Securities Law Blog

Some of our recent entries have focused on awkward questions to ask your financial adviser, and questions to ask your adviser before buying a mutual fund or variable annuity product:  the following are good questions to ask about any investment.  They will help you determine the validity and value of both the investment in question and the brokerage firm with which you are dealing.  You should always write down the responses you receive.  Remember that brokers are supposed to work for YOU, so do not hesitate to get as much information as possible.

• Is this investment product registered with the SEC and my state securities agency?
• Does this investment match my investment goals?
• Why is this investment suitable for me?
• How will this investment make money?
• Specifically, what must happen for this investment to increase in value?
• What are the total fees to purchase, maintain, and sell this investment?
• Are there ways that I can reduce or avoid some of the fees that I'll pay?
• After all the fees are paid, how much does this investment have to increase in value before I break even?
• How liquid is this investment?  I.e., how easy would it be to sell if I needed my money right away?
• What are the specific risks associated with this investment?
• What is the most I could lose?
• Does this product or investment have a surrender charge or a contingent deferred sales charge?
• Where can I get more information about this investment?

Getting as much information as possible before making an investment or starting a relationship with a securities firm will hopefully help you avoid the need of a securities attorney because of an invesetment gone bad.

Continue reading "GENERAL QUESTIONS TO CONSIDER BEFORE INVESTING" »

Variable annuities are very tricky investments.  They are not suited for everyone.  You must be sure to get as much information as possible when researching variable annuity products.  Focus on questions relating to fees, penalties, lock-in periods, and surrender charges.  For example:

• With my retirement goals, how soon will I need this money?
• In my current financial situation, do I have enough money to purchase this product?
• What Ill I lose if I exchange this product at a later date?
• What percentage of my assets is appropriate for an annuity given my retirement objectives?
• What does the annuity guarantee?
• What are all the fees associated with this annuity?
• What is the best risk tolerance for my goals?
• How do the surrender charges work?
• When will I be able to access my money in the annuity for no extra cost?
• To whom do you usually suggest variable annuities?
• What percentage of my original investment is it possible to lose in this annuity?
• Do I need an annuity if I already have a 401(k) or an IRA?

Continue reading "MORE QUESTIONS ABOUT VARIABLE ANNUITIES" »

This list of questions relates to the purchase of mutual funds.  It is important that you find out all of the information needed relating to the specific fund(s) you are looking to purchase.  Risk, previous performance and fees are key topics to ask about when looking to invest in mutual funds.

• How has this fund performed over the long run?
• Where can I get an independent evaluation of this fund?
• What specific risks are associated with this fund?
• What types of securities does the fund hold?
• How often does the portfolio change?
• Does this mutual fund invest in any type of securities that could cause sudden and drastic changes to the fund's value?  (For example, derivatives?)
• How does the fund perform compared to other funds of the same type or to an index of the same type of investment?
• How much will the fund charge me when I buy shares?
• Is the fund portable?  If I move my assets to another firm, will I be able to continue holding the fund or will I need to liquidate it?
• How many fund classes are available in this fund family?  What is the difference between them?

Continue reading "QUESTIONS TO ASK BEFORE BUYING A MUTUAL FUND" »

At Burke, Harvey & Frankowski, we represent people and organizations who have lost money due to fraudulent or unsuitable investment recommendations.  U.S. News Money has some suggestions for questions to ask your financial adviser early in your relationship, so that hopefully you can avoid one day needing the help of a securities attorney.  Among other things, the article says investors should ask the following:

"1.  Ask the manager to explain his or her strategy. If the explanation  sounds too complicated or the manager can't explain it in layman's  terms, be wary.

2. Get to know the manager and his or her personality before you commit.

3. Ask for a resume and even consider calling former employers to ensure accuracy. (Yes, you are allowed to do this.)

4. Ask whether the professional tends to work with people your age and at your income level.

5.  Ask whether there have been regulatory inquiries into the individual or  the firm, noting that if they fudge the truth, you will be able to  check. This can be a good measure of honesty very early in the process.

