Wall Street Titans Fail to See Truth in Numbers

by zamassoc on May 16th, 2012 at 2:38 pm : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 05/15/12

JPMorgan Chase’s horrific $2 billion-and counting-loss shows that Wall Street has learned nothing from the 2008 financial crisis that brought down one-time stalwarts Lehman Brothers and Bear Stearns.

What’s more, the staggering loss, due to bets on complex derivatives, puts the lie to the suggestion that Wall Street need less, not more, regulation.

JPMorgan’s CEO Jamie Dimon apparently is sticking to that lie.

Mr. Dimon has been a leading critic of financial reform under the Dodd Frank Act and the Volcker Rule, which would limit the amount of trading banks can do with their own capital. Dimon’s touchiness on the subject of the Volker Rule was on full display during a conference call with analysts and investors last Thursday evening to announce the loss.

According to a Wall Street Journal article by Dan Fitzpatrick, Gregory Zuckerman and Liz Rappaport, Mr. Dimon said that the trading loss “plays right into the hands of a whole bunch of pundits out there. We will have to deal with that-that’s life.”

Indeed, Mr. Dimon appeared almost more concerned with looming rules and regulations about in-house trading as he was about the reasons for the stunning loss.

Asked about the Volcker Rule, the Journal reported that Mr. Dimon made the following statement: “This doesn’t violate the Volcker rule, but it violates the Dimon principle.”

After the Journal originally reported in early April that JPMorgan was seeing massive trading losses based on the bets of the “London Whale,” Mr. Dimon said that the questions about the office’s trading were “a complete tempest in a teapot.”

Mr. Dimon was singing a different tune over the weekend. During a TV interview that aired Sunday he said that he was “dead wrong” when he dismissed concerns about the bank’s trading last month. “We made a terrible, egregious mistake,” he said.

Wall Street Princes such as Mr. Dimon are supposed to be the masters of numbers. But it is the frightening inability of such titans to face up to the reality of numbers that is truly on display here.

As Aaron Elstein of Crain’s New York Business noted over the weekend, “it’s abundantly clear that, for big banks, huge trading losses have become part of the business.”

Eight months ago, UBS reported a loss of $2 billion due to a trader in London. “JPMorgan’s entry into this club means that six banks have disclosed trading losses of $500 million or more in the past five years,” Crain’s reported. “Heading into 2007, there had been exactly one such blowup in all the previous ten years.”

Of course, the ten years prior to the financial crisis were much kinder to the banks. But isn’t a financial institution’s true strength revealed in how it manages its capital in times of adversity?

The news for JPMorgan kept getting worse on Monday. Top executives who ran the trading unit that caused the mammoth loss resigned and lawmakers in Washington are calling for investigations.

Next up for Mr. Dimon: a meeting on Tuesday in Florida with shareholders. We are sure that the Dimon Principle, whatever that is, will be on full display.

Disclosure: Zamansky & Associates are securities attorneys representing investors in federal and state litigation and arbitration against financial institutions, including JPMorgan and UBS.

Read article by Securities Attorney Jake Zamansky on Forbes.com

Filed under Forbes Articles, J.P. Morgan, Jake Zamansky, Wall Street
and JP Morgan Chase

Private REITs Backfire on Investors

by zamassoc on May 1st, 2012 at 3:56 pm : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 05/01/12

Over the last five years as investment returns for bonds fell to rates approaching zero, financial advisors plowed their customers’ funds into non-publicly traded real estate investment trusts (REITs).

These private REITS were widely pitched as “safe and secure” investments whose annual dividend returns were in the 5-8% range-a “no-brainer” for investors seeking yield and safety of principal.

As commercial real estate values (the mainstay asset of most REITs) plummeted in recent years, most investors have seen the value of their private REIT holdings get crushed and dividends shrivel to nothing.

Don’t worry about the brokers-they made out like bandits, pocketing 5-10% commissions on the illiquid products they sold.

Investors are fighting back in court and arbitration cases launched this past year against the REITs themselves and the firms that sold them.

An excellent article by A.D. Pruitt and Craig Karmin in last week’s Wall Street Journal details the extent of the damage done to investors who bought the product during the real estate bubble. The market for the products was huge in the run-up to the financial crisis. About 90 different private REITs were sold by brokers to investors during the boom years, raising $73 billion, according to the WSJ.

Typically, private REITs are sold to investors at $10 per share, and that’s what shows up on their brokerage account statements.

