FORMER CREDIT SUISSE ADVISER REPRESENTED BY LAX & NEVILLE LLP WINS FIRST FINRA ARBITRATION AWARD AGAINST CREDIT SUISSE SECURITIES (USA) LLC IN THE DEFERRED COMPENSATION ARBITRATIONS
On October 10, 2018, a former Credit Suisse investment adviser represented by Lax & Neville LLP, a leading securities and employment law firm, won a FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation. The claimant, Brian Chilton, was an adviser in Credit Suisse's US private banking division ("PBUSA") and was terminated when Credit Suisse closed PBUSA. As it did with hundreds of his colleagues, Credit Suisse took the position that Mr. Chilton voluntarily resigned and forfeited his deferred compensation. A highly sophisticated and experienced three arbitrator panel determined that Credit Suisse terminated Mr. Chilton without cause and awarded him all of his deferred compensation, consisting of 39,980 shares of Credit Suisse AG valued as of the date of his termination at $585,307.20. The Panel ordered Credit Suisse to pay interest of $131,694.12, attorneys' fees of $146,326.80, and 100% of the FINRA forum fees, totaling $69,750.00. The Panel also recommended expungement of Mr. Chilton's Form U-5, the termination notice a broker-dealer is required to file with FINRA. Credit Suisse had falsely reported that Mr. Chilton's "Reason for Termination" was "Voluntary," i.e. that Mr. Chilton resigned. The Panel recommended that the "Reason for Termination" be changed to "terminated without cause." To view this Award, Brian Chilton v. Credit Suisse Securities (USA) LLC, FINRA Case No. 16-03065.
Credit Suisse announced it was closing PBUSA on October 20, 2015. Dozens of its former advisers have subsequently filed FINRA Arbitration claims for their unpaid deferred compensation. The claims are based upon unambiguous language in Credit Suisse's contracts providing that deferred compensation awards vest immediately upon termination without cause. In a transparent attempt to evade its deferred compensation liabilities, which amounted to hundreds of millions of dollars, Credit Suisse deliberately mischaracterized its advisers' terminations as voluntary resignations, notwithstanding that it had announced it was closing PBUSA, told its employees, including the advisers, to find someplace else to work and told its clients to close their accounts. In its Form U-5 filings, Credit Suisse misrepresented to its regulator that the advisers had voluntarily resigned.
The Chilton Panel was the first to reach a decision on this issue and found that Mr. Chilton's Form U-5 filing was false and should be changed to termination without cause. Under the unambiguous terms of Credit Suisse's contracts, Mr. Chilton was therefore entitled to his deferred compensation.
To discuss this arbitration award, please contact Barry R. Lax, Sandra P. Lahens or Robert R. Miller at (212) 696-1999.
NEW DOL FIDUCIARY RULE HAS HUGE RAMIFICATIONS FOR WEALTH MANAGEMENT BONUS STRUCTURING
On April 6, 2016, the Department of Labor ("DOL") issued its final rule expanding the "investment advice fiduciary" definition under the Employee Retirement Income Security Act of 1974 ("ERISA"). The rule, which is effective April 10, 2017, has already had significant impact on the wealth management business and advisers should be particularly aware of changes to recruitment and compensation.
The rule modifies the Best Interest Contract Exemption ("BIC"), under which the DOL permits financial advisers and their firms to engage in otherwise prohibited transactions. When the rule was issued last year, many firms were concerned that the revised BIC would create unacceptable liability risk on commission-based retirement accounts and prohibit back-end performance-based incentives altogether. The DOL has now confirmed that the back-end incentives, such as bonuses for meeting asset or sales targets, will no longer be exempted under the BIC.
On October 27, the Department issued a FAQ regarding the new rule. Question 12 addressed recruitment incentives:
Such back-end awards can create acute conflicts of interest that are inconsistent with the full BIC Exemption's requirement that financial institutions adopt policies and procedures reasonably and prudently designed to ensure that individual advisers adhere to the exemption's impartial conduct standards. In particular, under the full BIC Exemption, financial institutions may not use or rely on bonuses, special awards, differential compensation, or other actions or incentives 'that are intended or would reasonably be expected to cause Advisers to make recommendations that are not in the Best Interest of the Retirement Investor.'
