FinancialCounsel

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.

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 

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

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

SNSFE Warns That Class Actions May Not Be The Best Recourse For Purchasers Of Auction Rate Securities

News of auction-rate securities class actions being filed has concerned many securities lawyers that investors may be choosing the wrong path to pursue recovery.  While sometimes some class actions are sensible for some investors, oftentimes they are not. 

SNSFE attorneys are investigating auction-rate matters for investors at various firms and are willing to continue to do so when faced with the prospect of a class action notice. 

Investors ought to beware that the brokerage firms named in the suits alleging class action status include, Citigroup, E*Trade Financial, Merrill Lynch, Morgan Stanley, Deutsche Bank, Raymond James Financial, SunTrust Banks, TD Ameritrade, UBS and Wachovia.  Investors should feel free to share their documentation with SNSFE attorneys to determine which course of action is best.

Schwab's YieldPlus Ultra-Short Bond Funds Continue To Suffer Along With Fidelity And State Street Global Advisors Bond Funds And Are Unlikely To Rebound

Schwab YieldPlus Fund Select Shares and Schwab YieldPlus Fund Investor Shares now are subject to an investor arbitration claim filed at FINRA. 

Regarding the ultra-short bond fund Shwab YieldPlus, Morningstar states that the fund's sizeable loss in recent months is certainly shocking as ultra short-term fixed income securities are generally perceived to be safe investments with minimal interest-rate and credit risks.  The fund first showed signs of distress last summer when subprime mortgage woes caused market liquidity to dry up.  Lead manager Kimon Daifotis has taken on slightly more credit risk than his category peers and kept the portfolio heavily invested in corporate and nonagency mortgage bonds, with a small exposure to subprime-backed bonds.  These securities took a sizeable hit, and the fund proceeded to lose 3.6% in the latter half of 2007.  That was enough to send investors heading for the exits, and it appears that management was forced to sell bonds at depressed prices to meet redemptions.  Because many of the fund's losses are already locked in, the chance of a rebound is slim, according to Morningstar.

Other short-term funds have suffered similar misfortunes.  A few similar funds, such as Fidelity Ultra-Short Bond Fund and SSgA Yield Plus from State Street Global Advisors have been hurt in recent months as well, yet weren't as popular as the Schwab fund.

Schwab Reportedly Offering To Settle Loss Claims Of YieldPlus Fund Investors

Charles Schwab's YieldPlus mutual funds are in the news again.  This time, it is reported by attorneys that Schwab has called clients who have filed arbitration actions as well as others associated with a class action lawsuit against the company regarding YieldPlus.

According to the attorneys, the purpose of the calls is to suggest to customers that they settle with Schwab over YieldPlus losses.  That fund plummeted in recent months. 

Attorneys say that the settlements are anywhere from five to 12 cents on the dollar of losses.  Whether or not this is true, investors need to carefully consider any settlement options before moving forward with a settlement.

Attorneys at SNSFE continue to investigate claims of YieldPlus investors.

Edward D. Jones Broker Awarded Damages For Emotional Distress Arising From Employment

An arbitration panel has held Edward D. Jones accountable for emotional distress inflicted upon one of its registered representatives and has awarded that former rep over $141,000 plus legal expenses.  Edward D. Jones, which is widely regarded as one of the best companies to work for, allegedly inflicted emotional distress on a former registered representative and then insisted that she seek psychological help, according to a recent arbitration award.

Ms. Sommer, who worked for St. Louis-based Edward Jones between 2000 and 2005, was awarded damages of $141,000 -- $100,000 of which was intended to compensate her for "emotional distress," according to the award, which was handed down in March.

The award is a reasoned award and part of the award states, "Without any reasonable grounds for doing so, apart from some sporadic instances in which Sommer's communications had a sarcastic tone or used crass language, coupled with the fact that Sommer did not readily take 'no' for an answer and occasionally involved higher-ups in such situations, Jones ordered Sommer to mental health counseling -- in effect an order to involuntarily undergo 'surgery' or be terminated," the arbitrators' decision stated.

Coupled with the threat of immediate termination if Ms. Sommer displayed "inappropriate, unprofessional or insubordinate behavior," the panel said it found that no reasonable person could be expected to continue working under such conditions.  "Sommer had no choice but to resign," according to the decision.

Source:  InvestmentNews

SNSFE Announces Intention to Maintain Library of Auction-Rate Securities Materials As SEC And State Securities Regulators Continue to Investigate Possible Investor Abuse

Auction-rate securities continue to be in the news.  Recently, the Securities and Exchange Commission announced that it was seeking information on auction-rate debt sales.  According to Lori Richards, head of the SEC's Office of Compliance Inspections and Examinations, "We are looking at representations made to investors when they purchased auction-rate securities."

