The Fidelity Ultrashort Bond Fund (FUSFX)
The state of Ultrashort bond fund market has wreaked havoc on investors and created massive financial losses for many investors. The Fidelity Ultra-Short Bond Fund, symbol: FUSFX is the subject of investigation by Napoli Bern Ripka and from investors who say the funds were marketed to them as safe investments that would provide "higher potential returns than money market funds, with only marginally higher risk." The fund has lost over 18% of its value since inception.
Ultrashort bond funds are traditionally the most conservative and low-risk funds in the market. However, as market liquidity dried up, it generated a mass sell-off of bond fund investors, forcing fund managers to sell the funds’ assets at depressed prices in order to meet redemptions.
If you invested in the Fidelity Ultrashort Bond Fund or any ultrashort term bond fund that lost money, we want to hear from you.
BofA Agrees to $137 Million Settlement in Municipal Bond Investigation
U.S. Justice Department officials said today that Bank of America has agreed to pay $137.3 million to resolve allegations of bid rigging in the municipal bond industry. B of A entered a global agreement with 20 states and four federal agencies, including the Securities and Exchange Commission. According to SEC documents, Bank of America employees conspired to rig bids in connection to the marketing and sale of tax-exempt municipal bond derivative contracts. SEC documents are here.
Assistant Attorney General Christine Varney, who heads the department’s Antitrust Division, said Bank of America’s illegal conduct happened between 1997 and 2004. She said she is “severely restrained” in talking about the probe, including whether any other banks are cooperating.
In a conference call with reporters this afternoon, Varney called the agreement “unprecedented” and said $137 million is a “significant and appropriate settlement.” The amount that municipalities lost is “something we are looking very closely at,” she said.
“Stay tuned to this channel,” Varney said. “I think you will see a lot more activity in the coming weeks and months. We are committed to getting full restitution to all of the municipalities that were victims of this scheme.”
Under the Justice Department’s leniency program, the bank will not be prosecuted for the conduct as long as there is continued cooperation, Varney said.
Bank of America’s settlement is “likely the tip of the iceberg,” said Andrew Gavil, a law professor at Howard University in Washington, D.C.. He said other conspirators may pay much higher penalties.
The government has identified more than a dozen firms, including JPMorgan Chase & Co., UBS AG, and Societe Generale as unindicted co-conspirators in a criminal case brought by the Justice Department against a Los Angeles investment broker.
JPMorgan, UBS, a unit of General Electric Co. and a former subsidiary of Belgian bank Dexia SA have also reported in regulatory filings that they face civil suits by the U.S. Securities and Exchange Commission. The companies say they are cooperating with the government.
The investigation centers on investment agreements that municipalities enter into with money raised through bond sales. The “guaranteed” investment contracts let B of A earn a return on the funds until the cash is needed for schools, roads or other public works.
Napoli Bern Ripka is conducting its own investigation of Bank of America’s improper sale of municipal bonds and is currently interviewing municipalities who believe they have a claim against B of A or any bank for bid-rigging.
Contact Information
Napoli Bern Ripka LLP
Securities Department
212-267-3700
Napoli Bern Ripka LLP Investigates Arbitration Claims Against Proshares Trust
The specialized Securities Fraud Department Napoli Bern Ripka LLP is investigating arbitration claims on behalf of individuals who lost money investing in Proshares Ultrashort Financials Fund (the “SKF Fund”), a leveraged exchange traded fund (“ETF”) offered by Proshares Trust.
Proshares Trust, the fifth largest provider of ETF’s in the United States, manages approximately 99 percent of the country’s leveraged ETF’s. Leveraged ETF’s, such as the SKF fund, track an underlying benchmark of an index or security. Leveraged ETF’s seek to achieve a return that is a multiple of the performance of the index that the ETF tracks. By doing so, all leveraged ETF’s are designed to generate daily returns that are a positive or negative multiple of the daily return of the specified index.
Proshares SKF Fund seeks investment results that correspond to twice the inverse daily performance of the Dow Jones U.S. Financials Index “(DJFIX”), which measures the performance of the financial services industry of the U.S. equity market. From January 2, 2008 to December 17, 2008, the DJFIX fell approximately 51.03%. Thus, the SKF Fund should have appreciated by 102.06% during this period. Instead, the SKF fund appreciated only by 1.06%. Similarly, a .41% increase in July 2009 of the DJFIX, which should have resulted in a decrease of .82%, ironically led to a 65.79% depreciation of the SKF Fund. As a result, the SKF Fund did not provide the advertised results promoted by Proshares Trust.
