FinancialCounsel

SNSFE Investigates LPL Broker Stephen Walker For Failed Aspen Exploration Investments

Lawyers at SNSFE are investigating financial adviser Stephen Walker of Rock Island, Illinois.  Walker, who has been temporarily banned from selling investment securities in the state, used to be an investment adviser for Linsco Private Ledger.  He maintained an office in Sterling. 

According to sources, Walker sold $25 million worth of oil and gas investments to at least 25 Illinois, Iowa and Wisconsin residents.  According to sources, clients got virtually nothing back.  Walker reportedly began soliciting clients in 2005 to invest in oil wells run by Aspen Exploration Inc., based in Plano, Texas.  According to sources, Walker sold investments in the oil and gas venture without disclosing the risks involved.  The clients claim the investments were unregistered securities.  Walker allegedly told his clients that investing in Aspen was an "excellent opportunity" and a "very rare opportunity."  Walker told one investor he could expect a return of 20 times his original investment, and the investments were not speculative.  He used high-pressure tactics, according to sources, such as telling clients that they had only 24 hours to invest.  The broker also allegedly told investors to take out loans to invest in Aspen.

Those with information or questions about this investigation should contact lawyers at SNSFE.

More Bad News For Auction-Rate Securities Market

There has been more bad news in the auction-rate securities market. 

First, according to a study of earnings reports conducted by securities-valuation firm Pluris Valuation Advisors LLC, 402 public companies disclosed that they held variations of auction-rate securities.  Half had written down the value of their holdings.  Of those that did write down the value of their holdings, the average markdown was 13.2%, the study shows.

Second, about 25% of the $330 billion auction-rate market has been bought back by municipalities or refinanced with a different kind of debt, says Alex Roever, fixed-income analyst at J.P. Morgan Chase & Co.   Those left, approximately 75% of the $330 billion auction-rate market, probably aren't worth their face value, he adds.

Source:  The Wall Street Journal

J.P. Morgan Analyst Paints Bleak Picture For Investors In Student Loan Auction-Rate Securities

News continues to be most bleak for those who were sold student loan auction-rate securities. 

Last month, a research report issued by J.P. Morgan credit analyst Alex Roever said, "We think it is highly unlikely SLARS issuers will call or restructure any of their existing debt in the way that many municipal ARS issuers are attempting to do...As a result, we estimate $65 billion to $70 billion of SLARS bought as short-term debt may not be saleable, and current investors are at risk of having to hold positions until maturity, which in a few cases may be almost 40 years away."

Source:  FinancialWeek

300 Companies Struggling Over Auction-Rate Securities With One-Half Of Them So Far Reporting Losses Totaling $1.8 Billion

Auction-rate securities woes continue. More than 300 companies are struggling to value auction-rate bonds after dealers battered by subprime-related losses abandoned the $330 billion market in February. About half of the companies reported losses totaling $1.8 billion as the market for the securities, sold as higher-yielding alternatives to money markets, seized up.

It's a "who's who" of corporations who have reported losses: United Parcel Service; Google; Royal Bank of Canada; Hill-Rom Holdings of Batesville, Indiana; HCA Inc., the largest U.S. hospital chain; JPMorgan Chase & Co.; and, Teva Pharmaceutical Industries, among others.

SNSFE continues to assist corporations in monitoring class actions, in attempting to negotiate settlements, and, of course, in arbitrating and litigating over the investment losses and redemptions.

Source: Bloomberg

SNSFE Investigating Massive Fraud Perpetrated By American Elder Group, John Tencza, Michael E. Kelly and Others

The Securities and Exchange Commission has convinced a District Court for the Northern District of Illinois to enter an order permanently enjoining John Tencza, of Meridian, Idaho and formerly of Scottsdale, Arizona, as well as American Elder Group, L.L.C., Tencza's business, from violating certain of the antifraud and registration provisions of the federal securities laws. 

