Wall Street Investment Fraud Lawyer Blog

The Securities and Exchange Commission (SEC) has issued a press release stating that the SEC has charged Paul T. Mannion, Jr., of Norcross, Georgia, and Andrews S. Reckles, of Milton, Georgia, two hedge fund portfolio managers, with defrauding investors in the Palisades Master Fund, L.P. Specifically, it is alleged by the SEC that these individuals, along with their investment advisory businesses, PEF Advisors LLC and PEF Advisors Ltd., overvalued illiquid fund assets that were placed in a "side pocket." A side pocket is defined as "a type of account that hedge funds use to separate particular investments that are typically illiquid from the remainder of the investments in the fund." Robert Kaplan, Co-Chief of the SEC's Asset Management Unit explained that "side pockets are not supposed to be a dumping ground for hedge fund managers to conceal overvalued assets. Mannion and Reckles deceived investors about the fund's performance and extracted excessive management fees based on the inflated asset values in a side pocket."

The SEC also alleges that Mannion and Reckles used investor funds to fund their own personal investments. Further, it is alleged that these individuals made false representations to a securities issuer about their trading positions so that they could participate in a private offering.

Scott Friestad, Associate Director of the SEC's Division of Enforcement stated that "Mannion and Reckles put their own selfish interests ahead of Palisades' investors, treating the fund like their own personal bank account by stealing and improperly borrowing millions of dollars in fund assets."

The SEC's complaint alleges that investors were defrauded over at least a three-month period in 2005 and that Mannion and Reckles took more than one million warrants in World Health that were worth approximately $1.6 million. Further, it is alleged that these individuals took out a personal undisclosed loan totaling $2 million in order to finance their own personal investments. In addition, the complaint states that they used approximately $13,000 from the fund for services allegedly not rendered to the fund. The SEC also alleges that in 2004 Mannion and Reckles made misrepresentations in connection with a PIPE (private investment in public equity) offering which was conducted by Radyne ComStream Inc.

The SEC's complaint charges these men with "violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940." The SEC seeks financial penalties, disgorgement of profits, prejudgment interest, and injunctive relief.

If you would like further information on investment fraud, please visit our website at www.dossfirm.com. If you believe that you may be a victim of investment fraud and would like to speak with us, please call our firm for a free consultation.

This month, FINRA announced that it fined Merrill Lynch $500,000 and ordered the firm to pay over $2 million in restitution to its customers for failing to provide them with sales charge discounts on eligible purchases of Unit Investment Trusts (UITs).

A UIT is a type of investment company that offers redeemable units that terminate on a specific date. Much like mutual funds, UIT sponsors offer sales charge discounts to investors, known as "breakpoint discounts" and "rollover and exchange discounts." A breakpoint discount is a reduced sales charge based on the amount of the purchase. According to FINRA's October 2010 disciplinary release, breakpoints usually begin at $25,000 or $50,000 purchases.

FINRA stated that between October 2006 and June 2008, the firm failed to appropriately apply discounts on rollover and breakpoint purchases resulting in customers being overcharged on their UIT purchases.

If you believe that you have wrongly lost money in UIT investments due to bad financial advice or worse, financial fraud, please feel free to contact us for a free consultation.

The Doss Firm is proud to announce that the Fort Worth Star Telegram listed The Retirement Challenge: Will You Sink Or Swim?, as a good book to help guide consumers through retirement planning. Jason R. Doss, an attorney with the firm, co-authored the book with Frank Armstrong, a best selling writer and well respected investment advisor.

The book provides great tips on investing as well as tips on how to avoid becoming a victim of investment abuse.

If you believe that you are a victim of bad financial advice or worse, financial fraud, please contact us for a free consultation.

On Friday, October 15th, the Fulton County Daily Report published an article co-authored by Jason R. Doss entitled "Wall Street wants to keep consumers in the dark."

The article discusses the fact that the Dodd-Frank Act requires the Securities Exchange Commission (SEC) to complete a study by January 2011 to determine whether all individuals who provide personalized investment advice should be held to one uniform fiduciary standard. This uniform fiduciary standard would require all financial professionals to put their clients' interests first.

One of the points made in the article was that the vast majority of investors do not know that there is any difference between financial advisors and already assume that those professionals are acting in their best interest.

The article also points out that stockbrokers who work for the big Wall Street firms are not in favor of a uniform fiduciary standard and prefer to keep the status quo which only requires investment recommendations to be suitable.

If you believe that you are a victim of investment fraud, please feel free to contact us for a free consultation.

AARP recently issued a warning to veterans, warning of fraudsters claiming "instant eligibility for additional benefits through a quick overhaul of [their] investments." This growing scam can lead to serious financial harm and can often cause other difficulties for the veteran victims.

The scammers claim that the purchase of investments with them will make the veterans eligible for additional Department of Veteran Affairs pensions and other benefits. However, these individuals, often describing themselves as "veterans advocates," are likely dishonest investment advisors.