Napoli Bern Ripka LLP is currently investigating whether Proshares Trust was in violation of the Securities Act by providing a false and misleading registration statements and prospectus issued in connection issued with the SKF Fund. Although Proshares Trust implied that investors could use the SKF Fund as a successful long-term investment strategy, the Financial Industry Regulatory Authority (“FINRA”) has announced that leveraged ETF’s are “typically unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” Investors allege that the sales materials offered by Proshares Trust were not truthful, accurate, and misled the investor in regards to the SKF Fund.
Napoli Bern Ripka LLP has a nationally recognized securities arbitration practice and represents both individual and institutional investors across the country. If you invested in the Proshares Trust SKF Fund or any other similar leveraged ETF Fund, please contact Adam J. Gana at (212) 267-3700 for a free consultation.
Napoli Bern Ripka, LLP
Adam J. Gana, Esq.
(212) 267-3700
agana@naploibern.com
Medical Capital Holdings (MedCap) and Securities America
Napoli Bern Ripka, LLP is currently seeking clients who have incurred losses investing in Medical Capital Holdings. In July 2009, the Securities and Exchange Commission (SEC) sued Medical Capital for fraud, claiming that the company misappropriated $18.5 million of investors’ money and misrepresented its own business records by covering up various defaults. According to the SEC, Medical Capital raised some $2.2 billion since 2003 from more than 20,000 investors. Instead of using the money for its core business, which entails packaging medical receivables and selling them as private placement offerings to investors, Medical Capital is accused of investing in such things as a Hollywood film, a mobile phone application company, and a 118-foot yacht. A court-appointed receiver subsequently revealed that most of the account receivables on MedCap’s books did not exist, while others were seriously overvalued. The SEC also charged that Medical Capital transferred over $800 million of receivables from one series of notes to another.
Investors have brought action against Securities America in connection with sales of Medical Capital Holdings, alleging that Securities America failed to protect them from the alleged fraud committed by Medical Capital. Clients of Securities America were marketed Medical Capital related notes (Medical Provider Financial Corp. III, Medical Provider Financial Corp. IV, Medical Provider Funding Corp. V and Medical Provider Funding Corp. VI) as safe and secure investments, appropriate for clients who were retired, and as non-speculative investments. Investors claim that even the most basic due diligence would have uncovered the accounting irregularities occurring at Medical Capital. Allegedly, Securities America benefited from millions of dollars in commissions from sales of Medical Capital at the expense of its clients.
Securities America is a subsidiary of Ameriprise Financial. Both companies are named as defendants in a class action lawsuit, alleging misrepresentation, omissions, negligence, and violation of Nebraska securities laws in the promotion and sales of Medical Capital notes to investors. The lawsuit seeks class action status to represent investors who bought the notes from Nov. 21, 2007, through July 31, 2008. Amidst this class action suit, along with arbitration claims, other lawsuits, and complaints by regulatory bodies related to the firm’s sales of Medical Capital private placements, Securities America CEO Steve McWhorter resigned on January 21, 2010. Shortly after, Massachusetts regulators sued Securities America on January 26, 2010, claiming it misled investors about the risks involved in the Medical Capital Notes and the financial health of the issuer, Medical Capital Holdings. According to the complaint, 400 Securities America advisers allegedly sold $700 million of the private placements, half of which are now in default. The $700 million sold by Securities America represents 37% percent of the $1.7 billion in notes that MedCap issued. Securities America was accused of committing securities fraud through material omissions and misleading statements. The company continued to sell the notes to investors even after a senior-level company officer expressed concerns about Medical Capital and its fiscal health.
In addition to Securities America, other broker/dealers such as QA3 Financial Corp., National Securities Corp., CapWest Securities, Independent Financial Group LLC, Investors Capital Corp., and Centaurus Financial are also being investigated for investors’ losses in Medical Capital Holdings. Brokerage firms and their "due diligence committees" failed to perform even the most basic analysis and investigation into Medical Capital and its chief principal, Sidney Field. Prior to joining Medical Capital as the firm’s CEO, Sidney Field supervised agents who allegedly employed a deceptive practice known as “sliming” to sell automobile insurance policies. The agents would alter accident records of questionable drivers, falsify information about car values and commute mileage so that an applicant could qualify for insurance coverage. His former firm, FGS, also allegedly duped customers into paying interest rates of 20 percent to 40 percent when they financed their premiums. In August 1990, the Department of Insurance sued Field for civil racketeering and ultimately revoked his license. Three years later, Field was sued for fraud and paid $100,000 to settle that lawsuit. A basic background check should have uncovered Field’s history of fraud and the rampant fraud taking place at Medical Capital.
Given the fact that the private placement field historically has been infected with fraudulent practices in the past, the brokerage firms selling Med Cap notes are at fault for not performing due dillegence on Medical Capital and Med Cap executives. If you lost money related to an investment in Medical Capital Holdings, please do not hesiate to contact us to discuss your potential claim.
