New York Securities Fraud Lawyers Blog

FINRA Fines Ameriprise and its Clearing Firm $750,000 For Failing to Supervise Jennifer Guelinas

March 19, 2013 | Malecki Law Team

The Financial Industry Regulatory Authority, (FINRA) issued a news release on March 4, 2013 announcing that it had fined Ameriprise Financing Services, Inc. and its affiliated clearing form American Enterprise Investment Services, Inc. $750,000 for failing to have reasonable supervisory systems in place to monitor wire transfer requests. In the News Release, FINRA disclosed that its investigation was related to Ameriprise’s former registered representative Jennifer Guelinas, who apparently converted approximately $790,000 over four years from two of her clients by forging wire requests that paid in to accounts she controlled.

According to the News Release, Ameriprise failed to detect several “red flags,” including that Ms. Guelinas submitted forged wire requests from a customer’s account to an account that appeared to be under her control. FINRA further disclosed that on at least three occasions where Ameriprise initially rejected wire requests, they were then accepted on either the same day or another day after simply being resubmitted by Ms. Guelinas. The News Release stated that Ameriprise also accepted one request after it had begun to investigate Ms. Guelinas, and accepted another wire transfer request that was submitted by Guelinas after she was terminated, though the firm recognized its mistake in time before the money was accessed.

FINRA Rules require that securities firms have and enforce reasonable supervisory procedures in place to monitor each registered representative’s conduct to ensure that they are acting in compliance with securities laws. According to the News Release, Ameriprise did not have adequate reasonable supervisory procedures in place. The FINRA News Release stated that Ameriprise had already paid full restitution to the two customers for losses in their accounts.

Citigroup Reportedly Agrees to Settle Class Action For $730 Million

March 19, 2013 | Malecki Law Team

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.

FINRA Permanently Bars Florida-Based Broker Jeffrey Rubin for Unsuitable Investment Recommendations to NFL Players

March 14, 2013 | Malecki Law Team

The Financial Industry Regulatory Authority (FINRA) issued a news release on March 7, 2013 announcing that it had permanently barred Mr. Jeffrey Brett Rubin from the securities industry as a result of his unsuitable investment recommendations and unapproved securities transactions to 31 NFL Players. In FINRA’s news release and in the underlying Letter of Acceptance, Waiver and Consent (AWC), FINRA detailed that Mr. Rubin was recommended that one of his clients, an NFL player, invest $3.5 million, a majority of his liquid net worth, in to high-risk securities, including a large $2 million investment in an Alabama casino, resulting in losses of approximately $3 million.

Moreover, Mr. Rubin is alleged to have sold this investment away from his firms Lincoln Financial Advisors Corporation and Alterna Capital Corporation, where he was successively licensed as a broker between March 2006 and June 2008. Alterna Capital Corporation terminated or withdrew its FINRA registration on September 24, 2009, according to its FINRA CRD report.

According to reports, Mr. Rubin apparently continued to refer additional NFL players while registered as a broker with Alterna and International Assets Advisory, LLC. In total, FINRA found that over about a three year period, Mr. Rubin referred approximately 30 players, who invested approximately $40 million in the same Alabama casino project. For his referrals, Mr. Rubin was given a 4% ownership stake in the casino project, as well as $500,000 from the project promoter, seemingly placing his interests ahead of his clients.

Jenice Malecki Appears on NBC’s TODAY SHOW on March 14, 2013

March 13, 2013 | Malecki Law Team

Jenice Malecki appeared on NBC’s Today Show tomorrow morning, March 14, 2013, to discuss the injunctive action filed by Spanx against Yummie Tummie. The video of Ms. Malecki is can be found here.

Yummie Tummie holds three design patents for its camisole products and at the end of 2012 informed Spanx that it was infringing upon those patent. Correspondence and negotiations ensued, resulting in Spanx filing an injunctive action in its home court in Georgia to preemptively stop Yummie Tummie from enforcing its patents. Yummie Tummie brought a prior infringement action against Maidenform in the United Stated Federal Court for the Southern District of New York, which case has been settled.

The issue will likely surround whether the patents are valid or invalid and whether the camisole passes the obviousness test. There are two fundamental tests: (1) the invention must be novel, not just a variation, and (2) it must be unobvious, something that someone with ordinary skills, would not have imagined. This will surely be a very fact intensive battle and this preemptive strike by Spanx is an aggressive move by a larger player exerting their financial muscles in order to attempt to control the course of the litigation against Yummie Tummie.

Investors Should be Wary of Student Loan Securities Investments

March 4, 2013 | Malecki Law Team

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.

Jenice Malecki of Malecki Law To Appear On On The American Radio News Afternoon Drive Show With Ernie & Rachel to Discuss The SEC’s Current Investigation of Chesapeake Energy’s Aubrey McClendon

March 1, 2013 | Malecki Law Team

Jenice Malecki of Malecki Law will be appearing on the American Radio News Afternoon Drive Show with Ernie & Rachel tonight at 5:15pm est to discuss the current SEC investigation of Aubrey McClendon, Cheseapeake Energy‘s CEO.

Central to the investigation is a controversial program within the company that grants McClendon a share in every well drilled by Chesapeake, so long as he pays his share of the cost. Since the program began, Mr. McClendon has taken out hundreds of millions of dollars in personal loans from companies that invest in Chesapeake. This move did not sit well with shareholders.

Ms. Malecki will discuss how given McClendon’s position at the publicly-traded company, the question of what was disclosed to investors, when it was disclosed, and whether there were actual conflicts of interest that disadvantaged investors, especially, whether these deals were priced to the company’s advantage or disadvantage is at the heart of the current situation. If the allegations are correct, and all required information was not disclosed to investors and conflicts of interest were present, this is a fraud, plain and simple.

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

February 7, 2013 | Malecki Law Team

On 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.

UBS to Reclassify Bond Investors as “Aggressive”

February 4, 2013 | Malecki Law Team

Fox Business reported recently that UBS is planning to reclassify many of its clients who are invested heavily in bonds as “aggressive” investors.

While the report indicates this is being done as a result of growing bearishness in the bond market, some are speculating that this move is being done in an attempt to reduce the firm’s exposure to future litigation. How an account or an investor is categorized by a broker-dealer’s internal paperwork can have a substantial effect on how that account is treated internally – a fact many investors are unaware of when they open their account. If an injured client later sues the firm in a FINRA arbitration or in court, this classification can also have an impact on the success of their case.

Firms can change the classification of an investor/account with “non consent” or “negative consent” letters, which require no affirmative act or consent on behalf of the investor to change the account. It is reported that UBS will be using just these type of letters to reclassify its clients’ accounts.

Apple Reverse Convertible Notes Mean Potentially Huge Losses for Investors Who Bought Them From UBS and Other Banks

January 28, 2013 | Malecki Law Team

Those who invested in many of the commonly called “Apple reverse convertibles,” now find themselves facing huge potential losses. But all hope is not lost, as investors may be able to recoup their losses.

The plight of these investors has been well documented recently.

What would you do if your broker tells you that you just bought Apple stock at a price of over $700 a share, even though after this past week’s collapse left the price hovering below $440? Now what would you do if you found out that you wound up with this “bum deal” by buying a product that was issued by your broker’s firm?

Falling Timber: Timberland REIT Reportedly Plunges In Value

December 19, 2012 | Malecki Law Team

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.