Financial Firms

Eaton Vance and Closed-End Trusts Sued for Breach of Fiduciary Duty Related to Redemption of Auction Preferred Securities

Published on: September 3, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Eaton Vance Management says that five of the closed-end management investment companies that it advises have each received a demand letter on behalf of a putative common shareholder of the “Trusts” alleging breach of fiduciary duty related to the redemption of auction preferred securities after the auction markets failed in February 2008.

The “Trusts”:
• Eaton Vance Floating-Rate Income Trust (NYSE:EFR – News)
• Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG – News)
• Eaton Vance Limited Duration Income Fund (NYSE Amex: EVV)
• Eaton Vance Insured Municipal Bond Fund (NYSE Amex: EIM)
• Eaton Vance New Jersey Municipal Income Trust (NYSE Amex: EVJ)

The letters seeks to have the Trusts’ Board of Trustees take certain steps to remedy the alleged breaches of duty. Eaton Vance Management is an Eaton Vance Corp. subsidiary.

Also, purported class action complaints have been filed against ETG and EVV on behalf of a putative common shareholder of each Trust. The securities lawsuits are claiming breach of fiduciary duty related to the redemption of auction preferred securities. Eaton Vance Management, Eaton Vance Corp., and the Trustees of the Trusts also are defendants. Eaton Vance provides institutional and individual investors with a wide range of wealth management solutions and investment strategies.

Our securities fraud lawyers represent institutional investors throughout the US. We are here to help you recoup your investment losses.

Related Web Resources:

Institutional Investors, Eaton Vance

Closed-End Management Company, Investopedia

Read our Stockbroker Fraud Blog

Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute

Published on: September 1, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel says that Raymond James and financial advisor Larry Milton must pay Sherese and Rex Glendenning $925,000 over an auction-rate securities dispute. This is the third time this summer that Raymond James Financial Inc. (NYSE: RFJ) subsidiaries have been involved in an ARS dispute that was decided in FINRA arbitration. Since July 1, independent broker-dealer Raymond James Financial Services Inc. and brokerage firm Raymond James & Associates have been ordered to repurchase $3.5 million in ARS from clients.

The Glendennings set up their account with Raymond James in January 2008 before the market meltdown. Milton placed the couple’s $1.4 million in an ARS that contained sewer revenue bonds while failing to tell them about the risk involved.

The couple contends that Milton’s behavior wrongly gave them the impression that their investment was highly liquid and could be easily sold. However, Raymond James turned down their request to buy the ARS back at full value.

According to the Glendennings’ securities fraud attorney, the timing of the purchase was key to winning the award. The securities that they bought came up for auction for the first time thirty five days after they made the purchase. The auction failed and the couple were never able “ to go to auction.”

At the time of the ARS market crash in February 2008, Raymond James Financial clients held $1.9 billion in auction rate debt—now down to $600 million. To date, none of the securities regulators have sued the firm over ARS sales. Other financial firms, including Oppenheimer & Co. Inc. and Charles Schwab & Co. haven’t been as lucky.

Related Web Resources:
Raymond James pays more auction rate claims, Investment News, August 26, 2010

FINRA rules against Raymond James in auction rate securities case, Tampa Bay Business Journal, August 26, 2010

Stockbroker-Fraud Blog

Former Bank of America CEO Denies Allegations of Securities Fraud During Merrill Lynch Acquisition

Published on: August 31, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Kenneth D. Lewis, Bank of America‘s former chief executive, says that New York Attorney General Andrew Cuomo’s securities fraud allegations in connection with the bank’s merger with Merrill Lynch are without merit. Lewis is accused of purposely withholding information from the shareholders who approved Bank of America’s acquisition of Merrill.

In his filing with the state supreme court, Lewis claims that Cuomo’s securities lawsuit places blame “where it does not belong.” Lewis contends that all decisions he made regarding the acquisition were done in “good faith” and with the shareholders’ best interests in mind.