The SEC's complaint in this matter charges that Michael Kelly and 25 other defendants, including Tencza and American Elder Group, participated in a massive fraud on U.S. investors that involved the offer and sale of securities in the form of Universal Leases.  Universal Lease investments were structured as timeshares in several hotels in Cancun, Mexico, coupled with a pre-arranged rental agreement that promised investors a high, fixed rate of return. 

The SEC's complaint alleges that from 1999 until 2005, Kelly and others, including Tencza and American Elder Group, raised at least $428 million through the Universal Lease scheme from investors throughout the United States, with more than $136 million of the funds invested coming from IRA accounts.

The SEC further alleges that a nationwide network of unregistered salespeople who sold the Universal Leases, including Tencza and American Elder Group, collected undisclosed commissions totaling more than $72 million.  These commissions sometimes amounted to as much as 27%.

SNSFE is investigating this massive fraud and welcomes information and comments from investors.

Source:  SEC Digest

Investors Beware As Bank Of America And RBC Dain Rauscher Added To The List Of Firms Sued In Class Actions Over Auction-Rate Securities

Previously, we've cautioned investors to monitor class actions because they may be unsuitable for most investors who have invested several thousands of dollars in those investments.  We've added a few names to the list since our last publication. 

Bank of America as well as RBC Dain Rauscher have now been sued in class actions by various law firms across the country.  Investors need to be careful so as not to receive pennies-on-the-dollar by unwittingly being placed in such class actions.

SNSFE Investigating Wachovia's Firing Of Its Financial Specialists At Banks Over Customer Checking Accounts

SNSFE is investigating claims of financial specialists who Wachovia Bank fired recently. 

Acting on a tip, SNSFE has learned that Wachovia Bank fired employees after they had given customers what Wachovia had offered to them for free, mainly -- accounts with interest and free checking.

Those with information about these firings should contact SNSFE.

Plug Power Sues UBS As Auction-Rate Securities Woes, Failed Auctions And Big Discounts On Redemptions Continue

Auction-rate securities continue to trouble investors.  According to Bloomberg data, failures in the auction-rate preferred share market, which are sold by mutual funds, and debt sold by student loan providers, continue to run at about a 99 percent failure rate for auctions.

In other news, the Missouri student loan agency, known as MOHELA, does plan to redeem securities for investors.  The problem is, however, at a steep discount - about 25 percent below their value.

Finally, Plug Power has filed an arbitration claim against UBS Financial Services for $62.8 million, claiming the brokerage firm improperly invested that sum in so-called auction-rate securities.  The auction-rate securities UBS bought for Plug were backed by federally insured student loans, and Plug said in the lawsuit that student loan-backed ARS are the hardest to sell, with discounts of 25 percent or more.  We certainly know that to be true.

"Throughout the fall of 2007, other brokers and investment advisers began advising clients to liquidate their ARS holdings, in light of the failed auctions and increased liquidity risks...UBS did not notify Plug Power of these risks."

Those with information concerning the preferential treatment of certain large clients to disadvantage others should contact SNSFE.

Sources:  Bloomberg; Times Union; Tribune

SNSFE Issues Warning To Investors Who May Be Trapped In A Class Action Relating To Schwab YieldPlus Fund Select Shares And Schwab YieldPlus Investor Shares

SNSFE is issuing a warning to investors to beware of a pending class action concerning Schwab YieldPlus Fund Select Shares and the Schwab YieldPlus Investor Shares. 

SNSFE is investigating those funds and the investigation centers on the allegations that Charles Schwab omitted or misrepresented important information to investors -- including the YieldPlus funds' safety, composition and risk level.  Investors should beware of class actions as they often return only pennies-on-the-dollar. 

Investors who have claims against Schwab should carefully weigh their options, including whether or not to participate in the class action or to file an individual arbitration claim.  Those with information or questions should feel free to contact lawyers at SNSFE.

SNSFE Investigating Massachusetts Hedge Fund River Stream And Its Manager Michael Regan

SNSFE is investigating a Massachusetts hedge fund manager.  Massachusetts' top securities regulator, William Galvin, on Monday charged a hedge fund manager, who had promised to earn as much as 20 percent for his clients, with improperly soliciting investors.