According to the news release, the SEC's inspections office sent letters to the biggest sellers of auction-rate debt this month seeking the names of customers who had purchased the notes and the identities of the brokers who had sold them.

In related news, the North American Securities Administrators Association today said that regulators in Florida, Georgia, Massachusetts, Illinois, Missouri, New Hampshire, New Jersey, Texas and Washington were coordinating their probes of the $330 billion market.  Importantly, the President of the North American Securities Administrators Association Karen Tyler stated, "Our focus is to determine what conduct took place at the point of sale -- what was potentially misrepresented and omitted -- and our goal is securing for investors access to their cash as requested."  She said if the product was represented to be a cash equivalent going in, it must be treated as a cash equivalent going out. 

Last week, New York Attorney General Andrew Cuomo was reported to have subpoenaed 18 banks and brokerages about their involvement in the securities.  Those banks included UBS, Merrill Lynch, Goldman Sachs, Citigroup, Raymond James Financial, First Albany, Wachovia Corp., Morgan Keegan, Piper Jaffray, AG Edwards, Deusche Bank, TD Ameritrade, Lehman Brothers Holdings, RBC Dain Rauscher, Bank of America, JPMorgan Chase, Morgan Stanley and E*Trade Financial. 

TD Ameritrade is now facing a lawsuit over auction-rate securities, though investors ought to beware that that is a class-action lawsuit and they should consider whether or not they will receive anything more than nominal sums in settlement or in any legal action.

On the heals of all these investigations, SNSFE is announcing that it is gathering a library of documents that will pertain to auction-rate securities brochures, descriptions and other materials. 

Of note, the Bond Market Association in 2006 published Best Practices for Broker-Dealers of Auction-Rate Securities.  Section 4.7.1 states:

An initial offering of Auction Rate Securities is effected by means of a prospectus or offering statement.  Most subsequent auctions of such securities are secondary market transactions that do not involve a requirement to deliver a prospectus or official statement.  Broker-Dealers, however, often use marketing materials and other disclosure documents to identify the issuer and inform investors of the salient features of the program, including the Auction Procedures.  Such disclosure document should reflect current auction practices.  Broker-Dealers should consider using website postings, educational brochures and/or disclosure in confirmations to help Holders and Prospective Holders understand the market for Auction Rate Securities.

Most investors have reported they did NOT understand the market for auction-rate securities or the risk involved. 

SNSFE should be contacted in the event the investors have materials they would like to share in the library that SNSFE is putting together, as well as to discuss bringing claims to liquidate such investments.

SNSFE Investigating Citigroup's ASTA And MAT Hedge Funds As Brokers And Their Clients Considering Bolting From Citigroup

According to a recent BusinessWeek article, Citigroup, its clients and its brokers, are in the midst of several hedge fund flameouts and Citigroup is scrambling to hold on to both investors and brokers who are considering bolting from the firm.

As if Citigroup didn't have enough of a mess from its parade of writedowns, the bank must now deal with the fallout from blowups at a series of hedge funds.  Some of its high-net-worth clients, whose losses in the funds approach $2 billion, are threatening to move their money to rivals.  That's prompting some of Citi's top brokers to consider leaving the bank as well.

Citigroup is in damage-control mode, scrambling to stave off the exodus.  The bank recently pumped $661 million into six troubled hedge funds and devised a restructuring plan that would allow investors potentially to recoup some of their money.  The company is also arranging weekly conference calls with its sales force to keep them in check. 

The latest drama stems from six hedge funds - sold under the brand names ASTA and MAT - that used huge piles of leverage to buy municipal bonds.  The funds borrowed approximately $8 for every $1 raised.  When the muni market went haywire in February, the funds tanked.  Even after Citi's emergency cash infusion this year, they are down 60% to 80%.  The funds' rapid demise came on the heels of a plunge at the $1 billion Falcon Strategies, another group of highly leveraged funds run by Citigroup.  Late last year, the Falcon funds dropped more than 30% after making a bunch of bad bets on the mortgage market - declines that have continued into this year.

The problem started earlier this year when the municipal bond market got spooked by woes at the big insurers.  Prices on bonds, in turn, tumbled.  The volatility wreaked havoc on the funds, which sold short-term debt and used the proceeds to buy higher-yielding, longer-term municipal bonds - an arbitrage strategy that profited on the spread between the different yields.  The funds owned some of the hardest-hit muni bonds, those guaranteed by Financial Guaranty Insurance Co.; when the insurer lost its AAA rating, the prices on FGIC-backed muni bonds dropped precipitously.