In most instances, the investment advisor tells the veteran that they need to transfer their retirement assets into an irrevocable trust to make it appear as though the veteran is impoverished. The fraudsters promote that by doing this the veteran will be eligible for a VA pension and other benefits such as Aid and Attendance, which allows for everyday living expenses. However, the fraudsters neglect to mention that by doing this the veteran's eligibility for other benefits like Medicaid may be jeopardized. Medicaid does conduct historical reviews of your assets and will look at prior transfers of your assets.

Furthermore, the new trust held by the veteran often holds unsuitable investments. The trust will often contain annuities that are very often considered inappropriate for retirees. In fact, in some cases the annuity must be held for a decade or even longer before the investor can receive monthly income. Often the investor does not understand the terms of the annuities and realize such terms too late.

Unfortunately, these annuities are often recommended by the advisor because of the commission it will generate for the advisor. In fact, a $500,000 annuity could provide a commission of $75,000. A huge payoff for a small amount of work.

There are some things that Veterans should remember. First, they should make sure that they contact their state veterans affairs agency for credible information regarding benefits and not rely on the word of investment advisors making a sales pitch. Further, veterans should not rely on official sounding titles or feel good descriptions such as "veterans advocate." Information is key and all investors should do research prior to trusting an investment advisor and prior to making any investment decisions. Finally and unfortunately, veterans CANNOT rely on community centers, social groups, or assisted living facilities or nursing homes to do the research on individuals offering seminars. In some cases, the investment advisors pay a fee to make their presentation. Just because the group or facility allows for the seminar doesn't mean that they have investigated the individual or have reviewed the seminar materials and/or the investments being touted.

If you believe that you are a victim of an investment scam and would like more information as to your legal rights, please do not hesitate to contact our firm for a free consultation. Also we invite you to visit our website at www.dossfirm.com for further information regarding investment fraud.

Some experts are saying that gold will be the next bubble to burst. They may have a point. According to The Street, before the financial crisis, in January 2007, gold was priced at $650 per ounce. The average price of gold had fluctuated between $300 and $500 per ounce during the 10 years prior. Today, the price of gold was approximately $1352 per ounce. That is over 100% growth since 2007.

Is gold overpriced? I have no idea. What I do know is that investors are obviously buying a lot of gold-linked investments and based on my experience representing investors who have been defrauded, I predict that these investments are being mis-sold to investors. I am sure that sales agents who are earning a healthy commission, are telling investors that the returns on gold are guaranteed or that the investments carry very low risk. That is simply not true.

While it is true that historically, the price of gold has gone up in bad economic times, that does not mean that gold currently is not overpriced. Consider the following comparisons of the price of gold per ounce to prior recessions in U.S. history:

Historical Recessions

January 1980- November 1982: The price of gold appears to have declined from $655 per ounce in 1980 to $376 per ounce in 1982.

July 1990- March 1991: The price of gold appears to have fluctuated between $383.51 and $362.11 per ounce.

November 2000-October 2001: The price of gold was approximately $279.11 per ounce in 2000 and $271.04 per ounce in 2001.

Judging by history, it seems to be just a matter of time before the price of gold falls significantly from its current ultra-high values and investors will be left holding the bag.

Keep this general rule in mind: Rewards sell investments, not risks.

In other words, if your financial advisor tells you to invest in gold and focuses on the rewards but minimizes the risks, you need to ask more questions and probably get a second opinion.

If you believe that you have been a victim of bad financial advice or worse, financial fraud involving gold investments, feel free to contact us for a free consultation.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act went into effect. The federal legislation requires the Securities Exchange Commission to conduct a study by January 2011 to determine whether a fiduciary standard, which requires financial advisors to put their clients' interests first, should be applied to all financial professionals giving personalized investment advice.

Given Wall Street firm's advertisements which depict their financial advisors as one of your family, most investors already think that their financial advisor is acting in their best interest. Unfortunately, that is not necessarily the case. Not all financial advisors are held to the same standard. Currently, financial advisors that sell investments for brokerage firms like Merrill Lynch are held to a suitability (i.e. reasonable) standard and investment advisors are held to a fiduciary standard.

For years, Wall Street firms have maintained that the suitability standard is a lower standard that does not require their advisors to put their clients' interests first or to disclose all conflicts of interest. According to Wall Street firms, their investors make all of the investment decisions and the financial advisor is simply an order taker. Don't believe me? Sue a brokerage firm for giving bad investment advice and count how many times the words "order taker" are stated in the firm's Answer.

Advocates for investors have disputed Wall Street's characterization of their legal duties and have long argued that they should be held to the fiduciary standard as well because financial advisors hold themselves out to investors as experts on investing. Trust is at the heart of the relationship. A recently conducted study of investor perceptions supports investors.

According to a September 15th article in Investment News entitled Investors Think Brokers Are Fiduciaries, Survey Says, among 1,319 investors it surveyed, 91% believe that a financial advisor and investment advisor should follow the same investor protection rules and 96% favor applying those uniform rules to insurace agents as well. In addition, 97% said that financial advisors should put investors' interests ahead of their own and disclose fees and conflicts of interest.