(Department of Labor, Conflict of Interest Exemptions FAQs, Q12). Of chief concern to the DOL is the "all or nothing" production targets of these awards, which tie a significant percentage of an adviser's compensation to the advice he or she gives individual clients, "particularly as the adviser approaches the target." This can pit a client's interest in a given investment decision, which may be comparatively minor in dollar terms, against the adviser's interest in a grossly disproportionate bonus. Accordingly, the FAQ distinguishes between front-end signing bonuses and incremental commission formulas, which do not create these disproportionate incentives, and back-end awards that tie large jumps in compensation to specific performance targets.
Recognizing that these back-end bonuses are common in the industry and were previously lawful, the DOL has advised that deals predating its guidance will be grandfathered. To qualify, however, a back-end bonus cannot be discretionary. More seriously, the firms are required to adopt "special policies and procedures specifically aimed at the conflicts of interest introduced by the arrangements and designed to protect investors from harm. These policies and procedures should establish an especially strict system of supervision and monitoring of conflicts of interest, particularly as the adviser approaches sales targets."
For advisers with current deals whose firms face this new regulatory burden, there may be pressure to renegotiate or surrender awards. Advisers moving or contemplating moving, meanwhile, will face a new recruiting environment, as firms cope with the expanded fiduciary rule in different ways. Morgan Stanley will continue to offer commission-based retirement accounts with a narrower platform of products, for example, while Merrill Lynch has already announced that it will eliminate the commission-based option entirely.
The attorneys at Lax & Neville LLP have extensive experience navigating compensation and regulatory issues on behalf of investment advisers. If you have an employment compensation agreement with deferred compensation or back-end bonuses based upon performance metrics, or are currently moving firms or considering moving firms, please contact us at 212-696-1999 to schedule a consultation.
FINRA REGULATORY NOTICE INVALIDATES CREDIT SUISSE'S EMPLOYMENT DISPUTE RESOLUTION PROGRAM
On March 7, 2016, Lax & Neville LLP, together with a number of other concerned law firms, submitted a letter to Financial Industry Regulatory Authority ("FINRA") urging it to take action in light of Credit Suisse's repeated violations. In particular, the letter sought to address Credit Suisse's current Employment Dispute Resolution Program (EDRP), which prevents employees from exercising their right to resolve disputes through FINRA arbitrations. A second letter was sent to FINRA on July 19, 2016.
On July 22, 2016, FINRA released a Regulatory Notice addressing "Forum Selection Provisions Involving Customers, Associated Persons and Member Firms." Therein, FINRA stated that it "considers actions by member firms that require associated persons to waive their right under the Industry Code to arbitration of disputes at FINRA in a predispute agreement as a violation of FINRA Rule 13200 and as conduct inconsistent with just and equitable principles of trade and a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade)." FINRA further noted, "a member firm cannot use an existing non-compliant agreement as a basis to deny an associated person the right to FINRA arbitration as specified in FINRA rules, without violating FINRA rules." Accordingly, FINRA has determined that the EDRP, which Credit Suisse has insisted its employees follow, violates FINRA rules and cannot be relied upon in resolving disputes with Credit Suisse.
The Regulatory Notice further noted that FINRA has a statutory obligation to enforce compliance by member firms and warned that "[m]ember firms with provisions in predispute agreements that do not comply with FINRA rules may be subject to disciplinary action." Specifically, "FINRA may sanction its members or associated persons for violating any of its rules by 'expulsion, suspension, limitation of activities, functions, and operations, fine, ensure, being suspended or barred from being associated with a member, or any other fitting sanction.'" In light of this, FINRA recommends that member firms review their predispute agreements to ensure compliance.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of employees against their FINRA member firm employers. Specifically, Lax & Neville LLP represents several dozen former Credit Suisse employees in employment disputes, including for deferred compensation. If you were employed with Credit Suisse and have a deferred compensation claim or other disputes, please contact Lax & Neville LLP today at 212-696-1999 to schedule a consultation.
