January 2011 Archives

January 24, 2011

Is the IMH IPO Going Forward?

IMH Financial Corporation Files Amended Preliminary Prospectus with the SEC in Anticipation of Pursuing an IPO

Today, IMH filed an amended preliminary prospectus with the Securities Exchange Commission (SEC). Click here to view IMH's Form S-11/A. The prices and terms for the IPO have yet to be determined. Interested investors are urged to carefully read all 27 pages of the "Risk Factors" discussed in the company's prospectus.

January 19, 2011

IMH's Financial Troubles Reported in Today's Wall Street Journal

news.jpgToday, the Wall Street Journal published an article summarizing the state of affairs for IMH Financial Corporation, formerly doing business as the IMH Secured Loan Fund (the acronym I-M-H stands for "Investors Mortgage Holdings").

Click here to view the WSJ article. [Subscription required to read the entire article]

For those of you who do not have a subscription to the Journal, here are a few highlights mentioned in the article:

  • IMH's prospectus assured investors that the fund had built in safeguards to mitigate risk, such as securing personal guarantees from borrowers.
  • However, IMH's motto: "Rule 1: Don't lose the money. Rule 2: Don't lose the money. Rule 3: Don't forget Rule 1 and Rule 2" was no match for the downturn in the real estate market.
  • IMH's managers earned nearly $93 million in loan origination and modification fees between 2004 and 2009.
  • IMH's managers also received $14 million in stock as a result of the conversion.
  • IMH incurred costs of $6.2 million to prepare the IPO; however, IMH is unable to offer shares to the public due to an ongoing investigation by the SEC.

Click here to view all IMH blog postings.

January 11, 2011

Charles Schwab Agrees to Pay SEC $118 Million to Settle YieldPlus Charges

Today, Charles Schwab & Co. and Charles Schwab Investment Management agreed to settle securities fraud charges filed by the Securities & Exchange Commission (SEC) stemming from the YieldPlus fund. The settlement included an agreement to pay $118 million into a "Fair Fund" which will be distributed to harmed investors. In a related matter, the Financial Industry Regulatory Authority (FINRA) entered into an agreement with Schwab for the payment of $18 million to investors that will also be included in the Fair Fund. The payment of Fair Fund distributions is subject to approval by the U.S. District Court for the Northern District of California.

The findings made by the SEC and FINRA are set forth in the following press releases:

SEC Press Release

FINRA Press Release

As part of the settlement, Schwab neither admitted nor denied any of the findings issued by the SEC and FINRA.

January 10, 2011

IMH Financial Corporation Shares Valued at 1/3 the Original Purchase Amount

cards.jpgNow that the conversion of IMH Secured Loan Fund units into shares of IMH Financial Corporation is complete, brokerage firms have begun quietly disseminating the bad news to their customers. When they open their monthly statements, many IMH investors will be surprised to learn that their investment has fallen in value by more than 66%. As of December 28, 2010, the estimated price given to shares of IMH Financial Corporation common stock was $15.0500 per share. However, even though the shares have been given an estimated value, IMH's stock is still illiquid and cannot be publicly sold. As previously reported in this blog, the IPO has been placed on indefinite hold.

Click here for more blog postings about the IMH Secured Loan Fund and IMH Financial Corporation.

January 7, 2011

Investors Have Suffered Significant Losses In These Leveraged Funds

dollar spiral.jpgOne of the students in my securities law class recently wrote a series of blog postings discussing the pitfalls of investing in leveraged and inverse mutual funds and ETFs. To emphasize just how risky and unsuitable these types of investments can be, here is a list of some of the worst performing leveraged and inverse funds:

Year-to-Date (YTD) Returns as of 11/30/2010:

  • ProFunds UltraShort Small-Cap (UCPIX) -42.54%
  • Rydex Inverse Russell 2000 2x Strategy A (RYIUX) -40.99%
  • Direxion Monthly Small Cap Bear (DXRSX) -40.54%
  • ProFunds Ultra Short Mid-Cap (UIPIX) -39.37%
  • Direxion Monthly NASDAQ 100 Bear 2x (DXQSX) -36.08%
The performance of these funds demonstrate how betting heavily against equities can be hazardous to your wealth. During this same period of time, equity markets were on the rise. For example, the S&P 500 index was up more than 5%.