New York Securities Lawyers Blog

The New York Attorney General Eric T. Schneiderman announced today the unsealing of a 35-count indictment of and the arrest of Robert H. Van Zandt, a Bronx tax preparer who for years sold promissory notes in alleged real estate investments "guaranteeing" high rates of interest return. He sold these promissory notes out of his tax preparation business, the Van Zandt Agency, while he was licensed by various broker-dealers to sell securities.

Malecki Law currently represents a large group of investors who purchased promissory notes totaling almost $10 million in aggregate from Mr. Van Zandt in an arbitration before the Financial Industry Regulatory Authority ("FINRA"), the independent regulator of securities companies. The arbitration is pending against MetLife Securities, Inc., a broker-dealer who employed Mr. Van Zandt during a period in his career. While investors purchased the promissory notes directly from Robert Van Zandt and through the Van Zandt Agency, he was then licensed by MetLife Securities, Inc. to sell securities, and MetLife was required to perform certain supervisory and audit duties as a result of that employment relationship.

Malecki Law is also investigating the potential for other actions against other broker-dealers arising from Mr. Van Zandt's alleged real estate investments.

Broker-dealers owe heightened audit and supervisory duties of these off-site and often unregistered offices because promissory note fraud and other Ponzi-like frauds and schemes have become common. Under FINRA Rules, SEC guidance and prevailing industry standards, broker-dealers have affirmative duties to oversee and supervise the conduct of their associated persons, both inside and outside of their offices.

Specifically, firms have been repeatedly advised, both through FINRA Rules, NASD Rules and FINRA/NASD Notices to Members, to beware of certain improper or fraudulent activities which are regularly conducted and can have devastating effects on customers. Notice to Members 98-38 specifically outlined that geographically diverse offices present supervisory risks and potential problems in detecting faulty sales practices.

FINRA has, itself, has recently fined firms for lax supervisory performance, or inadequate systems for detecting potential fraud. Mr. Van Zandt, through the Van Zandt Agency, operated a tax preparation business, creating the sort of environment that would require heightened supervision.

The New York Attorney General noted in their press release that the fraud continued through at least 2011 and involved at least $4.6 million. We believe it was a larger scheme. Investors who believe they purchased similar investments through Mr. Van Zandt or any other employee at the Van Zandt Agency should immediately contact an attorney at Malecki Law to see if they qualify for an action against a broker-dealer who licensed and employed these individuals during the relevant time period.

Malecki Law announces the filing of an Amended Statement of Claim against MetLife Securities in connection with the real estate investments solicited by Robert H. Van Zandt of The Van Zandt Agency in the Bronx, NY as part of an alleged Ponzi scheme currently under investigation by the New York State Attorney General's Office.

This past December, Malecki Law announced the filing of a civil arbitration complaint with the Financial Industry Regulatory Authority against MetLife Securities for more than $4 million on behalf of twenty-four investors. The attorneys at Malecki Law continue to take calls and anticipate either adding future victims to the existing claim or commencing a second action, if necessary.

In the following months, many more investors contacted the attorneys at Malecki Law requesting to be part of that action. So, on March 5, 2012, Malecki Law amended their complaint with FINRA to add an additional nineteen investors to the action. In total, Malecki Law's forty-three clients have suffered losses of over $9.2 million as a result of their investments through Mr. Van Zandt and the Van Zandt Agency.

We urge anyone with knowledge about the Van Zandt Agency or MetLife Securities supervision (or lack thereof) over the office to contact us. Investors or employees with knowledge of the events at the Van Zandt Agency who seek further information or want to explore their rights should contact Malecki Law by e-mail or phone. Malecki Law has a uniquely diverse background with significant experience representing clients in securities and investment fraud issues and is "AV Rated" by Martindale-Hubbell. Malecki Law hosts a website providing information and resources dedicated to the securities industry: www.AboutSecuritiesLaw.com. Please contact Jenice L. Malecki, Esq., MALECKI LAW, 11 Broadway, Suite 715, New York, NY 10004, Telephone: (212) 943-1233, Facsimile: (212) 943-1238, E-Mail: Jenice@MaleckiLaw.com.

We recently posted about the Behringer Harvard family of REITs and the devastation that these funds have had on investors' portfolios. Some investors have now begun to seek answers. Investment News reports that a 70 year old woman who has seen her share in Behringer Harvard Short-Term Opportunity Fund drop 96% has recently filed a letter with the Financial Industry Regulatory Authority (FINRA) to complain about her investment.

