FinancialCounsel

Regulator Penalizes Morgan Stanley For Imprudent Retirement Advice Given To Eastman Kodak And Xerox Corporation Early Retirees

Recently, Morgan Stanley was fined $3 million and ordered to pay more than $4.2 million in restitution to 90 retirees, to resolve charges that its supervisory system failed to detect and prevent brokers from persuading Eastman Kodak Company and Xerox Corporation employees to take early retirement.  These pitches were based upon unrealistic promises of consistently high investment returns and by espousing unsuitable investment strategies.  In settling these matters, neither Morgan Stanley nor the individual brokers admitted or denied the findings, but consented to the entry of FINRA's findings.

Unrealistic promises of consistently high investment returns on the one hand, and unsuitable investment strategies on the other hand, present great risk for retirees.  SNSFE continues to investigate all types of cases involving retirees who retired too early based upon such misrepresentations. 

SNSFE Investigates The Nutmeg Group And The Gouldings

Shaheen, Novoselsky, Staat, Filipowski & Eccleston is investigating the Chicago area investment adviser, The Nutmeg Group, for defrauding clients. 

The SEC has charged The Nutmeg Group, owner and managing member Randall Goulding, and chief compliance officer David Goulding for misappropriating client assets, making misrepresentations to their clients, failing to comply with Nutmeg's custodial obligations, and failing to keep required books and records. 

According to the SEC's complaint, Northbrook, IL-based Nutmeg serves as the general partner or investment adviser to 15 unregistered investment pools and claims to have assets under management of more than $32 million.  Nutmeg and the Gouldings misappropriated more than $4 million in client assets by transferring them to third parties, and did not fully document the funds' investments, according to the SEC complaint. 

The SEC alleges further that they improperly commingled fund assets and cannot value the funds' holdings.  As a result, net asset and other investment values have been incorrectly reported to investors.  Nutmeg also has failed to keep required books and records or keep assets with qualified custodians, which has further put client funds at risk.

SNSFE Continues To Investigate Oppenheimer Champion Income And High Yield Funds As Class Action Filing Deadline Approaches

Attorneys at SNSFE continue to investigate the Oppenheimer Champion Income Fund as well as the Oppenheimer High Yield Fund.  Already, class actions have been filed, as well as arbitration actions. 

Investors who seek to recover money should note that there is a deadline of April 13, 2009 in which to file for a class action as lead plaintiff.  That class action deals with a period of August 7, 2006 through December 2008. 

 

FINRA's Online "Risk Meter" And "Scam Meter" Tools Are Worthwhile

FINRA (the Financial Industry Regulatory Authority) has a response to what seems to be almost daily revelations of investment fraud and investment scams around the globe.  The response is a set of online tools aptly named the "Risk Meter" and the "Scam Meter."  I've tested the tools and recommend them to investors.  The tools are complemented by a FINRA Investor Alert entitled, "Avoiding Investment Scams." Let's examine the online tools and the investor alert.

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Private Equity Investments Potentially Offer Attractive Returns But With Notable Risks

A recent study by three researchers at the Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts Amherst examines the advantages and disadvantages of private equity investing.  In announcing their findings, Mr. Schneeweis, Mr. Gupta and Mr. Szado observe that in North America, investment allocations in private equity among institutional portfolios are expected to grow to more than 7.5 percent of total traditional and alternative asset allocations. That percentage represents a substantial dollar allocation. Let's examine the major findings of the research, as well as its major warnings to prospective investors.

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SNSFE Cautions Against Transitioning Reps Relying Upon Edward Jones' Oral Promise That It Would Not Seek To Enforce Its Written Covenants Not To Compete

For Edward Jones, wirehouse shrinkage spells opportunity.  That's according to an InvestmentNews article. Reflecting the deep changes that the current slump has brought to the securities industry, wirehouse brokers are starting to look to Edward Jones for shelter from the storm.

But because it has a long history of training its own reps and never has offered upfront money, it's no surprise that Jones hasn't always been successful in attracting disaffected wirehouse brokers.  The paper says that may change.

To better attract new recruits, Jones this year revamped its transition package to give new hires a steady income during the transition period. The new transition plan is designed to ensure an income of up to 12 months while recruits get settled in.  A recruit gets one month of income for every $10 million of assets controlled at their old firm.  That amount is based on 40% of trailing 12-month's production.

Jones' transition package also offers a $2,000 bonus for every $1 million in assets transferred in, and during the second six months at the firm, Jones will pay an extra 20%, 30% or 40% of production to recruits who produce at least half of what they generated at their old firm.

That said, be careful with respect to what the firm is telling brokers regarding non-competition.  Let's say the marriage doesn't go as planned.  The firm says that it DOES have a non-competition agreement for brokers who bring over an existing book, but "we're not going to handcuff them" if they want to leave.  Jones readily admits that sometimes it DOES sue brokers who leave. 

Let's be clear, when we negotiate these agreements, we're not going to rely on oral promises in the hopes that a written provision will not be enforced.

Source: InvestmentNews

SNSFE Attorneys Assisting Advisers Transition As Smith Barney Loses Advisers And Assets Pending Morgan Stanley Merger

Smith Barney bleeds as it prepares for merger with Morgan Stanley according to InvestmentNews magazine.  Smith Barney is losing brokers and advisers by the score and assets by the billions as it prepares for its new role as the junior partner to former rival Morgan Stanley in their impending joint venture.

Last year was disastrous for the New York-based firm and this year appears to be starting off little better, according to InvestmentNews.

In 2008, parent Citigroup lost 11% of its sales force - primarily Smith Barney reps and advisers. In the fourth quarter alone, Citigroup Wealth Management, of which Smith Barney is the largest part, lost 970 reps and advisers.

That dropped the firm's head count to 13,765 reps and advisers as of December 31, 2008.  Meanwhile, net-client-asset flows dropped steeply, with the firm losing an astounding $17 billion in client assets during the fourth quarter alone.

According to news reports and market sources, the firm last month alone lost three dozen reps and advisers with close to $2.4 billion in assets under management.  These included:

• Fifteen advisers in the Baltimore area who went to Robert Baird.  The brokers control slightly more than $1 billion in assets.
• Seven reps who departed to open an office in Greensboro, NC for Davenport & Co.  Those advisers made up the lion's share of an office with $760 million in assets.
• Two Smith Barney teams of 12 reps and advisers with $620 million in assets under management were hired by UBS, according to a news report.

SNSFE helps reps transition from firm-to-firm. 

Source: InvestmentNews

SNSFE's Continued Investigation Of Principal Protected Note Investments Turns To Firms Such As Neuberger Berman

SNSFE continues to investigate Principal Protected Notes and other structured products that have surprised many investors across the country now facing losses when they understood that their principal would be protected. 

The investigation of this market - which is some $114 billion, of which $40 billion worth is held by individual investors - continues to focus on major firms, such as UBS, Merrill Lynch, Morgan Stanley, and Goldman Sachs, but has also turned to focusing on smaller firms, such as Neuberger Berman.