March 26, 2014

How To File A Claim With FINRA

In order to begin the arbitration process, a party should file a Statement of Claim with FINRA. This party is called the "claimant." The party against whom the Statement is filed is called the respondent. The Statement of Claim itself should be thorough and include as many details as possible relating to the claim. This information may include the following: relevant dates, names of entities and individuals involved, the type of relief requested, and the respondents from whom the claimant is seeking relief or damages. Claimants may recover actual monetary damages, interest, and/or specific performance. After filing the Statement of Claim, the claimant should file a Submission Agreement and pay filing fees. These fees can be paid by check or paid online.

Claimants can file their claims either online or by mail. To file a claim online, click here to go to the Arbitration Online Claim Filing System. To file a claim by mail, review the Uniform Forms Guide. After creating the necessary documents, submit them with the filing fees to FINRA, One Liberty Plaza, 165 Broadway, New York, NY 10006. When mailing documents, assemble them in the following order: check or money order, submission agreement with additional copies, claim information sheet, Statement of Claim and Exhibits.

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March 24, 2014

FINRA Warns Against Leveraged ETFs

Several brokerage firms have stopped selling leveraged exchange traded funds (ETFs) after the Financial Industry Regulatory Authority Inc. warned brokers that they "typically are unsuitable for retail investors" who hold them longer than a day.

Exchange Traded Funds (ETFs) are funds that track indexes like the NASDAQ-100 Index, S&P 500, Dow Jones, etc. When you buy shares of an ETF, you are buying shares of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don't try to outperform their corresponding index, but simply replicate its performance. They don't try to beat the market, they try to be the market.

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Edward Jones banned the sell of ETFs shortly after the announcement and LPL prohibited the sale of leveraged ETFs that seek more than two times the long or short performance of the target index.

However there are still those in the industry that are touting the viability and virtues of leveraged ETF's and are trying to get these firms to begin selling these types of funds again.

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March 17, 2014

What Is FINRA?

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory organization, a non-governmental organization that performs financial regulation of member brokerage firms and exchange markets. FINRA's mission is to protect investors by making sure the United States securities industry operates fairly and honestly.

FINRA operates the largest arbitration forum in the United States for the resolution of disputes between customers and member firms, as well as between brokerage firm employees and their firms. Virtually all agreements between investors and their stockbrokers include mandatory arbitration agreements, whereby investors (and the brokerage firms) waive their right to trial in a court of law.

For disputes over $100,000 between customers and member firms, the panel that decides the case generally consists of three arbitrators: one industry (or, at the customer's timely discretion non-industry) panelist, one non-industry panelist, and one non-industry chairperson, according to the Code of Arbitration Procedure for Customer Disputes. For a given case, the two sides are provided separate lists by FINRA of ten local arbitrators for each category from which each party can strike up to four arbitrators and provide a ranking for the rest. Also provided are ten-year biographies and prior award histories for each arbitrator. FINRA will then provide the parties with the panel members by selecting the highest ranked available arbitrator from each category.

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March 14, 2014

Jefferies Agrees To Pay $25 million For Mortgage Backed SecuritiesViolations

The Securities and Exchange Commission has charged global investment bank and brokerage firm Jefferies LLC with failing to supervise its employees who sold mortgage-backed securities desk and were in turn lying to customers about pricing.

An SEC investigation found that Jefferies representatives including Jesse Litvak, who the SEC charged with securities fraud last year, lied to customers about the prices that the firm paid for certain mortgage-backed securities. Lying about those prices mislead customers about the true amount of profits being earned by the firm in its trading. Jefferies' policy required supervisors to review the electronic communications of traders and salespeople in order to flag any untrue or misleading information provided customers. However, the policy was not implemented in a way to detect misrepresentations about price.

Jefferies agreed to pay $25 million to settle the SEC's charges as well as a parallel action announced today by the U.S. Attorney's Office for the District of Connecticut.

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March 13, 2014

JP Morgan Settles Suit Over Toxic Mortgage Backed Securities for $400 Million

US banking giant JPMorgan Chase has agreed to pay USD 400 million in a settlement for litigation filed by Syncora Guarantee Inc. over mortgage-backed securities.

Syncora said it would drop the rest of its cases against the banking giant as a result of the $400 million settlement

The securities sold to Syncora came from Bear Stearns, which JPMorgan acquired in 2008 amid the financial crisis. Syncora said JPMorgan misrepresented the quality of mortgage assets linked to the securities.

