s also become increasingly common for some of biggest names in the non-listed REIT business to cut their dividends to investors. As reported by Investment News last fall, several of the most prominent non-traded REITs did just that, including the Behringer Harvard REIT I.

If you were ill-advised about the risks of investing in unlisted REITs like the Behringer Harvard REIT, contact our securities fraud team. We will evaluate your situation to determine if you have a viable claim for recovery.

The phrase “Medical Capital lawsuit” has become increasingly popular among investors following recent fraud charges filed against the Tustin-based healthcare company by the Securities and Exchange Commission (SEC).

In its complaint, the SEC accuses Medical Capital Holdings, Medical Capital Corporation, Medical Provider Funding Corporation VI and company officers Sidney M. Field, and Joseph J. Lampariello of securities fraud and misappropriating about $18.5 million of investors’ funds.

The SEC goes on to state that Medical Capital and related subsidiaries lied to backers as the companies allegedly raised and misappropriated millions of dollars of investors’ money while at the same time failing to disclose information about $1.2 billion in outstanding notes and $993 million in notes that had entered into default.

On the same day that the SEC filed fraud charges, the Financial Industry Regulatory Authority (FINRA) issued a sweep notice to an undisclosed number of brokerage firms to obtain information about sales of the Medical Capital Notes.

Investors who bought Medical Capital Notes based on the recommendation of a broker/dealer or investment firm may be able to recover their financial losses by filing an individual arbitration claim with FINRA. If you sustained investment losses in Medical Capital Holdings, contact our securities fraud team. We can evaluate your situation to determine if you have a viable claim.

Medical Capital losses may be changing the face of future private placement deals. In July, the Securities and Exchange Commission (SEC) levied fraud charges against Medical Capital Holdings, bringing into question the suitability of the products and the sales tactics used by broker/dealers that sold the private placements to individual investors.

Among the charges outlined in the SEC’s complaint: Medical Capital and top executives Sidney M. Field and Joseph J. “Joey” Lampariello allegedly defrauded investors, wrongfully diverted $18.5 million of their money and failed to disclose information about several defaults. A receiver has since taken over Medical Capital’s business.

According to the SEC, Medical Capital raised some $2.2 billion from approximately 20,000 investors over the past six years. The company, which is based in Tustin, California, places investors’ money primarily into unpaid bills, or receivables, from hospitals and doctors.

In November, a class action lawsuit was filed against a number of brokerage firms that sold the private placements in question. Those firms include: National Securities Corp., Cullum & Burks Securities, Securities America, Ameriprise Financial, Inc., and CapWest Securities.

The broker/dealers responsible for selling private placements in Medical Capital had an obligation to their clients to perform due diligence on the investments they sold. This didn’t happen. And now investors are paying the price.

Maddox Hargett & Caruso P.C. continues to investigate the sales practices of broker/dealers that sold Medical Capital notes to investors. If you sustained investment losses in Medical Capital Holdings, contact our securities fraud team. We can evaluate your situation to determine if you have a claim.

Synthetic collateralized debt obligations, or CDOs, are complex mortgage-linked debt products that have been blamed for bringing Wall Street to its knees and pummeling millions of investors in the process. It was in the fall of 2007, when the financial markets first started to become unhinged, that these high-risk instruments found their way into the public’s eye.

Today, CDOs are a hot topic on Capitol Hill, where members of Congress and regulators like the Securities and Exchange Commission (SEC) are trying to determine exactly how and why synthetic CDOs created the financial tsunami that they did.

As reported Dec. 24 in an article by Gretchen Morgenson and Louise Story for the New York Times, regulators are said to be looking at whether current securities laws or rules of fair dealing were violated by the investment firms and banks that created and sold CDOs and then turned around to bet against clients who purchased them.

“One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded,” the article says.

Pension funds and insurance companies are some of the institutional investors that lost billions of dollars on synthetic CDOs – investments they thought were safe investments.

The New York Times article devotes space mainly to the synthetic collateralized debt obligation business of Goldman Sachs and, specifically, mortgage-related securities called Abacus synthetic CDOs. Abacus CDOs were developed by Goldman trader Jonathan Egol, who had the idea that they would protect Goldman from investment losses if the housing market ever collapsed.

According to the article, when the market did tank, Goldman created even more of these securities, enabling it to pocket huge profits. Meanwhile, clients of Goldman who purchased the CDOs – and who thought they were solid investments – lost big.