The shares of BH Short-Term Opportunity Fund have dropped to $.40 from $6.48 just one year ago, and from the $10 per share they were offered at just six years ago. Since the BH Short-Term Opportunity Fund had $130 million in total assets, it is clear that this investor is not alone. Many firms, such as Capital Financial Services, Inc. sold these products to senior citizens.

Since REITs can deliver regular income of up to 7-8% a year, they are attractive to seniors who live off the income generated by their investments. Since these products offer high commission, they are very attractive to the brokers who sell these products. However, all too often, the risks involved with investing in REITs are hidden from investors by their brokers, and these same seniors can see their entire life's savings disappear in the blink of an eye. Downplaying and failing to fully disclose the risks of an investment to a client is illegal, and investors who have suffered losses as a result may have the right to recover their entire loss.

It is the right of any and all investors who believe they may have suffered losses to contact our offices to explore their legal rights and options. If you or a family member suffered losses in Behringer Harvard REITs, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation.

Recently in the news have been stories about the devastation that the Behringer Harvard family of Real Estate Investments Trusts (REITs) has had on investors' portfolios. It was reported by Investment News that the value of the popular Behringer Harvard Opportunity REIT I is down 46% from its value this time a year ago, with prices down to just over $4 per share. The value of the Behringer Harvard REIT I has also seen substantial declines as well.

Unfortunately for many investors, a quick recovery does not appear to be in store. According to Investment News, Mr. Robert Aisner (Behringer Harvard's Chief Executive) "said in an interview ... that since the REIT is shedding assets, its valuation will go down in the long run." That is bad news for investors.

Investors who bought into this fund , believing it to be a safe investment, are now seeing substantial portions of their savings disappear. Too often, investors in REITs do not fully understand the risks of investing in these illiquid and oftentimes speculative products. These products often require investors to "lock in" their money for a set time period and are difficult if not impossible to sell in the interim, even amid sharp declines in value. For more information on the risks of REITs and other investments, click here.

Because of the inherent risks involved, it is not unlikely to see investors suffer substantial losses. However, brokers and other retailers of REITs far too often sell these to clients as safe, income-producing investments and substantially downplay the risks. These tactics are illegal and against the FINRA rules, and investors who are the victims of such practices may be entitled to recovery for all of their losses.

It is the right of any and all investors who believe they may have suffered losses to contact our offices to explore their legal rights and options. If you or a family member suffered losses in Behringer Harvard REITs, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation.

It has been difficult to not hear about the recent events surrounding MF Global Holdings Ltd and former Senator and New Jersey Governor, John Corzine. However, many investors do not really understand what happened or why. A recent article in Forbes Online titled "MF Global: Were the Risks Clear?" helps to break down just how these events transpired. The article details how overexposure to European sovereign debt (government bonds) leveraged by using borrowed money (called "margin") coupled with declines in the value of those bonds caused the downfall of the fund.

The almost overnight collapse of such a prominent and public investment fund as MF Global has brought many issues to light, and the Forbes article characterizes this "as the latest reminder to investors that it's important - and sometimes very difficult - to understand the entire spectrum of risk they're exposed to." These events also raise many questions that should be asked by investors, such as "Do I really understand how my advisor is managing my savings?" and "Have the risks in my portfolio been adequately explained to me?".

Many investors in MF Global have said that they did not understand what their money was being invested into, but rather trusted that the firm would do the right thing by them. One investor cited by the article said on his blog that "I am supposed to know the difference between an ethical operator and one that is not. The truth is that it often is very difficult to tell them apart." This has unfortunately come to be a fairly common sentiment by many individual investors, in reference to their personal broker and the funds they invested in.

In the present day, individual investors as well as large institutions and investment funds can all be equally at risk of the volatility in the European markets, like MF Global was. Investments directly in European bonds and others with exposure to the European markets may not be appropriate for conservative investors, including senior citizens and retirees, especially if these investments were made on margin. Individuals with these investments may have already lost or may be at risk of losing large portions or possibly all of their investments.

It is the right of any and all investors who believe they may have suffered losses to contact our offices to explore their legal rights and options. If you or a family member suffered losses in unsuitable or risky investments, such as those in European debt, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation.