CLAIMS AGAINST CREDIT SUISSE FOR UNPAID DEFERRED COMPENSATION
Lax & Neville LLP is representing many financial advisors against their former employer, Credit Suisse Securities (USA) LLC's ("Credit Suisse"), for unpaid deferred compensation.
After months of rumors and speculation, on October 20, 2015, Credit Suisse confirmed that it was closing its U.S. Domestic Private Banking business and announced that it was entering into an exclusive recruiting arrangement with Wells Fargo & Company ("Wells Fargo"). For years Credit Suisse required its financial advisors to defer a certain percentage of their annual compensation for several years as an incentive for the advisors to voluntarily continue their employment with Credit Suisse. Therefore, if a financial advisor voluntarily resigned or was terminated for cause, that advisor would forfeit the compensation that was deferred. However, upon death, disability or termination without cause, as is the case in the closing of the business, the deferred compensation would vest immediately. Credit Suisse has failed to pay the constructively discharged financial advisors who were terminated without cause their deferred compensation. Credit Suisse's position is this: if financial advisors left after Credit Suisse announced the closing of its U.S. Domestic Private Banking business and went to Wells Fargo, such advisors would receive their deferred compensation; however, if an advisor left after the announcement to join another broker-dealer, that advisor would forfeit the deferred compensation. We believe that Credit Suisse's actions are unjustified, illegal and unconscionable. Credit Suisse is assuming that some wronged financial advisors will simply walk away. If that happens, Credit Suisse receives a windfall reward for violating employees' rights. We implore former Credit Suisse financial advisors to not let that happen, and please call Lax & Neville LLP immediately at (212) 696-1999 to recover that which is rightfully and legally yours.
CLAIMS AGAINST MERRILL LYNCH FOR LOSSES ASSOCIATED WITH STRATEGIC RETURN NOTES
Lax & Neville LLP is investigating claims on behalf of investors regarding possible sales practice abuses in connection with Merrill Lynch's sale and marketing of their Strategic Return Notes.
Strategic Return Notes, issued by Bank of America, are structured notes linked to a complex proprietary volatility index ("VOL"). The VOL attempts to calculate the volatility of the S&P 500 (i.e., how drastically the S&P 500 changes in a given time frame) and compensates investors accordingly. The SEC recently announced that Merrill Lynch agreed to a $10 million settlement in response to charges that it made misleading statements in materials provided to retail investors of the Strategic Return Notes. Specifically, the written materials provided by Merrill Lynch inappropriately failed to disclose a quarterly cost of 1.5% tied to the value of the volatility index. In addition to the SEC settlement, FINRA fined Merrill Lynch $5 million for "negligent disclosure failures" that materially misled customers that invested in the Strategic Return Notes. FINRA stated that had they been disclosed, a reasonable retail investor would have considered these costs when buying the notes.
Structured products, such as the Merrill Lynch Strategic Return Notes, are risky and complex investments that may not be suitable for all investors. If you have lost money investing in Merrill Lynch's Strategic Return Notes or structured products issued by another brokerage firm, or have information about the marketing of Merrill Lynch's Strategic Return Notes or structured products issued by another brokerage firm, please contact Lax & Neville LLP at (212) 696-1999.
"CLAIMS AGAINST BROKER-DEALERS FOR LOSSES IN OIL AND NATURAL GAS RELATED INVESTMENTS"
Lax & Neville LLP is investigating claims on behalf of investors regarding possible securities law violations in connection with various broker-dealers’ sale and marketing of oil and natural gas structured notes, master limited partnerships (“MLPs”), funds, exchange-traded funds (“ETFs”) and private drilling programs.
