- Auctions ARS as Investments: Good, Bad, and Ugly
The thrill of it all: Long-term investments like auction rate securities (ARS) have a short-term twist -- the interest rates or dividends they pay are reset at frequent intervals through auctions. That's not necessarily a bad thing but recently the credit market has caused many auctions to fail. ARS investors who thought these securities were a ready source of cash are now short on funds. Loss of liquidity does not mean that you cannot ever get your money back. But, if you need money now, any illiquid investment can be a financial hardship.
ARS auctions can fail when supply exceeds demand-when there are not enough bids to purchase all the securities offered for sale in the auction. When an ARS auction fails, current investors will continue to hold their securities and will generally receive an interest rate or dividend set above market rates for the next holding period-up to any maximum disclosed in the offering documents.
Due to the failing credit market-a significant number of auctions have failed, leaving some investors who counted on immediate access to their funds wondering - what next?
Hold on if you don't need the money right away
Borrow money but this is not without risks and great expense - read the fine print. The brokerage firm you are dealing with can force the sale and also may sell without contacting you or may increase their house maintenance without contacting you.
Liquidate other investments. Beware of tax consequences.
Ask your broker whether any ARS you hold are eligible for redemption. If so, and if the redemption is partial, your brokerage firm should be able to tell you what procedures it is following to allocate shares among its customers.
If you think your broker has acted inappropriately, contact Anapol Schwartz. You may be eligible for a securities litigation lawsuit.
Source: FINRA
- Investment Advisor Agrees to Pay $5 Million to Ohio Workers' Comp Fund
A hedge fund manager who was convicted of defrauding the Ohio Bureau of Workers' Compensation to the tune of $216 million has agreed to pay the Bureau $5 million plus court costs to end a civil suit filed against him.Mark D. Lay of MDL Capital Management and MDL Active Duration Fund has not admitted wrongdoing, but made "'a business decision'" to stop contesting the state's civil lawsuit, his attorney told the Columbus Dispatch Newspaper.
"He has to swallow hard to put this behind him because he needs to move on," Columbus attorney Percy Squire said.
Tags: Mark D. Lay, MDL Capital Management, MDL Active Duration Fund, Ohio Bureau of Workers' Compensation, workers' comp fraud
- Enron Case Tests SEC's Allegiances
When the Securities and Exchange Commission files a brief in legal disputes, it is usually a nonevent. But the cases usually don't involve Enron Corp. In recent weeks, the agency has been publicly and noisily pressured by a congressman, a union leader and a Democratic presidential candidate, amid increasing consternation the agency is favoring business interests in its decision making. As a result, the SEC's decision about whether to weigh in on a Supreme Court case as well as on a similar case seeking the high court's attention has become a test of its own motto: ‘investor protection.’ The cases revolve around a similar question: Can shareholders sue third parties, such as investment banks, for another company's fraud? The SEC hasn't been asked by the Supreme Court to file a ‘friend of the court,’ or amicus brief, but lobbying by high-po/wered plaintiffs lawyer Bill Lerach, who represents shareholders in the Enron case, has boxed the agency into a corner. Unless it sides with shareholders, the SEC could be criticized as an ally of business for wanting to restrict the number of ways investors can sue.Kara Scannell, Wall Street Journal, ConsumerWatchdog.org 5/29/07
http://www.consumerwatchdog.org/corporate/nw/?postId=8004&pageTitle=
Enron+case+tests+SEC%27s+allegiances
- UBS Brokerage Account Fee Fraud
The office of New York Attorney General Eliot Spitzer has filed suit against UBS Financial Services, Inc. (UBS), charging that the company defrauded thousands of customers through its InsightOne brokerage program. The lawsuit details how UBS moved inappropriate clients from regular brokerage accounts into InsightOne, despite higher costs for these investors, by falsely promoting InsightOne as providing personalized advice and other financial planning services.
InsightOne charged its brokerage customers an asset-based fee instead of per-transaction commissions. Asset-based fee accounts are inappropriate for investors who rarely trade securities or hold significant amounts of cash, no-load mutual funds, or other similar assets.
The brokerage account fee fraud lawsuit says that UBS:
--Lured unsuitable investors with false promises, including the promise of an advice-based account.
--Created a conflict of interest for its brokers by giving them a financial incentive to enroll and keep investors in InsightOne even when the program was ill-suited.
--Kept many unsuitable investors in InsightOne by encouraging UBS brokers to churn their InsightOne accounts.
UBS brokers complained to their supervisors about the unethical practices but were met with deaf or threatening ears. Fee based or not, increasing transactions for the sake of increasing transactions (not for the benefit of the client) is called churning. The investor never wins with churning.
As a result of UBS fraudulent conduct, InsightOne customers paid tens of millions of dollars more in InsightOne fees than they would have paid in traditional brokerage account commissions.
The civil lawsuit, filed in New York Supreme Court charges UBS with violations of state anti-fraud laws, as well as common law fraud and breaches of fiduciary duty. The complaint seeks from UBS disgorgement, damages and restitution, as well as injunctive relief.
UBS Brokerage Account Fee Fraud - http://www.consumeraffairs.com/news04/2006/12/ny_ubs.html
- Equity-Indexed Annuities (EIA): Bad Investments Especially for Seniors
Equity-Indexed Annuities (EIA): Bad Investments Especially for Seniors - http://www.forbes.com/columnists/columnists/free_forbes/2005/0919/240.htmlEquity-indexed annuities EIA are contracts with insurance companies that pay investors part of the capital appreciation in a stock index and guarantee a minimum return if the contract is
held to maturity.
Even though the NASD has issued an investor alert about EIA sales practices and the SEC has warned investors about the complexity and hidden costs of EIAs, sales for these terrible investment products have soared to $20 billion per year.
Sales abuses are rampant because EIAs generate enormous commissions and are not regulated by the investment industry. Profit over people seems to be the rule of thumb when EIA sales are in the horizon.
Equity indexed annuities are purposefully complex making it impossible for investors to determine their true costs. EIAs have hefty surrender charges which can last throughout the contract's life. Equity indexed annuities guarantee a minimum rate of return, applied to the adjusted cash surrender value but often only if the annuity is held to term, typically six or seven years.
The EIA rules are many and complicated, certainly more complex than most average investors can comprehend and even seasoned investors.
There are three common indexing formulas used to translate the change in the index level into a gross return on the contract thus adding to the complexity of understanding EIAs..
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Both the SEC and the NASD caution investors to review and understand the impact on returns of the various EIA features. No one who sells EIAs truly understands them; all they understand is the huge commission. Despite all the complex formulas and hidden costs and surcharges, EIAs still manage to be sold to investors.
Are you the victim of an unscrupulous EIA sales agent? Has someone promised you the world but you woke up to find out there are too many strings attached and no one has the answers?
If yes, we recommend that you talk to an investment lawyer who has handled similar cases and may be able to hand