Malecki Law announces the filing of a civil arbitration complaint in excess of $4 million, plus punitive damages, against MetLife Securities, Inc. The case is being filed with the Financial Industry Regulatory Authority ("FINRA") today for alleged improper supervision and selling away, relating to an alleged Ponzi scheme that devastated a Bronx community. The complaint alleges that the firm failed to properly supervise and maintain the compliance of one of their registered representatives, Mr. Robert H. Van Zandt, in violation of federal and state securities laws, as well as financial industry rules and regulations. Robert H. Van Zandt is apparently already under investigation by the New York State Attorney General's Office. "I believe there are a lot of victims out there who don't know what is going on, nor their rights under the rules and regulations of the securities industry," securities fraud attorney Jenice Malecki indicates.

In November of this year FINRA and the U.S. Securities and Exchange Commission jointly released Regulatory Notice 11-54 stressing the importance of supervision over registered representatives. Shortly before the release of Regulatory Notice 11-54, FINRA filed a regulatory action against Merrill Lynch and fined the firm $1 million for failing to properly supervise a registered representative and catch a Ponzi scheme that he was running out of a San Antonio, Texas branch office that victimized clients and non-clients of Merrill Lynch, all to which Merrill Lynch was responsible for its failure to supervise.

The complaint filed by Malecki Law relates to the alleged conduct of Robert H. Van Zandt of the Van Zandt Agency, who is believed to have sold unregistered securities in the form of promissory notes that were represented to prospective investors as part of a secured real estate investment, which appears improperly set up and not secured at all. It is alleged that these notes were part of yet another "Ponzi" scheme in what Ms. Malecki opines to be "an era filled with ponzi schemes for which the industry should closely monitor to avoid harm to unwitting victims," this alleged ponzi scheme one run through a series of shell companies including Burke and Grace Avenue Corp.

According to his FINRA Broker Check Report, Robert H. Van Zandt was a registered representative with MetLife Securities, Inc. from December of 2004 through February of 2007. During that time, it is alleged that despite its duties to properly supervise Mr. Van Zandt, MetLife Securities allowed him and others to sell unregistered securities in connection with the operation of this Ponzi scheme for the entirety of his tenure with the firm.

It is alleged that Mr. Van Zandt used his status in the close-knit Bronx community to earn the trust of his clients, and ultimately, solicited hundreds of investors, defrauding them of over $20 million. According to the complaint filed with FINRA, Investors were solicited to invest in the scheme while they were having their tax returns done at the Van Zandt Agency and were lured into verbally and through prominently placed brochures promising essentially "guaranteed" returns of 9-12% annually, without appropriate registration, disclaimers, or any earmarks of supervision over this conduct. It is believed that these investors, many of whom invested their IRA's, proceeds from inheritances, and life savings, have lost substantially all, if not all, of their investment.

Investors or employees with knowledge of the events at the Van Zandt Agency who seek further information or want to explore their rights should contact Malecki Law by e-mail or phone. Malecki Law has a uniquely diverse background with significant experience representing clients in securities and investment fraud issues and is "AV Rated" by Martindale-Hubbell. Malecki Law hosts a website providing information and resources dedicated to the securities industry: www.AboutSecuritiesLaw.com. Please contact Jenice L. Malecki, Esq., MALECKI LAW, 11 Broadway, Suite 715, New York, NY 10004, Telephone: (212) 943-1233, Facsimile: (212) 943-1238, E-Mail: Jenice@MaleckiLaw.com.

The Securities and Exchange Commission (SEC) has in recent weeks seemingly broadened its pursuit of wrongdoers by filing cases against defendants on the charge of negligence alone. Negligence can be defined as a situation in which one should have known that information given to investors was inadequate. In recent years, negligence fines have been what accused bigwigs would accept and pay to avoid more severe charges of fraud, which carry heavy costs and the potential to be banned from the finance industry. Such admissions were usually made out of court and out the public eye. Readers looking to learn more about the role of negligence in securities law proceedings can visit our firm's informational Practice Areas and Investors sections.

As of today, these ramped-up regulations have been sparsely utilized, though the Wall Street Journal speculates that more actions against negligence are forthcoming. It's the SEC's recently united "Structured and New-Products Enforcement" unit that's claiming to be newly insistent about information being more fairly provided to investors.

Criticism of the SEC's post-2008 methods has come in part because they have seemingly failed to catch many financial criminals in the act. Detractors believe that in many cases, outright fraud or recklessness is the issue: branding such failures as negligence would then only diminish or downplay their severity. The penalties for fraud are far more severe, but are in turn more challenging to obtain, as they require proof of intentional malfeasance. The charge of "Recklessness" falls between fraud and negligence in severity, and can be defined as one turning a blind eye to potentially harmful activity.