William Galvin, the state's secretary of the commonwealth, said that Michael Regan did not check whether investors in his River Stream fund were wealthy enough to be legally invested with him.

Galvin's office also found documents that suggests that most of the money clients entrusted to Regan may be lost.  Investigators found River Stream client data thrown into a dumpster near an empty office where Regan said he worked.

The money manager wooed friends and social contacts with false Ivy League credentials and promises of healthy returns between 10 percent and 20 percent a year.  He claimed to have an MBA in Finance from Columbia University which he did not earn, Galvin's office said.

Galvin's investigators also found a brokerage statement showing a River Stream fund had lost $1,625.00 at the end of April, a fraction of the $15 million Regan claimed to be managing earlier in the month.  One client said he put roughly $1.5 million with Regan in 1996.

Those who have information about this fund or this manager should contact attorneys at SNSFE.

Source: Reuters

SNSFE Investigating Implosion Of Bear Stearns High Grade Structured Credit Strategies Fund And Its Managers

Lawyers at SNSFE are investigating the Bear Stearns High Grade Structured Credit Strategies Fund, as well as Ralph Cioffi, Jr.  and Matthew Tannin.   

Bear Stearns recently disclosed that the events leading up to the demise of the Bear Stearns High Grade Structured Credit Strategies Fund -- and the management of the fund by those managers -- are the subject of a number of criminal and civil regulatory investigations by the Office of the United States Attorney for the Eastern District of New York, as well as the Securities and Exchange Commission.

The Bear Stearns hedge fund last year imploded and caused investors to have all of their capital wiped out.

Those with information about this hedge fund please contact SNSFE.

Key Guidance On Hedge Fund Investing

On Tuesday, May 13th, I presented Key Guidance On Hedge Fund Investing, a webinar highlighting important information contained in the "Report of the Investors' Committee to the President's Working Group on Financial Markets, Principles and Best Practices for Hedge Fund Investors." 

This report was released last month and is comprised of the material prepared by two committees, the Asset Managers' Committee and the Investors' Committee.  Given the voluminous size of the report, I primarily focused on the key advice noted by the Investors' Committee, including the topics of hedge fund investments and allocations, investment policy, and best practices in due diligence, risk management, legal and regulatory concerns, valuation, fees and expenses, and reporting. 

We recorded the program.  You can replay the presentation or listen to the podcast using the buttons below or by clicking on their links in the left side bar.

Investors Should Avoid Exchange-Traded Notes

Investors need to avoid exchange-traded notes according to columnist John Waggoner of USA Today.  It's good advice. 

Wall Street has created a new generation of investments, called exchange-traded notes, or ETNs, and they go by names such as BOXES, LUNARS, MITTS, PERQS and PISTONS.  "Except for the plainest of plain-vanilla ETNs," Waggoner advises that investors should "handle them like XPLOSIVs."

"ETNs are a relatively new development.  The value of an ETN depends on the movements of a stock index or, sometimes, even an indiviudal stock.  And, as you might have guessed," according to Waggoner, "ETNs trade on the stock exchange - typically, the American Stock Exchange."

"In those respects, ETNs are fairly similar to their cousins, exchange-traded funds.  But ETNs have a big difference:  They are debt securities, not equity securities.  When you buy an exchange-traded fund, you're buying a slice of a diversified portfolio of stocks.  When you buy an ETN, you're buying a promise - specifically, the promise that the issuer will pay the note according to the terms laid out in the ETN's prospectus."

"Those terms can be simple or complex," according to Waggoner.  "Let's start with a simple one," he suggests:  The iPath Dow Jones-AIG Commodity Index Total Return ETN.  This trades under the ticker DJP.  "The note pays no interest, but the issuer, Barclays, will pay a cash payment at maturity equal to the gain on the Dow Jones-AIG Commodity Index total return.  The maturity date is June 12, 2036.  You can sell the note before it matures, at which point you'll get whatever other investors feel it's worth."  As of last week, its value was up 9.2% in 2008.