The study also found that more than half of investors are confused about the standards of care that different advisors must meet, and that at least 60% said that they assume that insurance agents and stockbrokers are already held to the fiduciary standard.

I hope that the SEC definitively puts an end to Wall Street's semantical game playing and holds all financial advisors to the same high fiduciary standard that investors already expect.

If you believe that you have been the victim of bad financial advice and suffered losses, feel free to contact us for a free consultation.

According to a Securities and Exchange Commission (SEC) press release, the SEC has charged Barbra Alexander along with two other executives at APS Funding with misappropriating $2.5 million in investor funds.

It is alleged that Alexander, former president of APS Funding and former host of an internationally syndicated radio show, MoneyDots, lured investors using her radio host status into purchasing interests in two real estate investment funds. Investors believed that their funds would be used in funding short-term loans which were secured by real estate. Instead, it is alleged by the SEC that Alexander, along with Beth Pina, the firm's secretary/chief financial officer, and Michael Swanson, the firm's vice president, took investor funds and paid themselves $1.2 million. Additionally, $1.3 million was allegedly used to finance the radio show MoneyDots and other unrelated businesses.

The SEC's complaint alleges that Alexander, Pina, and Swanson were able to raise almost $7 million dollars from approximately 50 investors. Investors were allegedly told they would receive 12% in annual returns from their investments. In order to further the scheme, the investors allegedly received fraudulent monthly statements, which showed the promised returns. In total, the SEC alleges $2.5 million was misappropriated by these individuals.

Alexander, Pina, and Swanson are charged with violating the anti-fraud provisions of federal securities laws and with the unregistered sale of securities. The SEC is seeking disgorgement of ill-gotten gains, financial penalties, and injunctive relief. Further, the U.S. Attorney's Office has filed criminal actions against the same individuals based on the same alleged fraud.

For further information on investment fraud, please visit our website at www.dossfirm.com. Additionally, if you believe you have become a victim of investment fraud and would like to discuss your legal rights, please do not hesitate to contact our office for a free consultation.

Last month, FINRA, the organization that regulates the securities industry, ordered SunTrust Investment Services of Atlanta, Georgia to pay $1.44 million to resolve charges related to the unsuitable recommendations of unit investment trusts, closed-end funds and mutual fund investments sold to some of its elderly and disabled clients. Of that amount, $900,000 is a fine that includes $224,000 in disgorgement of commissions earned from unsuitable trades. The remaining $540,000 represents restitution to 17 customers who incurred losses.

The settlement also required that SunTrust review all UIT purchases and provide remediation to all customers that did not receive the maximum sales charge discount. This could mean that the problem at SunTrust is wide-spread and not simply limited to the 17 customers who received restitution. "Suntrust failed to meet [its] obligations which caused its customers, including elderly customers to incur significant losses," stated James S. Shorris, FINRA Executive Vice-President and Acting Chief of Enforcement.

According to FINRA's disciplinary summary, the two financial advisors involved were David Bredenberg of Timonium, Maryland and Donald Mattran of Bel Air, Maryland. Bredenberg is now permanently barred from the securities industry and Mattran is suspended until February 15, 2011.

In sum, both advisors engaged in short-term trading of unit investment trusts, closed-end funds and mutual funds in accounts held by elderly and disabled investors. Also, they traded many of the accounts on margin, which means that the brokers borrowed against the assets in the accounts to purchase more UITs, closed-end funds and mutual funds. This is an extremely risky investment strategy. FINRA found that the short-term trading strategy did not benefit the clients and served to generate big commissions to the brokers.

If you believe that you are a victim of a similar incident with SunTrust Investment Services, please feel free to contact us for a free consultation.

According to Investment News, the brokerage firm Securities America, Inc. and the Massachusetts Securities Division squared off over charges that the firm misled 60 investors in the state who bought $7.2 million in MedCap notes from the firm's brokers.

In total, 400 Securities America reps and advisors sold about $700 million of the private placement notes from 2003 to 2008. Investors lost approximately $1 billion through their purchases of the MedCap notes. Medical Capital is a lender to hospitals and health care facilities and it is now in receivership. In 2009, the SEC charged Medical Capital and its two top executives with securities fraud.

Massachusetts alleges that Securities America failed to disclose red flags to advisors and clients about the failing Medical Capital.

If you believe that you are a victim of this alleged fraud, feel free to contact us for a free consultation.

On September 30th, the SEC announced that it charged two former State Street Bank and Trust Company employees, John P. Flannery and James H. Hopkins, with misleading investors about their exposure to sub-prime investments.

The SEC alleged that Flannery and Hopkins marketed State Street's Limited Duration Bond Fund as an "enhanced cash" investment strategy that was an alternative to a money market fund. In truth, however, by 2007, the fund was almost entirely invested in sub-prime residential mortgage backed securities and derivatives.

Earlier this year, the SEC charged State Street in a related case and the firm settled the charges for more than $300 million.

If you have lost money in the State Street Limited Duration Bond Fund or any other investment that was marketed as a money market alternative, please contact us for a free consultation.