The Syncora deal comes on the heels of several major JPMorgan settlements, including a $13 billion deal with the Department of Justice in November 2013 that resolved a series of US and state lawsuits over the sale of toxic mortgage-backed securities.

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March 12, 2014

RBS reaches $275 million mortgage-backed securities settlement

On Feb. 19, RBS officials announced that the company had reached a $275 million settlement with the U.S. government to resolve allegations of misleading investors in mortgage-backed securities. The settlement is the third-largest settlement in the U.S. class action against banks packaged and sold mortgage securities.

This case was originally filed in 2008 by New Jersey Carpenters Health Fund and the Boilermaker Blacksmith Pension Trust. The suit accused RBS and others of violating U.S. securities law by packaging and selling an estimated $25.39 billion of securities in 14 separate offerings to linked to the Harborview Mortgage Loan Trusts. These mortgage loans did not meet underwriting guidelines, a fact the suit says RBS concealed. The loans later sank to junk status.

This settlement is just a drop in the bucket compared to the estimated losses suffered by investors. As more and more of these settlements take place it is important that investors take actions to protect their legal rights in these sorts of cases.

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March 11, 2014

The Commodity Futures Trading Commission Investigating Managed Future Funds

The Commodity Futures Trading Commission (CFTC) is investigating the sky high fees that are charged to investors in managed futures funds. This comes after a December 19, 2013 letter that the Senate's Special Committee on Aging sent to the CFTC asking them to work with the Securities and Exchange Commission (SEC) on investigating the fees and the means for their disclosure when associated with retirement accounts.

A managed future fund is a variety of alternative investment that is overseen by the CFTC. These funds are normally sold to consumers via brokers. Fund managers then invest in futures, which are financial contracts in which the buyer promises to buy an asset at a predetermined date in the future. Such futures obligations typically obligate the buyer to purchase assets like global commodities (goods and services), and foreign currencies, among other speculative financial instruments.

A review of these funds has shown that over 89% of the gains of $11.51 billion these funds posted were eaten up by fees, commissions, and expenses of the fund managers. As The Economist describes hedge fund fees, it is "easy to think of people who have become billionaires by managing hedge funds; it is far harder to think of any of their clients who have got as rich."

What is worse is many of these fees are not adequately disclosed to investors. The National Futures Association (NFA), a self-regulating watchdog organization that oversees the trading of commodities and futures, does not require managers of managed futures funds to disclose how their fees impact investor profits over time. And given that these funds are sold to investors by brokers, it is not likely a broker would disclose that all of the gains from the fund are likely to be eaten up by these fees.

In the December 19 Senate Committee letter that has prompted the CFTC probe, Senators Bill Nelson and Elizabeth Warren wrote: "Clearly, individual investors, especially senior investors looking to find a suitable place to place their retirement savings, should be made aware of these managed-future funds' fees and commissions and the draining effect upon their investments. Although these funds are purported to be for sophisticated investors, some of these firms have a very low minimum investment that can be made from an Individual Retirement Account (IRA). We are very concerned about the potential impact these fees could have on the retirement security of the Americans who invest in these funds."

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March 7, 2014

Securities and Investment Lawyers Petition Congress For More Disclosures From FINRA's BrokerCheck

A group of securities and investment attorneys has asked Congress to provide more information to consumers about the brokers that handle their money. FINRA does not go as far as some U.S. state securities regulators do in providing disclosures to investors, the group said. The report raises questions about whether the Financial Industry Regulatory Authority's BrokerCheck service provides all the information investors need to choose a broker.

Some examples of the kind of information that BrokerCheck omits are reasons why a broker was fired in the past, bankruptcy for more than ten years ago, criminal charges, and other issues that an investor should know about their broker. This is true even though FINRA and states get the information that is disseminated via BrokerCheck from a larger database that has most of this information.

"Immediate legislative change is needed to prevent consumers from being misled into believing that BrokerCheck reports are comprehensive when they are not," The Public Investors Arbitration Bar Association (PIABA) wrote in the report.

The PIABA report also stated that another important issue with FINRA: a Wall Street Journal investigation found that the public records of some 1,600 brokers failed to include criminal charges and other problematic issues that should have been in their files.

FINRA oversees nearly 636,000 brokers and 4100 brokerages.