Suitability Claims
When an investor opens up a new brokerage firm, the investor signs a contract binding them to arbitration. This article outlines suitability claims – one of the most common type of arbitration dispute between customers and brokerage firms.
Claims of unsuitable recommendations are usually based on Financial Industry Regulatory Authority (FINRA) Rule 2130(a), that says: When recommending to a customer the purchase [or] sale of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.
The Suitability Rule applies when a broker recommends an investment to a customer. A confirmation slip marked "solicited" is usually good evidence of a recommended transaction; however a confirmation slip is not the final determination on whether a transaction was recommended.
The Suitability Rule says that it applies to any broker who recommends either a "purchase [or] sale."
The FINRA Rule requires that brokers inquire about the essential facts of the investment, financial status investor and the investor’s investment objectives. When an investment account is first opened, brokers complete a "New Account Form.” The New Account Form, when accurate, provides a guide to the type of investments that are "suitable" for that particular customer.
The arbitrator(s) must then determine if a particular investment recommendation was appropriate given the investor’s needs and objectives. Arbitrators are given wide latitude in making these determinations.
If you believe your broker made unsuitable recommendations please feel free to contact us for a free consultation.
The SEC is taking a much-needed closer look at “protected” securities.
In the aftermath of the recent economic meltdown, the U.S. Securities and Exchange Commission is requiring financial firms to provide information on how they market “principal-protected” notes to their investors.
Principal-protected notes are complex securities that are typically marketed as carrying a money-back guarantee on an investor’s principal. These investments are making a comeback after losing their allure in 2008 when Lehman Brothers collapsed, causing investors to lose millions on what they believed to be “safe, secure, investments” in principal-protected Lehman notes.
The SEC wants to know if investors in “principal protected” securities are being misled into thinking the principal of their investments will not
decline in value because of the misleading name of the security and the way the risks and benefits of the product are explained and marketed. Although these issues are not new, they are receiving a fresh wave of criticism from regulatory authorities, such as the SEC, in response to the economic events of 2008.
This year, Bank of America Corp., Barclays PLC , Citigroup Inc , HSBC Holdings PLC and JP Morgan Chase & Co. all have filed offering statements with U.S. securities regulators to sell principal-protected notes that guarantee investors the return of either 95 percent or 100 percent of their initial
principal investments. Even if the underlying investment does not pay off, the SEC wants to make sure these institutions are disclosing the risks associated with such a seemingly attractive product.
In December, the Financial Industry Regulatory Authority issued a notice to firms reminding them to exercise caution when promoting and marketing principal-protected notes to investors. Although this may not protect willfully blind or even hopeful investors, it is a step in the right direction.
Variable Rate Annuities
Napoli Bern Ripka, LLP is currently seeking clients who incurred losses investing in variable rate annuities. Our firm is filing claims on behalf of clients against insurance companies and financial services companies who made unsuitable recommendations to invest in variable rate securities. A variable rate annuity is an insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. The portfolio generally invests in equity securities and its performance determines the amount of this total payment.
The Securities Exchange Commission (SEC) has set regulations requiring firms to sell variable rate annuities only to investors who are able to handle the risks involved with investments linked to the equities markets. Despite these regulations, many financial services firms marketed these products to investors as safe investments that guaranteed a payout to retirees and other investors seeking income to support themselves. If you were sold variable rate annuities by an insurance company or Wall Street firm and have incurred losses or economic hardship due to lack of payments, please contact us today to discuss your case.
SEC Charges NY Investment Advisor Thomas Priore and ICP Asset Management
The Securities and Exchange Commission (SEC) announced today that it has charged a New York-based investment adviser Thomas Priore and three of his affiliated firms with fraudulently managing investment products tied to the mortgage markets as they came under pressure in 2007.
The SEC alleges that ICP Asset Management LLC and its owner/president Thomas Priore defrauded four multi-billion-dollar collateralized debt obligations (CDOs), known as the Triaxx CDOs, by engaging in fraudulent practices and misrepresentations that caused the CDOs to lose tens of millions of dollars. In doing so, Priore and his companies made tens of millions of dollars in advisory fees and undisclosed profits at the expense of their clients and investors. ICP’s affiliated broker-dealer ICP Securities LLC and its parent company Institutional Credit Partners LLC are also charged in the SEC’s complaint.
Collateralized debt obligations (CDO’s) are a type of structured asset-backed security (ABS) backed by a pool of bonds, loans or other assets. Triaaxx CDOs’ assets were primarily mortgage-backed securities.
"ICP and Priore repeatedly put themselves ahead of their clients," said Robert Khuzami, Director of the SEC’s Enforcement Division. "Instead of acting as fiduciaries, they took advantage of a distressed market to line their own pockets."