The portfolios might not have been decimated if it weren't for all the leverage.  At their peak, the funds controlled some $15 billion worth of municipal bonds although they owned only $1.9 billion in investors' money.  But the mayhem in the munis triggered a round of margin calls, which forced the managers to sell assets to come up with cash to pay the funds' lenders.  Internal bank documents reviewed by BusinessWeek show that the largest of the municipal bond funds had lost almost all of its value by the end of February.  A spokesman for Citi, Alexander Samuelson, admits that the funds suffered from "unprecedented volatility."

It's not clear that Citi's recent moves will appease the two constituencies, brokers and investors, who have claimed that the municipal bond funds were pitched as low-risk.  One broker referred to them as a "failed product."  Another asserted that the restructuring plan will probably be a nonstarter with investors.

Already, at least one broker with a number of clients in the hedge funds has jumped ship to Morgan Stanley.  Sources familiar with the situation say other brokers have hired lawyers to negotiate separation agreements from Citi or to represent them if the bank tries to block them from defecting to another firm.  Some brokers are referring frustrated clients to lawyers and SNSFE stands ready to assist.

Please beware that sources indicate that Citi is trying to sweep the mess under the mat by requiring investors to agree that they won't sue the bank as part of the restructuring plan.

SNSFE continues to assist investors and investigate in hedge fund cases such as these.  Please contact us with any questions or comments.

Regulators Increase Investigations Of Auction Rate Securities As Individual Investors Might Have Been Suckered Into Buying So That Heavyweights Could Bail Out

Regulator inquiries are intensifying over auction-rate securities.  This week Goldman Sachs disclosed that it has received requests for information from various governmental agencies and self-regulatory organizations relating to auction products and the recent failure of such auctions. 

The SEC and FINRA are looking into the market.  In particular, investigators want to learn what promises brokers made to investors who purchased auction-rate products.  Likewise, Bear Stearns has disclosed that it received a Wells Notice from the SEC warning that civil charges may be coming "in connection with the bidding for various financial instruments associated with municipal securities."  That Notice comes in connection with a probe by the SEC and the Justice Department regarding the conduct of Wall Street firms that packaged and sold municipal derivatives (securities based on underlying assets such as city bonds) beginning in 1990. 

As well, FINRA has issued a regulatory Notice that now brokerage firms will have to report specifically customer complaints regarding auction-rate securities.  This complaint reporting category goes into effect immediately. 

But most troubling is the fact that even though some Wall Street heavyweights and major corporations have been stung, many of them also appear to have bailed out of the market well ahead of individuals.  At the end of 2006, institutional investors held about 80 percent of all auction-rate securities, according to Treasury Strategies, a consulting firm in Chicago, yet at the end of last year that portion had fallen to just 30 percent.  "A number of corporations understood there was a rising threat to their securities; there had been failures and warnings," according to the chief executive of Treasury Strategies. 

As big holders of those securities accelerated their selling late last year, Wall Street firms overseeing the auctions would have come under greater pressure to find buyers to make the auctions succeed.  It is unclear whether they turned to individual clients to fill this void, but that would have seemed sensible.  Auction-rate securities have morphed from a product sold mainly to corporations to one marketed heavily to individual investors, especially when minimum investments were dropped to $25,000.00.  The top underwriters in the municipal part of the market were Citigroup, UBS, Merrill Lynch and Morgan Stanley. 

Importantly, investors were not provided with the prospectus to outline the risk of these securities because they are viewed as secondary market offerings.  Likewise,  it is now clear that auction securities became a  managed bidding system, and not a true investor auction.  That's according to the chief executive of Saber Partners, a financial advisory firm. "The investor never knew how many investors there were, how often the brokerage firms were stepping in to make the system work, nor that the broker's support could stop all of a sudden...If we had transparency in the system, investors could have judged the ability to sell in the individual auctions and bid accordingly."

Interesting as well is how the firms make money with auctions.  According to recent press, the firms earn money at least twice.  First, when the notes or shares are underwitten, they receive 1.5 percent of the amount of money raised, in the form of a fee.  Then they receive a quarter percentage point (0.25) annually for conducting the auctions and that's a total of $825 million this year, based on the size of the market.  Most amazing is the fact that the firms receive these auction fees even when the auctions fail, so the firms have no incentive to help revive this market.

Investors ought to beware and SNSFE is continuing to investigate claims of auction-rate securities unsuitability on behalf of investors.

