Recently in Investment Fraud Category

Bitcoin Update: Alerts and Guidance Issued by the SEC, FINRA and IRS

May 9, 2014,

It's Buyer Beware, according to guidance and alerts issued recently by the SEC, FINRA and IRS concerning risks inherent in Bitcoin. Bitcoin is described by all three offices as a decentralized, peer-to-peer virtual currency that can be used in place of, and traded for, traditional currencies, though is not backed by any central authority, government bank or otherwise.

First, the IRS released Notice 2014-21 on March 25, 2014 in question and answer format to describe the tax implications of Bitcoin. Generally speaking, the IRS has taken the stance that Bitcoin will be considered property, and for investors, may constitute a capital asset, requiring reporting of gain or loss based on fair market value. Given the opaque nature of Bitcoin, this may cause further risks to investing, as investors may be required, by themselves, to calculate gains and losses, a job typically taken up by banks, wire houses and clearing firms.

The SEC, in its second Bitcoin alert dated May 7, 2014, reiterated risks associated with investments in the digital medium. Given that Bitcoin is a relatively new innovation, the SEC warned that it has a potential to give rise to frauds that may propose "guaranteed" high rates of return.

The SEC alert listed several warning signs of potentially fraudulent conduct, in addition to promises or "guarantees" on return:
• Unsolicited offers, including cold-calls or emails;
• Unlicensed sellers, or individuals or businesses that are not registered with FINRA, the SEC or other regulators;
• No net worth or income requirements;
• Any offer that sounds too good to be true (these sorts of investments often are); and
• Pressure to buy immediately.

The SEC alert also highlighted the very large volatility in the valuation of Bitcoin, noting that the exchange rate has dropped more than 50% in a single day. Given this extreme volatility, even reputable businesses may inappropriately attempt to solicit investment via Bitcoin. The SEC noted that in March 2014, the Texas State Securities Board issued an emergency order against an oil and gas company for soliciting investments via Bitcoin for exploratory wells in West Texas. While oil well exploration is well-known to be a risky endeavor, the emergency order was made because the solicitations were deemed unregistered securities, and if the business held Bitcoin, it could affect the amount of money available for business operations, a risk not disclosed in its solicitations.

The FINRA investor alert noted other risks, including that due to the international and anonymous nature of Bitcoin, investments are not guaranteed, are irreversible, and may be implicated in illegal activities. If an investment is made that turns out to be fraudulent, it may be hard or impossible to recover your losses, as the investment/currency is not backed by any U.S. banks or federal regulatory agencies.

Investments based on bitcoin must still be marketed and sold in accordance with securities laws and related regulations, and so must be suitable for investors appropriate under each specific investor's circumstances. If you believe you were not properly informed of the risks associated with an investment involving bitcoin, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

Is Your Broker Charging You A Fair Commission?

April 25, 2014,

money-in-hand-1037536-m.jpg
Is your broker charging you a fair commission? Not surprisingly, many investors do not fully understand how much they are paying in fees and commissions to their broker-dealer, and disparities from firm to firm can be wide and difficult to decipher. A recent study conducted by the North American Securities Administrators Association ("NASAA"), an association of state securities regulators, highlighted this issue, finding that investors would benefit from a "greater consistency and transparency in the disclosure of fees."

The focus of the study was to examine the fee disclosures at thirty four (34) different broker dealers to compare methods of disclosure between firms and determine whether the customers were being adequately informed of the fee structure within their accounts.
As a result of the study, NASAA recommended that model fee disclosures be adopted to ensure that investors are accurately advised. The goal for model fee disclosures is to create something that will be simple and straight-forward, making it easier for customers to understand.

The problem now is that there is a great disparity in the way fees are disclosed to customers. Fee disclosures can range in size from one paragraph to up to seven pages, and such disclosures can be in a document between one and forty-five pages long, making them hard to find. Fee disclosures are also oftentimes buried in fine print where investors are unlikely to read.

The fear is that this wide discrepancy between how firms disclose their fees to investors can be misleading, whether done intentionally or unintentionally. In the past four years alone, seven firms (including Woodstock Financial Group, JHS Capital Advisors f/k/a Pointe Capital, Salomon Whitney, Newbridge Securities, John Thomas Financial, A&F Financial Securities, and First Midwest Securities) have been sanctioned for issues regarding charges to customers. For reasons such as that, investors need to be wary of what they are paying and why.

