Recently in Class Actions Category

April 2, 2013

UBS Willow Fund L.L.C. Class Action Update

Thumbnail image for ubs building.jpgOn December 20, 2012, a class action complaint was filed on behalf of all investors who purchased or held the UBS Willow Fund L.L.C. at any time after January 1, 2008. The matter of Ken Boudreau vs. UBS Willow Management L.L.C, UBS Alternative and Quantitative Investments L.L.C, UBS Fund Advisor, L.L.C., Bond Street Capital L.L.C, Sam S. Kim, George W. Gowen, Stephen H. Penman, Virginia G. Breen and Meyer Feldberg was filed in the U.S. District Court for the Southern District of New York. The class action complaint alleges that the UBS Willow Fund made material false and misleading representations and omissions that were communicated to investors through the fund's offering materials and quarterly summaries. As alleged in the complaint, the Willow Fund fundamentally changed its stated investment strategy in January 2008 and began aggressively trading in credit default swaps ("CDS") without disclosing this fact to investors. Eventually, in October 2012, investors were notified that the fund was liquidating primarily because it had suffered significant losses from trading in CDS. The class action seeks damages in excess of $200 million.

In addition to recovering losses through a class action, investors who have suffered significant losses should fully explore their other legal options, including the filing of a securities arbitration claim directly against their financial advisor. Individuals with meaningful claims can often obtain a much larger potential recovery through arbitration. See related blog post: Securities Arbitration vs. Class Actions: Which is More Financially Rewarding?

February 27, 2013

Update: FINRA Appeals Charles Schwab Class Action Ban

This is an update to our February 21, 2013, blog post: Charles Schwab Allowed to Prevent Customer Class Action Lawsuits.

Yesterday, a spokesperson for the Financial Industry Regulatory Authority (FINRA) announced that an appeal had been filed with the National Adjudicatory Council (NAC)--an internal appeal board that reviews initial decisions rendered in FINRA enforcement actions. However, an NAC decision may not put an end to this important issue because NAC decisions can be appealed to the Securities Exchange Commission (SEC).

If the FINRA ruling is ultimately upheld, brokerage firms will be able to prevent customer class action lawsuits and require all customers to pursue individual claims through FINRA's securities arbitration program. A bar on class actions would have the greatest impact on investors with claims that are too small to pursue individually and also the legions of investors who are unaware that any wrongs have been committed until they receive notice that a class action lawsuit was filed on behalf of all affected investors.

Related blog posts:

February 21, 2013

Charles Schwab Allowed to Prevent Customer Class Action Lawsuits

Today, a Financial Industry Regulatory Authority ("FINRA") hearing panel ratified Charles Schwab's inclusion of a clause in their customer agreement that prevents customers from pursuing class action claims against the firm. After agreeing to pay $225 million to settle a class action lawsuit in connection with the beleaguered YieldPlus ultra short-term bond fund, Schwab promptly modified their customer agreement preventing customers from participating in class actions and requiring all disputes to be submitted to FINRA's securities arbitration dispute resolution program. At this early stage, it is unclear whether FINRA's Department of Enforcement will appeal the ruling. However, it is safe to assume that other brokerage firms may soon be following Schwab's lead and amending their customer agreements to prevent class actions.

What Does This Mean for Investors?

According to a statement issued by Schwab, customers are better served through FINRA's arbitration process because class action litigation is "cumbersome" and a "less effective" means of resolving disputes. Schwab is partially correct. As noted in a previous blog post, customers with meritorious cases may be able to recover a larger percentage of their losses in arbitration. See Securities Arbitration vs. Class Actions: Which is More Financially Rewarding?

From an investor's perspective, class actions are anything but "cumbersome." Very little is required of investors who elect to become members of the class action. In return for this low level of participation, investors usually reap much smaller potential rewards. Arbitration, on the other hand, requires the investor to prove their case on an individual basis. In return for this added level of commitment, customers with valid arbitration claims can expect greater potential rewards.

The investors who have the most to lose are those with claims that are too small to justify the added burden of filing an individual arbitration claim. Although FINRA offers a simplified arbitration program for claims under $50,000, some customers with very small or questionable claims would be better off taking a "pennies on the dollar" class action settlement.