Today's SEC is in other ways all too familiar with allegations of negligence: the commission itself was sued on the same charge earlier this year by a group of Texas fraud victims for allegedly failing to take proper actions against Fort Worth based Ponzi schemer Allen Stanford.

Concern from SEC's critics stems from the idea that the commission will be too easily satisfied with issuing negligence as a kind of "slap on the wrist", and that it is too often favored over more intensive measures that require greater time, money, and research. In 2010, Citigroup paid $180,000 in fines that kept them from facing SEC civil charges for alleged failure to disclose $40 billion worth of dicey mortgage assets.

The most noteworthy instance of SEC proactivity to date has been a civil lawsuit filed against Edward Steffelin, an executive who managed the assets of Squared, a series of J.P Morgan backed mortgage bonds that went under in 2007. Steffelin is accused of failing to inform investors that J.P. Morgan had placed a hedge fund bet that the deal would fail, despite being on paper the group trying to make it succeed. J.P. Morgan, while refusing to admit or deny culpability, paid the SEC $153.6 million to settle civil fraud charges. Says Steffelin's lawyer Alex Lipman, "We understand the SEC's desire to burnish its reputation in light of recent scandals... But this is not the right case and certainly the wrong defendant to target as a means to redress these failures."

Regardless of whether or not Steffelin is at fault, the SEC is at the center of a pivotal moment: one in which many Americans seek increased regulations on financial institutions, while those same institutions argue that such legislation will limit national growth and profit. The commission taking action against single defendants also bares unique challenges, as individuals are more apt to fight such charges in court than a corporation, which is typically willing to pay fines to avoid litigation.

Credit rating firms like Standard & Poor, Moody's, and Fitch Ratings have also been under higher scrutiny from the SEC after the commission found errors in S&P's analysis of over a thousand mortgage-backed bonds. Like J.P. Morgan and other investment firms, these rating groups have also struggled with public image in the wake of the financial crisis. The SEC's findings were part of an annual review of such rating firms instated by the Dodd-Frank Act. SEC has furthermore notified Standard and Poor that it may be face charges of fraud for inappropriately rating a $1.6 billion mortgage deal that collapsed shortly thereafter.

It seems possible that some of this heightened monitoring of S&P is a result of a the rating group's recent downgrading of U.S. debt, an action that has made them no friends on Capitol Hill. The SEC is additionally looking into potential insider trading from S&P employees that may have occurred just prior to the downgrade, and the potential for S&P ratings to be leaked to the companies in question prior to their publication.

This alleged effort towards tighter regulation comes as a new criminal enforcement office this month opens its doors: the New York State Department of Financial Services, run by newly appointed regulator Benjamin Lawsky, a longtime financial advisor to Governor Andrew Cuomo. The unit is a merging of the state's banking and insurance regulators, entities typically separate in state law coming together to rein in New York's massive and unique financial sector. Lawsky is being painted as no favorite among corporate executives: WSJ notes that it was he who closely examined and criticized bonuses paid to executives of companies receiving federal bailouts.

The formation of such watchdog committees is but the first step towards resonant progress in financial regulation. Ribbon cutting ceremonies make headlines, but on their own garner no convictions. If the goal is increased expectations of transparency toward the consumer, we can only hope that charges of negligence will deter those who seek to defraud us. How the SEC's role in reform evolves in the months and years to come will tell us much about what a bailed out financial sector can offer its post-crisis nation, and whether decreases in fraud have been hard fought and achieved.

The Financial Industry Regulatory Authority ("FINRA"), issued a news release on October 4, 2011 announcing that it had fined the broker-dealer Merrill Lynch for failing to have a supervisory system in place that would properly monitor employee accounts. FINRA stated that Bruce Hammonds, who at the time was a registered representative of Merrill Lynch, was permitted to open a business account but failed to supervise funds that customers deposited and Hammonds withdrew. Mr. Hammonds ended up "convincing more than 11 individuals to invest more than $1 million in a Ponzi scheme" run through the business account, FINRA disclosed.

FINRA further reported that Merrill Lynch's "inadequate supervisory system and the firm's reliance on employee self-reporting enabled Hammonds to facilitate his Ponzi scheme, to the detriment of investors." Merrill Lynch's system, one that could only be effective if an employee did not properly set their social security number as the primary number associated with the account was found by FINRA to properly capture the account, which allowed Mr. Hammonds to perpetuate his scheme.