Churning is currently a problem for investors who have their trust abused by their broker. Churning refers to when a broker makes excessive trades in an account to earn more commissions. If an investor is paying commissions per trade, it is in the broker's financial interest to trade as much as possible in the account, since more trades means more commissions. For the broker, more commissions mean a bigger pay check.
For the customer, more trades can mean more risk, since in theory many, if not all, of the profits earned by the account will be eaten up by the higher commissions. Often churning results in significant losses in the account due in whole or in part to these high commissions.

Brokers who are churning a customer account also frequently charge higher commissions than they would or should otherwise charge per trade. Both of these practices are against the law and a violation of securities industry rules.
When a customer account is being traded frequently, a broker is supposed to recommend to the customer to put that account on what is called a fixed management fee (often 1-2% of the total account assets). This will keep the fees paid by the customer to a minimum. However, brokers who are looking out for their own interests will not do that, causing the customer to pay exorbitant fees. Churning victims can wind up paying their broker and broker-dealer hundreds of thousands of dollars per year in commissions and miscellaneous fees.

Any investor who believes that they or a family member have lost money as a result of churning may be able to recover some or all of their losses. The attorneys at Malecki Law are experienced in representing investors in churning cases. For a free consultation, contact us.

Whistleblower Due To Receive $63+ Million Reward

March 21, 2014,

Keith Edwards, a former J.P. Morgan employee is due to receive a nearly $64 million payment from the U.S. government for the tips he provided as a whistleblower. Mr. Edwards provided information that led to a payment by J.P. Morgan to the government in the amount of $614 million stemming from insurance on home loans.
whistle-257897-m.jpg

Allegedly, J.P. Morgan had been falsifying certifications for Federal Housing Administration and Department of Veterans Affairs loans, going back as far as 2002. As a result, the agencies reportedly suffered substantial losses.

It was reported that the $614 million was paid by J.P. Morgan to settle the charges levied against it as a result of Mr. Edwards' tips. In settling, J.P. Morgan reportedly admitted to approving thousands of FHA and hundreds of VA loans that did not pass normal underwriting requirements.

Mr. Edwards was able to collect his reward under the False Claims Act. Under the False Claims Act, the government reportedly collected roughly $3.8 billion in 2013 alone - a big year for the Justice Department. Under this act, individuals can sue the target company directly. The government may elect to join the whistleblower in pursuit of the target company in court.

Whistleblowers can also benefit from a myriad of other whistleblower reward programs, including Dodd-Frank and Sarbanes-Oxley. Unlike the False Claims Act, whistleblowers under these acts will not bring suit against the target company directly. Rather, whistleblowers will simply provide the government with the "tip." It is then up to the government to pursue the bad actor or not.

Nonetheless, whistleblowers under these acts can also reap large rewards for the information they provide. Under Dodd-Frank, the Securities and Exchange Commission (SEC) has paid over $14 million in rewards in the past two years alone. Under Dodd-Frank the SEC is looking for tips that will aid in the successful investigation of securities laws violations. In return, a whistleblower may be entitled to between 10% and 30% of all monies recovered.

Once you have made the decision to be a whistleblower, a major concern should be to make sure that you have maximized your potential to receive your reward. It is important to know how to present your "tip" to the appropriate government agency. A properly prepared and presented "tip" may increase the chances that the government pursues the case. Whistleblowers should also be aware of potential pitfalls that may compromise their ability to collect an award.

Like anything else, it is important to be diligent and protect your rights when making the decision to blow the whistle. This decision is often not an easy one and should be made carefully and diligently. You should speak with a knowledgeable attorney first to ensure that you are protected that maximize your chances at receiving an award for your information.

If you believe you may have valuable information and are thinking about blowing the whistle, contact an attorney at Malecki Law for a free consultation. The attorneys at Malecki Law have experience representing whistleblowers, and can help you file your whistleblower complaint with the appropriate agency to maximize your chances at getting the reward to which you may be entitled.