_______________________________________________

The Bottom Line

While it is true that investors are getting cut off from another avenue of relief, little has changed for most investors. FINRA's dispute resolution program--flawed as it may be--still offers the best option for investors who have meaningful claims.

Updated February 27, 2013: FINRA Appeals Charles Schwab Class Action Ban

March 15, 2010

Securities Arbitration vs. Class Actions: Which is More Financially Rewarding?

scale_balance.jpgDefrauded investors who are deciding whether to participate in a securities class action or to "opt out" and pursue an individual arbitration claim should take into consideration the results of several independent studies that examined potential recoveries under each alternative. An investor's likely recovery is only one of the many factors that need to be considered. However, getting the best possible recovery is clearly an important consideration.

Securities Class Actions: According to a study of securities class action cases conducted by economic consulting firm NERA for the year ending 2009, the ratio of settlements to investor losses has remained around 2.5% for the last few years. That is equivalent to recovering 2.5 cents for every dollar lost. According to NERA, as investor losses increase, recoveries increase at a much lower rate. However, recently filed class actions flowing from the credit crisis have led NERA researchers to speculate that investors may achieve potentially higher settlements in the near future.

A second study of securities class action settlements that was conducted by Cornerstone Research came to a similar conclusion and found that the median settlement rate for class actions in 2009 was 2.3% percent of estimated damages. However, settlement rates varied widely depending upon a large number of variables including the type of case involved and the jurisdiction where the case was filed. Neither study focused on cases against broker-dealers.

Securities Arbitration: After analyzing nearly 14,000 securities arbitration awards between 1995 and 2004, researchers Edward S. O'Neal, Ph.D. and Daniel R. Solin, Esq. concluded that the expected recovery for a large arbitration claim against a major brokerage firm was 12% of the amount claimed (excluding legal costs). During their analysis, the two men determined that the expected recovery for claims decreased along with an increase in both the dollar amount of the claim and the size of the brokerage firm. For example, an arbitration claim against one of the top 20 brokerage firms seeking damages of $20,000 or less has an expected recovery of 28%, whereas a claim above $250,000 has an expected recovery of only 12%. Expected returns against smaller firms were significantly better. A $100,000 claim against a non-top 10 brokerage firm has an expected recovery of 40%. According to my own research of arbitration awards for cases decided in San Francisco during 2009, investors recovered approximately 79% of their claimed damages.

As small as the arbitration award percentages may seem, they are significantly better than the 2.5% recovery rate for securities class action cases. Based on my own experience having handled scores of arbitration cases, I remain convinced that securities arbitration provides investors with a significantly greater opportunity to recover a larger share their investment losses than a class action will.

See also: Securities Arbitration vs. Class Actions: Consider Your Options

February 22, 2010

Is Mass-Arbitration in the Client's Best Interest?

Yesterday's article in Investment News confirms my opinion about the disadvantages of pursuing mass-arbitration claims before the Financial Industry Regulatory Authority (FINRA), which I try to avoid in my California securities law practice. On the heals of the Medical Capital class action lawsuits, law firms have begun filing mass-arbitration claims against broker-dealers such as Securities America and Capital Financial Services, often grouping as many as 15 individual Medical Capital investors into a single arbitration case in what almost amounts to a "mini-class action." In response, broker-dealers have vowed to vigorously defend these claims.

sheep_herd.jpgMass-arbitrations can be very profitable for law firms hoping to earn large contingent fees by aggregating as many clients as possible into a single arbitration. Unfortunately, the best interest of the individual investor/client may suffer as a result. The challenge of taking a mass-arbitration claim to hearing and proving that each client is independently entitled to an award can be great. As part of their defense strategy, broker-dealers are filing motions to sever these claims into separate individual arbitrations which will undoubtedly delay and disrupt the entire process. When clients start getting separated from the herd, will mass-arbitration attorneys still be interested in representing those clients who had marginal claims to begin with? Undertaking a mass-arbitration raises a number of ethical issues for attorneys attempting to jointly represent a diverse group of unrelated clients who may have varying levels of commitment to pursue their claims. A client recently showed me a proposed contingent fee agreement given to them by a mass-arbitration law firm that would essentially force them to accept a settlement if 60% of the other clients agreed to settle.