According to media reports and lawsuits recently filed by investors, various broker-dealers recommended that their clients invest in oil and natural gas related investments, such as Kinder Morgan Energy Partners (KMP), Energy Transfer Partners (ETP), Energy Product Partners (EPD), Plains All American Pipeline (PAA), Magellan Midstream Partners (MMP), Buckeye Partners (BKE), Noble Energy (NE), Williams Partners (WPG), Regency Energy Partners (RGP), ONEOK Partners (OKS), MarkWest Energy Partners (MWE), Linn Energy (LINE), Encore Energy Partners (ENP), Cheniere Energy Partners (LQP), Penn West (PWE), Pengrowth Energy Trust (PGH), DCP Midstream Partners (DCP), NuStar Energy Partners LP (NS), NGL Energy Partners (NGL), Valero Energy (VLO), Chesapeake Energy (CHK), Freeport-McMoran (FCX), Alpha Natural Resources (ANR), Anadarko Petroleum (APC), and Marathon Oil (MRO), Alerian MLP ETF (AMLP), JP Morgan Alerian MLP Index ETN (AMJ), First Trust North American Energy (EMLP), EV Energy Partners (EVEP), Transamerica MLP Fund (TMLAX), Yorkville High Income MLP (YMLP), UBS Alerian MLP (MLPI), Clearbridge Energy Fund (CEM), and Credit Suisse X-Links Cushing MLP Infrastructure (MLPN).
These investments were marketed to investors as safe, income-generating investments. However, in reality, these oil and natural gas related investment products are risky, illiquid and complex investments that are unsuitable for conservative and even some moderate investors who were concerned with preserving principal. Within the last year, such investments have lost, in some instances, more than 50% of their value as a result of the sharp decline of the oil and commodities markets, and numerous income-producing investments have ceased to yield dividends, in contravention of the promises and representations by broker-dealers that investors would be receiving income from certain investments and that their principal would be protected. Some investors were even reportedly told that their investments were not linked to oil price volatility because the underlying companies generated consistent revenue from other sources. While investors have suffered alarming losses in the oil and natural gas related investments, broker-dealers such as Citigroup, Barclays, Wells Fargo, Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, Morgan Stanley, UBS and JP Morgan have made approximately $1.1 billion in fees and commissions from selling these products.
If you have lost money investing in these products or have information about broker-dealers’ or banks’ marketing and sale of these products, please call Lax & Neville LLP, (212) 696-1999.
"STIFEL’S ACQUISITION OF BARCLAYS"
On June 8, 2015, Stifel Financial Corp. (“Stifel”) announced that it is set to acquire Barclays’s Wealth and Investment Management, Americas business (“Barclays Wealth Management”) through a definitive purchase agreement.
Barclays Wealth Management has approximately 180 financial advisors managing near $56 billion in client assets. Barclays Wealth Management’s business is centered in New York, but it also operates out of 11 other branch offices nationwide.
Stifel is a financial services holding company with its headquarters located in St. Louis, Missouri. In the United States, Stifel’s broker-dealer clients are currently served through Stifel, Nicolaus & Company, Inc., Keefe Bruyette & Woods, Inc., Miller Buckfire & Co., LLC, and Century Securities Associates, Inc.
Subject to regulatory approval, the deal is expected to close in November of 2015.
The attorneys at Lax & Neville LLP have represented hundreds of registered representatives in their transitions between firms, including many registered representatives from Barclays Wealth Management. When a broker-dealer, such as Barclays sells its wealth management business, that transaction may create many legal issues for its registered representatives and their clients. If you are a Barclays Wealth Management registered representative with questions regarding the implications of Stifel’s acquisition of Barclays Wealth Management and potentially transitioning to a new firm, call our offices today at (212) 696-1999.
"CLAIMS AGAINST GILFORD SECURITIES AND ADAM F. COBLIN"
Lax & Neville was recently retained by an investor to file a claim regarding alleged sales practice abuses by Gilford Securities Inc. ("Gilford"), a broker-dealer, and Adam Coblin ("Coblin"), CRD# 2005853, one of its former financial advisors who resigned in July 2013 while under review by Gilford for customer complaints. We believe that Coblin may have engaged in similar sales practice abuses with many of his customers and are currently investigating whether Coblin churned and charged excessive commissions in his customers' brokerage accounts, and whether he sold unsuitable securities such as Delcath Systems, Prospect Global Resources or Vivus Inc. to customers. It should be noted that according to Coblin's FINRA BrokerCheck Report, several customers have recently filed customer complaints against him based on alleged sales practice abuses. For example, one of his former customers filed an arbitration claim against him and Gilford in November 2012 alleging compensatory damages of $910,555 as a result of alleged unsuitable investments and excessive trading. Gilford settled that matter for $375,000 in September 2013. Another customer filed an arbitration claim against Gilford and Coblin in October 2013 alleging compensatory damages of $133,000 as a result of alleged misrepresentations, unsuitability, unauthorized trading and other sales practice abuses. That claim and other customer complaints against Coblin are still pending.