More than 75 percent of state securities regulators refer investors to BrokerCheck from their websites,

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March 5, 2014

Morgan Stanley Says $111M MBS Suit Distorts Contract Terms After Failure Of Own Underwriting

A Morgan Stanley subsidiary on Tuesday argued that a New York judge should dismiss a breach of contract suit brought by a trust over $110.8 million in losses suffered by investors in mortgage-backed securities. Morgan Stanley argued that a grant of the remedies sought by the investors would rewrite the underlying contracts.

An attorney for the financial services juggernaut also argued that the claims should be time barred since more than six years have passed since the purchase of these assets.

In its complaint, the plaintiffs claim that despite promising that the loans it securitized and sold to the plaintiff met strict underwriting rules and were not in danger of foreclosure, Morgan Stanley Mortgage Capital Holdings LLC allegedly included at least 371 loans in the deal that they knew violated one or more of the agreed-upon eligibility terms and later did not repurchase the loans even after the plaintiff had made Morgan Stanley aware of the violations.

What is worse is that Morgan Stanley said there is no remedy available to the plaintiff's even though they sold them securities that clearly violated the underwriting terms.

Plaintiff's council argued that they were no longer bound to a single remedy as was outlined in the original agreement between the two parties because of the gross negligence displayed in the underwriting of these assets.

"The gross negligence was the failure to provide proper underwriting procedures to these mortgage loans when they were first underwritten. They made representations and warranties to us that in fact they were compliant ... that there was no problem, there was no mistake," Council for plaintiffs said. "If this is not gross negligence, I don't know what would be considered gross negligence."

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March 4, 2014

U.S. Supreme Court Limits SLUSA; Allows State-Law Securities Class Actions to Proceed

On February 26, 2014, the Supreme Court decided Chadbourne & Parke LLP v. Troice, 571 U.S. ___ (2014), ruling by a 7-2 vote that the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") does not bar state-law securities class actions in which the plaintiffs allege that they purchased uncovered securities that the defendants misrepresented were backed by covered securities. The decision is the important in that the Court has held that a state-law suit pertaining to securities fraud is not precluded by SLUSA. This is signifigant because it suggests that there are some limits to the broad interpretation of SLUSA's preclusion provision that the Court has recognized in previous cases. Chadbourne should encourage more plaintiffs to pursue securities-fraud claims under state-law theories,the facts of a given case will still dictate what standard will be applied given this most recent ruling.

Chadbourne arose out of a multibillion dollar Ponzi scheme run by Allen Stanford and several of his companies. Stanford and his associates sold certificates of deposit issued by his bank and then used the money for their personal gain. Although these CDs were not covered securities under SLUSA, the defendants misrepresented that they were backed by highly marketable securities that were covered by the Act. After the plaintiffs learned of the fraud, they brought state-law class actions against alleged participants in Stanford's scheme.

The Chadbourne case shows that the hard standard that was created under SLUSA will not preclude all state-law claims and that some state-law suits pertaining to securities fraud will be permissible.

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March 3, 2014

Countrywide Alleges Fraud and Misrepresentations Claims Against It Are Time Barred

Countrywide Financial group is urging a California court to dismiss racketeering claims brought against it by Prudential Life Insurance Company. Prudential's suit alleges that Countrywide used omissions and misrepresentations to sell low-quality mortgage backed securities to unknowing consumers. Countrywide is alleging that the claim is time barred based on an inquiry notice standard that would prevent the suit alleging that more than $500 million of these mortgage backed securities were wrongfully sold by Countrywide.
The inquiry notice standard starts running the statute of limitations at the point when plaintiffs should have been aware of its claimed injury and the source of that injury -- in this case, when "reasonable investor" would have been aware of problems with underwriting at Countrywide -- according to Countrywide's memorandum in support of its motion to dismiss the claims. Opposing council claimed that this notice standard had not been met by the date in question.

February 24, 2014

Scottrade Admits to Wrongful Record Keeping

Last week, Scottrade Inc. became the latest entity to admit wrongdoing in connection with settling SEC charges. In a January 29, 2014 administrative order, the brokerage firm not only agreed to a $2.5 million penalty, but also admitted that it violated federal securities laws when it failed to provide the SEC with complete and accurate "blue sheet" trading data. This settlement marks the fourth such admission since the Commission's June 2013 modification to its "no admit/no deny" settlement policy.