Sources:  New York Times; The Wall Street Journal; FINRA; Reuters

SEC Charges Five Former San Diego Officials With Securities Fraud For Inadequate Municipal Securities Disclosures

The SEC has filed securities fraud charges against five former San Diego city officials who played key roles in the city's inadequate municipal securities disclosures in 2002 and 2003.  The SEC charged the former officials for failing to disclose to the investing public buying the city's municipal bonds that there were funding problems with its pension and retiree health care obligations and those liabilities had placed the city in serious financial jeopardy.

"Municipal officials responsible for municipal bond disclosure play a key gatekeeper role in protecting investors," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.  "It is therefore imperative that they honor the public's trust by ensuring that investors are provided with accurate, material information about the issuer's fiscal health."

According to the SEC's complaint, the five former officials knew that the city had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer the costs.  They were aware that the city would face severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, pension and health care benefits were reduced, or city services were cut.

Excerpted from SEC Press Release 

Bond Funds, Especially Those Invested In Mortgage-Backed Securities, Continue To Suffer Significant Losses

If gyrating stock mutual funds haven't been enough to make investors queasy, many bond funds have swooned, too.  A fifth of all investment grade U.S. taxable bond funds tracked by Morningstar are in the red.  Bonds are supposed to be the pillars of stability during times of tumult in the market.  And indeed, the broad Lehman Brothers U.S. Aggregate bond index - which tracks taxable bonds, including Treasury notes, corporates and some mortgage securities - is up about 2.3% since the start of this year through April 4. 

A few bond funds that placed big bets on mortgage securities have posted shockingly big drops.  The Regions Morgan Keegan Select Intermediate Bond fund is down 44% since the start of the year and 72% over the past year.  State Street Global Advisors Yield Plus and Schwab YieldPlus have fallen 18% and 23%, respectively, since the start of the year.  And even the relatively successful funds that invest in inflation-protected Treasury securities - which are up as much as 6% so far this year - face new risks.  If interest rates rise, the price of Treasury bonds will tumble - likely quite sharply in the short-term. 

Charles Schwab's largest bond fund has lost more than 80% of its assets over the past 10 months as investors have fled the mortgage-backed securities in which it invested heavily.  As of February 29, more than half of its assets were in mortgage-backed securities.

Source:  The Wall Street Journal and InvestmentNews

SNSFE Investigating Morgan Stanley (Multi-Financial and NEXT Financial) Brokers John Mullins and Kathleen Mullins of New Jersey

Attorneys at SNSFE are investigating a broker who misappropriated almost $400,000 from a 97-year-old widow and her charitable foundation.  According to FINRA, the Financial Industry Regulatory Authority, it has charged registered representative John Edward Mullins, of Margate, NJ, with misappropriating almost $400,000 from a 97-year-old nursing home resident who was a Mullins' client for more than 20 years, as well as from her charitable foundation.  The customer has recently passed away.  Broker Kathleen Maria Mullins, John Mullins' wife, was also charged with wrongdoing. 

In addition to misappropriation, FINRA charged John Mullins with attempting to misappropriate funds from his employer relating to improper expense submissions, accepting an unauthorized $100,000 loan from the client, and making misstatements on his firm's annual compliance questionnaires and Form U4 in an apparent effort to conceal his officer and trustee status with the charitable foundation.  Kathleen Mullins was charged with accepting a loan from the customer and making misstatements on her Form U4 and annual compliance questionnaires.  In addition, both were charged with failure to adhere to high standards of commercial honor and just and equitable principles of trade.

The couple worked at Morgan Stanley from 2002 through 2006 then went to Multi-Financial Securities Corporation and on to NEXT Financial Group, terminating association with that firm in February of 2008.  Those with information about the Mullins pair should contact attorneys at SNSFE about these customers or any other customers who have been abused.

Source:  FINRA.org

SNSFE Investigating Harbor Financial Services And James Kleinkopf Of Mobile, Alabama

Attorneys at SNSFE are investigating Harbor Financial Services and its registered representative, James Kleinkopf of Mobile, Alabama.  The investigation revolves around excessive trading and unsuitable investments in the account of at least one elderly person.  Those with information should contact attorneys at SNSFE.

SNSFE Investigating Complaints Regarding Auction Rate Securities, Liquidity Concerns And Inappropriate Margin Loans

Attorneys at SNSFE are investigating abuses in auction rate securities as disgruntled investors cannot cash out of these investments.  Auction rate securities, or ARS, are long-term municipal bonds, corporate bonds or preferred stocks that are traded at auctions that set the instruments' interest rate and ultimately the price of the security.  Retail buyers can get in with as little as $25,000.  But the liquidity has dried up,  especially after major Wall Street firms stopped bidding in auctions last month.  And then, many investors discovered that they couldn't get their cash.   