If you are a current or former customer of Gilford or Coblin and believe sales practice abuses occurred relating to your account, please contact Lax & Neville LLP at (212) 696-1999 for a free consultation.
"CLAIMS AGAINST UBS IN PUERTO RICO FOR LOSSES IN HIGHLY LEVERAGED, RISKY CLOSED-END BOND FUNDS"
Lax & Neville LLP is investigating claims on behalf of investors regarding possible sales practice abuses in connection with UBS Financial Services Inc.'s sale and marketing of various highly leveraged closed-end bond funds to customers in Puerto Rico.
According to media reports and lawsuits filed against UBS by investors in Puerto Rico, UBS recommended that its clients invest in highly leveraged, risky closed-end bond funds that were heavily invested in Puerto Rican municipal debt, such as the Tax Free Puerto Rico Fund II. These closed-end bond funds had a leverage ratio of approximately 50%, which means that for every dollar of customer assets the fund holds, it has approximately another dollar of assets bought with borrowed money. By way of comparison, an average leverage ratio on funds similar to UBS's in the U.S. is approximately only 20%. To make matters worse, UBS brokers encouraged clients to borrow money on margin or through the use of credit lines to invest in the funds, which essentially doubled the leverage and increased the riskiness of the investments. The value of these risky highly leveraged closed-end bond funds managed by UBS have declined in value by approximately 50% or more, resulting in losses to investors. UBS's clients have been forced to liquidate hundreds of millions of dollars in holdings in the bond funds to meet margin calls. Numerous lawsuits have been filed against UBS, and many more are expected to come. If you have lost money investing in leveraged bond funds in Puerto Rico or have information about UBS's marketing and sale of these leveraged bond funds, please call Lax & Neville LLP, (212) 696-1999.
“CLAIMS AGAINST TONY THOMPSON, TNP SECURITIES AND THOMPSON NATIONAL PROPERTIES”
Lax & Neville LLP is investigating claims on behalf of investors regarding possible sales practices abuses in connection with Tony Thompson, TNP Securities LLC (“TNP Securities”) and Thompson National Properties LLC (“Thompson National Properties”) and the sale and marketing of various promissory notes linked to Tony Thompson’s real estate investments.
According to media reports, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed a complaint in late June/early August 2013, against well-known real estate investor, Tony Thompson, owner of Thompson National Properties, and his broker-dealer, TNP Securities, for allegedly deceiving and defrauding investors who purchased at least $50 million in high-yield real estate promissory notes sponsored by Thompson National Properties. These notes include the TNP 12% Notes Program LLC, the TNP 2008 Participating Notes Program LLC and the TNP Profit Participation Program LLC, which, from 2008 through 2012, were sold through various independent broker-dealers.
Furthermore, in early summer 2013, FINRA suspended former registered representative Wendy J. Worcester, TNP Securities’ co-chief compliance officer, for failing to adequately and independently conduct proper due diligence into TNP’s three private placement offerings, which compromised the independence of TNP Securities. Indeed, two of Thompson National Properties’ private placements paid old investors with new investor funds. According to FINRA, “[d]uring 2009 and 2010, the [TNP 12% Notes Program LLC and TNP Participating Notes Program LLC] were unable to pay certain investor distributions from operating cash . . . [and instead] relied on new investor proceeds or transfers from cash from [Thompson National Properties, TNP’s affiliate that sponsored the private placements,] or its affiliates in order to make distributions to investors.”