Berthel Fisher and PNC Fined In Connection With The Sale Of ETFs

February 25, 2014,

Just yesterday, FINRA announced that it has fined Iowa-based broker-dealer Berthel Fisher $775,000 for failures to adequately train and supervise brokers selling alternative investments, such as real estate investment trusts ("REITs"), and non-traditional exchange traded funds ("ETFs"), including leveraged and inverse ETFs.
hammer-1020868-m.jpg
In addition to REITs and ETFs, Berthel brokers also reportedly sold managed futures, oil and gas investments, equipment leasing programs and business developments companies, all while having "inadequate supervisory systems and written procedures for sales" of these investments.

Firms are required to have sufficient supervisory systems and written procedures for the sale of such investments to help ensure that these potentially risky and illiquid investments are only sold to investors for whom they are suitable and appropriate. Oftentimes, these investments are not appropriate for your average investor.

It was reported that Berthel failed to properly review for suitability and may have left investors over-concentrated, meaning that too much of the investor's savings may have been in just one investment, rather than being spread out in many different investments (i.e. diversified).

Even though these potentially very risky investments may not be appropriate for an average investor, brokers my sell them to average investors anyway because they are often "high-commission products," meaning that the broker gets paid more for selling them than he or she would for selling a more traditional investment such as a mutual fund. Some commissions paid to brokers and broker-dealers on some of these non-traditional products can be 10% or more of the total amount invested.

All in all, it has been reported that Berthel brokers recommended more than $49 million worth of nontraditional ETFs to over 1,000 clients. It is believed that these sales were sometimes not appropriate for the investor.

Unfortunately, Berthel Fisher is not alone. FINRA's fine of Berthel comes just two months after the regulator fined PNC Investments for failing to establish and maintain a satisfactory supervisory system with respect to the sale of non-traditional ETFs. The conduct for which PNC was fined was surprisingly similar to that of Berthel. Ultimately, PNC was fined $275,000 and paid restitution of more than $33,000.

If an ETF or other investment is sold to an investor, and it is not suitable for them, the investor may be able to recover for any and all losses caused by that investment.

If you believe you have lost money as a result of an investment in these or any other non-traditional investment, contact an attorney at Malecki Law for a free consultation to determine if you may be able to recover your losses.

Buyers Should Beware when Considering Investments Involving Bitcoin

February 12, 2014,

blank-coin.jpgBitcoin, and the exchanges that provide a space for trading Bitcoin, have received a lot of press lately. The Wall Street Journal reported on February 11, 2014 that the price of a Bitcoin dropped to approximately $650. This would be a significant drop from a trading high of over $1,100 per Bitcoin in mid-December 2013, according to CoinDesk's Bitcoin Price Index.

As the Journal reported, the Slovenia-based Bitcoin-trading exchange Bitstamp halted customer withdrawals while Bulgaria-based BTC-e had delays in crediting transactions. This, apparently, came as a result of a hacker attack on the exchanges. Recently, Mt. Gox, a Tokyo-based Bitcoin trading exchange recently reported that it was halting withdrawals for a period of time after it discovered a software glitch that "could give rogue traders a way to falsify transactions," as reported by the Journal. Incidentally, according to Wired, Mt. Gox stands for "Magic: The Gathering Online Exchange" and prior to 2011 was a digital trading exchange for Magic playing cards. According to that Wired article, in 2011, the website was changed to handle transactions exchanging Bitcoin.

Back in 2011, it was reported by Daily Tech that Mt. Gox was forced to shut down trading and "roll back" trades after 478 accounts were allegedly hacked, resulting in the withdrawal of a total of 25,000 Bitcoins. Mt. Gox reportedly informed investors that they "assume no responsibility should your funds be stolen by someone using your password," and that the hacker made off with only 1,000 of the Bitcoins stolen. According to the Daily Tech article, the hacker gained access to the investors' passwords by hacking Mt. Gox's database.

The Securities and Exchange Commission (SEC) has taken notice of Bitcoin. In 2013, it charged an individual named Trendon T. Shavers for running a Ponzi scheme involving Bitcoin. According to the SEC's news release, he set up a company called Bitcoin Savings and Trust and raised approximately 700,000 Bitcoin, allegedly offered investors 7% weekly interest as a result of Bitcoin arbitrage activity. However, he used certain investors' Bitcoins to pay other investors' interest, as well as his own personal expenses.