The historic decline in the commercial real estate market, however, shows how misleading-even meaningless-those valuations actually are. A number of leading private REITs have recently restated their value, finally revealing how shoddy many of these investments really are.

In April, “investors in Retail Properties of America Inc., one of the largest owners of strip malls and shopping centers in the U.S., learned that shares that were valued last June at $6.95 were valued during its IPO at $3.20, before a reverse stock split,” according to the Journal. Don’t forget, investors originally paid $10 per share to buy this REIT when brokers first hawked it about ten years ago.

And then there’s this winner-the Cornerstone Core Properties REIT Inc. According to the WSJ, this year it “disclosed in a regulatory with the Securities and Exchange Commission that its stock, which was sold to investors at $8 a share in 2008, actually is valued at $2.09. Until 2012, all Cornerstone noted in its regulatory filings was the initial offering price, without any updates.”

And let’s not overlook the KBS Real Estate Investment Trust Inc., or KBS REIT I. According to trade publication InvestmentNews, the REIT told investors in March “it was cutting the value of the REIT to $5.16 per share, from $7.32, a drop of 29%. The REIT’s offering price was $10 per share.”

Such cuts in a private REIT’s valuation are also often accompanied by a drastic reduction in the offering’s dividend. And that supposed “safe, steady” dividend, remember, was the primary reason brokers were able to convince investors to buy the damn REIT in the first place. That’s why there’s a saying in the securities industry: Nontraded REITs are never bought, they are sold.

Adding to investors’ woes is the fact that these REITs do not trade on a public exchange like the Nasdaq or the NYSE and have practically zero liquidity and no way to know what they are really worth on the open market. That means investors are stuck holding these lemons with absolutely no chance of making lemonade.

Disclosure: Zamansky & Associates are securities attorneys representing investors in federal and state litigation and arbitration against financial institutions, including REIT issuers and broker-dealers.

Read article by Securities Attorney Jake Zamansky on Forbes.com

Filed under Forbes Articles, Jake Zamansky, REIT

Stock Analysts Return to the Big Shill

by zamassoc on April 27th, 2012 at 3:42 pm : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 04/24/12

The stock market has been raging since October, though the past couple of weeks have seen it come back down to earth a bit. But the market’s recent meteoric rise, with the S&P 500 returning 12% over the first quarter, begs a question. Is this the new normal, is the market really this strong, or are analysts overrating stocks to goose soaring prices?

We know the story of conflicted stock analysts too well from the wreckage of the tech bubble and bust. Analysts from once-esteemed ratings agencies responsible for rating mortgage-backed securities were in cahoots with-and were in fact paid by-the securities issuers, contributing mightily to the real estate bubble. And we know that analysts wrote dishonest reports in order to help their banks collect big fees for selling product.

Now, it looks like analysts could once again be playing an ugly, dishonest role. And Main Street investors who put their trust in Wall Street research are in harm’s way.

This is the disturbing conclusion of a recent report from Reuters. The takeaway? Stock analysts are as fearful as ever to buck the investment banks and underwriters who look to them to pump their product.

“More than a decade after regulators moved to clean up the stock research industry at investment banks, analysts across the globe are as hesitant as ever to issue negative research on companies they believe are destined to struggle,” the story begins. “While so-called ‘Chinese walls’ were set up after regulators and legal cases shed light on the role analysts and bankers played in inflating the 1990s technology bubble, research teams still appear conflicted between their conviction and their bank’s client list.”

Analysts at brokerages and investment banks are shilling like it’s 1999!

“Ten years ago, sell orders jumped to nearly 20% after a series of rules were put into place to wipe out banker-analysts conflicts,” the Reuters report noted. “It’s now back in the single digits, and in some cases headed to levels last seen in the 1990s.”

Reuters’ analysis is based on 120,029 recommendations banks and brokerages have issued on nearly 17,000 companies. It found that just 9% of recommendations across the globe are a “sell” right now.

Analysts who don’t like a stock simply keep their mouths closed and their pens capped. They are cowed by their investment banking bosses who want to do business with the firms the analysts are tasked with evaluating. It seems that in order to keep their bosses happy and to keep their own careers on track, they bite their tongues and keep rating weak companies as a “buy” or a “hold” rather than the “sell” they deserve.

And that’s the problem. Wall Street brokerages and investment banks often value relationships among executives more than they value their investor clients. An honest, negative rating of a potential investment banking client could, heaven forbid, damage those executives’ relationships. And when such precious-and lucrative-relationships hang in the balance, who cares about the client?

