July 2010 Archives

July 22, 2010

Investor Home Equity to be Excluded from $1 Million Minimum Net-Worth Requirement for Accredited Investors

Today, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009. Now, brokers will have a much harder time justifying the sale of private placements to small investors. Effective as of July 21, 2010, an investor's primary residence will no longer be considered when attempting to qualify for the $1 million minimum net-worth requirement for accredited investors under Rule 501(a)(5) of Regulation D. Also, one year from the date of enactment, the SEC will undertake a review of the "accredited investor" definition to determine whether any other requirements should be implemented for the "protection of investors, in the public interest, and in light of the economy."

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July 21, 2010

SEC Launches Securities Fraud Whistleblower Program

whistle.jpgThe Securities and Exchange Commission (SEC) introduced a new securities fraud whistleblower program on July 21, 2010, in an attempt to curb federal securities law violations pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In an effort to encourage members of the public to report securities law violations, the program offers whistleblowers financial rewards and protection from employer retaliation. To be entitled to an award, which can be as much as 10 percent to 30 percent of the amount collected by the government, eligible whistleblowers must be in compliance with the program's rules and requirements which require that the whistleblower voluntarily provide original information that leads to a successful enforcement action. Under the Act, any whistleblower who wants to file a claim anonymously must be represented by legal counsel. The SEC is expected to issue final regulations for the program within the next 270 days.

Click here for more blog postings about the "Securities Whistleblower Program"

July 21, 2010

Colorado Securities Commissioner Files Notice of Charges Against E*Trade Securities Regarding Auction Rate Securities

Thumbnail image for etrade-building.jpgMy securities law firm is currently involved in a securities arbitration claim against E*Trade on behalf of a California non-profit organization that purchased $2 million worth of Auction Rate Securities (ARS) at the recommendation of their E*Trade financial advisor who representated to them that ARS were highly liquid, short-term cash management vehicles paying a slightly better rate of return that could be sold at par with no loss of principal. The issues in my case are nearly identical to the allegations set forth in the "Notice of Charges" recently filed against E*Trade by the Securities Commssioner for the State of Colorado on July 21, 2010, charging E*Trade Securities LLC with securities fraud in connection with the firm's sale of ARS.

If you purchased ARS at the recommendation of an E*Trade financial advisor, I'd love to hear about your experience.

In a nutshell, here's what the State of Colorado is alleging:

  • E*Trade financial advisors represented ARS as a safe, liquid investment, comparable to a money market account.
  • E*Trade failed to explain the auction process to investors; that auctions could fail; and that investors would be left holding an illiquid long-term investment if the auctions failed.
  • E*Trade knew or should have known the risk that auctions would fail--and did in fact fail in 2007 and 2008.
  • Early on, E*Trade was aware of the possible collapse of the ARS market due to prior auction failures and regulatory action, among other warning signs.

What are Auction Rate Securities? Click here for an explanation of Auction Rate Securities.

July 19, 2010

FBI Reports 105% Increase in High Yield Investment Fraud Investigations

Thumbnail image for FBI Seal.pngAccording to an FBI report on Securities Fraud before the Senate Judiciary Committee, there was a 105% increase in High Yield Investment Program investigations by the Bureau in 2009. My California securities law firm has also experienced a similar surge in investor complaints involving high-yield investments like Medical Capital Notes, which were sold through a network of brokerage firms such as Securities America, a firm that is now the subject of numerous securities fraud lawsuits and class action lawsuits.

High Yield Investment Programs ("HYIP") may seem like the ideal investment for retirees seeking greater income. However, for most investors, the acronym HYIP really stands for "Hazardous to Your Investment Portfolio." Promising large returns with seemingly no risk, these high yielding investments have raised millions of dollars from unsuspecting investors. In reality, many of these to-good-to-be-true investments turned out to be nothing more than Ponzi Schemes that needed to bring in new investor money in order to continue paying existing investors. During the recent financial crisis, many of these Ponzi schemes ultimately fell apart when the pool of available investors evaporated.

High yield investments are often sold through private placements that can only be purchased by "accredited investors." Because private placements are typically high risk investments with limited liquidity, they are only suitable for wealthy and sophisticated investors who can bear the risk of loss.

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July 9, 2010

California Stockbroker Discipline Report for June 2010

Thumbnail image for warning_flag.jpgThe following information regarding broker misconduct and disciplinary activities taken against California stockbrokers was released by the Financial Industry Regulatory Authority (FINRA) in June 2010:

Donald Edwin Derieg, formerly with Wedbush Morgan Securities in Encino, California, was barred from association with any FINRA member in any capacity for what appears to be a case of elder financial abuse. According to FINRA, Mr. Derieg acted as a successor co-trustee in an elderly customer's account, was appointed as a beneficiary of the client's trust and life insurance policy, borrowed money from the client and made unsuitable investment recommendations.

Carlos Suazo of Marina del Rey, California, formerly with MetLife Securities, Inc. in Los Angeles, California, was barred from association with any FINRA member in any capacity for misusing $12,000 in customer funds that were supposed to be used to purchase a variable annuity.