Whether or not liquidity returns is besides the point according to some commentators and SNSFE is investigating a full panoply of abuses associated with these products.  Also, investors ought to beware that firms have been coming up with other liquidity options, such as offering loans against ARS.  But margin loans involve other risks, such as the possibility of losing securities from a sellout.  Information can be shared with attorneys at SNSFE.

SNSFE Investigating Abuses With Reverse Mortgages In Light Of FINRA Investor Alert

Attorneys at SNSFE are investigating the suitability of reverse mortgages for senior investors.  FINRA, the Financial Industry Regulatory Authority has issued an Investor Alert urging homeowners over the age of 60 to carefully weigh all of their options before tapping into their home equity through reverse mortgages to obtain additional income for their retirement years:

A reverse mortgage is an interest-bearing loan secured by the equity in a home and can be helpful to homeowners having trouble meeting expenses.  The FINRA Alert cautions homeowners that these loans - which are being aggressively marketed as an easy, cost-free way for retirees to finance lifestyles or to pay for risky investments - can jeoparize their financial futures.

The new Investor Alert, "Reverse Mortgages:  Avoiding a Reversal of Fortune," explains how these loans, often called "rising debt" loans, allow borrowers to convert their home equity to cash to be used for any purpose.  The Alert advises homeowners considering these types of loans to use the funds wisely.  The Alert goes on to warn investors that if they are approached by a financial professional to do a reverse mortgage in order to fund a particular investment, they should keep in mind that all investments carry risks and costs - and the higher the promised return, the higher the risk.  And, in some cases, those who sell the mortgages may profit from the sale of the proposed investment, giving them twice the incentive to talk someone into a loan they may not need.

"Reverse mortgages are an extremely costly way to fund an investment," said FINRA CEO Mary Schapiro.  "Homeowners need to consider all the risks and explore all of their options before taking out a loan that may prematurely deplete their home equity, which is often a homeowner's most valuable asset and most precious source of retirement security."

The Alert explains that reverse mortgages were originally designed as a tool for aging, low-income homeowners to keep their homes.  Now, as more and more Americans are retiring and sitting on large pools of home equity, they are beginning to use reverse mortgages as a way to finance a more extravagant retirement lifestyle than they could otherwise afford.  The Alert reminds homeowners reverse mortgages should generally be a last resort and offers tips to anyone considering these types of loans.

Source:  FINRA News Release

Anyone with information regarding reverse mortgage abuses are urged to contact attorneys at SNSFE.

Some Firms Not Honoring Their Obligation To Return Money To VRDN Investors, And SNSFE Is Investigating

Financial Week has reported that money funds are dumping variable-rate notes that banks must honor.  The latest securities acronym to hit a snag are VRDNs.  The $380 billion market for variable rate demand notes has seen them dumped en masse over the past few weeks by money market mutual funds that invest in them, reported Peter Crane, founder of money fund researcher Crane Data. 

VRDNs are similar to auction-rate securities in that they are a form of long-term debt tied to short-term interest rates commonly issued by municipalities, but unlike auction-rate securities they have a put option, so banks are required to give investors their money back.  That last feature makes them an acceptable investment for money market mutual funds.  "That's why you've seen a whipsaw in yields [in money-market funds]," Mr. Crane said. "Two weeks ago they fell through the floor," he said, "because of all of the VRDNs that had been put back to the banks.  Money funds got their money back and had nowhere to reinvest it," he noted.  Mr. Crane said that his index of tax-exempt money fund yields fell to a low of 1.5% on February 20th before recovering to 2.43% last week. 

But money funds and corporate investors interested in exiting VRDNs may find some run-around from broker-dealers.  Reuters reported last week that some banks were making it harder for clients to sell VRDNs by sending them to tender agents before cashing out.  SNSFE is investigating these recent developments and welcomes any comments or information.

SNSFE Investigating London-Based Hedge Fund CSO Partners

SNSFE is investigating the London-based fund CSO Partners after Citigroup has suspended investor withdrawals from it.  This $500 million credit hedge fund has lost 10 percent since November and the manager has resigned. 

Investor redemptions have been suspended so that the fund can "stabilize" according to a Citigroup spokesman.  In addition to suspending investor exits, Citigroup told investors that it had put up $100 million into the fund in recent weeks and is looking for other funding sources.