"Jeffrey Ptak, Morningstar's director of ETF research, likes DJP because it does a better job tracking the index than an ETF can.  A fund has to use futures and other investments to track the commodity index.  Because a note isn't a fund, it doesn't have to line up investments that mirror the index.  All it needs is the promise to pay according to the index's movements. 

As a way to get broad exposure to commodities, Ptak says, DJP isn't bad.  The index the note uses is well-diversified, and the overall cost to investors is decent.  However, the more complex ETNs can be complex indeed.  Consider the Capital Protected Notes based on the Morgan Stanley Capital International Europe, Austral-asia and Far East stock index.  The notes trade under the ticker EEC." 

According to Waggoner, "Here's the deal:  Like DJP, EEC pays no interest over its term, which began May 23, 2005.  Each note was issued at $10.  When the note matures on December 30, 2008, the underwriters will pay note holders $10 per note. This is where the 'capital protected' part comes in: If you hang on to the note, you'll get your money back." 

The trade-off is that you give up some of the potential capital gains from the EAFE index in return for the capital protection.  "In this case, you give up quite a bit.  The note takes the index level at four different dates and averages them together.  The percentage difference between the average of the four dates and the starting date is your return.  In a rising market, your gains from this ETN will be considerably lower than if you had simply bought an ETF that tracked the index.  (The average will be smaller than the differnce between the start and the end point.)  Given this snakebit market, you might think that the smaller returns are a good trade for preserving your capital.  Should the market soar, however, you'll probably feel considerable buyer's remorse."

According to Waggoner, ETNs have a few other considerations:

First, counterparty risk.  "An ETN is backed by a promise.  Although the issuers of these notes are large, financially strong firms, you should be aware that, at least until recently, everyone thought that investment back Bear Stearns was financially strong, too."

Second, tax risk.  "The IRS is reviewing the tax treatment of ETNs and may consider taxing ETN profits as interest, rather than at lower capital gains rates.  Already, the IRS has ruled that single-currency ETNs will be taxed at ordinary income rates."

Third, commissions and expenses.  "ETNs are generally cheaper than mutual funds, but you'll have to pay a commission.  Your broker may tell you that you can buy an ETN on its initial offering with no commission, but that's not entirely true:  The commission is part of the initial offering price."

Waggoner concludes that, "Generally speaking, the more complex the deal, the more you should avoid it."  That's good advice.

Source: USA Today

Citigroup's Settlement Offer To Falcon And ASTA/MAT Investors May Not Be Sufficient

Recently, the Wall Street Journal ran an article focusing on Citigroup's push on hedge funds known as Falcon and ASTA/MAT.  The losses by these two hedge funds are the latest examples of the credit crunch hammering retail, or individual, investors who believed they were holding low-risk securities. 

These funds have plunged more than 75% or more.  The mess is another black eye for Citigroup according to the Wall Street Journal.  But interestingly, this time, the sales machine shifted into overdrive, pitching these funds as ideal investments for conservative retirees.  While Citigroup defends its handling of the hedge funds, saying they were offered only to clients with large diversified portfolios, that appears to have been belied by brokers who sold the funds.  According to some brokers, Citigroup brokers and fund managers assured prospective investors that the new hedge funds were low-risk, with Falcon likely to post losses of no more than 5% a year in the worst-case scenario. 

Falcon invested in municipal bonds, mortgage-backed securities, bank loans and other debt instruments, while ASTA/MAT emphasized municipal bonds.  Each was comprised of different funds that were launched periodically.  Until turmoil rocked financial markets last summer, the funds racked up strong returns, boosted by heavy doses of leverage. 

Last year, as Citigroup was gearing up to launch new Falcon and ASTA/MAT funds, it encouraged brokers at Smith Barney and in Citigroup's private bank to pitch the funds to their best customers.  One reason for the push:  Initial market tremors caused the Falcon family to decline by more than 10%, and Citigroup hoped to stabilize it with an infusion of cash.