Most recently, it was reported that the broker-dealer Berthel Fisher & Co. Financial Services Inc. (“Berthel Fisher”), and its founder and Chief Executive Thomas Berthel (“Berthel”), who is a FINRA registered representative, are facing a prospective class action regarding the TNP 2008 Participating Notes Program LLC. According to the class action complaint, “Berthel Fisher had actual knowledge of misrepresentations and omission in the [TNP 2008 Note] and failed to investigate red flags that pointed to other misrepresentations and omissions . . . Through the use of the misleading TNP 2008 PPM, Berthel Fisher helped raise approximately [$26.2 million]” from more than 200 investors.
Tony Thompson and Thompson National Properties faced another lawsuit earlier this summer when an investor in the TNP 6700 Santa Monica Boulevard, also known as TNP Kodak, another Thompson National Properties sponsored program, filed a prospective class action lawsuit in the District Court for the Central District of California which alleged that Tony Thompson and his affiliated entities made “misrepresentations, [and engaged in] mismanagement, misappropriation of investor funds and other misconduct” with regard to the TNP 6700 Santa Monica Boulevard investment.
If you have lost money in any investment with Tony Thompson, TNP Securities, LLC or TNP National Properties LLC, Berthel Fisher & Co., or any other broker-dealer or registered representative regarding any TNP Securities related real estate promissory notes, including, but not limited to, the TNP 12% Notes Program LLC, the TNP 2008 Participating Notes Program LLC, the TNP Profit Participation Program LLC and the TNP 6700 Santa Monica Boulevard, a/k/a TNP Kodak, please call Lax & Neville LLP, (212) 696-1999. Lax & Neville LLP effectively assists investors, on both a regional and national level, that may have suffered losses as a result of their broker and broker dealer’s sales practice abuses, including fraud.
“CLAIMS AGAINST UBS FOR LOSSES IN THE UBS WILLOW FUND LLC”
Lax & Neville LLP is investigating claims on behalf of investors regarding possible misconduct in connection with UBS Financial Services, Inc.’s (“UBS”) sale and marketing of the UBS Willow Fund LLC (“UBS Willow Fund”). UBS recommended the Willow Fund to its investors as a distressed debt fund. In actuality, contrary to the representations made by UBS, the Willow Fund deviated from that investment strategy, and instead invested in speculative sovereign debt credit default swaps (“CDS”). The Willow Fund’s investment in sovereign debt CDS was much riskier and speculative than the investment strategy that UBS disclosed to its customers. Therefore, UBS customers were never informed of the true nature of the Willow Fund’s investment strategy. Due to this undisclosed strategy, the Willow Fund’s value and worth drastically declined, causing investors to suffer significant losses, which could be as high as 70%.
If you have lost money investing in the Willow Fund, please call Lax & Neville LLP, (212) 696-1999. Lax & Neville LLP has victoriously prosecuted numerous arbitrations against UBS, including, but not limited to UBS’s sale and marketing of principal protected notes issued by Lehman Brother’s Holdings. Lax & Neville LLP effectively assists investors, on both a regional and national level, that may have suffered losses as a result of their broker and broker dealer’s sales practice abuses, including fraud.