Cuomo’s securities fraud complaint charged BofA, Lewis, and ex-CFO Joe Price of concealing from shareholders the fact that Merrill brought with it billions of dollars in debt. The NY Attorney General contends that the information was withheld so that the shareholders would approve the merger between the two financial institutions. He also has accused the defendants of exaggerating the degree of Merrill’s losses so that federal help would be provided through the Troubled Asset Relief Program.

Zions Direct Inc. to Pay $225K for FINRA Securities Fraud Charges Related to CD Auctions

Published on: August 30, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has ordered Zions Direct Inc., Zions Bancorp’s (ZION) brokerage unit, to pay $225,000 to settle securities fraud allegations that it failed to disclose conflicts of interest in online certificate-of-deposits auctions. According to the SRO, from February 2007 to November 2008, the Utah broker-dealer failed to make public in its online CD auctions that Liquid Asset Management took part in auctions to retail investors.

FINRA contends that if LAM hadn’t been involved some bidders could have had higher yields in some auctions. Instead, they may have received lower yields.

Zions Direct began “generally” disclosing LAM’s involvement in November 2008 but still failed to mention the relationship between Zions-affiliated banks and the customers that took part in the auctions and any potential conflicts of interest. Issuing banks may have benefited from LAM’s involvement because they otherwise might have ended up paying higher yields on the CDs bought through the auctions.

FINRA also contends that the brokerage firm sent “exaggerated” and “misleading” ads to current and potential customers that promised CD yields that were not realistic and published market clearing yields on its Web site without adequately disclosing that the figures did not typically reflect the closing yields of auctions. According to FINRA acting enforcement chief and executive vice president James Shorris, investment firms have to tell prospective clients and customers about material information related to their services and products.

By agreeing to settle the securities fraud case, Zions Direct is not admitting to or denying the charges. It has, however, agreed to an entry of FINRA’s findings.

Related Web Resources:
Zions Fined $225,000 For Insufficient Disclosure In CD Auctions, Wall Street Journal, August 25, 2010
FINRA Fines Zions Direct $225,000 for Failure to Disclose Potential Conflict of Interest in its Online CD Auctions, FINRA, August 25, 2010 Continue Reading ›

HSBC Securities to Pay $375K to Settle FINRA Allegations that It Recommended Unsuitable Collateralized Mortgage Obligations to Retail Clients

Published on: August 25, 2010 | by Shepherd Smith Edwards & Kantas, LLP

HSBC Securities has agreed to pay $375,000 to settle Financial Industry Regulatory Authority charges that it recommended the unsuitable sale of inverse floating rate collateralized mortgage obligation to retail clients. The SRO is also accusing the investment bank HSBC of inadequate supervision of the suitability of the CMO sales and failure to fully explain the risks involved in CMO investments to clients. The investment bank has already reimbursed clients $320,000.

Per FINRA, six HSBC brokers made 43 unsuitable inverse floater sales to “unsophisticated” retail clients. Even though HSBC requires that a supervisor approve all retail clients sales larger than $100,000, 25 of the sales were larger than this amount. 5 resulted in $320,000 in losses for clients. According to FINRA executive vice-president and acting enforcement chief James S. Shorris, the clients’ financial losses could have been prevented.

FINRA contends that HSBC brokers were not given enough training and guidance about the risks involved with CMOs. They also were not specifically told that inverse floaters were only suitable for investors with high-risk profiles.

FINRA also says that HSBC was not in incompliance with a rule requiring brokerage firms to offer specific educational collateral prior to a CMO sale to anyone that is not an institutional investor. FINRA says that not only did HSBC’s registered representatives not know that they were required to offer this material, but also the brochures that were offered did not meet content standards regarding required educational information.

By agreeing to settle, HSBC is not admitting or denying the allegations.
Related Web Resources:
FINRA Fines HSBC $375,000, On Wall Street, August 19, 2010
FINRA fines HSBC for unsuitable sales of CMOs, Banking Business Review, August 20, 2010
FINRA

Collateralized mortgage obligation, SEC Continue Reading ›

Bank of America Merrill Lynch to Settle UIT Sales-Related FINRA Charges for $2.5 Million

Published on: August 22, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America Merrill Lynch has agreed to settle for $2.5 million Financial Industry Regulatory Authority allegations that it did not provide “sales charge discounts” to clients with eligible unit investment trusts purchases. By agreeing to settle, the broker-dealer is not admitting to or denying the charges. Of the $2.5 million, $2 million is restitution and $500,000 is a fine.