The SEC then issued an Investor Alert to inform the public of Ponzi schemes involving virtual currency. In the Investor Alert, the SEC stated that fraudsters may choose to use virtual currencies like Bitcoin, because of the lack of governmental or regulatory oversight. The SEC went on to state that any investments in securities, such as promissory notes or other investments promising regular payments in Bitcoin, remain subject to the SEC's jurisdiction and continue to require licensure by federal or state agencies.

The Bitcoin, a virtual currency, remains a risky investment, given that exchanges are not yet subject to governmental regulation. Investments based on Bitcoin must still be marketed and sold in accordance with securities laws and related regulations, and so must be suitable for investors and appropriate under each specific investor's circumstances. If you believe you were not properly informed of the risks associated with an investment based on Bitcoin, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

Leveraged and Inverse ETFs Can Spell Trouble for Investors Who Buy Them and Brokerage Firms Who Sell Them

January 15, 2014,

Just this past week, two brokerages units of Stifel Financial were ordered by the Financial Industry Regulatory Authority ("FINRA") to pay more than $1 million related to the sale of leveraged and inverse exchange-traded funds ("ETFs"). Of the more than $1 million to be paid, $550,000 comes in the form of a fine to be split by Stifel, Nicolaus & Co., Inc. and Century Securities Associates Inc. The firms were also ordered to pay more than $475,000 in restitution to 65 customers to compensate them for losses incurred on ETF purchases.

According to the Wall Street Journal, FINRA said that some of the brokers who were selling the ETFs did not have a full understanding of the products they were selling, including the risks associated with them.

Brokerage firms can be fined and/or sued when they allow their brokers to sell unsuitable, or inappropriate, investments to customers, especially when the brokers have not been properly trained. Industry regulations require that a broker understand both the product they are selling and the customer to whom they are selling the product. Most importantly a broker must understand the risks of the products being sold and appreciate the customer's ability (or inability) to tolerate risk. Brokerage firms are also required to train their brokers properly, including what qualifies as a suitable, or appropriate, recommendation to a customer.

Regulators have been looking at the sale of ETFs, especially inverse and leveraged ETFs, in recent years. In the past few years, FINRA has reportedly fined multiple brokerage firms millions of dollars, including Citigroup, Morgan Stanley, UBS and Wells Fargo over the sales of ETFs.

These investments are complex and often not completely understood by the average investor. They use futures and/or derivatives to 1) multiply the return (and loss) of a given index on a given day and/or 2) cause the value of the ETF to rise when the index falls, or vice versa. However, they are largely designed as a product for day-traders and are not typically supposed to be recommended as "buy and hold" investments.

For example, below are twenty five ETFs that lost the most in the past 12 months per Yahoo Finance, many of which are inverse, leveraged, or both. Malecki Law is investigating and/or has recently pursued claims for customers who incurred losses in these ETFs.

1. Direxion Daily Gold Miners Bull 3X Shrs (NUGT)
2. VelocityShares Daily 2x VIX ST ETN (TVIX)
3. C-Tracks Citi Volatility Index TR ETN (CVOL)
4. Barclays Short B Lvgd Inv S&P 500 TR ETN (BXDB)
5. Direxion Daily Semicondct Bear 3X Shares (SOXS)
6. VelocityShares Daily 2x VIX MT ETN (TVIZ)
7. Direxion Daily Small Cap Bear 3X Shares (TZA)
8. ProShares UltraPro Short Russell2000 (SRTY)
9. VelocityShares Long VIX ST ETN (VIIX)
10. ProShares VIX Short-Term Futures ETF (VIXY)
11. ProShares UltraPro Short QQQ (SQQQ)
12. ProShares Ultra Silver (AGQ)
13. Direxion Daily Nat Gas Rltd Bear 3X Shrs (GASX)
14. Direxion Daily Mid Cap Bear 3X Shares (MIDZ)
15. ProShares UltraPro Short MidCap400 (SMDD)
16. Global X Gold Explorers ETF (GLDX)
17. Market Vectors Junior Gold Miners ETF (GDXJ)
18. Direxion Daily S&P500 Bear 3X Shares (SPXS)
19. Direxion Daily China Bear 3X Shares (YANG)
20. ProShares UltraPro Short Dow30 (SDOW)
21. ProShares UltraShort Russell2000 Growth (SKK)
22. Direxion Daily Technology Bear 3X Shares (TECS)
23. Market Vectors Gold Miners ETF (GDX)
24. ProShares UltraShort SmallCap600 (SDD)
25. ProShares UltraShort Health Care (RXD)

If you believe you have lost money as a result of an investment in these or any ETFs, or because of some other investment, contact an attorney at Malecki Law for a free consultation to determine if you may be able to recover your losses.