According to one expert, Ferenc Sanderson, senior hedge fund analyst for Lipper, "If they are invested in illiquid assets, chances are they cannot get out an equivalent amount of money investors are demanding without materially damaging the portfolio." 

Sanderson said the fact that it is happening in a fund managed by one of the world's largest banks means that "even having a big name and a big brand doesn't leave investors immune to potential issues when they try to redeem."

Investors with information about CSO Partners are urged to contact attorneys at SNSFE.

SNSFE Continuing To Investigate Illinois Resident Robert Loffredi, Raymond Financial Group And Linsco Private Ledger After SEC Bars Loffredi From Securities Industry

In connection with its continuing investigation of Hinsdale, Illinois-based adviser Robert Loffredi, SNSFE reports that on February 22, the Securities and Exchange Commission issued an Order Instituting Administrative Proceedings against Robert Loffredi. 

The Order finds that a civil action had been filed and that he has been permanently enjoined from future violations of the securities laws and that he has been permanently barred from the securities industry.  The Order finds that from at least August 2003 to October 3, 2007, Loffredi was a registered representative associated with Linsco/Private Ledger Corp., a broker-dealer registered with the SEC. 

Loffredi is the President of Raymond Financial Group, which until October 2007 operated as a branch office of Linsco.  The Order also finds that the Commission's complaint alleged that from at least August 2003 through October 2007, Loffredi, through Raymond Financial, raised at least $2.8 million from at least fourteen customers by falsely representing that he would invest their funds in securities, primarily in the form of purported certificates of deposit.  Instead of using the customers' money to purchase securities, Loffredi used the customers' funds to pay his personal and business expenses, to make payments to a company owned by his wife, Advanced Sales and Marketing Corp., to make disbursements to other customers who had invested in the fictitious securities, and on at least one occasion to make payments on behalf of his wife. 

SNSFE continues to investigate Loffredi and Raymond Financial and Linsco Private Ledger for this wrongdoing.

Lancer Group Hedge Fund Manager Michael Lauer And Others Indicted For Fraud And Conspiracy

Former Lancer Group hedge fund manager Michael Lauer and four others who defrauded hedge fund investors of more than $200 million have been indicted on conspiracy and wire fraud charges, the U.S. Justice Department has reported.

"Lauer was named in an indictment unsealed in Miami, along with two co-owners of management companies that directed the hedge funds and two men who had had financial interests in Boca Raton, Florida-based 'shell' companies in which the hedge funds invested, the Justice department said.

According to the indictment, from October 1999 to July 2003, Lauer and his co-defendants manipulated the closing market price of thinly traded shell company securities to falsely inflate the value of Lancer Group hedge funds.

The indictment alleges Lauer also created fake portfolios of the securities supposedly held by Lancer Group and obtained falsely inflated appraisals of the shell companies to cover up and perpetuate the scheme.

If convicted, all five men could face a maximum sentence of 20 years for wire fraud, five years for conspiracy and up to $500,000 in fines."

Source:  Reuters

SNSFE Investigating Former A.G. Edwards Broker Luis Cespedes For Selling Unsuitable Investments Following NYSE's 10 Year Suspension

Attorneys at SNSFE are investigating a broker who has been barred for 10 years by the New York Stock Exchange.  The New York Stock Exchange announced last week that it had banned Luis Miguel Cespedes who worked for A.G. Edwards & Sons.  He was found to have put more than a dozen clients' money into volatile technology securities and then piled on margin debt.  When the technology bubble burst, the investors -- many of them elderly and inexperienced investors -- were wiped out. 

NYSE officials couldn't immediately recall the last time a 10-year ban was issued. 

A.G. Edwards asked Cespedes, who currently lives in Capistrano Beach, California, to resign in October 2001.  The firm, now owned by Wachovia Corp., has since settled with 15 of the clients for a total of about $1 million. 

Cespedes primarily invested the clients in technology-heavy "Unit Investment Trusts" which are unmanaged funds tied to a set basket of securities. 

SNSFE attorneys welcome comments from those with information.

SNSFE Investigating Broker Miah And Square Mile Securities For High Pressure Sales Tactics

The Financial Services Authority of Britain has banned a stockbroker for life after he abused the trust of some of his clients.  The stockbroker sold high-risk stocks to unwitting customers, including two retirees over the age of 80.  He's been fined £21,000 and has received a life ban from FSA. 