UITs
A unit investment trust is an investment company that holds a fixed portfolio of securities while offering redeemable units from that portfolio. The units have a fixed date for termination. UIT sponsors usually offer sales charge discounts called “rollover and exchange discounts”-usually offered to investors that use redemption or termination proceeds from one unit to buy another-and “breakpoint discounts”-based on the purchase’s dollar amount-to investors.

Since March 2004, FINRA has made it clear that investment firms must have procedures in place to make sure that clients get their UIT discounts. The SRO contends, however, that until May 2008, Merrill Lynch did not provide brokers or their supervisors with such guidance and neglected to tell clients when they were eligible for a UIT discount. This went on between October 2006 and June 2008 and many clients were overcharged for their UIT purchases.

FINRA also accused Merrill Lynch of distributing client presentation that contained sales information about UITs that were “inaccurate and misleading,” causing clients to believe that they were only eligible for a UIT discount if UIT proceeds were used to buy a new UIT from the same sponsor.

Related Web Resources:
BofA Merrill Lynch to Pay $2.5 Million in FINRA Matter, ABC News, August 18, 2010
Merrill Lynch to pay $2.5M in sales charge case, Business Week, August 18, 2010

Other Merrill Lynch Stories on Our Web Site:
Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, StockbrokerFraudBlog, February 15, 2010
Merrill Lynch Must Pay $26 million to States to Resolve Charges of Failure to License Associates, StockbrokerFraudBlog, December 22, 2009 Continue Reading ›

Oppenheimer Champion Income Fund Resulted In Significant Financial Losses for Investors from Citigroup, UBS, Merrill Lynch, and Other Large Financial Firms

Published on: August 16, 2010 | by Shepherd Smith Edwards & Kantas, LLP

If you are an investor who suffered losses because you invested in the Oppenheimer Champion Income Fund, do not hesitate to contact our securities fraud law firm to request your free case evaluation. Unfortunately, many investors were not apprised of the risks they were taking on when they placed their money in these high risk, very illiquid derivatives. Many of these securities victims were clients of large brokerage firms, such as UBS, Citigroup Smith Barney, Wachovia, Linsco Private Ledger LPL, Merrill Lynch, UBS, ING, Stifel, and Gun Allen.

Thousands of investors were led to believe, via the prospectus, the financial advisers, and the marketing collateral, that the Oppenheimer Champion Income Fund was a high income fund that wasn’t much riskier than a high income fund peer group or a conservative high income fund. Unfortunately, this was not the case at all, and many investors ended up sustaining major losses when the fund lost 79.1 for the 2008 calendar year.

Oppenheimer Champion Income Fund
Hoping that commercial mortgage-backed securities would rally, the fund had placed a large bet in high risk derivatives, such as credit default swaps and mortgage backed securities-not to mention total-return swaps in 2006. Unfortunately, this is not what ended up happening.

In September 2008 alone, credit default swaps declined by $238 million. It was during this time that the fund sold credit default swaps on beleaguered companies, including Tribune Co., Lehman Brothers Holdings Inc., General Motors Corp, and American International Group Inc. The fund also raised its gamble on mortgage-related bonds that, with defaults rising, started to fail.

Hundreds of millions of dollars has reportedly been lost, and the fund’s investors have not been the only ones to suffer financial losses. Over 10% of the fund was held by other OppenheimerFunds offerings, including funds that bundled a number of the firm’s products together.

Related Web Resources:
Oppenheimer Champion Income Fund, MorningStar
FINRA Arbitration and Mediation
Continue Reading ›

UBS Ordered to Pay Auction-Rate Securities Investor Kajeet Inc. $81 Million

Published on: August 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay investor Kajeet Inc. $80.8 million for failed auction-rate securities. The brokerage firm disagrees with the decision and intends to file a motion to have the claim vacated.

