Miscellaneous

As BP Oil Spill Reaches Crisis Mode, A Number of Wall Street Analysts Placed “Buy” Rating On the Company’s Plunging Shares

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

When BP oil spill in the Gulf Coast first became news, the company’s shares started to drop. According to the Huffington Post, the unfolding crisis incited a mad dash on Wall Street, with dozens of securities analysts encouraging investors to “buy, buy, buy” BP (BP.L: Quote, Profile, Research, Stock Buzz) (BP.N: Quote, Profile, Research, Stock Buzz).

Among those to jump into the fray were Credit Suisse, Citigroup, and Morgan Stanley. Thomson Reuters says that of 34 analysts that rated the BP shares as recently as May 11, 27 gave “buy” or “outperform” ratings. 7 rated the shares with a “hold.” None of the analysts gave the shares an “underperform” or “sell” rating.

As estimates of how much oil was being spilt grew and was coupled with news of BP’s unsuccessful efforts to stop the leak, BP stock kept dropping, destroying some $100 billion in shareholder wealth. Unfortunately, when Wall Street makes mistakes, it is the investors that end up losing money.

Some experts saying that with so many analysts making the wrong call, the BP crisis has exposed the problems that continue to plague the sell-side analyst community despite all the reform that has been implemented in the last 10 years. Some investment firms are afraid to be left out, which can contribute to what appears to be an existing “group think” mentality. Analysts may also be unwilling to challenge companies for fear of jeopardizing their relationship with leading executives-a classic case of conflict of interest.

Meantime, the analysts are coming to their own defense. They say that the Deepwater Horizon oil spill was unprecedented and therefore it was hard to predict its outcome and related financial ramifications. Granted, as the risks became more obvious, many on Wall Street downgraded their buy ratings to more cautious notes. Natixis and Goldman were among those that lowered their ratings from “buy” to “hold” or neutral.” There were also a small group of analysts that did accurately call the effects the oil spill would have on BP’s stock prices.

Related Web Resources:
Wall Street Said ‘Buy, Buy, Buy’ BP Stock As Gulf Crisis Unfolded, The Huffington Post, June 18, 2010
BP Stock Sinks Back Near Oil-Spill Low, The Street, June 22, 2010
A Timeline of the BP Oil Spill Crisis, WallStCheatSheet.com, May 6, 2010 Continue Reading ›

LPL Investment Holdings, Inc. IPO Registration Gives Evidence of Disparities Between Wirehouse Broker-Dealers and Independent Brokerage Firms

Published on: June 21, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, LPL Investment Holding Inc’s recent IPO registration is clear evidence that the 4 wirehouse brokerage firms still dwarf the approximately 1,200 independent contractor broker-dealers when it comes to controlling client assets. LPL is an independent broker-dealer.

Currently, there are approximately 114,000 independent reps and about 55,000 wirehouse reps. Yet even though there are so many less wirehouse reps, they still are in charge of a larger pool of client assets than their independent counterparts. While wirehouse reps manage $3.95 trillion in client assets, independent reps handle about $1.8 trillion. This means that a wirehouse broker, on average, manages $71.8 million in assets, and independent reps manage about $16 million in assets.

Also, while both wirehouse and independent reps make about 1% in commissions and fees on client assets, wirehouse reps get a 40% average payout of the fees and commissions, while independent reps get about 85%. While the average independent rep makes under $134,000 annually, the average wirehouse rep makes about $287,000 a year.

LPL rep’s earn an average payout of about $155,360. Acquired by two private equity firms in 2005, LLP states in its IPO registration that due to its efficient operating model and scale, its payout to independent contractors far exceeds that of wirehouse firms. InvestmentNews says it is unclear how many of the $1 million plus-producing brokers joined LPL because they wanted the higher payout.

LPL is owned by private equity firms Hellman & Friedman LLC and TPG Capital. The brokerage firm has filed to raise up to $600 million in its IPO.