Combining customer claims into a single arbitration often makes sense from a practical and economic standpoint, such as when the clients are related or are customers of the same financial advisor. However, individuals with strong cases may be better off going it alone rather than joining a mass-arbitration and being lumped together with other investors who may have weaker facts. Before deciding to become part of a mass-arbitration claim, clients should explore their options with a great deal of care.

Related Blog Post:

Medical Capital Class Action or Arbitration: Investors Should Consider Their Options

Are Securities Arbitration Cases More Financially Rewarding for Investors than Class Actions?

[For California Residents] Why Having a California Licensed Securities Arbitration Lawyer is So Important

December 1, 2009

Reminder to California Schwab Yield Plus Investors: Class Action Opt Out Deadline Looming

Investors who purchased the Schwab Yield Plus (SWYPX and SWYSX) money market funds, have until December 28, 2009, to decide whether to remain in the pending class action lawsuit or affirmatively "opt out" and pursue a securities arbitration claim. The following investors will be automatically included as class members if they do not take steps to opt out of the class action:

  1. Those that purchased the funds between November 15, 2006, and March 17, 2008;
  2. Those that purchased the funds between May 31, 2006, and March 17, 2008; and
  3. Any California resident who held the funds on September 1, 2006.

Investors should carefully consider whether or not opting out is the right choice for them based on their individual circumstances. Investors who elect to opt out of the class action can join hundreds of other investors who have filed their own independent securities arbitration claims with the Financial Industry Regulatory Authority (FINRA).

For more information, please see our previous blog posting: Securities Arbitration vs. Class Actions: Consider Your Options

November 17, 2009

Wells Fargo Bank and Bank of New York Mellon Involved In Medical Capital Securities Class Action

Thumbnail image for Thumbnail image for medcap.jpgOn November 2, 2009, a class action was filed in the Central District of California against Wells Fargo Bank and Bank of New York Mellon on behalf of investors who purchased Medical Capital notes. The class action alleges that the banks failed to safeguard investor assets while acting as trustees of the Special Purpose Corporations created by Medical Capital Holdings. The action, Michel Rapoport v. Wells Fargo Bank, National Association et. al, has not yet been certified by the court.

There are currently two separate class actions arising from the Medical Capital fiasco. In addition, a growing number of investors are pursuing securities arbitration claims directly against the financial advisors that solicited their purchase of Medical Capital notes.

See related blog entry: Medical Capital Class Action or Arbitration: Investors Should Consider Their Options

October 14, 2009

Deadline to Opt-Out of Schwab YieldPlus Class Action Set for December 28, 2009

A Notice of Pendency of Class Action was issued in the class action matter In re Schwab Corp. Securities Litigation currently pending in San Francisco federal court. Investors who purchased shares of the Schwab YieldPlus Fund that qualify as class members will be automatically included in the class action, unless they submit a request for exclusion from class membership. The court's deadline for opting out is December 28, 2009. YieldPlus investors who opt out may want to consider pursuing a claim for their losses through arbitration before the Financial Industry Regulatory Authority (FINRA), as many investors have already done.

For more information, please click on the following links:

View Notice of Pendency of Class Action

Blog Post: Securities Arbitration vs. Class Actions: Consider Your Options

More YieldPlus Blog Postings

Frequently Asked Questions About Securities Arbitration

September 21, 2009

Medical Capital Class Action or Arbitration: Investors Should Consider Their Options

Investors Have Choice to Make Regarding Medical Capital Corporation Fraud Recovery

Thumbnail image for Thumbnail image for Thumbnail image for medcap.jpgA class action lawsuit was filed in the Central District of California on September 18, 2009, against brokerage firms Cullum & Burks Securities, Inc., Securities America, Inc., Ameriprise Financial, Inc., and CapWest Securities, Inc., on behalf of investors who purchased so called "Medical Capital Notes" issued by Medical Provider Financial Corp. III, IV, V and/or VI on or after September 18, 2006.