6. Ask if the firm will cover fraudulent or even unethical actions by an individual it employs.

And the biggie, which you should ask yourself: Do these returns or other benefits sound too good to be true?"

The entire article can be found at: http://money.usnews.com/money/personal-finance/articles/2012/01/18/awkward-questions-you-need-to-ask-your-financial-adviser

Continue reading "AWKWARD QUESTIONS TO ASK YOUR FINANCIAL ADVISER" »

As in life, when you invest, you have some basic rights.  You should always keep these rights in mind when dealing with your brokers or financial advisors.  The more aware you are of your rights, the less chance you have of being cheated.  Here is a basic list of your Investor Bill of Rights:

• Ask for and receive information from a firm about the work history and background of the person handling your account, as well as information about the firm itself.
• Receive complete information about the risks, obligations, and costs of any investment before investing.
• Receive recommendations consistent with your financial needs and investment objectives.
• Receive a copy of all completed account forms and agreements.
• Receive account statements that are accurate and understandable.
• Understand the terms and conditions of the transactions you undertake.
• Access your funds promptly and receive information about any limitations on access.
• Discuss account problems with the branch manager or compliance department of the firm and receive prompt attention to and fair consideration of your concerns.
• Receive complete information about commissions, sales charges, maintenance or service charges, transaction or redemption fees, and penalties.
• Contact your state or provincial securities agency to verify the employment and disciplinary history of a securities salesperson and the salesperson's firm; find out if the investment is permitted to be sold; or file a complaint.

Continue reading "INVESTOR BILL OF RIGHTS" »

CNN Money recently posted a helpful set of questions for investors to consider before purchasing a variable annuity.  Variable annuities are growing in popularity among seniors, which is concerning given that variable annuities don't make sense for most investors.

Here are four helpful websites for anyone considering purchasing a variable annuity, or simply looking for more information on these types of products:

CNN Money -  Variable Annuities:  What to Ask Before You Invest

FINRA Investor Alerts - Variable Annuities:  Beyond the Hard Sell

SEC Investor Tips - Variable Annuities:  What You Should Know

Smart Money - What's Wrong With Variable Annuities

Continue reading "QUESTIONS TO ASK BEFORE BUYING A VARIABLE ANNUITY" »

Morgan Keegan & Co., Inc. will pay $200 million to resolve regulatory allegations against it as a result of its actions and omissions relating to the RMK family of bond mutual funds.  The money will be paid into funds to be administered by A.B. Data, Ltd., of Milwaukee, WI.

A.B. Data has not yet sent out any claims forms to RMK investors, but should do so in the near future.  The A.B. Data website has a link to Frequently Asked Questions related to the administration and distribution of the Morgan Keegan regulatory money.

Continue reading "MORGAN KEEGAN TO PAY $200 MILLION TO RESOLVE RMK REGULATORY CHARGES" »

According to this news release, Morgan Keegan was ordered by a Financial Industry Regulatory Authority (FINRA) arbitration panel to repay a Georgia charity 115% of its losses in the speculative RMK family of bond funds.  The panel determined that Morgan Keegan wrongfully sold the risky funds to the charity and placed too high a percentage of the charity's investments in the funds.  Notably, the panel also admitted the Georgia Securities Department's Findings of Fact against Morgan Keegan and compelled the testimony of Gary Stringer (Morgan Keegan Director of Investments) and Michele Wood (RMK Fund compliance officer) to testify over Morgan Keegan's objections.

The law firm of Burke, Harvey & Frankowski has filed numerous complaints on behalf of investors in the same family of funds and has obtained numerous awards for their clients against Morgan Keegan.

Continue reading "FINRA ARBITRATION PANEL RULES AGAINST MORGAN KEEGAN AND IN FAVOR OF GEORGIA CHARITY IN RMK BOND FUND CASE" »

Morgan Keegan must repay the financial losses of an elderly RMK investor, plus interest, attorneys' fees and punitive damages, according to the January 9, 2012 Order of an arbitrator with the Financial Industry Regulatory Authority (FINRA).