Most of the time a party is not required to admit wrong doing to reach a settlement and, until recently, the SEC supported this policy because they believed it helped to facilitate settlements. Yet in June 2013 the SEC announced that they would reverse this policy and would require public admissions of wrong doing in certain cases. Examples include cases of "egregious" fraud, intentional misconduct, those that involve significant investor impact, or those that are otherwise highly visible.

The charges against Scottrade pertained to "blue sheets", which are standardized documents, generated at the Commission's request, that provide information to the Commission about trades performed by a company or its customers. In March of 2006, Scottrade changed the coding that generated the blue sheets and eventually led to certain trades being left unreported to the SEC. The SEC noticed that there was incomplete trading data and notified Scottrade and only then was this error discovered. There were over 1,000 occasions when the data reported to the SEC was incorrect.

In settling the charges, Scottrade not only admitted that its compliance practices were "inadequate," but also admitted that it "willfully violated" Section 17(a) of the Exchange Act by failing to provide the SEC with correct blue sheet data and to properly maintain and preserve that data. In addition to admitting wrongdoing, the firm agreed to a $2.5 million penalty and an injunction. It also agreed to hire an independent consultant to review its record-keeping policies and procedures.

However, this settlement does not do much in the way of instructing the public and practitioners in the industry of the new policy. There was no intentional misconduct or fraud alleged but the SEC still saw the 6 year gap as egregious. The impact on investors is unknown but could be significant.

SEC Chair Mary Jo White said in a speech last week that we can expect to see more SEC settlements involving admissions in the coming months.

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December 27, 2013

CFTC Investigates Managed Futures Fees

In October 2013, published an article titled "How Investors Lose 89 Percent of Gains from Futures Funds". The article examined the disconcerting disparity between fees charged and the return for investors, stating, "According to data filed with the U.S. Securities and Exchange Commission and compiled by Bloomberg, 89 percent of the $11.51 billion of gains in 63 managed-futures funds went to fees, commissions and expenses during the decade from Jan. 1, 2003, to Dec. 31, 2012."

After publication of the article, the Commodity Futures Trading Commission opened an investigation into the high fees associated with futures funds. According to a recent titled CFTC Opens Probe Into Fees Charged by Managed Futures Funds, Bart Chilton of the CFTC wants more transparency when it comes to the long term effect of fees on investors. There is a great concern over the impact these large fees have on investors' retirement security. According to the article, the investigation, which was announced mid December, is going forward with support from the Senate.

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December 20, 2013

Insider Trading at Microsoft

Civil and criminal charges have been filed against a Microsoft Senior Manager and his friend and business partner for insider trading. Brian D. Jorgenson allegedly learned of Microsoft's intentions to invest in Barnes & Noble's e-reader business ahead of Microsoft's official announcement. Mr. Jorgenson passed the information on to his friend and business partner, Sean T. Stokke, who traded upon the information, the SEC alleged in their press release and complaint. The SEC alleged Mr. Jorgenson and Mr. Stokke split the over $390,000 in profits made from the illegal insider trading.

The SEC charged Jorgenson and Stokke with violations of the SEC of 1934 and Rule 10b-5, pursuant to 20(d) of the Exchange Act. The U.S. Attorney's Office for the Western District of Washington has charged them both criminally. You can read the entire SEC civil complaint here.

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November 26, 2013

SEC's 1st Deferred Prosecution of an Individual

The SEC has used deferred prosecutions before as a way to entice companies charged with SEC violations to more fully disclose their acts or be more forthcoming and helpful during an investigation. In exchange, the SEC will delay the prosecution of those who comply. For the first time, the SEC has offered a deferred prosecution to an individual.

According to the recent SEC press release, the SEC offered a DPA to Scott Herckis, a former administrator for Heppelwhite Fund LP. The firm was founded and managed by Bert Hochfeld. The SEC charged Hochfeld in November 2012 for misappropriating from the hedge fund and overstating to investors the hedge fund's performance.

Mr. Herchik was also an administrator for the fund until he resigned in 2012 and went to the SEC with information regarding the handling of the fund. The press release stated some of the terms of Mr. Herchik's DPA. Accused with aiding and abetting, Mr. Herckis cannot serve as a fund administrator or provide any services for a period of five years, he must disgourge $50,000 and he also cannot associate with any broker, dealer, investment adviser, or registered investment company.

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