REIT Investment on the Rise - But Is That a Good Thing?

October 1, 2013,

As reported recently by the Wall Street Journal, investment in non-traded Real Estate Investment Trusts ("REITs") is at an all-time high and poised to continue to rise. Some estimates anticipate more than $18 billion to be invested in non-traded REITs by the end of this year.

Solicited with the prospect of annual yields of more than 6%, income-seeking investors have had their hard-earned savings steered into non-traded REITs, oftentimes without a complete disclosure of the risks involved. Many brokers and financial advisors pitch REIT investments to their retirement and near-retirement aged customers, emphasizing the perceived "safety" of real estate investment coupled with the higher than normal annual yield, but do not fully explain the associated risks and bloated commissions (as high as 15% in some cases).

What many investors are not told is that because these investments are not publically traded, while the REIT itself may report to them a specific value for their shares, the actual value of their investment may not be readily available - and could even be 10-20% lower if sold on secondary markets. This discount is often caused by the illiquidity of the investment. In other words, sellers are forced to sell for less than what they paid in order to get out of the investment (also called liquidating the investment).

The Financial Industry Regulatory Authority has even posted warnings on its website about the dangers of REIT investing, yet many investors are never made aware of these risks by their brokers.

There is still the potential for big money to be made by the issuers of these products and the brokers who sell them, so firms like LPL Financial and Ameriprise Financial, along with others, continue to market them to their customers.

Unfortunately, illiquidity and large losses have been incurred by REIT investors in the past and may be looming on the horizon for investors who may currently own unsuitable REITs.

Continue reading "REIT Investment on the Rise - But Is That a Good Thing? " »

Criminal Charges Filed Against SAC Capital Adisors

August 2, 2013,

As has been widely reported, Criminal charges were filed against SAC Capital Advisors LP, with accusations that the hedge-fund firm is guilty of a decade long "scheme" of insider trading. In total, prosecutors charged SAC Capital and its business units with a total of four counts of securities fraud and one count of wire fraud. The charges come after a multiyear investigation by the FBI, prosecutors, and the SEC. The government is also accusing former SAC portfolio manager, Richard Lee, of conspiracy to commit securities fraud. The indictment comes only a short time after SAC agreed to a $616 million settlement of insider-trading charges.

Civilly, prosecutors are looking to have SAC and any of its affiliated corporate entities surrender all of their assets. SAC manages some $14 billion in assets, a majority of which does not come from outside investors.

In a separate civil action, the SEC is seeking a lifetime ban for Steven A. Cohen, who started SAC twenty-one years ago with roughly $20 million of personal funds, from managing client money. Mr. Cohen has not been charged criminally but denies any allegation of wrongdoing. Before the financial crisis of 2008, SAC held over $16 billion in assets and reportedly charged some of the highest fees in the business - 3% annually on the total investment, plus as much as 50% of whatever profits the firm generates.

This is just the latest example of the tarnishing of some of the largest and most prestigious names on Wall Street. The revelations of the past five years should serve as an indication to investors that even the most well-known financial firms and well-respected individuals at those firms are not always "doing things by the book" and can still be negligent or even perpetrate a knowing fraud. Investors should also be aware that if they find themselves the victims of a negligent financial advisor or a larger scale fraud, they may have a right to recover some or all of their losses.

Continue reading "Criminal Charges Filed Against SAC Capital Adisors" »

Maxwell B. Smith Sentenced for Running a New Jersey Ponzi Scheme: Investors Should Look to His Brokerage Firm for Relief

June 12, 2013,

Maxwell B. Smith was sentenced to serve the next seven years in federal prison for operating a $9 million Ponzi scheme. Maxwell sold investments as a fund that made loans to nursing homes. Smith had previously plead guilty to several counts of mail fraud as well as money laundering.