The combined award of out-of-pocket losses plus punitive damages represents the maximum amount available to a claimant in a "simplified" (paperwork-only) arbitration award.

The Claimant was one of thousands of investors who lost money as a result of Morgan Keegan's fraudulent conduct in connection with the RMK (Regions Morgan Keegan) family of bond funds.

One of the funds at issue in the case, the RMK Select Intermediate Bond Fund, is the subject of a now infamous "smoking gun" May 2007 e-mail from Gary Stringer, investment director of Morgan Keegan's Wealth Management division, who stated: "Mr. & Mrs. Jones don't expect that kind of risk from their bond fund. . . . I'd bet that most of the people who hold that fund have no idea what's it's actually invested in. I'm just as sure that most of our [Financial Advisors] have no idea what's in that fund either."

"We think this type of award [including punitive damages and attorney's fees] is appropriate in all of our RMK Fund cases," said Robert Norton, one of the Claimant's attorneys with the firm of Burke, Harvey & Frankowski, "because Morgan Keegan misled their customers about the extreme risks of what they were buying and covered up problems with the funds as they collapsed."

"But punitive damages are especially appropriate in cases like this one where these funds were sold to an elderly customer for whom they were most obviously unsuitable," Norton said.

Continue reading "ARBITRATOR ORDERS MORGAN KEEGAN TO REPAY LOSSES, PLUS PUNITIVE DAMAGES AND ATTORNEYS' FEES" »

Morgan Keegan's hometown newspaper, the Memphis Commercial-Appeal, recently published an article detailing the factors behind the collapse of Morgan Keegan's RMK family of bond mutual funds.  Among the factors pointed out by the article are:

• Lack of regulatory oversight
• Lack of supervision by Morgan Keegan over Jim Kelsoe, the funds' manager
• Kelsoe's "bets" in the inferior tranches of Collateralized Debt Obligations and Collateralized Mortgage Obligations; bets which lost heavily during the subprime mortgage collapse.

As noted by the article, most RMK investors had no idea they were investing in products which made such risky bets in structured finance, particularly subprime mortgages.  This was even acknowledged by Gary Stringer, investment director of Morgan Keegan's Wealth Management division, who stated in a May 2007 e-mail:  "Mr. & Mrs. Jones don't expect that kind of risk from their bond fund. . . . I'd bet that most of the people who hold that fund have no idea what's it's actually invested in. I'm just as sure that most of our [Financial Advisors] have no idea what's in that fund either."

To read the entire article please click:  http://www.commercialappeal.com/news/2011/dec/18/morgan-keegan-what-went-wrong-genius-at-work/

Continue reading "WEAK REGULATION, POOR OVERSIGHT, LEAD TO MORGAN KEEGAN INVESTORS' HEAVY LOSSES" »

Birmingham-based Regions Financial Corp said that it may consider selling Morgan Keegan.  Analysts suggest that the investment unit of Regions may sell for as much as $1.5 billion.  Currently, Regions owed the Treasury Department approximately $3.5 billion in funds recieved from the TARP Program.  The announcement regarding the potential sale came soon after regulators announced that Morgan Keegan agreed to pay $210 million in penalties for the marketing and sale of the RMK Funds.  The state and federal regulators concluded that Morgan Keegan misled investors about the risks of the funds and that they also misrepresented and omitted material facts about the funds.  Morgan Keegan neither admitted or denied the regulatory findings.

Continue reading "REGIONS BANK NOW TRYING TO SELL MORGAN KEEGAN" »

On April 7, 2010, the securities regulators of four states, the United States Securities and Exchange Commission, and FINRA brought charges against Morgan Keegan, Morgan Asset Management, Mr. James Kelsoe and key Morgan Keegan employees alleging that they participated in a massive fraud in connection with the purchase, sale, marketing, pricing and public filings of all of the RMK funds.