Firms' failures to properly supervise their registered representatives is something Malecki Law takes very seriously, and we have launched investigations into several such alleged schemes, including one allegedly perpetrated by Carr Miller Capital, LLC and the Van Zandt Agency.

If you have questions or regarding these or other questionable business schemes with broker-dealers, contact the attorneys at Malecki Law for the confidential consultation.

FINRA's September 7, 2011 News Release can be found here.

In a follow up to our recent critique of dividing defrauded consumers into "net winners" and "net losers" comes a decision from U.S. District Judge Jed Rakoff, who has dismissed Bernie Madoff trustee Irving Picard's claims filed to regain nearly $1 billion from Fred Wilpon and Saul Katz, the owners of baseball's New York Mets. The decision may potentially limit Picard's future chances of recouping investors' initial investments with Madoff, in what analysts have dubbed "clawback suits" filed by the trustee against the defrauded.

The judge's decision illustrates a difference between U.S. bankruptcy law and securities law regarding when investors should return money previously received from their broker. A thorough, easy-to-read explanation of fraud can be found on our home site. For New York law, that period spans up to six years prior to a broker's bankruptcy, while Federal law caps that limit at only two years. What Picard will be able to recoup depends greatly upon whether he will continue to be held to Federal standards. Several district court judges have in recent months sided with Madoff investors' requests to move cases out of bankruptcy court, a setting that typically favors the trustee.

What we can all learn from these rulings is that where and when an investment is made - as well as where and when any necessary litigation takes place - can be just as important as the venture you've chosen to pursue. For one, it's notable that our national standard for "clawback" measures is more favorable than that of New York, a state housing Wall Street and an immense amount of high stakes real estate, as well as many entertainment and banking endeavors. Clearly, it pays for investors to be informed about their state's "clawback" legislature: for those of us engaging the market longterm, timing is everything, and how recently you've been the victim of fraud sets crucial perimeters.

With only nine of eleven of Picard's claims against the Mets tossed out in court, he may still go forward in seeking to recoup $301 million in principal and $83.3 million in what he brands "false profits". Picard's challenge comes in explicitly proving that the Mets were "willfully blind" in ignoring warning signs of fraud, thereby placing the duty of such investigation upon the investor. "[Why] would defendants willfully blind themselves to the fact that they had invested in a fraudulent enterprise?" asked Judge Rakoff in his written decision. It is a succinct and astute question that sums up the value of accountability in our marketplace, and makes an apt demand of those committing fraud to accept the penalties of their deception.

There's an old pun making a comeback among New York securities lawyers: "Don't count your check-ins before they're cashed." The divide between so called "net winners" and "net losers" is a hot topic, particularly with regard to the defrauded victims of vilified Ponzi schemer Bernard Madoff. A thorough explanation of affinity fraud can be found in our Investors section, with a set of Ponzi scheme red flags available here from Investor.gov.

In August, the U.S. Second Circuit Court of Appeals upheld Madoff trustee Irving Picard's decision to award upfront recovery payments of as much as $500,000 solely to the scheme's "net losers": investors whose withdrawals from Madoff's fund did not match their initial investment. "Net winners" - those who withdrew more than their initial entry into the fund - seek the same recovery, but have been denied by Picard in a motion that has now held up in court.

Branding either party winners or losers is problematic, and discredits the fact that all of these investors suffered and were betrayed by the same scheme. Moreover, a precedent was set favoring "net winner" restitution in the case of Randall v. Loftsgaarden 478 U.S. 647 (1986), in which the Supreme Court ruled that "[t]his deterrent purpose is ill-served by a too rigid insistence on limiting plaintiffs to recovery of their 'net economic loss'". A 2001 ruling in California Ironworkers Field Pension Trust v. Loomis Sayles, 259 F.3d 1036, (9th Cir. 2001) binds respondents to an "Anti-Netting Rule", concluding that gains in one investment do not offset losses in another. Why then might Picard's whims prove to be, as one Wall Street Journal headline wonders, "the Final Word on This Issue?"

Encouraging trends in recent rulings and arbitration have favored the "Well Managed Account Theory", a method of calculating damages by taking the initial value of the investor's portfolio, adjusting by a percentage change in an appropriate index during the relevant period, then subtracting the value of the portfolio at the end of that period. The theory is better suited for today than the prevailing wisdom of old, commonly known as the "Net Out of Pocket Theory", in which claimants receive only the amount they originally invested less their subsequent withdrawals.