It is believed that Smith was employed as a financial professional at several financial firms in New Jersey, where he provided financial advice to his clients, many of whom may have lost money to his Ponzi scheme, Health Care Financial Partners ("HCFP"), purportedly a fund with hundreds of millions of dollars in assets. Investors even received a prospectus guaranteeing 7.5% to 9% per year, tax free. Investors could buy bonds in amounts ranging from $25,000 to $300,000.

Investors may not know that broker-dealers, like the ones that it is believed registered Mr. Smith, have a duty to supervise their employees. As a result, in situations like these, investors may be entitled to recover against the financial firms that employed the financial advisor for failing to supervise their employee.

Mr. Smith was apparently employed by Rickel & Associates, Inc., Atlantic Group Securities, Inc., JJB Hilliard, WL Lyons, Inc., PNC Investments, and Cantone Research, Inc. during the Ponzi schemes operation. It is believed that had these firms properly supervised Mr. Smith, they should have caught and stopped this Ponzi scheme.

Continue reading "Maxwell B. Smith Sentenced for Running a New Jersey Ponzi Scheme: Investors Should Look to His Brokerage Firm for Relief" »

LPL Reportedly Under Fire From State Regulators

April 1, 2013,

The broker-dealer LPL, Linsco Private Ledger, has been in the news a lot recently - for all the wrong reasons. LPL was even recently featured in The New York Times for its frequent "tangles" with state and federal regulators.

LPL is the nation's fourth largest brokerage firm, with more than 13,000 brokers who currently service over 4 million customers. LPL attracts brokers from other brokerage firms by reportedly paying a higher percentage of the commissions generated directly to the broker - roughly 80% at LPL versus as low as 15-25% elsewhere. While this model can be very lucrative for well-minded brokers, this model can also attract deceitful brokers who do not have their clients' best interests in mind and seek to skirt the law.

LPL's network of brokers is very spread out by brokerage firm standards, with many brokers operating out of an office of only one or two individuals - versus other brokerage firms which may have up to several hundred brokers under one roof.

The law requires that LPL supervise its brokers in remote and small offices as if they were under the main office's roof. For LPL, this can make supervision over these brokers very challenging, and oftentimes ineffective. In just the past year and a half, LPL was penalized by regulators in five different states for failing to supervise its brokers properly.

Mr. William Galvin, the Massachusetts secretary of the commonwealth, indicated to the New York Times that in a recent investigation, "[w]hat we really saw was a complete lack of supervision."

Several of these investigations reportedly stem from the sale of Real Estate Investment Trusts (REITs) to unsophisticated investors. Unsophisticated investors may not be aware of the risks inherent to REIT investments such as illiquidity and substantial loss of principle. They may also not be aware that REITs generally pay a high commission to the broker and the brokerage firm who sold it.

Unscrupulous brokers may sell REITs as safe, income producing investments to unsuspecting, unsophisticated investors for whom they are not appropriate, in order to get the higher commission.

The attorneys at Malecki Law engage in securities litigation and arbitration in forums such as FINRA, where they have handled many cases involving firms' failures to supervise their registered representatives. If you believe you have lost money as a result of questionable conduct by your broker, please contact an attorney at Malecki Law to determine if you may be able to recover some or all of your losses.

Jenice Malecki of Malecki Law Speaks with the Wall Street Journal About "Ending Up In Arbitration"

March 20, 2013,

Securities attorney Jenice Malecki spoke recently with Wealth Management at wsj.com's Caitlin Nish about what makes a strong investor claim against a broker and the steps that lead up to brokers having to defend themselves in arbitration.

To watch the video click here.

Investors who have lost money because of bad advice, unsuitable investment recommendations and misconduct by their financial advisor may seek to recover their losses through arbitration.

Arbitration is known as an "alternative dispute resolution" process. Rather than file a lawsuit in court in front of a judge and jury, an investor can sue their financial advisor in arbitration in front of a panel of one to three neutral people, known as "arbitrators." These arbitrators will hear the evidence and reach a decision regarding the claim.

Most securities arbitrations take place under the rules of the Financial Industry Regulatory Authority (FINRA), as virtually all brokerage firms require members to arbitrate customer complaints upon the customer's request and then create customer agreements containing arbitration clauses.