Mohammed Suba Miah, formerly employed by Square Mile Securities, is the first broker to be both fined and banned after the FSA found that he had sold stocks to customers without their consent and misled them by not explaining the risks involved.  Square Mile was fined £250,000 by the FSA less than a month ago for persistently using high-pressure sales tactics and misleading information to sell customers stocks that they did not want or could not afford. 

According to the FSA, "Customers have a right to expect their brokers to give clear and fair advice, recommend suitable stocks and to treat them fairly.  Stockbrokers are on notice that the FSA will not tolerate abuse of this trust."

SNSFE, As Well As A Host Of State And Federal Authorities, Probe Subprime Mortgage-Related Investments And Related Conduct

Attorneys at SNSFE continue to investigate investment losses related to subprime mortgage investments.  But the probe is widening in a criminal and civil sense.  In today's news, there is a listing of a sampling of investigations of financial firms over the subprime downturn: 

• The Brooklyn U.S. Attorney's office has launched criminal investigations of Bear Stearns and UBS. 
• The Manhattan U.S. Attorney's office has requested information on Merrill. 
• The SEC has three dozen probes, including formal ones of Merrill, UBS, and others of Bear, Morgan Stanley, and a review of Citigroup. 
• The FBI is investigating 14 companies, from mortgage originators to Wall Street, for accounting fraud and insider trading. 
• The New York Attorney General has subpoenaed Bear, Deutsche Bank, Morgan Stanley, Merrill and Lehman Brothers. 
• The Massachusetts Secretary of State's office now has formally sued Merrill Lynch over mortgage-backed securities sold to Springfield, Mass., and it's probing Bear Stearns. 

In addition, Maine securities officials are examining the circumstances surrounding Merrill's role in the sale of commercial paper issued by a SIV known as "Mainsail II," an affiliate of London hedge fund Solent Capital Management LLP, to the state treasury department in August for $20 million.  Shortly after that sale, Standard & Poor's Corp. downgraded Mainsail from the highest rating to "junk" status, and the issuer defaulted on an interest payment that same month. 

All of this spells long, engaging investigations of this activity.  We welcome any comments and insights that our listeners may provide.

SNSFE Investigating Relationship Between Wood River Endwave Stock And Various Brokerage Firms Including UBS Dain Rauscher, Fidelity, And Stifel, Nicolaus

It appears that numerous brokerage firms across the country held Endwave Corporation stock through the Wood River Limited Partnership offerings.  Wood River and John Whittier are the subject of a pending Southern District of New York bankruptcy action.  SNSFE is investigating the relationship between Endwave Corporation Stock, the brokerage firms and the Wood River entities.  Brokerage firms include Stifel, Nicolaus & Company, Silver Leaf Partners, UBS Investment Bank, Wunderlich Securities, RBC Dain Rauscher, Piper Jaffray, Paulson Investment Company, and Fidelity Capital Markets.  Those with information are encouraged to contact SNSFE Securities lawyers.

AARP Warns Seniors Of Reverse Mortgages; SNSFE Investigating

The American Association of Retired Persons (AARP) has warned seniors of reverse mortgages.  Reverse mortgages can carry high costs -- as much as 7% of a home's value.  They also have been subject to abusive marketing practices.  AARP urges seniors to review the affordability of these loans and other less costly options.  SNSFE is investigating abuses and reverse mortgages and would look forward to information from those who have been abused.

SEC Files Hedge Fund Fraud Charges Against Former UBS Financial Broker Justin Paperny In Connection With GLT Venture Fund, L.P.

On January 14th, the Securities and Exchange Commission filed settled charges against Justin Paperny, a former broker at UBS Financial Services for his role in a hedge fund fraud.  The SEC alleged that Paperny participated in a fraudulent offering of limited partnership interests in a hedge fund known as the GLT Venture Fund, L.P.  Paperny was GLT's broker and he falsely told GLT investors that GLT had access to so-called hot IPOs and had achieved high average annual returns. 

The complaint alleged that Paperny arranged for new GLT investors to place their funds in GLT through UBS Financial and executed thousands of GLT securities trades using funds of GLT and its investors who, Paperny knew, were being defrauded by the fund manager.  In exchange, Paperny received approximately $220,000 in commissions and in additional payments from the hedge fund manager. 

Without admitting or denying the SEC's charges, Paperny consented to the entry of a judgment, which among other things, requires him to pay disgorgement with prejudgment interest and a civil penalty in amounts to be determined.

Securities Regulator Probes Sale Of CMO (Collateralized Mortgage Obligation) Investments To Retail Investors

Securities regulators have asked several brokerage firms for information about the marketing and sale of mortgage-related products, specifically those sold to individual investors.  These collateralized mortgage obligations are pools of residential home mortgages.  Investors can receive income from the cash that flows from the underlying mortgage payments.  They can be risky investments, however, if the homeowner falls behind or cannot pay the mortgages.  The value of CMOs has suffered amid the increasing number of defaults in high-risk home mortgages.