Disclosure: Zamansky & Associates are securities attorneys representing investors in federal and state litigation and arbitration against financial institutions.

Read article by Securities Attorney Jake Zamansky on Forbes.com

Filed under Forbes Articles, Jake Zamansky

Merrill Lynch Eats its Own

by zamassoc on April 17th, 2012 at 5:54 pm : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 04/17/12

A decade ago, Merrill Lynch was exposed for abusing its clients with tainted research it was peddling.

Internal Merrill emails showed at the time that the firm pushed technology stocks on its customers. All the while, it internally viewed the stocks as “pieces of junk” and “pieces of s-t.” Merrill’s actions led to a $1.4 billon regulatory fine for the industry and massive litigation payouts.

An arbitration panel’s $10.2-million decision against Merrill this month shows that not much has changed in the past ten years at the firm. But now, Merrill Lynch’s management has moved on from abusing its clients to heaping scorn on its own departing brokers.

Internal emails from 2002 revealed the extent of Merrill Lynch’s earlier misconduct. Now comes the remarkable arbitration ruling against Merrill Lynch in favor of two former brokers, Meri Ramazio and Tamara Smolchek. Both left Merrill Lynch in November 2008, just two months after it was acquired by Bank of America, to work for Merrill competitor Morgan Stanley.

On their way out the door, the brokers wanted their deferred compensation, worth millions, to vest. In a neat turn of corporate treachery, Merrill simply hasn’t allowed such vesting to occur. The arbitration panel wrote that it “was shocked that although over 3,000 Financial Advisors left the employ of [Merrill] after [the Bank of America deal], not one claim has been approved for vesting for ‘Good Reason’ under the Deferred Compensation Programs.”

Plainly, Merrill Lynch does not want to hand over the deferred comp that rightfully belongs to many ex-brokers. In fact, the Merrill Lynch deferred compensation committee was nothing but a “sham committee that did nothing more than rubber stamp denials,” according to the ruling.

And this is not chump change. The “zero dollar payout” plan was a far cry from Merrill Lynch’s own analyses “that indicated anywhere from hundreds of millions to several billion dollars in potential liability,” the panel wrote. And this was not some backwater committee. Senior management played a role in denying deferred compensation to former brokers, the Finra award states.

Merrill Lynch, of course, wants no part of this $10.2 million arbitration award. It immediately moved to have the award vacated “on the basis of the panel’s handling of this matter, limits that were imposed on our ability to present our case and the failure of the panel’s chair to disclose important information about conflicts of interest,” a Merrill Lynch spokesman told Catilin Nish of Dow Jones.

Not only did Merrill Lynch’s policy likely cheat thousands of former employees out of millions, the firm’s conduct during the arbitration hearing was borderline thuggish. For example, during a dispute over medical records the panel decided could not be entered as evidence, Merrill Lynch attorneys demanded the records be entered anyway. “Particularly, the Panel did not appreciate the waving of the document clearly headed, in large bold letters…for the purpose of intimidating the witness with a document they knew was inadmissible into evidence,” the arbitrators wrote.

Some firms just don’t get it. And the Charging Bull of Wall Street, Merrill Lynch, is certainly one of them.

Disclosure: Zamansky & Associates are securities attorneys representing investors and brokers in arbitration and federal and state litigation against financial institutions including Merrill Lynch and Bank of America.

Read article by Securities Attorney Jake Zamansky on Forbes.com

Filed under Forbes Articles, Jake Zamansky

Investors Beware: Securities Deregulation is Here Again, and It Will Hurt

by zamassoc on March 27th, 2012 at 3:41 pm : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 03/27/12

Investors’ wounds from 2008 are still fresh, and many mom-and-pop investors remain terrified of jumping back into the stock market. As a result, investors have parked billions of dollars in money market funds, earning next to nothing in interest. That result leaves investors-especially retirees-desperate for some type of return.

This blog focuses on a new law Congress just passed-the so-called JOBS Act-which we think will harm investors. But first let’s back up to the global financial crisis of 2008 for a moment.

During that time, investors received precious little information about the excessive risks that Wall Street firms were taking with their money. The market crash that resulted from those undisclosed risks left huge holes in their retirement and college-education savings.