Related Web Resources:

Does LPL’s filing reveal an unspoken truth about indie B-Ds?, Investment News, June 21, 2010
TPG-Backed LPL Investment Holdings Files for $600 Million IPO, Bloomberg Businessweek, June 4, 2010 Continue Reading ›

House and Senate Negotiators Can’t Seem to Agree on Fiduciary Standard in Financial Regulatory Reform Bill

Published on: June 17, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, negotiators in the Senate and the House have reached an impasse regarding the fiduciary standard provision found in the financial regulatory reform bill. While the House wants the US Securities and Exchange Commission to impose a universal standard of care that would be applicable to anyone offering personalized investment advice to retail clients, such as investment advisers, insurance agents, and broker-dealers, to reveal conflicts of interests and act in clients’ best interests-the Senate only wants the SEC to examine the issue for a year before proceeding to rulemaking.

According to Securities Fraud Lawyer William Shepherd, “Virtually all advisory professionals have a fiduciary duty to their clients, and brokerage firms claim to be professionals. Having a ‘fiduciary duty’ means professionals cannot put their own interests ahead of their clients. All types of ‘financial advisors’ were considered fiduciaries, until some Wall Street-friendly judges said otherwise. Congress needs to pass a law restating that brokers are fiduciaries. If not, rest assured that Wall Street will use lack of clarification as proof they do not owe an affirmative duty to their own clients.”

While speaking before the Financial Industry Regulatory Authority on May 27, US Deputy Treasury Secretary Neal Wolin says that the White House is strongly in favor of making retail brokers subject to the toughest possible consumer protection while also having them abide by a fiduciary duty. Wolin also says that the Obama Administration wants heightened regulation of credit rating agencies, Volcker rule limits on banks’ proprietary trading activities, and effective resolution authority against failed companies.

Stockbroker Fraud Attorney Shepherd says “It is preposterous to even say that stockbrokers are not fiduciaries. The law (Investment Advisors Act of 1940) says that those who advise clients regarding securities are held to a fiduciary standard. Meanwhile, stockbrokers insist they are not just order takers – which people pay $8.00 to get online – but are instead ‘advisors,’ ‘financial consultants,’ etc. who can charge 10 to 100 times what online trades cost. Wall Street wants to make the big bucks, but not have any duties to their clients. It’s simple as that.”

Related Web Resources:
House-Senate negotiators hit impasse on fiduciary standard, InvestmentNews, June 17, 2010
Treasury’s Wolin Vows Fight for Broker Fiduciary Duty in Reform Law, Investment Advisor, May 27, 2010
Financial Regulatory Reform, New York Times, June 15, 2010 Continue Reading ›

Supreme Court Nominee Elana Kagan Took Investors Side on Two Significant Securities Cases

Published on: May 12, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Wall Street Journal reports that as Solicitor General of the United States, US Supreme Court nominee Elana Kagan has sided with investor interests in two high profile lawsuits. In one securities fraud complaint that looked at when shareholders can sue mutual–fund mangers that had allegedly charged fees that were excessive, her office submitted a legal brief supporting investors. Kagan contended that a lower-court ruling make sure that there was enough of a check on potentially exorbitant fees. In another securities case, the Solicitor General’s office argued that Merck & Co. Inc. shareholders did not wait too long to file lawsuits accusing the pharmaceutical company of misrepresenting the safety of VIoxx. This spring, the US Supreme Court unanimously agreed with Kagan’s position in both cases.

However, The solicitor general’s office is siding with the business side in another investor lawsuit that awaiting resolution by the Supreme Court. She is contending that foreign investors shouldn’t be able to file a US securities lawsuit against National Australia Bank Ltd, which is a foreign company.

The Wall Street Journal says that by choosing Kagan as the latest Supreme Court nominee, the Obama administration is taking “a friendlier approach” when it comes to investor cases.