Chances are that if you have a brokerage account, you have already agreed to arbitrate your claims. You may even be bound to do so.

Whether you choose arbitration or are required to participate in it, most arbitration uses rules and procedures similar to those used by the courts to resolve claims. During the proceedings, the arbitrators will determine what evidence is heard and then will consider all evidence presented to reach a decision. An investor usually receives the arbitrators decision about if and how much they won within thirty days of the close of the arbitration proceeding.

If your investment losses are putting you on the road to arbitration, it makes sense for you to contact an attorney with experience handling such securities claims, such as those here at Malecki Law for a free consultation.

Citigroup Reportedly Agrees to Settle Class Action For $730 Million

March 19, 2013,

It has been reported that New York based Citigroup has agreed to pay $730 million to settle claims that it misled investors with respect to nearly 50 bond and preferred stock offerings over a period of more than 24 months between 2006 and 2008. The investors' claims were said to be based on misleading statements from the bank over Citigroup's exposure to mortgage backed securities, its loss reserves, and the credit quality of some of its held assets.

Before the settlement can be finalized, it must be approved by the US District Court in Manhattan. If approved, it would be the second largest financial crisis related settlement to date - trailing only Bank of America's $2.43 billion settlement related to its purchase of Merrill Lynch. According to the Wall Street Journal, Citigroup claimed to have done nothing wrong and stated that it settled to avoid the trouble and costs of extended litigation.

This is just one more of many such settlements that have resulted from the financial crisis, totaling billions of dollars that have been returned to investors. Just last year, it was reported that Citigroup paid $590 million to settle allegations by investors that it misled shareholders about other problems in 2007 and 2008. Wachovia and Bank of America, among others, have also been reported to have recently reached settlements in excess of $500 million with investors.

The events underlying cases such as this one, brought on behalf of classes of investors are large, striking examples of how banks mislead investors on the grandest scale. However, class actions are not the only avenue investors have to recover their losses.

Misled and defrauded investors have the option to opt out of large class actions and pursue their claims independently. While joining a class action may seem like the easy way for a victimized investor to recoup their losses, class actions have been criticized for returning less to individual victims than could have been obtained had each investor brought their own individual case.

Investors who have suffered losses and wish to get back as much of their losses as possible, should call the securities fraud attorneys at Malecki Law for a free consultation to explore their rights.

Investors Should be Wary of Student Loan Securities Investments

March 4, 2013,

The Wall Street Journal reported on March 4, 2013 that Sallie Mae sold $1.1 billion of securities backed by private student loans, noting that demand for the offering was fifteen times that. Related to this offering, the Wall Street Journal noted that a new platform was being rolled out by SecondMarket Holdings Inc. that would enable lenders to directly issue student-loan securities to investors.

The potential problem with the securitization of student loans is the increase in default by borrowers on the underlying student loans. The Federal Reserve Bank of New York has stated that 31% of people paying back student loans were late on their payments by 90 days or more, an increase from 24% in 2008, as reported by the Wall Street Journal article.

Investors who are offered or are considering investing in student loan backed securities should keep in mind the spike in pre-recession investing in mortgage-backed securities that was then followed by massive defaults on payments of those underlying mortgages, which in some ways deepened the scale and effect of the 2008 recession. While student loan backed securities may lead to greater yields, these investments would most likely also include increased risk of loss. Investors should remain wary of including this investment in their portfolio, especially given the tough employment market and increase in late payments.

Often times, investments are marketed and sold without complete disclosure about the risks attributable to those investments, or are simply recommended to the wrong sort of investor. The stripping of or failing to provide complete risk disclosures may be deemed securities fraud, and depending on the investor, such a recommendation may be deemed an unsuitable investment. Financial Industry Regulatory Authority (FINRA) Rules require that under certain circumstances, recommendations must also be suitable when made to institutional customers.

The attorneys at Malecki Law specialize in securities litigation and arbitration in forums such as FINRA. If you believe you have lost money as a result of inappropriately marketed or unsuitable investments, please contact an attorney at Malecki Law to determine if you may be able to recover some of your losses.

