California Securities Fraud Lawyer Blog

Thomas Weisel Partners LLC based in San Francisco, California, was named in a securities fraud lawsuit filed by the Financial Industry Regulatory Authority (FINRA) alleging that the firm and the head of its fixed income desk, Stephen Henry Brinck Jr., sold $15.7 million worth of auction rate securities (ARS) to customers out of the firm's own accounts without their customers' knowledge or consent. FINRA's complaint further alleges that, after "stuffing" customer accounts with ARS, the firm gave false and misleading information to its customers about the transactions in an attempt to have the customers forfeit their right to take any legal action against the firm. (FINRA Case #2008014621701).

Although my earlier blog posting about securities arbitration results in San Francisco was less rosy, today's Wall Street Journal article, "Investors Win More Broker Cases," did contain a bit of encouraging news for brokerage firm customers who may be considering whether to file a securities arbitration claim. The article noted that customers who went all the way to hearing before the Financial Industry Regulatory Authority (FINRA) have prevailed 45% of the time so far this year compared to just 37% in 2007. In other words, investors are winning a larger percent of cases than they did in the past, but they are still losing 65% of the time. The WSJ article also noted that awards to investors for claims under $1 million were averaging about 50% of the damages requested.

[Blogger's note: See my year-end update, "Securities Arbitration Award Results for 2009 Better Than Expected for San Francisco Investors"]

Most Investor Claims Involve Mutual Funds

The WSJ article also makes a point of saying that a "good chunk" of the cases filed in the last two years involve auction rate securities. FINRA started keeping track of ARS cases on January 1, 2008. A total of 299 ARS cases were filed in 2008. This year, there have been 215 ARS cases filed through September 2009. A significant trend that was overlooked in the WSJ article is the fact that disputes involving mutual funds are the most frequently arbitrated type of securities product. This year, there have already been 1,272 mutual fund cases filed through September 2009--an amount that eclipses the total number of mutual fund cases filed in 2007 and 2008 combined.

Most Investor Claims Allege Breach of Fiduciary Duty and Misrepresentation

According to FINRA, the two most common types of customer complaints for 2009 are breach of fiduciary duty and misrepresentation. However, there are limitations to FINRA's statistics. For example, FINRA only includes four claim types for every case that is filed. This may explain why unsuitability--a widely alleged customer complaint--did not rank as high as it probably should have.

Today, New York Attorney General Andrew Cuomo filed a securities fraud lawsuit against San Francisco-based Charles Schwab & Co. charging the firm with making false representations in the sale of auction rate securities (ARS). According to the complaint filed by the Attorney General, Schwab misrepresented auction rate securities as suitable for customers seeking a safe and liquid investment. The Attorney General has obtained telephone recordings of conversation between Schwab brokers and customers, including one instance where a broker made misrepresentations to their customer stating that auction rate securities are "great alternatives to cash." Schwab sold hundreds of millions of dollars worth of auction rate securities to its customers who were undoubtedly mislead about inherent risks associated with these complex investments.

See related blog posting: San Francisco's Charles Schwab Corp. Facing New Securities Fraud Allegations Over the Sale of Auction Rate Securities [07/21/200]