By September, the new Falcon fund had raised about $71 million and the new ASTA/MAT fund raised about $800 million.  As of March 31st, the new Falcon fund was worth just 25% of its initial value, according to internal documents.  The ASTA/MAT fund had shriveled by February 29 to less than 10% of its original value, the documents show. 

According to the Wall Street Journal, even as their performances deteriorated, the 41-year-old manager of the funds reassured uncertain brokers and clients that the funds were likely to rebound, according to people familiar with the matter. 

Under a compromise that Citigroup has reached with investors, and is offering to them as we speak, Citigroup's wealth-management unit has agreed to spend $250 million to allow Falcon investors to exit from their positions without absorbing the fund's full losses, if investors would agree to forfeit all legal claims against the funds.  Some ASTA/MAT investors will get a similar offer.

SNSFE continues to investigate whether such settlement is appropriate and fair to investors.

Meanwhile, according to the Wall Street Journal, in the future, Citigroup will scale back its marketing of hedge funds to retail customers.  It's about time.

Source:  Wall Street Journal 

Investor Angst, Regulatory Probes And Litigation Intensify Over Auction Rate Securities

Investor angst concerning auction rate securities (ARS) continues, and indeed has worsened over the last few months. In May 2008, the New York Times reported that $300 billion worth of investors’ funds were “still locked up” and that 70% of all weekly auctions still were failing.  Additionally, ARS investors, especially those subject to class action filings, must be on guard to protect their rights.  Let’s discuss why.

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Securities Regulator Cautions Investors To Avoid Funds Investing In Catastrophe Bonds Or Other Event-Linked Securities

The Financial Industry Regulatory Authority (FINRA) has issued an Investor Alert warning investors about the risks of speculating on natural disasters with event-linked securities, such as catastrophe bonds or "cat bonds."  Cat bonds offer high yields but can quickly lose most or all of their value if a triggering event, such as a hurricane, earthquake or pandemic, occurs in specified geographical regions.

According to Mary Schapiro, FINRA CEO, "Event-linked securities are complex products that can lose their value if a triggering catastrophe occurs.  While they are typically marketed to institutional investors, retail investors should know that they could be vulnerable by virtue of owning shares in funds that invest in event-linked securities."

FINRA has issued a new Investor Alert entitled, "Catastrophe Bonds and Other Event-Linked Securities."  It describes how event-linked securities work and helps investors determine whether and to what extent the funds they hold invest in these securities.  The Alert explains that prices, yields and ratings of cat bonds rely almost exclusively on complex computer modeling techniques that determine the probabilities and the potential financial damage of natural disasters.  If a  catastrophic or "triggering" event occurs, holders could lose most or all of their principal.

Investors are encouraged to check their funds' prospectuses to see whether any fund is authorized to invest in event-linked securities - including collateralized debt obligations and derivatives.  And investors should make sure that if a fund is invested in event-linked securities, it is diversified in terms of type of risk and geographic location, and event-linked securities comprise only a limited portion of the portfolio.

That's good advice.

Source:  FINRA News Release

Regulators' Inquiries As Well As Auction-Rate Fire-Sale Discounts Increase Amid Renewed Allegations Of Collusion, Especially In the Area Of Student Loan Auction-Rates

Concerns about investor abuse in auction-rate securities continues.  New York Attorney General Mr. Cuomo is joined now by at least a dozen different authorities at the state and national level investigating aspects of the $330 billion auction-rate securities market. 

The Securities and Exchange Commission has been working closely with the Financial Industry Regulatory Authority.  Regulators say probes are still continuing but some appear to be narrowing their search.  One focus is on disclosures made to issuers.  But the area that may be more fertile is how the securities were sold to investors and whether they were informed of the risk that the market could become illiquid, say some regulators.