Although Kajeet had only invested $8 million in ARS through UBS, the company, which markets cell phones for kids, contends that because its securities were frozen, a “domino effect” resulted and it ultimately lost $110 million. Also, Kajeet was forced to significantly cut its 60-person work team and it lost a key distribution deal with a national retail chain.

UBS had previously resolved ARS-related charges with an agreement that it would pay a $150 million fine and buy back $18.6 billion of the securities. The brokerage firm was one of a number of broker-dealers that agreed to repurchase over $60 billion in ARS from investors because they had allegedly misrepresented the securities as safe investments. When the $330 million ARS market froze in February 2008, UBS had over $35 billion in ARS that were held by some 40,000 customers.

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million

Published on: August 3, 2010 | by Shepherd Smith Edwards & Kantas, LLP

For $75 million, Citigroup will settle federal allegations that it failed to disclose that its subprime mortgage investments were failing while the market was collapsing. This is the first securities fraud case centered on whether investment banks fairly disclosed their own financial woes to shareholders.

Unlike the Goldman Sachs case, which resulted in a $550 settlement and involved allegations that the investment bank misled investors, Citigroup is accused of misleading its shareholders. This also marks the first time the SEC has filed securities fraud charges against very senior bank executives for their alleged roles in subprime mortgage bonds.

The SEC contends that Citigroup failed to reveal the true nature of its financial state until November 2007. Just that summer the investment bank told investors that it had about $13 billion of exposure to subprime mortgage related-assets that were declining in worth. However, Citigroup left out about $43 billion of exposure to similar assets that bank officials thought were very safe.

Key evidence against Citigroup centers on an announcement that it prepared for investors that cautioned that the quarter was likely going to be one of lower earnings in the fall of 2007. However, the investment bank did not reveal its full subprime exposure. Former Citigroup investor relations head Arthur Arthur Tildesley Jr., who has agreed to pay an $80,000 fine over allegations he omitted key information in the shareholder disclosures, is accused of preparing the statement. Former chief financial officer Gary L. Crittenden, who has settled the SEC case against him for $100,000, recorded the audio message to investors.

The government was eventually forced to bail out the investment bank. Citigroup is not admitting to or denying the charges by consenting to settle. Now, however, the investment bank has to defend itself from private shareholder complaints.

Related Web Resources:
SEC Charges Citigroup and Two Executives for Misleading Investors About Exposure to Subprime Mortgage Assets, SEC, July 29, 2010
Citigroup Pays $75 Million to Settle Subprime Claims, NY Times, July 29, 2010
Citigroup agrees $75m fraud fine, BBC News, July 29, 2010 Continue Reading ›

Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million

Published on: July 30, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Goldman, Sachs & Co. has agreed to reform its business practices and pay $550M to settle Securities and Exchange Commission charges that it misled investors about a synthetic collateralized debt obligation (CDO) just as the housing market was failing. By agreeing to settle the securities fraud lawsuit, Goldman is admitting that information in the marketing materials for the product was incomplete.

The SEC case involves Abacus 2007-AC1, one of 25 investment vehicles that Goldman created so that certain clients could bet against the housing market. Unfortunately, when the market did fail, investors lost over $1 billion. Meantime, the investment bank yielded profits and John A. Paulson, the hedge fund manager that the SEC says asked Goldman to create the 2007-AC1, made money from bets he made against certain mortgage bonds.

While investors were told that an independent manager was choosing the bonds, the SEC contends that Goldman allowed Paulson to choose mortgage bonds that he thought were likely to drop in value. However, clients were not notified about Paulson & Co. Inc.’s part in the portfolio selection process or that Paulson had taken a short position against the CDO. The investment bank then sold the package to investors that would only turn a profit if the value of the bonds went up.

The $550 million penalty against Goldman is the largest that the SEC has ordered a financial services company. By agreeing to settle, Goldman is not denying or admitting to the allegations. $300 million of the fine will go to the U.S. Treasury, while $250 million will be repaid to investors that suffered losses.

Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO, US Securities and Exchange Commission, July 15, 2010
Goldman Settles With S.E.C. for $550 Million, NY TImes, July 15, 2010
Read the SEC Complaint against Goldman Sachs (PDF)
Continue Reading ›