FinancialCounsel

FBI Investigating Advisers Ed May And Frank Bluestein Of Michigan Over Investments Losing Millions; SNSFE Is Investigating

Attorneys at SNSFE are investigating an adviser in Michigan and his business partner, both of which are currently being investigated by the FBI.  Ed May and his firm E-M Management Investments LLC are accused of losing millions of dollars for over 1,500 investors in investments that are very questionable.  His business partner, Frank Bluestein, also a registered representative with GunnAllen Financial until recently, sold shares in many of these partnerships.  Investors who have information about either of these two individuals are urged to contact attorneys at SNSFE.

SEC Sues Robert Loffredi Of Hinsdale, Illinois For Misappropriating Customer Funds; SNSFE Is Investigating

Attorneys at SNSFE currently are investigating the case of Robert Loffredi, President of Raymond Financial Group in Oakbrook Terrace, Illinois and a registered representative with Linsco Private Ledger.  The Securities and Exchange Commission has accused this suburban broker of misappropriating more than $2.4 million of his clients' money.  Indeed, through his attorney, Mr. Loffredi admits that he misappropriated the funds, but claims that some of the money he is entitled to as a fee.  Instead of using the money to pay for customers' securities, the SEC accuses Mr. Loffredi of using the funds to pay his personal and business expenses, to make payments for his wife’s business, to make disbursements to other customers who had invested in the fictitious securities and to make at least one payment on behalf of his wife.  What's up with that?  Investors who know information about this, please contact us.

SEC Approves Rule Increasing Protection For Deferred Variable Annuity Investors

The Securities and Exchange Commission (SEC) recently approved a controversial rule proposal that will add significant protections for investors purchasing or exchanging deferred variable annuities.  The rule imposes new requirements on financial services firms in four areas:  suitability; review and approval by a principal of the financial services firm; supervisory and compliance procedures; and training of financial advisers.  Let's highlight the key features of new Rule 2821 as they relate to suitability.

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Securities Industry Publication Identifies Current Investor Protection Issues

Securities firms are required to train their advisers.  To assist firms in doing so, the Securities Industry/Regulatory Council on Continuing Education (the "Council") publishes its annual Firm Element Advisory (the "FEA").  The FEA serves "to identify current regulatory and sales practice issues" for possible use in training advisers.  The FEA also serves as a helpful listing of topics for attorneys in counseling their clients -- whether they are securities firms, financial advisers or aggrieved customers.  Let's examine the more important areas of the 2007 FEA.

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NYSE Censures And Fines 15 Brokerage Firms For Prospectus Delivery And Confirmation Delivery Failures

The NYSE has censured and fined 14 member brokerage firms and one former member firm a total of $10.4 million for failing to deliver to customers prospectuses related to investments and other operational and supervisory violations.  Citigroup Global Markets, Deutsche Bank Securities, and Lehman Brothers have been hit the hardest.  In addition, UBS, Bear Stearns, Credit Suisse, McDonald, RBC Dain Rauscher, Banc of America Securities, Goldman Sachs, J.P. Morgan Securities, Keefe Bruyette & Woods, and Wachovia Capital Markets all were fined.  In addition, two other firms failed to insure that trade confirmations were delivered to customers.  These were Citigroup and Lehman Brothers. 

According to Richard Ketchum, NYSE Regulation Chief, "When you are evaluating an investment, access to appropriate disclosure documents, including an accurate description of the risk involved, is extremely important."  During the time in question, these firms did not have adequate controls in place to carry out their responsibilities to their customers.  He's right, and this kind of conduct needs to be stopped.

Prudential Sues State Street For Losses In Retiree Accounts Invested In The Intermediate Bond Fund And The Government Credit Bond Fund

A unit of Prudential Financial sued State Street subsidiaries for over $80 million in losses ascribed to "undisclosed, highly leveraged" investments by State Street that included subprime mortgages.  Prudential has said that State Street's management of the funds named in the lawsuit misrepresented their investment strategy and exposed them to undue risk. 

What is Prudential's role?  Prudential said the losses were suffered in accounts held by 28,000 individuals in 165 retirement plans it markets.  These accounts held funds that were managed by State Street, of course a Boston bank and money manager.  Prudential, a big insurer, has said that it will reimburse its clients for the $80 million they lost.  Prudential said it had placed their clients in these two State Street Funds -- the Intermediate Bond Fund and the Government Credit Bond Fund -- and that the Boston money manager had marketed as investments that would provide "stable, predictable returns" in line with an index of U.S. government and corporate bonds. 

What happened?  Instead of that, the  lawsuit alleges that State Street changed its investment strategy over the summer without notification and devoted a large portion of the funds' investments into financial instruments that included asset-based securities that over-whelmingly derived their value from home-equity loans, mortgage-backed securities swaps, derivatives and other exotic fare.  The suit said that the bank recently informed Prudential it held a position in a synthetic index whose returns are linked to 20 subprime U.S. mortgage pools. 

State Street has denied any wrongdoing and vows to vigorously fight, blaming the market.  Let's see what happens.

Source:  the Wall Street Journal, October 2, 2007