All of these complaints allege violations of the anti-fraud provisions of state and federal laws or FINRA's rules and all of them point to the basic similarity of all of the RMK funds.  As described at ¶ 16 of the State complaint:

All six (6) Funds were largely invested in the lower, implicitly leveraged and most risky "tranches," or slices, of structured debt instruments...The Funds were comprised of many of the same holdings... The Funds were highly correlated, meaning they behaved like each other under similar market conditions.  The combination of risky lower tranche holdings, mirrored holdings among the Funds, and the high correlation of the Funds caused investors owing more than one of these funds to have a heightened risk due to over-concentration.

On June 22, 2012, Joseph P. Borg, Director of the Alabama Securities Commission (ASC); Robert Khuzami, Enforcement Director of the U.S. Securities and Exchange Commission (SEC), and Brad Bennett, Executive Vice President and Enforcement Director of the Financial Industry Regulatory Authority (FINRA), announced the entry of consent orders and administrative orders against Morgan Keegan, Morgan Asset Management, and some of their employees.

The investigation and findings centered around the seven proprietary mutual funds sold by Morgan Keegan broker dealers to over 30,000 account holders.   Those seven Morgan Keegan funds lost approximately $1.5 billion from March 31, 2007 through March 31, 2008.

Beginning on page 22 of the Alabama Securities Commission Consent Order, the Commission set out the penalties imposed on Morgan Keegan, Morgan Asset Management, and James Kelsoe:

• MKC, MAM, and Kelsoe will CEASE AND DESIST from violating the [Alabama Securities] Act, and will comply with the Act (¶ 4);

• Pursuant to this Alabama Consent Order and related Consent Orders of the States of Tennessee, South Carolina, Kentucky, the offer of settlement in SEC Admin. Proceeding and the FINRA Letter of Acceptance, Waiver and Consent, MKC and MAM shall pay in resolution of all of these matters, within ten (10) days of the entry of the SEC order the sum of Two Hundred Million Dollars ($200,000,000.00).... (¶ 5);

•  MKC and MAM shall pay the sum of One Million Seven Hundred Ten Thousand Three Hundred Eighty Seven Dollars ($1,710,387.00) to the ASC as a monetary settlement and investigative costs.... (¶ 6);

•  MKC and MAM shall also pay the sum of Twenty-three Thousand Dollars to the North American Securities Administrators Association ("NASAA") as reimbursement for its costs, expended on states behalf (¶ 7);

•  Kelsoe shall cause to be paid the sum of Fifty Thousand Dollars ($50,000.00) to the ASC as a monetary penalty.... (¶ 8);

•  As additional consideration for the dismissal of the administrative proceeding by the ASC, Kelsoe does hereby agree to the revocation of all existing registrations and/or licenses and to an Order of Permanent Bar.... (¶ 9);

•  MKC, MAM, and all of their existing and future affiliates and subsidiaries are prohibited from creating, offering or selling a proprietary fund that is a registered investment company and is marketed and sold to investors other than institutional and other qualified investors...for a period of two (2) years from the entry of the first of the State Consent Orders to be entered in this matter.... (¶ 12);

•  MKC and MAM shall provide, for a period of three (3) years, to all of their registered agents and investment adviser representatives mandatory, comprehensive, and ongoing (i) product/offering training on each of the proprietary products/offerings that they sell or recommend to clients, and (ii) training on suitability and risks of investments generally.... (¶ 18);

•  One person shall not simultaneously hold the positions of General Counsel and Chief Compliance Officer for either Respondent.  (¶ 21);

•  Respondents MKC, MAM, and Kelsoe agree not to make or permit to be made any public statement denying, directly or indirectly, any findings in this Consent Order or creating the impression that this Consent Order is without factual basis.... (¶ 25)   

Beginning on page 10 of The Securities and Exchange Commission June 22, 2011 Order Making Findings and Imposing Remedial Sanctions, the SEC set out the penalties imposed on Morgan Keegan, Morgan Asset Management, and James Kelsoe.  Key sanctions include:

• Morgan Keegan shall not, for a period of three years from the date of the Order, be involved in, or responsible for, recommending to, or determining on behalf of, a registered investment company's board of directors or trustees or such company's valuation committee, the value of any portfolio security for which market quotations are not readily available;  (¶ 32A)
• Morgan Asset shall not, for a period of three years from the date of the Order, be involved in, or responsible for, recommending to, or determining on behalf of, a registered investment company's board of directors or trustees or such company's valuation committee, the value of any portfolio security for which market quotations are not readily available; (¶ 34A)
• Morgan Keegan and Morgan Asset undertake to, pursuant to and in compliance with this Order and with orders being entered in Joint Administrative Proceedings...and the sanctions described in Financial Industry Regulatory Authority Letter of Acceptance, Waiver and Consent, jointly and severally pay the total sum of $200 million, including disgorgement, interest and penalties to be ordered in this matter; (¶ 36)
• Kelsoe undertakes to, pursuant to and in compliance with this Order and with orders being entered in the State Proceedings, pay $500,000 in penalties...; (¶ 37)
• Respondents Morgan Keegan and Morgan Asset are censured;  (¶ IV A)
• Respondent Morgan Keegan shall cease and desist from committing or causing any violations any future violations of, Section 34(b) of the Investment Company Act and Rules 22c-1 and 38a-1 promulgated under the Investment Company Act; (¶ IV B)
• Respondent Morgan Asset shall cease and desist from committing or causing any violations and any future violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and Section 34(b) of the Investment Company Act and Rules 22c-1 and 38a-1 promulgated under the Investment Company Act; (¶ IV C)
• Respondent Kelsoe shall cease and desist from committing or causing any violations and any future violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and Section 34(b) of the Investment Company Act and Rules 22c-1 and 38a-1 promulgated under the Investment Company Act; (¶ IV D)
• Respondent Kelsoe be, and hereby is barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and is prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter; (¶ IV F)
• Respondent Kelsoe be, and hereby is, barred from participating in any offering of a penny stock, including:  acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock; (¶ IV G)
• Respondents Morgan Keegan and Morgan Asset shall jointly and severally pay disgorgement of $20,500,000 and prejudgment interest of $4,500,000 to the Securities and Exchange Commission, and a civil penalty of $75,000,000 to the Securities and Exchange Commission, within ten (10) business days of the entry of this Order; (¶ IV K)
• Respondent Kelsoe shall pay a civil penalty of $250,000 to the Securities and Exchange Commission, within ten (10) days of this Order.

Regions Bank, the parent company of Morgan Keegan, is now trying to sell Morgan Keegan.

Continue reading "MORGAN KEEGAN GETS HIT WITH REGULATORY SANCTIONS" »

Miles Costello of The Times Online reports that the cloud of uncertainty hanging over the credit markets was thrown into sharp relief yesterday as UBS told investors that it still could not be sure about the full financial impact of the credit crunch.

UBS is preparing for writedowns of $13.4 billion (£6.8 billion) against its exposure to the downturn in American sub-prime mortgages.

To read the complete article click here.

Travis Pantin of the New York Sun reports that the number of class action lawsuits filed against Wall Street firms surged in the last year, fueled by the meltdown in the subprime mortgage market, according to new research published yesterday.

There was a 43% jump in the number of securities fraud class action lawsuits last year to 166 suits -- 100 of which were filed after the mortgage crisis hit, the study by Stanford Law School and Cornerstone Research.

To read full article click here.

Andrew Leckly of Tribune Media Services reports that stock of MBIA Inc. declined sharply in 2007. Although the giant bond guarantor has international growth prospects, don't count on them if it drops the ball in its own country.

Moody's, Standard & Poor's and Fitch rating services have affirmed their AAA financial strength rating of MBIA, but also added an ominous "negative outlook." They'd previously assumed MBIA had been conservative in all business dealings.

To read the full article click here.