“THE MERRILL LYNCH PHIL SCOTT TEAM LOSES FOR A THIRD TIME”
Lax and Neville LLP has been extremely successful in bringing claims by investors who lost money invested with the Merrill Lynch Phil Scott Team. Specifically, Lax & Neville LLP has won THREE FINRA arbitration awards (Clair R. Couturier, Jr. vs. Merrill Lynch, Pierce, Fenner & Smith, Inc., Phil Scott Group, et al FINRA No. 11-00867; Douglas and Kristin Mirabelli v. Merrill Lynch, Pierce, Fenner & Smith, Inc. - FINRA No. 10-03400; John J. Baker, Natalie N. Baker and Harriet B. Baker v. Merrill Lynch, Pierce, Fenner & Smith, Inc. - FINRA No. 09-06762) against Merrill Lynch and Phil Scott for purported sales practice abuses concerning the Merrill Lynch Phil Scott Team and the Merrill Lynch Phil Scott Team Income and Blue Chip Portfolios. The Merrill Lynch Phil Scott Team recommended that this investor invest 100% of his Merrill Lynch assets in the Merrill Lynch Phil Scott Team Income and Blue Chip Portfolios, which both were made up entirely of 100% equities. Lax and Neville LLP claimed that these recommendations were patently unsuitable as they were made without any regard of the investor’s risk tolerances and investment objectives. The Phil Scott Team also represented that the Merrill Lynch Phil Scott Team Income and Blue Portfolios would provide income and preservation of capital, which the investors argued was materially misleading and false. Lax and Neville LLP also claimed that Merrill Lynch failed to supervise Phil Scott and his team members. In finding for the Claimant in the most recent case, the Arbitration Panel stated in the Award that it was “particularly concerned by the following actions of Respondents: (i) Misrepresentations and omissions were contained in the unrestricted marketing materials supplied by Respondents to Greg Porter, who in turn, having been cloaked with apparent authority by Respondents, presented the misleading materials to Claimant. This wrongdoing was caused by Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s inadequate supervision before the fact and aggravated by its failure to take corrective action after it received notice of the communications; (ii) Respondents’ manner of using the Personal Investment Advisory Questionnaire as a disclosure device was misleading and had the capacity to deceive. Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s continuing approval of this use constitutes inadequate supervision; and (iii) Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s failure to comply with its own ARMOR report procedures constitutes a breach of its duties toward Claimant and another example of inadequate supervision.” (See FINRA Arbitration Award). In the Award, the Arbitration Panel further stated, “This list is not all-inclusive but is intended to give Respondents the benefit of some of the Panel’s conclusions so Respondents can modify their conduct accordingly.” (See FINRA Arbitration Award). In the most recent case, the FINRA arbitration award against Merrill Lynch and Phil Scott consisted of $1,100,000 in compensatory damages, $540,144 in attorneys’ fees, along with costs in the amount of $74,341.
If you invested with the Merrill Lynch Phil Scott Team and had a similar experience with the Merrill Lynch Phil Scott Team, please call Lax & Neville LLP, (212) 696-1999.
"MAT FIVE LOSSES"
Lax & Neville LLP, has been retained by investors who lost money in MAT Five, which was inappropriately sold and marketed by Citigroup. The MAT Five was promoted to fixed-income investors who were seeking preservation of capital. In reality, the MAT Five was a very risky investment, which could drop sharply if the markets changed, or if the investments maintained in the MAT Five were not properly managed. Due to the very risky nature of the investment, the MAT Five plummeted in value. Many investors have been significantly damaged as a result of the inappropriate marketing and selling of the MAT Five by Citigroup. If you have lost money investing in the MAT Five or have information about Citigroup's marketing of the MAT Five, please call Lax & Neville LLP, (212) 696-1999.
"MADOFF VICTIMS SUE SEC"
Lax & Neville LLP will be initiating litigation against the Securities and Exchange Commission ("SEC") on behalf of Madoff victims seeking monetary damages for negligence under the Federal Tort Claims Act. Based upon the Inspector General's Report, we believe that a viable claim exists against the SEC. Please see link below.
If you have any questions regarding this matter, please contact our firm at (212) 696-1999.
"MADOFF CLASS ACTION"
On June 5, 2009, our firm filed a class action adversarial proceeding in the United States Bankruptcy Court for the Southern District of New York seeking to obtain a declaratory judgment, pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., (i) that the Trustee's definition of "net equity" is incorrect as a matter of law, and (ii) that a customer's "net equity" under SIPA is the value of the securities reflected in the customer's Madoff account as of the SIPA filing date (even where the securities were never actually purchased) less any amounts the customer owes to Madoff.
First and foremost, the Trustee/SIPC Approach is an unlawful contravention of SIPA that deprives innocent victims of their SIPC recovery. It is also unprecedented. We are aware of no case in the history of SIPA where customers, who have been provided with written confirmations and account statements reflecting purchases and holdings of real securities (e.g., IBM, AT&T, etc.), had their "net equity" claims determined on the basis of the cash in, cash out approach being used by the Trustee and SIPC in this case. Indeed, in January of this year, SIPC President Stephen Harbeck acknowledged that, for this one case, SIPC took the extraordinary step of modifying the standard SIPC claim form used over the past 39 years. That form, which simply asks for the information required under the SIPA Definition (namely, what the debtor owes the customer and what the customer owes the debtor as of the filing date), was changed to ask for the customer's total deposits and total withdrawals (for what could be decades). Neither the Trustee nor SIPC has set forth any statutory basis for this departure from the SIPA Definition of "net equity" and past practice, and there is none.