Related Web Resources:
Kagan Sided With Investors in Two Notable Securities Cases, The Wall Street Journal, May 10, 2010
Does Elena Kagan Support Shareholder Rights?, The Big Money, May 11, 2010
A Climb Marked by Confidence and Canniness, NY TImes, May 10, 2010
Office of the Solicitor General
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Ranking Broker-Dealers According to Highest Average AUM Per Rep

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

Below you will find Investment News‘ list of the average assets under management per rep at the biggest independent broker-dealers. The information was compiled from data that came from the investment firms that took part in a yearly survey.

Ranked in the Top 10 were:

1. Wells Fargo Advisors Financial Network, with a $48,322,148 average AUM/rep 2. Commonwealth Financial Network, with a $39,208,423 average AUM/rep 3. Raymond James Financial Services Inc., with a $36,046,959 average AUM/rep 4. First Allied Securities Inc., with a $30,315,640 average AUM/rep 5. Uvest, a unit of LPL Investment Holdings Inc., with a $29,505,358 average AUM/rep 6. FSC Securities Corp., a unit of Advisor Group, with a $28,705,827 average AUM/rep 7. Ameriprise Financial Services Inc., with a $28,511,100 average AUM/rep 8. VSR Financial Services Inc., with a $28,089,888 average AUM/rep 9. M Holdings Securities Inc. (M Securities), with a $27,684,707 average AUM/rep 10. Securities America Inc., with a $27,418,520 average AUM/rep

The Truth about the Financial Reform Bill Proposed by the Majority Leaders

Published on: April 15, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Restoring American Financial Stability Act, a bill on financial reform, is expected to go to the Senate floor for a vote in a few weeks. Introduced by Senate Banking Committee Chairman Chris Dodd, the bill cleared that panel during a party-line vote.

The bill would set up safeguards against financial system collapses, put into place an independent and new consumer financial protection unit at the Federal Reserve, and consolidate significant regulatory agencies. Certain aspects of the bill, such as funding for system-critical companies and procedures for liquidation, are still under debate.

Yesterday, Senator Dodd spoke on the US Senate Floor. He said the bill “ends bailouts.” He noted that for the first time someone would be tasked with monitoring the financial system and can warn of any risks before a meltdown results. Dodd said that Wall Street companies that create the risks will have to contend with tougher standards.

According to Shepherd Smith Edwards and Kantas founder and stockbroker fraud attorney William Shepherd, “This bill does exactly the opposite of what its critics are saying it does. This bill provides for NO taxpayer bailouts. If a financial institution is failing, no matter how large, it will be taken over by the FDIC, which is that agency’s current role. The FDIC is financed by membership dues from all FDIC insured banks, which will be increased. Similar to the manner in which smaller banks are taken over by the FDIC, almost weekly, this is the process: The mega institution fails, its executives are fired, its shareholders get nothing and its assets are sold to other financial institutions. That is no bailout!”

Related Web Resources:
Financial services regulatory reform bill heads to Senate, Business Insurance, April 14, 2010
Restoring American Financial Stability Act of 2010 (PDF)
Continue Reading ›

Most Bloomberg National Poll Participants Think the US Government Should Punish Bankers that Caused Recent Market Collapse

Published on: March 29, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to the Bloomberg National Poll, most of the people who were interviewed don’t like banks, Wall Street, and insurance companies. They also wish that the government would punish those responsible for the financial meltdown. 1,002 US adults took part in the March 2010 poll, which has a margin of error of approximately 3.1%.

Per the poll:

• 57% of Americans have a negative view of Wall Street.
• 67% of poll participants don’t think highly of Congress.
• 56% support the government in either limiting the compensation paid to the parties that helped cause the economic clause or completely banning them from the industry.
• 58% think that big financial companies are more committed to making themselves richer even if it means that regular people end up suffering.
• 40% of pollsters think that financial companies are key to fostering economic growth.
• Over 40% of participants think the government has exceeded its role with actions it has taken to repair the financial industry.
• 37% think the government can do more.
• Nearly 60% think Wall Street should do more to protect itself in the event of future financial disasters.