Surely if investors had understood that most banks were leveraged 40-to-1, or that shaky subprime-mortgage assets comprised the lion’s share of many banks’ balance sheets, they would have headed for the exits long before suffering their crushing losses.

But a strange thing is happening in Washington. Lawmakers there are doing their damndest to make sure that, once again, the financial services industry is allowed to push the American investing public back into an informational black hole.

You’d think the reverse would be true, but under the “JOBS” Act, or Jumpstart Our Business Startups Act, American investors are about to have LESS information about the companies in which they invest their life savings.

Yes, you read that right. Investors will have LESS information under the new law, not more.

Congress has passed a bill that many believe will harm small investors, many of whom are desperate for yield because of record-low interest rates that appear likely to last.

The JOBS Act is intended to increase job creation and economic growth by improving access to the public capital markets for emerging companies. The Senate passed the bill last week, and the House passed it earlier in March, with both chambers showing wide support of the bill.

Many experts believe the bill is incredibly dangerous. The Senate version gives small business the ability to raise money over the Internet and social media. Businesses will be entitled to raise up to $1 million through these “crowdfunding” techniques and sell up to $2 million in securities without registering with the Securities and Exchange Commission.

Just the antidote any financial doctor would prescribe after a crisis that brought the global economy to its knees. Let’s pass legislation to flood the market with high-risk, illiquid unregistered securities. Just what the American public needs.

All kidding aside, this is exactly what the public does NOT need right now. After the collapse of Wall Street, which was in large part caused by banks hiding off-balance-sheet transactions and burying information about leveraged derivatives, the nation’s lawmakers are going out of their way to give swindlers and con artists direct access to average Americans’ wallets and pocketbooks by way of the Internet.

State regulators, who have a solid track record of sniffing out the fraudsters likely to take advantage of these new fundraising loopholes, are aghast at the new law.

In a news release last week, the state regulators group, known as NASAA, stated: “Congress and the White House have sacrificed investor protection for politics and are in danger of repeating a legislative mistake that has allowed promoters of fraudulent securities offerings to steal millions of dollars from investors since 1996.”

NASAA’s point is this: the legislation needlessly exposes Main Street investors to greater risk of fraud by creating new jobs for promoters of Internet investment scams. The group believes that many investors may be harmed before this error is corrected, and by then it will be too late.

NASAA is right. This bill should never become law, but when both parties see a political winner in an election year, brace yourselves because common sense goes out the window, real-world consequences be damned.

Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitration and federal and state litigation against financial institutions.

Read article by Securities Attorney Jake Zamansky on Forbes.com

Filed under Forbes Articles, Jake Zamansky, Securities Deregulation

“Surprise! Goldman Sachs Exec Reveals Wall Street’s Dirty Little Secret”

by zamassoc on March 19th, 2012 at 9:21 pm : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 03/19/12

Why is it so hard for Goldman Sachs to adhere to the Cardinal rule of American business - that the customer comes first, not the firm’s profits?

It seems such a simple principle to uphold in business, but Goldman’s ability to follow that Cardinal rule has been called into serious question of late.

The leading investment bank on Wall Street was the focus of the business and national media last week after a former Goldman Sachs executive on Wednesday printed an indictment of the firm in the New York Times, with the editorial appearing minutes after he officially resigned.

Referring to the smell and feel right now at Goldman, the executive, Greg Smith, wrote: “And I can honestly say that the environment (at Goldman) now is as toxic and destructive as I have ever seen it.”

Managing directors insultingly refer to clients as “Muppets,” Mr. Smith wrote.

And one more observation from Mr. Smith about how Goldman bankers take care of their clients: “It makes me ill how callously people talk about ripping their clients off.”

Ok, so the me first, customer be damned culture at Goldman stinks. This is not a surprise. We’ve been writing about that for years now.

But Greg Smith’s characterization of the firm is simply the latest and perhaps most vivid evidence that Goldman has no interest in putting its clients first. His indictment is straight from inside the belly of the beast.

The cracks in Goldman’s me first culture are showing, in a variety of ways.

According to an article in the Saturday Wall Street Journal by Gina Chon and Anupreeta Das, Goldman is reviewing policies on investment bankers’ potential conflicts that may strengthen internal rules on disclosure to clients of bankers’ financial holdings.

Why is Goldman considering such rules now?

As the article noted: “The concerns emerged after a Delaware judge said in a Feb. 29 opinion that the $21.1 billion proposed sale of El Paso Corp. to natural-gas pipeline operator Kinder Morgan Inc., announced last year, was riddled with potential conflicts of interest.”

