New York Securities Lawyers Blog

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.

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.

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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.

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The Securities and Exchange Commission has issued a bulletin warning of potential securities fraud among companies that went public through a reverse merger, which New York securities lawyers can recognize as a too common cause for alarm.

A New York Investment Fraud Attorney should be consulted whenever a firm becomes aware of a state or federal investigation. If you are an employee who has been a whistleblower or wants to cooperate with an investigation, the earlier professional legal advice is engaged, the better the chances of a positive outcome. Likewise, those who believe they have been victimized by stock fraud need to proactively seek quality legal representation as early as possible. Multiple competing claims, criminal investigations, bankruptcy and other complications may or may not ever permit investors to be made whole. But those at the front of the line generally stand the best chance of making a financial recovery.

The Street reporter Scott Eden reports in "SEC Warns on Reverse Merger Stocks" that the bulletin comes amid a growing stock scandal involving Chinese small-cap stocks that used the controversial process. News reports of fraud and theft of capital have plagued the Chinese small-cap stock sector since early spring. Several companies have reported auditors resigning or refusing to sign off on 2010 financials, which must be filed in annual 10-K reports with the SEC. Trading has been suspended for more than 15 Chinese companies -- tens of billions of market capital have evaporated as many stocks in the sector have lost at least half their value.

In a reverse merger, a privately held business obtains a registered listing by combining with a listed shell company. While legal, the process has been criticized as a means of bypassing the scrutiny of regulators, who more rigorously review bigger issues by companies looking to raise significant amounts of capital. Since 2009, there has been an uptick of Chinese companies using the process to list shares on major exchanges; in some cases, the companies have been affiliated with the same stock promoters, investment banks, auditors and attorneys.

"Given the potential risks, investors should be especially careful when considering investing in the stock of reverse merger companies," said Lori J. Schock, Director of the SEC's Office of Investor Education and Advocacy. "As with any investment, investors should thoroughly research the company - including ensuring there is accurate and up-to-date information - before making a decision to invest."

Short sellers had warned the SEC of the potential for fraud in the sector for two years before the government took action. The probe is looking not only at the Chinese companies but also at the professionals on this side of the Pacific who have assisted the companies in raising capital.

Dena Aubin with Reuters News reports in "SEC warns investors on reverse merger companies" that the companies are often audited by small U.S. accounting firms , which may lack the resources to track a company to another country.

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