One can easily infer from the article and other news reports on the subject that Goldman put the best interests of clients in harm’s way with Abacus because it not only served as the structurer of the deals involving the product, but also held onto the short side of those same deals. In other words, the company would be advising clients to buy assets that, in turn, it was betting to fail.

Goldman certainly is not the only investment firm that employed this strategy. Others banks created similar securities that they sold to clients and then bet against the future performance of those assets.

Goldman and other investment banks will soon have to answer tough questions about accountability and fiduciary duty. In the meetings being held on Capitol Hill, the Financial Crisis Inquiry Commission – a group that has been compared to the 9/11 Commission – plans to call several panels of investment banks to appear as witnesses. Among them: CEOs of Goldman Sachs, Morgan Stanley, JP Morgan Chase, and Bank of America.

The number of investors who suffered losses in private securities issued by Medical Provider Funding Corporation and Medical Capital Holdings is growing daily. In July, the Securities and Exchange Commission (SEC) filed fraud charges against Medical Capital in connection to the sale of $77 million of these investments. A short time later, a class lawsuit was filed in the U.S. District Court for the Central District of California against various brokerage firms that sold the securities (called Medical Capital Notes). Among the firms cited as defendants: Cullum & Burks Securities, Securities America, Ameriprise Financial, and CapWest Securities.

According to the complaint, the private placement memoranda issued for the Medical Capital Notes misrepresented and omitted material facts regarding the terms of the offerings, the use of investors’ funds, the track record of various Medical Capital entities, the backgrounds and qualifications of the executives responsible for running the companies, and the overall risks of an investment in the Medical Capital Notes. 

In addition, the complaint alleges that the notes should have been registered with the SEC, but in fact were not. 

Maddox Hargett & Caruso currently is building cases for investors who lost money in Medical Capital Holdings. To begin your Medical Capital Fraud Recovery, complete this form.

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.

Eighty years after Charles Ponzi made the word Ponzi a household name by scamming investors out of more than $10 million, the same schemes continue to thrive today. In 2009, there were nearly four times as many Ponzi schemes uncovered in comparison to 2008. In total, more than 150 Ponzi scams occurred this year, with investors defrauded out of more than $16.5 billion, according to an Associated Press analysis of Ponzi scams in all 50 states. 

The dollar figure for 2009 didn’t include the $50 billion-plus Ponzi scheme orchestrated by Bernard Madoff, who was arrested in 2008 and pled guilty in 2009. 

Among the 2009 Ponzi statistics that the AP cites: 

• The FBI has more than 2,100 corporate and securities fraud investigations pending across the country. Many of the cases involve losses exceeding $100 million and several have losses of more than $1 billion. That is up from 1,750 securities fraud cases in 2008.
• The Securities and Exchange Commission (SEC) saw an 82% increase in the number of restraining orders issued against Ponzi schemes and other securities fraud-related cases in 2009 versus 2008.
• The Commodity Futures Trading Commission filed 31 civil actions in connection to Ponzi cases in 2009 – twice the amount filed in 2008.

The Securities and Exchange Commission (SEC) has charged Harold. H. Jaschke, a former broker with First Allied Securities, with fraud for allegedly churning accounts held by the city of Kissimmee, Florida, and the Tohopekaliga Water Authority and lying to both government bodies about his trading practices.

Churning is a fraudulent practice that occurs when a broker engages in excessive trading as a way to generate commissions and other revenue without regard for a customer’s investment objectives.

The complaint against Jaschke was filed in federal court in Orlando on Dec. 29. According to the documents, Jaschke was associated with First Allied Securities when the alleged violations occurred.

The SEC alleges that Jaschke employed a high-risk, short-term trading strategy involving zero-coupon U.S. Treasury bonds. According to the complaint, the broker sometimes bought and sold the same bond within a matter of days, and occasionally on the same day.  The practices exposed the municipalities to millions of dollars in losses while yielding more than $14 million in commissions for Jaschke, according to the SEC.

The SEC also alleges that Jaschke knew the municipalities’ ordinances prohibited his trading strategy and required that their funds be invested with “the paramount consideration to be safety of capital.”

San Diego-based First Allied Securities fired Jaschke late last year. Jaschke then started his own firm, HHJ Capital Partners G.P. LLC.

In a related enforcement action, the SEC charged Jeffrey C. Young, the former vice president of supervision for First Allied Securities, of failing to reasonably supervise Jaschke during his employment with the firm. Without admitting or denying the findings, Young settled the case and paid a $25,000 penalty. Young also is barred from acting in a supervisory capacity for a period of nine months.