Second, these adversely affected investors are not seeking a bail out from the government. SIPC was designed essentially as an insurance policy for investors defrauded by broker/dealers. The funding associated with these duly authorized SIPC payouts would come from SIPC funds, which are comprised of the yearly registration fee paid in by registered broker/dealers. Just recently, SIPC reviewed and increased its membership due's formula and has authorized increased contributions. Broker/Dealer registration in SIPC is voluntary, and contrary to the assertion made in the Times article, there are excellent alternatives other than taxpayers footing the bill for these payouts. SIPC could borrow the funds, increase membership dues, and seek retroactive contributions from its members.
In sum, this class action seeks a declaration by the Court on the definition of "net equity." We feel that our position is strongly supported by the law, and is supported by the policy arguments originally offered when SIPA was enacted.
If you have any questions regarding these matters, please contact either myself or partners Barry Lax and Brian Neville at (212) 696-1999.
Lax & Neville is currently acting on behalf of a group of approximately 300 investors called MadoffSurvivors, and represents many of its members. Brian Neville has been selected to head the legal steering committee, and is currently forming a legal strategy session for all attorneys involved, as well as congressional members who may help. The MadoffSurvivors exemplify the true victims of the Madoff ponzi scheme. They are individuals and families who worked their lifetimes to attain a modest nest egg for their retirement that was abruptly stolen from them on December 11, 2008.
If you are a victim of this fraud, and invested directly with Bernard L. Madoff Investment Securities LLC, and would like to retain Lax & Neville LLP to file a SIPC Claim on your behalf, please call Lax & Neville LLP, (212) 696-1999.
Lax & Neville LLP, has been retained by investors who lost money in the Aravali Fund, which was inappropriately sold by Deutsche Bank Securities and other brokerage firms in 2006 and 2007. The Aravali Fund was sold to investors who were seeking income and safety of principal as an alternative to a portfolio of municipal bonds. In reality, the Aravali Fund was a very risky interest arbitrage scheme comprised of a significant short position in treasury bonds, interest rate swaps and a highly levered pool of relatively illiquid municipal bonds. Not long after inception, due to the very risky nature of the investment, the Aravali Fund plummeted in excess of 90% in value, and is now being liquidated. Many investors have been significantly damaged as a result of the inappropriate marketing and selling of the Aravali Fund. Indeed, at least one Deutsche Bank broker who sold the Aravali Fund has claimed that it was misrepresented to him by Deutsche Bank. If you have lost money investing in the Aravali Fund or have information about Deutsche Bank's marketing of the Aravali Fund, please call Lax & Neville LLP, (212) 696-1999.
Lax & Neville LLP, has been retained by investors who lost money in Lehman Brothers Principal Protected Notes ("Lehman Principal Protected Notes"), which were inappropriately sold and marketed by several brokerage firms, including Lehman Brothers, Citigroup, UBS, Merrill Lynch and Wachovia. The Lehman Principal Protected Notes were marketed and sold as low-risk, conservative structured investment products to investors who were seeking income with capital preservation. Investors were advised that Lehman Principal Protected Notes would provide preservation of capital, a modest yield, and a slight gain in principal. Indeed, a brochure issued by Lehman Brothers and others, and distributed by the selling and marketing firms to their clients, stated that their "structured notes", which includes Lehman Principal Protected Notes, had "100 percent principal protection" and "uncapped appreciation potential" based upon the gains in the S&P 500 Index. However, in reality, the investments in Lehman Principal Protected Notes were subject to a significant amount of risk, including the risk of complete loss of the entire investment.
If you have lost money investing in Lehman Principal Protected Notes or principal protected note or structured products issued by another brokerage firm, or have information about the marketing of Lehman Principal Protected Notes or principal protected note or structured products issues by another brokerage firm, please call Lax & Neville LLP, (212) 696-1999.