70% of those surveyed favor current banking regulation over President Obama’s proposal that an independent agency be established for consumer protection.
Americans seem wary of the setting up of a new federal agency that would be in charge of making consumer protection rules for credit cards and mortgages. Instead, they would rather increase the powers of our current regulators.

However, President Barack Obama is determined to keep pushing for a Consumer Financial Protection Agency that he says “will finally set and enforce clear rules… across the financial marketplace.” According to New York Times Columnist Bob Herbert, Obama’s efforts are not making the financial industry and big-money interests very happy.

Regardless of what type of regulatory system oversees the financial markets, our stockbroker fraud law firm is determine to make sure that victims of securities fraud recoup their losses.

Related Web Resources:
Wall Street Despised, Most Want Oversight, Poll Shows (Update1), Bloomberg/Business Week, March 24, 2010
Derailing Help for Consumers, The New York Times, March 26, 2010
Consumer Financial Protection Agency, Los Angeles Times, August 2, 2009 Continue Reading ›

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

Published on: December 11, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.

The Investor Protection Act is Approved by House Financial Services Committee

Published on: December 2, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US House Financial Services Committee has voted to pass the Investor Protection Act, which is part of a package of bills focused on widening financial industry oversight and investor protection. The bill increases the US Security and Exchange Commission’s authority and doubles the agency’s funding, giving it another $1.115 billion for the 2010 fiscal year.

HR 3817 has a clause that would exempt businesses with a $75 million or lower value from a Sarbanes-Oxley requirement that auditors must verify management’s declaration regarding a concern’s internal controls over financial reporting. The SEC had exempted small businesses from SOX”s Section 404(b) attestation requirement, and the exception was to be lifted in 2011. Another amendment added to the bill would confirm the SEC’s authority to rule on shareowners’ right to vote on corporate board directors.

The Investor Protection Act also terminates the inclusion of mandatory arbitration in contracts in the event that investors wish to file securities fraud claims. It also enforces the fiduciary obligation that investment advisers and broker dealers have to make client’s interests their priority.

Whistleblowers would be given incentives for cases leading to sanctions of over $1 million. The SEC would be able to pay a reward of up to 30% of sanctions to the informants involved. The agency could also issue fines for cease-and-desist cases. It would also have greater subpoena powers.

The House Financial Services Committee has recommended other bills compelling a number of derivatives that are privately traded “over the counter” to pass through regulated exchanges and clearing houses. The bill also calls for dealers to be subject to more extensive transparency, business conduct, and capital requirements. It lets investors file lawsuits against investment firms that recklessly or knowingly publish ratings that are inaccurate and compels private equity and hedge fund advisers to register with the SEC.

Financial Services Committee Approves Investor Protection Act, House.gov, November 4, 2009
House Committee Approves Investor Protection Act, SocialFunds.com
House Financial Services Committee

Sarbanes-Oxley Act 2002
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Number of Securities Lawsuits Increased During 3rd Quarter

Published on: November 20, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to commercial insurance consulting firm Advisen, 169 securities lawsuits were filed during 2009’s third quarter-an 11% increase from the 152 complaints that were filed during the previous quarter. 249 securities lawsuits were filed in the 1st quarter.

The most common kind of securities lawsuit filed this past quarter was securities fraud lawsuits that were brought by law enforcement agencies and regulators. 70 securities fraud complaints and 55 securities class actions were filed during 3Q. 50 securities fraud complaints and 38 cases were filed in the 2Q.

Advisen Executive Vice president Dave Bradford says the percentage of securities fraud lawsuits is expected to grow now that the Securities and Exchange Commission appears to be increasing its securities fraud enforcement initiatives under President Barack Obama. The SEC has been attempting to recoup from its failure to detect the $50 billion Ponzi scam that Bernard Madoff ran for years.