This latest Madoff ruling thus seems outdated (albeit still the industry norm), lacking both fair compensation for investors and accountability from the brokerage industry. Consider but one example, Leigh v. Engle, 858 F.2d 368, (7th Cir. 1988), where the court "undertook the straightforward approach of comparing the return on the improper investments with that of a reasonably prudent alternative investment" and "adopted the 'most generous' of the reasonable damage calculations submitted".

In March 2010, the SIPC (Securites Investor Protection Corporation) determined that Madoff's net losers were entitled to up to $500,000 in up-front recovery payments, while net winners were not. Picard totals losses at $17.8 billion, while a recent figure from investor representatives cites as much as $64.8 billion squandered. Picard and federal prosecutors have recovered $11 billion, about 60% of their loss estimation. The appeals court's criticism of compensating both parties equally is that to do so would give the same merit to presumptions of profit as it does to quantifiable cash investment.

In fact, what these "winners" seek is a reasonable estimate of net worth had their money been invested with genuine, sensible regard. Not a "best-of-all-worlds" fantasy complete with mountains of Apple and Facebook stock, but a fair sum in step with how their investments would have performed in the hands of any legitimate professional. The Net Out of Pocket theory discourages investment altogether, offering these supposed "winners" less than they would have made by putting their money into a savings account, and the same amount made by placing it under their mattresses. Yet Picard's lawsuit against one high profile client, the owners of the New York Mets, continues to move forward on the grounds that these fleeced investors should have better investigated their broker, or risk accusations of "willful blindness" and "conscious avoidance". Validating such baseless claims not only allows broker-dealers to regulate their own fraud, but offers impunity to those who defraud investors up to the point at which losses would equal prior gains.

While there is logic to insuring the worst hit victims get compensated, a view of "net winners" is flawed. Someone who invested in 1980, then received only their net sum back by 2010 is in a far worse predicament than someone who invested in 2008 and received their investment alone. Through litigation, Madoff's supposed "Net winners" are seeking adjustment for inflation on their claimed earnings and losses, arguing that a sum invested in Madoff in previous decades was worth more in the past than it is today, required greater investment and commitment, and would have benefitted from subsequent boom periods. One million dollars invested in 1980, they argue, would be worth much more than the same sum invested shortly before the '08 collapse. Presently, the SIPC does not permit inflation or interest adjustments in the dispensing of investor compensation.

This leads us to a lynchpin of SIPC claims: that investors must prove that their loss was a result of insolvency - the inability to pay debts - and not of fraud, misrepresentation, or poor stock selection. A high profile case such as Madoff's brings conscious deceit to light as the very cause of such insolvency. Thus, if Wall Street seeks to rebuilds its contract with Main Street, it seems imperative for the SIPC and like-minded organizations to enforce the responsibilities that the professional securities market has towards victims of fraud.

In rough economic times such as these, many investors have seen their accounts suffer large losses. As New York securities lawyers, we've seen some investors' accounts lose 25-50% over the course of a few months or years, while others have seen their accounts lose such large amounts seemingly overnight. A large drop in account value is unsettling for every investor, but for those nearing retirement or senior citizens living off their savings, large losses are extremely alarming and can be devestating. Regardless of their age or situation, investors who have suffered large losses often find themselves asking the same questions, "Is my account down because of the market, or is it something else?"

Investors who are approaching retirement or who are already retired are typically risk-averse - i.e. willing to accept lower returns to avoid the possibility of devastating losses. However, many of these investors find themselves being sold on "sure thing," "big winner," "can't lose," and "have your cake and eat it too" investment strategies that seem, and in fact are, too good to be true. Those who buy into these false promises can find themselves unknowingly invested in products and strategies that are much riskier than what they wanted, and most importantly, what they should have been invested in. Unfortunately, good times in the market can hide these risks from the average investor. It is not until a downswing in the market that these risks come to light, often taking the form of large, unexpected and crippling losses.

Many people who want to invest seek out professional guidance in handling their savings and their investments because they feel safer in the hands of professionals whom they trust and whom they believe are looking out for their best interests. Unfortunately, this trust can be abused and investors often find themselves in accounts that are not suitable for their financial needs and the amount of risk they are willing to take with their investments.