One enforcement official says:  "As the market started to show signs of stress... did [firms] start changing who they sold to?  Did they start taking themselves and preferred sellers out of the market?  Did they start overplaying or underplaying the cash-like aspect of the securities?  What did they know and when did they know it?"

That person adds that firms or broker-dealers who intentionally placed customers into products they knew "would not act as they had before" given the market dislocation would be in breach of the rules.

Professor Coffee, law professor at Columbia University, says, "It was anomalous that the market suddenly dried up.  The question is, was there any collusion that led to people suddenly moving out of the market?  What would be most suspicious is if you see any kind of discussions between banks."

On another note, the Restricted Securities Trading Network began listing auction-rates last month on its electronic trading network.  Transactions were slow to begin, but now average between seven and ten per day, according to its CEO.  That said, to date, municipal auction-rate securities are seeing discounts of up to 10 percent.  Auction-rate preferred securities are between 10 percent and 20 percent discounts, and student loan auction-rates are discounted 25 percent and up.

With respect to student loan auction-rate securities, several student loan authorities say broker-dealers including UBS, Citigroup and Bank of America requested late last year that these authorities issue waivers that would make the auction-rate securities easier to sell.  A broker-dealer is the firm responsible for recruiting buyers for the securities at the auctions.

The behind-the-scenes moves show broker-dealers were struggling to keep auctions afloat as some more sophisticated investors such as corporate treasurers, spooked by problems in the credit markets, became reluctant to buy.  The moves, according to the Wall Street Journal, raise questions about what Wall Street firms told their brokerage clients about risks emerging in the auction-rate security market.  While alerting investors to warning signs could have accelerated the market's ultimate failure, firms' lack of action suggests Wall Street may have grappled with conflicted loyalties leading up to the collapse, according to the Wall Street Journal.

SNSFE continues to investigate and assist investors in this area of possible, if not probable, investor abuse.

Sources: Wall Street Journal; CFO.com; Financial Times

Securities Regulator Issues Warning Regarding Investors’ Use of Reverse Mortgages

For many individuals, their largest asset is their home, and it is their most precious source of retirement security.

Unfortunately, over the years financial advisers have convinced homeowners that they should tap into their home equity to purchase investments.  In 2004, the NASD (National Association of Securities Dealers), now known as FINRA (Financial Industry Regulatory Authority) issued an investor alert entitled, “Betting the Ranch: Risking Your Home to Buy Securities.”  That alert addressed the use of new mortgages, refinanced mortgages and lines of credit secured by the home.  The NASD expressed its concern that “investors who must rely on investment returns to make their mortgage payments could end up defaulting on their home loans if their investments decline and they are unable to meet their monthly mortgage payments.”

More recently, homeowners (over the age of 60) have been the target of those who wish to sell them a “reverse mortgage.”  While reverse mortgages may be appropriate in some circumstances (such as when homeowners cannot meet their monthly mortgage payments or cannot pay bills or meet unexpected expenses), FINRA has alerted investors to stay clear of reverse mortgages to finance a lifestyle that they otherwise cannot afford or to pay for investments.  FINRA warns in its recent alert entitled, “Reverse Mortgages: Avoiding a Reversal of Fortune”, that “as more Americans near retirement age, some financial institutions are aggressively marketing reverse mortgages as an easy, cost-free way for retirees to finance lifestyles – or to pay for risky investments – that can jeopardize their financial futures.”  Let’s examine FINRA’s guidance.

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Managers Replaced at Poorly-Performing Regions Morgan Keegan Funds; SNSFE Continues to Investigate

The nation's two worst-performing bond-focused mutual funds over the past year are booting their in-house management in favor of outsiders.  Morgan Asset Management Inc., a unit of Regions Financial Corp., announced that it had been replaced to oversee these two and five other bond funds for Regions, based in Birmingham, Alabama.  All the funds were managed by James Kelsoe.

"Coming aboard is Hyperion Brookfield Asset Management Inc., which manages $22 billion.  New York City-based Hyperion Brookfield, a unit of Brookfield Asset Management Inc., would take over the portfolios, and new boards of directors would be nominated.  Hyperion Brookfield had been serving as an independent valuation consultant for the funds.