Wells Fargo Advisors, LLC is Ordered to Repurchase Fannie Mae Preferred Shares in FINRA Arbitration

February 7, 2013,

7776_share_markets.jpgOn February 6, 2013, the Financial Industry Regulatory Authority (FINRA) announced that a public customer was awarded an award of full rescission against Wachovia Securities, LLC, doing business as Wells Fargo Advisors, LLC ("Wells Fargo") for the entirety of Fannie Mae Preferred shares recommended by Wells Fargo. By awarding full rescission, the arbitrator required Wells Fargo to repurchase the Fannie Mae Preferred shares at the same price they were sold to the customer. The arbitration award is attached here.

According to the award, the arbitrator found that Wells Fargo was liable for negligence, negligent supervision, fraud and breach of contract as a result of the sale of the Fannie Mae Preferred shares. Billions of dollars of Fannie Mae Preferred shares were sold by broker-dealers like Wells Fargo to investors before the U.S. Government placed Fannie Mae in conservatorship and stopped payments of preferred dividends to investors, but after we believe such broker-dealers were aware that those preferred shares were much riskier than how they were promoted to investors.

In our opinion, Fannie Mae Preferred shares were often endorsed as a safe investment by brokers and broker-dealers, especially given that Fannie Mae was considered a quasi-governmental entity. However, as early as February 2008, we believe many broker-dealers were well aware of Fannie Mae's exposure to real estate liabilities. On March 10, 2008, Barron's reported that Fannie Mae's solvency would be tested by a growing number of mortgage defaults and falling home prices. Despite these in-house understandings of the risky nature of Fannie Mae Preferred shares, many broker-dealers continued to promote the investment as safe, and provided their brokers with research material to further promotion of the shares. Like many other broker-dealers, Wells Fargo, recommended the Fannie Mae Preferred shares to investors who sought safe investments, according to the award.

The arbitrator in the February 6, 2013 award made a point of describing how the broker was not at fault. The broker acted based on research she was provided by Wells Fargo, so Wells Fargo was found solely liable for the investor's losses. Essentially, the award states that Wells Fargo caused the recommendation of unsuitable investments to the investors.

If you believe you have lost money as a result of Fannie Mae Preferred shares, or because of some other investment, please contact an attorney at Malecki Law to determine if you may be able to recover some of your losses.

Falling Timber: Timberland REIT Reportedly Plunges In Value

December 19, 2012,

As recently reported by InvestmentNews, the estimated value of common stock in real estate investment trust (or REIT) of Wells Timberland REIT, Inc. fell to $6.56 per share. Given the illiquidity of the trust, finding that price in the market may prove difficult. That figure marks a 35% plunge in value since the REIT premiered in 2006 at $10 per share. Unfortunately, such incidents are all too common in a post-bubble real estate industry continuing to face adversity. Many of these incidents have caused substantial losses to investors who invested some or all of their savings in these ventures at the recommendation of their financial advisor.

The trust in question is controlled by Wells Real Estate Funds, an industry giant which has over $11 billion invested in real estate worldwide. Wells management has committed $37 million in preferred equity to this REIT alone, yet the trust currently appears to accrue annual dividends of a mere 1%. In October of 2011, redemption of trust shares was suspended until a new share value could be determined. Beginning next month, shareholders are apparently supposed to have the option of redemption, which will garner 95% of each share's estimated value, or $6.23.

REITs in many instances can be considered to be high-risk endeavors: appealing for their potential for high gains due to their interest rates, but with equal if not unwarranted potential for resolute failure, and a possible lack of accountability toward investors. Too often, financials advisors describe high-risk investment products like REITs as safe, secured or guaranteed, typically to get the higher commission that these riskier investments pay. Misrepresenting the risk of an investment to a customer like that is against the law and rules under which these professionals work.

It is the right of any and all investors who believe they may have suffered losses as a result of recommendations of their financial advisor to contact our offices to explore their legal rights and options. If you or a family member invested in real estate investment trusts, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

Malecki Law takes a proactive and informed approach to the financial news of today: actively engaging in fact-finding analysis on prospective cases from around the world. Our thorough knowledge of securities law's history and fine points makes us ideal consultants for investors who have suffered losses due to misadvice from their broker or other financial counsel. Information on a selection of funds and companies currently under investigation by Malecki Law can be found below. Our pursuit of excellence is constant, but our opportunities to make lasting positive change to the securities industry begin and end with determined clients who seek justice.