Margin involves the use of borrowed money to buy assets, usually securities. It adds layers of risk to a portfolio. It amplifies losses as well as gains, and it subjects the customer to margin calls if the account value (which is the collateral for the margin loan) drops below a certain level.
Continue ReadingU.S. District Court Judge Jed Rakoff threw light on the Securities and Exchange Commission’s longstanding practice of allowing firms that it has accused of fraud to buy their peace without admitting wrongdoing. He refused to approve a settlement agreed to Citigroup and the SEC in which Citigroup consented to, but expressly neither admitted nor denied, the charges. Judge Rakoff found that to be against the public interest. Both the SEC and Citigroup appealed the decision to the court of appeals.
Continue ReadingFinancial Industry Regulatory Authority Inc. (FINRA) arbitrator Alvin Green is ordering David Lerner Associates Inc. to pay claimants Florence Hechtel and Joseph Graziose $24,450 for the Apple REITs that they bought from the firm. They will get the money after returning the Apple REIT 9 shares to the company. The Apple REIT is the 14th largest non-traded real estate investment trust in the US. David Lerner & Associates also will have to reimburse them their $425 FINRA claim filing fee.
Continue ReadingIn its SEC filing, Pacific Cornerstone said that it didn’t know what the future held regarding the FINRA matters. “Outside counsel for the company has advised that at this stage of the proceedings, they could not offer an opinion to probable outcome of the matters,” the company filing said. “Accordingly, no provision for loss has been recorded in the accompanying financial statements for 2011.”
Continue ReadingTroubling signs that emerged days before the IPO were hidden from the public by Wall Street, according to an article in The Motley Fool by Eric Bleeker entitled “The Tragedy of Facebook: How Wall Street Robbed Main Street.” While Wall Street helped Facebook promote its IPO, and brought it public at a falsely elevated price, analysts at the underwriter firms cut their earnings estimates for Facebook. That was unprecedented for an IPO. But it was only disclosed to a few favored clients, while the rest, who were encouraged to buy Facebook stock in the IPO, were kept in the dark. The banks’ analysts apparently didn’t even cut their estimates based on their own due diligence. A Facebook executive had to tell them they should cut their estimates, according to the article.
Continue ReadingInvestors sometimes hire a financial adviser to manage their money professionally if for no other reason than to escape their own irrationality. Many investors know that, in investing, their emotions can be their worst enemy – leading them to buy high and sell low. They think that a financial adviser, detached from their emotions, will behave more rationally and act in their best interest. Unfortunately, a recent undercover academic study concluded that many financial advisers are too detached from their clients and too attached to their own financial interests to provide professional financial guidance. (“Financial Advisers Flunk Undercover Sting,” Ryan Sager, SmartMoney.com).
Continue ReadingThe Financial Industry Regulatory Authority (FINRA) recently announced that it has fined Citigroup Global Markets, Inc. $725,000 for failing to disclose certain conflicts of interest in its research reports and research analysts’ public appearances.
Continue ReadingThe Securities and Exchange Commission (SEC) recently issued a Risk Alert on compliance measures to help broker-dealers fulfill their due-diligence duties when underwriting offerings of municipal securities.
Continue ReadingThe SEC should make stockbrokers abide by the 1940 Investment Advisers Act’s fiduciary duty rules. Currently, broker-dealers have to abide by the “suitability” standard, which is considered a less strict standard of care. For example, under the suitability standard, brokers don’t have to reveal the majority of conflicts of interest to a client to get out of any obligation to control investment expenses.
Continue ReadingSell recommendations by investment analysts working on Wall Street are still a rarity years after FINRA banned Jack Grubman of Citigroup and others who issued buy recommendations on technology stocks they privately considered to be “pigs,” in order to reap personal financial rewards for generating more lucrative investment banking business for their firms (“Analysis: Research “sell” notes decline as conflicts persist,” Reuters). The SEC fined the industry one billion dollars and Congress forced the SEC to impose rules to clean up a fraud that still exists on Wall Street.
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