Two of the funds with the worst returns were the Regions Morgan Keegan Select Intermediate Bond Fund, which is down 73% in the past 12 months, and the Regions Morgan Keegan Select High Income Fund, which is down 70% in the same period.  The biggest reason was their investment in mortgage-backed securities, including low-quality mortgages, and complex securities like collateralized debt obligations.

In the past, these funds were doing well, partly because of these exotic investments.  However, as the housing slowdown got under way last summer, hurting mortgage securities, these funds quickly started losing value.  As the net asset value of the funds declined, investors started pulling out, forcing the managers to sell securities in an illiquid market to meet redemptions.  It dragged down the funds further.

In December, investors in Tennessee filed a lawsuit against two of the funds.  The firm also settled an arbitration claim with an Indiana charity, which said it had bought the Intermediate Bond Fund on the understanding that it was a safe investment."

SNSFE continues to investigate the Morgan Keegan Funds to determine whether or not they were suitable for investors and whether or not investors received all information pertinent to making their investment in those funds.

Source:  The Wall Street Journal

SNSFE Investigates Claims That Brokerage Firm Employees In 401(k) Plans And Other Qualified Plans Were Not Advised Of The Risk Of Owning Company Stock In Light Of Subprime And CDO Exposure

Employee plaintiffs are lining up to sue the major brokerage firms over losses in company stock.  A number of proposed class actions have been filed against Citigroup, Merrill Lynch and Morgan Stanley.

According to the lawsuits, the companies made inadequate disclosures about their subprime and collateralized-debt-obligation exposure.  The suits allege that by including company stock in 401(k) and other savings plans, and encouraging employees to buy shares, the firms violated their fiduciary duties to participants under ERISA.

The suits cover the firms' 401(k) plans, other savings plans and employee stock option programs.  The claims don't involve deferred-compensation plans for brokers.  Deferred-pay plans for producers also hold substantial amounts of stock. 

The suits - all fairly similar - run down a long list of alleged violations by the firms and plan administrators.  They claim that executives and board members who oversaw the retirement plans knew that the companies were in trouble from CDO and subprime losses but failed to make adequate disclosures to plan participants. 

Plan fiduciaries have a number of avenues to reduce risk to participants, such as encouraging diversification and withdrawing or limiting company stock as an investment option.  Officials and board members of the companies didn't want to suspend employee purchases of stock, according to the lawsuits, because their compensation relied on maintaining a high stock price.

One of the cases against Citigroup acknowledges that Section 404(c) of ERISA, which eliminates liability for poor performance if participants have adequate investment choices, could be a defense.  However, the plaintiff's attorney states, "Our argument would be [that 404(c)] only applies when participants are given full disclosure."

SNSFE continues to investigate claims regarding 401(k) and other savings plans.

Source:  InvestmentNews

Hedge Funds, Such As Peloton Partners, Sailfish Multistrategy Fund, Tisbury Capital, Drake Capital And Polygon, Continue To Collapse

According to top industry executives, there will be more hedge fund collapses this year as many managers struggle to borrow the money they need to trade with and face investors disappointed by recent losses.

"Some funds simply will not do well, particularly those specializing in fixed income markets," said David Bailin, who heads Bank of America's alternative investment group which invests in roughly 100 hedge funds.  "It will be rough trading for the rest of the year."

As a group, hedge funds recorded their worst-ever quarter in the first three months of 2008, and managers overseeing some $3.9 billion in assets have already shut down their businesses, according to data from trade magazine Absolute Return.  Peloton Partners and the Sailfish Multistrategy Fixed Income Fund rank among the year's biggest casualties so far.

Previously, the growing list of hedge funds hurt by withdrawals includes Tisbury Capital, a $2 billion London event fund; New York-based global macro trader Drake Capital; as well as Polygon, an $8 billion multi-strategy and event fund based in London as well.

Source:  Reuters; Financial Times