The letters were sent to more than a dozen brokerage firms believed to be involved in the CMO market.  The letters, dated December 14th, asked for PowerPoint presentations, sales scripts and detailed customer-account information from June of '06 through July of '07.  The letter sent by FINRA, the Financial Industry Regulatory Authority, is looking into whether brokers sold these risky investments to individuals just as the market for related products was collapsing.  FINRA specifically asked for offering documents on products sold, created or distributed during the months of March and June of 2007.  The mortgage market had weakened since the previous fall and fell sharply over the spring and summer.

Regulators are probably also looking to see whether firms sold the products to investors without disclosing the risks, or to investors who didn't have the financial wherewithal to take on riskier investments. 

On the other side of the regulatory front, a spokesman for the SEC has said that the SEC's examination division plans to conduct its own sweep examination in coordination with FINRA. 

SEC's Rand Corporation Report Confirms Investor Confusion Over Differences Between Brokerage Services And Investment Advisory Services

The Securities and Exchange Commission has published on its website the long-awaited Rand Corporation report that was to examine differences between brokerage firms and investment advisory firms, and whether or not consumers were confused. 

The 219 page report indeed states, "It is not surprising that the typical retail investor finds it difficult to understand the nature of the business from which he or she receives investment advisory or brokerage services."  The study also identifies concerns, including investors'  unhappiness with disclosure documents.  The study said that today's written disclosures are of little value because few investors read them. 

While the study stayed clear of regulation, it detailed how the brokerage and advisory businesses have become more similar over time and questioned whether traditional distinctions between brokers and advisers make sense. 

It remains to be seen how the SEC responds to the report.  But one thing is certain, a response is needed, and clarification for investors' sake is demanded.

SNSFE Investigating Robert Lane, Wealth Pools International Inc., And Recruit For Wealth Inc. For Fraudulent Global Pyramid Scheme

The Securities and Exchange Commission has halted a fraudulent global pyramid scheme praying on the Hispanic community.  The SEC announced that in early December it filed an emergency action against Robert Lane, Wealth Pools International, Inc., and Recruit for Wealth, Inc., charging them with the fraudulent offer and sale of unregistered securities in the form of "Associate" memberships in an enterprise called Wealth Pools.  The offering began in 2005 when the defendants claim to have raised over $132 million in 2007 alone, according to the SEC's complaint.

The SEC alleges in its complaint that Wealth Pools purports to be a multi-level marketing company primarily selling an English and Spanish language tutorial DVD called Talk-N-Tutor through a network of sales Associates around the world.  The DVD is, in reality, a front for Wealth Pool's true product - an investment in one or more "pools" that offer investors an opportunity to receive passive income through the efforts of others to recruit new investors, according to the complaint.  The defendants enticed investors to purchase thousands of DVDs by falsely promising them that they would earn income for life with no further effort, according to the SEC's complaint.  The SEC also charged the defendants with failing to disclose, among other things, that Wealth Pools is a fraudulent pyramid scheme, that each new investor dilutes all investors' returns, and that Lane's previous attempt at a similar scheme resulted in bankruptcy.

In early December, upon motion by the SEC, a U.S. District Judge for the Middle District of Florida issued an order temporarily restraining the defendants and freezing their assets, as well as the assets of other defendants.  SNSFE is investigating this fraudulent scheme and would welcome comments or information.

SNSFE Continues Probe Of Edward May and E-M Management Co. As SEC Files Fraud Charges For $250 Million Fraud

Edward May and E-M Management Co. are back in the news.  The Securities and Exchange Commission filed charges stemming from a $250 million offering fraud that involved phony Las Vegas casino and resort telecommunications deals and victimized as many as 1,200 investors, many of whom were senior citizens. 

The SEC's action charges Detroit-area resident Edward May and E-M Management Co. LLC with selling investors shares of limited liability companies that they claimed had received revenues from telecommunications equipment and services contracts with hotels, casinos, resorts and similar establishments, many of which were purportedly located in Las Vegas.  In fact, no such contracts ever existed.   To perpetrate their fraudulent scheme, May and E-M relied on a network of individuals, some of whom organized "investment seminars" to entice investors to invest with E-M.

This scheme was perpetrated between 1998 and July 2007 according to the SEC.  SNSFE attorneys continue to investigate and would welcome calls discussing this matter.