George S. Canellos, Director of the SEC’s New York Regional Office, said, "The CDOs were complex but the lesson is simple: collateral managers bear the same responsibilities to their clients as every other investment adviser. When they violate their clients’ trust, we will hold them accountable."
We at all times acted in the best interest of our clients and intend to vigorously defend these allegations,” Thomas C. Priore told The New York Times in an email message.
Auction Rate Securities, Credit Suisse and other Brokerage Firms
Investors have been successful in winning awards in arbitration against Credit Suisse and other brokerage firms after sustaining billions of dollars in losses when the market for auction rate securities froze in 2008. Auction rate securities (ARS) are fixed-income debt instruments – typically municipal bonds, preferred shares of closed end mutual funds, or asset-backed securities collateralized by student loans or mortgages – for which the interest rate is regularly reset through an auction process. ARS were once marketed as safe, cash equivalents that were highly liquid. However, auctions froze up in February 2008 because the broker-dealers who had previously propped up the market by bidding in their own auctions were no longer inclined to invest in them. As a result, many investors have been unable to cash out even at a loss, and investors who were led to believe that they were purchasing a liquid cash equivalent have learned that there is no liquidity at all. Others have been forced to take steep losses by selling at a discount in a limited secondary market.
Since the market collapsed, there have been many regulatory settlements with broker-dealers. Certain investors have been able to redeem their ARS at par, but many of those investors have made claims for consequential damages caused by the loss of liquidity. Many more investors have still not achieved liquidity, however, because the broker-dealers who sold them their ARS were not party to the regulatory settlements. Other investors were not eligible under the terms of the settlements, which primarily benefited individual “retail” investors. Some investors who have been unable to redeem their securities have been able to sell them in a limited secondary market, forcing them to take substantial losses.
nvestors have had success in arbitration recovering losses related to ARS. In one notable case, STMicroelectronics won a $431 million award against Credit Suisse in a case involving auction rate securities. In another case, Catalyst Health Solutions won a $9.8 million FINRA arbitration award against Credit Suisse in connection with student loan-backed auction rate securities. In addition to Credit Suisse, many investment banks and brokerage firms have entered into settlements with regulators since the market collapse. Please do not hesitate to contact us today to discuss your potential claim against Credit Suisse or any other brokergage firm. Securities litigation of this kind is highly complex. The attorneys at Napoli Bern Ripka have been successful litigating hundreds of cases involving investment losses of this kind.
Napoli Bern Ripka LLP Investigates Arbitration Claims Against Proshares Trust
The ecurities Fraud Department Napoli Bern Ripka LLP is investigating arbitration claims on behalf of individuals who lost money investing in Proshares Ultrashort Financials Fund (the “SKF Fund”), a leveraged exchange traded fund (“ETF”) offered by Proshares Trust.
Proshares Trust, the fifth largest provider of ETF’s in the United States, manages approximately 99 percent of the country’s leveraged ETF’s. Leveraged ETF’s, such as the SKF fund, track an underlying benchmark of an index or security. Leveraged ETF’s seek to achieve a return that is a multiple of the performance of the index that the ETF tracks. By doing so, all leveraged ETF’s are designed to generate daily returns that are a positive or negative multiple of the daily return of the specified index.
Proshares SKF Fund seeks investment results that correspond to twice the inverse daily performance of the Dow Jones U.S. Financials Index “(DJFIX”), which measures the performance of the financial services industry of the U.S. equity market. From January 2, 2008 to December 17, 2008, the DJFIX fell approximately 51.03%. Thus, the SKF Fund should have appreciated by 102.06% during this period. Instead, the SKF fund appreciated only by 1.06%. Similarly, a .41% increase in July 2009 of the DJFIX, which should have resulted in a decrease of .82%, ironically led to a 65.79% depreciation of the SKF Fund. As a result, the SKF Fund did not provide the advertised results promoted by Proshares Trust.
Napoli Bern Ripka LLP is currently investigating whether Proshares Trust was in violation of the Securities Act by providing a false and misleading registration statement and prospectus issued in connection issued with the SKF Fund. Although Proshares Trust implied that investors could use the SKF Fund as a successful long-term investment strategy, the Financial Industry Regulatory Authority (“FINRA”) has announced that leveraged ETF’s are “typically unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” Investors allege that the sales materials offered by Proshares Trust were not truthful, accurate, and misled the investor in regards to the SKF Fund.
Napoli Bern Ripka LLP has a nationally recognized securities arbitration practice and represents both individual and institutional investors across the cournty. If you invested in the Proshares Trust SKF Fund or any other similar leveraged ETF Fund, please contact Adam J. Gana at (212) 267-3700 for a free consultation.
Napoli Bern Ripka, LLP
Adam J. Gana, Esq.
(212) 267-3700
agana@napolibern.com