Investors often place complete trust in their financial advisor and follow all recommendations made to them, believing that their financial advisor has their best interest at heart. Regrettably, this is not actually the case and all too often, these people can find themselves in a situation where they do not even know what products they are invested in, until it is too late and they are financially devastated.

When confronted about large losses many brokers will simply blame it on the market, telling clients that "there's nothing I can do," "we'll have to just ride it out," "it's just the way the market is sometimes," or "it will bounce back, I promise." However, this is not always true. Sometimes, investment losses can be simply due to unfortunate swings in the market, but a properly diversified portfolio with the appropriate risk level should not experience such huge, devastating losses. These sudden, large losses may actually be the result of unsuitable investments or broker misconduct, including violations of state and federal law and SEC and FINRA Rules.

Other factors, such as a lack of diversification and an over-concentration in one type of investment or in one industry can also lead to losses. Trading on margin is also a risky strategy that many advisors portray as "safe" and "common practice" to their clients. More advanced investments such as ETFs and derivate products, like structured notes and mortgage backed securities, are also a big problem since they are often sold to investors who do not understand them or in some cases, do not even know what they are.

These sorts of investments, when unsuitable or improper for a customer, are barred from being recommended in order to protect investors from self-interested brokers and financial advisors. Investors who have been misled and suffered losses as a result do have rights and may be entitled to be reimbursed for some or all of the losses they have suffered.

Continue reading "Is my account down because of the market, or is it something else?" »

Malecki Law, a New York securities law firm based in Manhattan, is currently investigating claims against IRA Services Trust Company and Fiserv, Inc. arising out of investments solicited and promissory notes issued through the Van Zandt Agency in relation to real estate investments in the Bronx, New York and elsewhere.

The Attorney General of the State of New York is currently investigating the practices of the Van Zandts and on April 6, 2011, filed an application in the Supreme Court of the State of New York for an order of discovery and preliminary injunction against the Van Zandts and other related agencies.

Based on the initial inquiry of the securities fraud lawyers of Malecki Law and the Attorney General's investigation, there are questions about whether or not the Van Zandt Agency broke the law by engaging in the fraudulent issuance, promotion offer and sale of securities to the public in the State of New York. It is believed that hundreds and possibly thousands of investors may have lost money invested with the Van Zandts.

There may be claims against IRA Services and Fiserv for failing in their due diligence, supervision and providing a facility for an alleged fraud by an unregistered investment advisor that was also not a broker dealer. The lawyers at Malecki Law are focusing on potential claims against IRA Services and Fiserv, who may have breached various duties to individual investors, as they may be the only hope of a recovery for those who lost money.

Continue reading "Malecki Law Announces Investigation of IRA Services Trust Company and Fiserv, Inc. Arising Out of Investments with the Van Zandt Agency" »

Today, the SEC's new whistleblower program under the Dodd-Frank Act becomes effective, and is on the minds of many New York securities lawyers. These new rules were devised in such a way to provide an incentive for would-be whistleblowers to come forward and assist the SEC with investigations of possible securities law violations. Under these new rules, if an individual provides the SEC with original information about possible federal securities laws violations, and that information leads to a recovery by the SEC of $1 million or more, that individual would be entitled to receive up to 30% of the sanctions received by the SEC.

Under the new rules, internal reporting is encouraged, but it is not required. Individuals may instead go directly to the SEC. However, the value of internal compliance programs is addressed in the release, and there are incentives in place in the new rules to urge whistleblowers to report internally first.

There are also a few groups of individual who, for public policy reasons, are excluded from participation under the new rules. These include: compliance and internal audit personnel; officers, directors, trustees and partners who only discover the violations as a result of internal compliance procedures; public auditors who learn of the violations in the course of an engagement. However, these people may be eligible under certain circumstances, such as: they reasonably believe that disclosure is necessary to prevent the company from causing substantial injury to the property or financial interests of the company or investors; they reasonably believe that the company is impeding an investigation of the misconduct; or at least 120 days have passed since the initial internal report. Attorneys are also excluded, provided that they learned of the violations directly from attorney-client communications.

The new rules also provide substantial protection for individuals who do come forward, in order to prevent retaliation from their employer. Even if a whistleblower's tip only relates to possible violations and the SEC investigation is unsuccessful, that individual is now protected from retaliation by a new express private right of action. Whistleblowers may sue their employer and seek remedies including two times their back pay and reinstatement. However, this protection is only for individuals who go directly to the SEC, not for those who report only internally.

