Wall Street Investment Fraud Lawyer Blog

The Securities and Exchange Commission has charged Richard Karp, a trader from Fort Myers, Florida, with fraud relating to a fake press release the SEC says he issued in an effort to manipulate a company's stock price. Karp allegedly released a false announcement from WCI Communities, Inc. to the media, which in turn caused the company's stock price to soar.  Karp allegedly gained thousands of dollars in profits relating to his scheme.

It is alleged that Karp actively traded WCI's stock in hopes that a major shareholder would make a buyout offer. When that did not happen, Karp allegedly issued this false announcement claiming that WCI's board of directors received a $220 million buyout offer.

The SEC alleges that the false press release was sent to media outlets in Southwest Florida as well as national outlets on July 19th.  The information contained in the fake announcement was the allegedly reported by at least four Ft. Myers media outlets. The SEC says that following Monday, July 21, as result of this announcement, investors responded and the stock price increased dramatically. 

The SEC states that all in all Karp made approximately $29,000 in illegal profits by selling his shares in pre-market trading on July 21. The SEC is seeking a permanent injunction against Karp, disgorgement of his ill-gotten gains with prejudgment interest, and a fine.

The Financial Industry Regulatory Authority (FINRA) has issued an "investor alert" warning individuals to be wary of free seminars boasting a free meal.  

Investors are frequently being invited to fancy restaurants with the promise of an expensive meal at no cost where they are given a free seminar that "educates" them about investing or managing money during retirement. The "education" becomes a sales pitch by the speaker with an ultimate goal of selling products and gaining new clients. However, investors should remember that even with the free meal there isn't and shouldn't be any requirement to purchase anything. 

 According to a survey conducted by FINRA Investor Education Foundation, four out of five investors that were 60 or older received at least one invitation to a free investment seminar in the preceding three years. Nearly 60% of these individuals actually received six or mjore of these invitations. Further, nearly 25% of these individuals attended the seminars.

If you plan on attending one of these seminars, even just for the free meal at a nice restaurant you need to head FINRA's warnings.  FINRA issued the following points to remember when attending a seminar:

1) "Seminars are designed to sell." Even though the invitation promised an educational experience, investors need to keep in mind that it is more likely that the speaker ultimately wishes to educate you about the product(s) that they are selling. During these, "hard sell" pitches, speakers may misrepresent information about their product or others and may provide misleading information as to the safety, returns, or the performance of particular products.

2) "Good shows aren't always good deals." It is easy to be taken in by a fancy meal and well-dressed, well-spoken speaker. However, don't be fooled by a lion in sheep's clothing. Why do you think that these seminars are held at pricey restaurants rather than the local fast food joint? Someone is trying to impress you to get you to come to their presentation and hear their pitch.

3) "The lead speaker might not be the actual sponsor."  The sponsor of the event may be an insurance company or mutual fund. Of course, the sponsor will want the speaker to sell their company's products over any others. This creates a potential conflict. Investments should be appropriate for the investor and their individual circumstances. Investments are not one size fits all.

4) " Education is a great idea-so be sure to learn about persuasion." It is important that an investor remember that the speaker WILL use the power of persuasion to convince investors that their product is best for you.  There are a few things that an investor should watch out for or remember during any seminar they attend. 

(a) Watch out for promises of wealth. There are no guarantees on returns.

(b) Make sure to check the sources quoted by any speaker. These speakers have a financial incentive to sell you their products. Unfortunately, this may cloud their presentation in many different ways. Check the facts.  It is always a good idea to know what you are buying, rather than soley relying on the advice of a salesperson.  

(c) Do not be convinced by individuals or statements regarding other individuals an how well they may be doing after purchasing a particular product. Do you own research on the product.

(d) Do not feel obligated to purchase anything during the seminar. You do not owe the speaker anything for the free meal. Remember they invited you at no cost.

(e) Do not let anyone create a false sense of urgency to buy a product. Often these speakers will claim there is a limited supply of a product to make a sell.

Finally, FINRA has issued the following strategies to investors in an effort to help them distinguish potentially good investment offers from bad ones.

1- "Do your homework before the seminar." "A legitimate securities salesperson must be properly licensed and his or her firm must be registered with FINRA, the Securities and Exchange Commission, or a state securities regulator - depending on the type of business the firm conducts."

2- "Ask questions while you're there." Ask all the questions you wish and do not quit until you are satisfied with the information provided. If a broker does not want to provide you with information, then you should be even more skeptical. Ask about risk, costs of the investment, fees, surrender charges, liquidity of the investment, whether the investment is registered, and the type of investors who should purchase the product?

3- "Decide now to decide later, and do more homework AFTER the event." Prior to the event, make a promise to yourself that you are not going to purchase anything or open up an account during the seminar. Based upon the information that you learn during the seminar, if you are interested then do more research on the product before you invest. It is never a good idea to buy now and then learn the hard lessons later. FINRA reminds us that there are unbiased places to find out more information about investments and these places a good place to start both prior to and after a seminar.

If you believe that you have been taken advantage of by an investment professional or firm, our firm may be able to assist you.  Please refer to our website www.dossfirm.com for more information on common investment schemes. We welcome direct contact and do offer free consultations.

The Wall Street Journal is reporting that financial advisors are turning back time and returning to the old ways of their business. As a result of economic downturn most client assets have diminished by 20%-50%, which produces a similar drop in the earnings of those advisors that are fee-based. 