The class action alleges that the defendant brokerage firms made materially false and misleading representations in the sale of the sale of the Medical Capital Notes. This class action has not yet been certified by the court. If the class is certified, the parties will be required to submit a proposed timeline for class members that want to opt out of the class action. Class members that elect to opt out can file a claim for their Medical Capital losses with FINRA. For more information about opting out of a class action and submitting an arbitration claim, please see our blog posting: Securities Arbitration vs. Class Actions: Consider Your Options. Investors who purchased Medical Capital Notes from brokerage firms that were not named as defendants are currently not included in the class action. If you believe you have a meritorious securities claim, speak with a securities attorney to discuss your rights and the advisability of opting out based on your individual circumstances.

Related Blog Post:

Is Mass-Arbitration in the Client's Best Interest?

Are Securities Arbitration Cases More Financially Rewarding for Investors than Class Actions?

September 10, 2009

California Court Certifies Schwab YieldPlus Class Action

A San Francisco federal judge has issued an order certifying a class action lawsuit against Charles Schwab & Co. alleging securities law violations in connection with Schwab's beleaguered YieldPlus Fund. The parties are required to submit to the court by September 10, 2009, a proposed timeline for class members that want to opt out of the class action. An updated blog posting will be issued once the opt out deadline is known. Click here to view all YieldPlus blog postings.

Three Classes of Investors Are Included in the Class Action

The court's order creates three different classes of plaintiffs. The three classes are:

  1. Yield Plus investors that acquired shares between November 15, 2006, and March 17, 2008.
  2. YieldPlus investors that acquired shares between May 31, 2006, and March 17, 2008.
  3. California residents who held shares in the YieldPlus fund on September 1, 2006.
YieldPlus investors not included in the above categories are excluded from the class action. However, investors omitted from the class still have the option of filing their own securities arbitration claim against Schwab to recover their YieldPlus losses. Unlike class actions, which must be pursued in court, individual claims must be submitted to arbitration before the Financial Industry Regulatory Authority (FINRA).

Class Members Can Opt Out of the Class Action

Members included the class action also have the right to opt out of the class. Class members that elect to opt out can file a claim for their YieldPlus losses with FINRA.. For more information about opting out of a class action and submitting an arbitration claim, please see our blog posting: Securities Arbitration vs. Class Actions: Consider Your Options

Click here to view all YieldPlus blog postings.

January 28, 2009

Securities Arbitration vs. Class Actions: Consider Your Options

Securities class actions are on the rise again. In 2008, there were 210 federal securities class actions filed, nearly half involved firms in the financial services sector.

Class Actions: Not for Everyone

For millions of consumers, participating in a securities class action is an almost effortless process. Class members are seldom required to do much more than submit a proof of claim and wait for their share of the recovery.

The primary disadvantage is that, even though class action settlements can be considerable, they must be distributed to a large class of customers. As a result, individual recoveries are often quite small in comparison to the multi-million dollar settlements and awards paid out by large corporations.

Opting Out of Securities Class Actions

Another option that is frequently overlooked is "opting out" of a securities class action and pursuing an independent arbitration claim. Customers that have suffered substantial investment losses could recover significantly more by pursuing their own individual claim.

The "Opt Out" Deadline

If you recently discovered that you are a member of a pending securities class action, you will have a limited period of time to decide whether to participate in the lawsuit or pursue your own claim in arbitration. If you do nothing, you may be automatically included in the class.

See also: Are Securities Arbitration Cases More Financially Rewarding for Investors than Class Actions?

Schwab Yield Plus Class Action

The Schwab Yield Plus case is a recent example of a class action that is awaiting certification by the Court. The pending Schwab Yield Plus class action applies to investors who purchased the Schwab Yield Plus (SWYPX and SWYSX) money market funds.

The class action complaint alleges that Charles Schwab Corporation issued untrue statements regarding the lack of diversification of these funds and the extent of investments assigned to sub-prime mortgage backed and related securities. The complaint also alleges the funds registration statements and prospectuses contained untrue statements of material facts, and omitted important information regarding the funds' investments, ultimately misleading investors.

If the Court certifies the case as a class action, a notice will be sent out to investors in these funds advising them of the class action and their right to opt out.

Click here to view all "YieldPlus" blog postings.

Click here to view all "Class Action" blog postings.

Carefully consider your options before participating in a class action. If you believe you have a meritorious securities claim, speak with a securities attorney to discuss your rights and the advisability of opting out based on your individual circumstances.