Given these new rules, it is now much safer for individuals who have information about suspected federal securities law violations to come forward, and whistleblowers now have the opportunity to be compensated for their efforts in aiding the SEC. Yet it is important for potential whistleblowers to ensure that they proceed through the appropriate channels. For that reason, individuals who wish to contact the SEC to report securities violations should consult with an attorney before doing so to ensure that their rights are protected.

Continue reading "New SEC Whistleblower Rules Become Effective" »

FINRA issued a warning to investors yesterday to about the risks of seeking higher yield with structured products, junk bonds and floating-rate bank-loan funds. It is a reality of New York securities law that with fixed income yields at historic lows, many investors who want to avoid the volatility of the stock market have found themselves with seemingly nowhere to go.

Many of these investors have found themselves lured in by structured products promising of higher yield with "principal protection" or junk bond funds promising higher yield with "professional management". FINRA reports that there have been significant increases in sales of high-yield bond funds, floating rate funds and structured products. These products have seen more than $100 billion in increased sales since interest rates fell.

However, average investors often don't look into or have trouble understanding the risks and fees associated with these investments. Investors typically only focus on the higher returns that these investments offer but should also be aware that these products typically have higher risks and fees associated with them.

Many of these risks and fees may not be readily apparent to the average investor, but are key to making a fully-informed decision about investing. Gerri Walsh, FINRA's vice president for investor education said, "Investors should never make an investing decision solely by looking at an investment's return, whether past or projected. Higher returns come with higher risk. Investors should always look behind an investment's yield, ensure that they understand how the investment works and carefully consider its fees and risks before investing,"

Floating-rate bank-loan funds may appear to be less vulnerable to interest rate fluctuations and offer inflation protection. However, many of the underlying loans may be sub-investment grade quality and can be subject to significant credit, valuation and liquidity risk.

Structured retail products may make investors feel safe since they appear to be "guaranteed" or "principal protected". However, investors often do not realize that these products are typically unsecured debt that is linked to a series of underlying assets. These products can be subject to market risk, credit risk and lack liquidity and may also contain high hidden costs.

Junk bonds are bonds that are rated as being below investment grade, meaning they have a higher risk of default than investment grade bonds, which is why these products have higher yields.

Leveraged products also promise higher returns than their target index, but investors often don't realize that this is only possible through the use of complex derivatives, which oftentimes will also compound losses when the target index fails to perform as hoped.
It is important that before you make an investment to understand the product you are investing in.

Many financial professionals will often accentuate the positives without fully disclosing the potential risks of an investment. Investors should not be embarrassed to admit that they do not understand the complexities of the product or be afraid to question their financial professional about how the investment works and what are the potential risks if the investment goes bad. Only then can you make a fully-informed decision about where you invest your savings.

Continue reading "FINRA Warns Investors to Watch Out For Hot Investments " »

The Wall Street Journal reported over the weekend about how one New York resident investor who lost his small stake in Washington Mutual once it was seized by the United States government in 2008 played a pivotal role in protecting the rights of similarly places investors. New York securities and whistleblower lawyers know there too be all too many investors in the same boat.

Nate Thoma, a self-taught trader who was wiped out when the U.S. government intervened in WaMu, discovered that he could recoup his losses by investing in trust preferred securities, which he bought through online trading account when they became available. The trust preferred securities essentially places the holder in the front of the line for any money distributed from WaMu's estate once it emerged from bankruptcy. The Wall Street Journal reported that Mr. Thoma suspected hedge funds were buying substantially more blocks of these trust preferred shares while also owning the bank's bonds.

And in December 2010, Mr. Thoma explained his theory to the Delaware bankruptcy court judge in the case In re Washington Mutual, Inc.: since the hedge funds were both bond holders in settlement talks, and owners of substantial swaths of trust preferred shares, were the hedge funds acting in the trust preferred holders' best interest when they negotiated on their behalf?

Mr. Thoma's argument, who was unrepresented for his objection and has no formal legal training, factored into the judge's resulting decision to disallow settlement of the case, and led to a settlement between the hedge funds and individual investors.

Such individual investor intervention in bankruptcy proceedings is rare. However, Mr. Thoma's intervention is instructive. It is important to keep a watchful eye over your investments. If you suspect that your wishes are not being considered by your broker, or your suspect that foul play is occurring in your account, you are best served to investigate the matter immediately.

The Wall Street Journal article can be found here.

The Delaware Bankruptcy Court's decision can be found here.