Brokers are now moving their clients from fee-based accounts to a commission based fee account, in an effort to make up for fees lost in rough economic times.

Over the past several years, firms recommended fee-based accounts to their clients. In this scenario the broker would charge clients an annual fee of 1%-2% of their assets to manage the accounts, rather than charging small commissions for each trade.  The major firms would promote the fee-based model by providing brokers a higher payout where the business was fee-based.  Further, this model was touted as better for the clients because it was claimed it would prevent brokers from making unnecessary trades to make the commissions.

Interestingly, firms are now pushing the commission based accounts, which conflicts with prior recommendations, using the market conditions as a justification. Brokers are standing behind their new recommendations, arguing that they have to be able to make a living doing this and, thus, the commission based account will help them do just that.

Some brokers have dealt with the market change by including insurance products and/or other annuities that will allow them to bring in more fees.  Finally, some have resorted to the old fashioned way of making more money and that is by bringing in more clients to offset the business lost as a result of the market decline.

It is interesting that recommendations from your financial advisor can turn on how they can best make money.  Isn't it the job of the advisor to be more concerned with protecting and growing the money of the client?  Is there a conflict that arises when the broker becomes more concerned with his financial well-being? Of course, the advisor should be compensated for his/her work, but whose financial portfolio comes first, the client's or the advisor's? 

To find out more information about potential financial advisor misconduct please visit the Investor Resource Center at www.dossfirm.com.

According to today's Wall Street Journal in an article entitled Brokers Abandon Wall Street, the number of brokers leaving brokerage firms is on the rise due to slumping markets and shrinking fees.  In April alone, 2,800 brokers left the securities industry.  At this pace, 35,000 brokers will exit the industry by year end.  That would be record by a long shot.

Investors need to pay attention to this trend because it serves as a rare glimpse into the minds of financial advisors right now.  However, it is not the financial advisors who are leaving that investors need to be watching.  Investors should be paying close attention to those financial advisors who are not leaving the industry. In an environment where fees and commission are on the decline, financial advisors likely will be looking to sell higher commission products (ie. deferred annuities) to make up the difference. In addition, instances of churning will also be on the rise.  Churning is an unlawful practice where brokers make excessive trades in a client's account for the sole purpose of drumming up commissions. 

To find out more information about other common claims brought by investors, please visit our Investor Resource Center at www.dossfirm.com.

An article in today's Wall Street Journal entitled SEC Takes On Target-Date Funds, discusses the SEC's efforts to improve disclosures made in these popular investments.

What are Target-Date Funds?  

Like most mutual funds, Target-Date Funds invest in a mix stocks and fixed income investments.  What makes these mutual funds different is that the percentage of asset classes change over time as the fund approaches a target date.  For example, if you plan to retire in 20 years and live off of the income from your investments, you could invest in one of these funds with a target date of 2029. At the beginning of your investment period, the fund would be heavily weighted in stocks as opposed to the fixed income investments.  As you approached the 20 years target date, the fund would become more heavily weighted in fixed income investments.  Because of this shift over time towards a more fixed income-centric, the fund presumably becomes more conservative and income- oriented as you approach retirement. This shift in asset allocation is commonly known in the securities industry as a "glide path."

Why is the SEC scrutinizing these funds?

As with most securities related problems, it usually boils down to poor returns and poor disclosure.  According to the Wall Street Journal article, the average loss in 2008 among 31 funds with a 2010 retirement date was almost 25%.  One of the issues that the SEC is considering is whether the use of a particular target date in fund's name is misleading.  It is plausible that investors could construe a target date as some sort of guarantee about future results. 

Also, disclosures about the "glide path" methodology that a fund manager uses to shift asset allocations over time are based on assumptions that may not conform to an individual investor's real life circumstances.  These assumptions are not always adequately explained in the prospectus. As a result, the investments may not be suitable for a particular investor's financial needs.

For more helpful information about ways to avoid becoming a victim of investment abuse, visit our Investor Resource Center.

The Doss Firm, LLC is an Atlanta-based law firm devoted to protecting the rights of consumers/investors against the financial services industry. For more information about our firm, pleae visit our website at www.dossfirm.com.

Multiple class action and individual lawsuits filed by investors recently have been filed because of the precipitous collapse of Oppenheimer's Champion Income Fund (OCHCX).

This bond fund was down approximately 82% in value at the end of 2008.  Other similar bond funds were down only approximately 30%.  This enormous difference can be attributed to the Oppenheimer Champion Income Fund investing heavily in mortgage related investments. 

Lawsuits that have been filed have alleged that the Oppenheimer fund prospectus failed to disclose the risks associated with the investments. In addition, the lawsuits have alleged that the mutual fund was marketed as a relatively safe income producing investment.

Federal and state securities laws required Oppenheimer to truthfully and accurately disclose the risks associated with the investments so that investors could make informed decisions about whether it was an appropriate investment for their needs. It is likely that many investors in this fund were retirees who were relying on the income from these investments for their every day living needs.  Retirees have been particularly hard hit in this most recent market downturn because many of the investments that collapsed were bond funds generally considered to be safe income producing investments.     

If you purchased this investment based on the recommendation of your financial advisor, you may have a claim against his or her firm for unsuitable investment advice.