“Among the conflicts the judge said, was the $340,000 stake in Kinder Morgan of a main adviser to El Paso, Stephen Daniel, Goldman Sachs’ top energy banker.”

Oh, so that’s what Mr. Smith meant when he wrote: “Weed out morally bankrupt people, no matter how much money they make for the firm.”

Want more? There were the accusations by the Securities and Exchange Commission in 2010 that the firm intentionally tricked certain institutional clients by selling them a mortgage-backed security product that a hedge fund client of Goldman designed, in a bet that the housing market would crash.

Goldman’s defenders have a laughable response to all this.

They routinely say that reporters or the editors at the New York Times simply don’t understand the Wild West of Capitalism and that concerns raised in the El Paso opinion are way, way overblown.

Investment banks, the Goldman defenders say, are full of tough, alpha males who eat their opponents for lunch and then swill down a couple of martinis for good measure. This is just the way business gets done, and if you’re the New York Times or a federal judge or the SEC, well, too bad. You don’t understand business, not get out of the way.

Investment banks, the Goldman defenders say, have always done business like this. And the clients of investment banks know that banks like Goldman have taken a trading position in deals that goes against clients’ best interest but will pay off for the bank.

And clients love it, according to the Goldman defenders.

More Wall Street nonsense.

We will close with an observation from ’s column in Saturday’s Times about why Mr. Smith’s column struck a chord last week with the American public.

“The reason is that the kind of amoral, eat-what-you-kill capitalism that Goldman represents is one that most Americans instinctively find repugnant,” Mr. Nocera wrote. “It confirms the suspicions many people have that Wall Street has become a place where sleazy practices are the norm, and where generating profits in ways that are detrimental to society is the ticket to a successful career and a multimillion-dollar bonus.”

Goldman’s defenders should think about that the next time it’s revealed that a fundamental part of Goldman’s business strategy is to screw its clients.

Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitration and federal and state litigation against financial institutions, including UBS.

Read article by Securities Attorney Jake Zamansky on Forbes.com

Filed under Forbes Articles, Wall Street, goldman sachs

The True Legacy of Lehman Brothers

by zamassoc on March 14th, 2012 at 1:41 am : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 03/13/12

As Lehman Brothers emerges from the largest bankruptcy in U.S. history, owing $300 billion, it is worth examining the once-vaunted investment bank’s legacy.

In a word, it’s a disgrace.

Its emergence dredges up several uncomfortable questions-and disheartening answers.

For starters, have those responsible for Lehman’s spectacular collapse, which almost destroyed our economy in 2008 and whose aftershocks are still being felt from Greece and Iceland to Main Street and the White House, been brought to justice?

Have Lehman investors yet been made whole for their losses?

And has Wall Street learned its lesson and changed its ways?

Unfortunately, the answers to these questions are no, no and - most definitely - no!

Justice? Former Lehman CEO Dick Fuld walks free, weighed down only by a pile of civil actions, the defense of which, by the way, is paid for by the bankrupt firm’s estate. And his cadre of senior officers went similarly unscathed.

The investors? Lehman shareholders were wiped out. And its creditors, including retail investors who bought its so-called “100% Principal Protection Notes,” are slated to recover just a small fraction of their losses from the bankruptcy.

Lessons Learned? Rather than look inward and evaluate how its own behavior could change for the better, in hopes of avoiding another implosion, Wall Street has spent tens of millions lobbying to water down new regulations called for by the Dodd Frank legislation. And its Congressional allies dug in to block the appointment of a federal consumer-protection watchdog, in hopes of crippling the fledgling agency dedicated to protecting ordinary Americans from predatory banking practices. Humbled? Shameless is more like it.

One has to look no further than recent sightings of former Lehman CEO Dick Fuld to see the mockery of justice the firm’s history represents.

For the past two years, Fuld has worked as an investment banker at a boutique firm known as Legend Securities, likely donning the customary pinstripes rather than the prison stripes he deserves. According to the New York Post, Mr. Fuld recently ended his two-year tenure at Legend Securities recently “amid mounting regulatory scrutiny concerning his role at the small brokerage firm.” Securities regulators were questioning how much business Mr. Fuld was generating at the firm, and he was running into problems obtaining brokerage licenses from the states, the Post reported.

Then we have former Lehman CFO Erin Callan’s lavish wedding, replete with views of St. Patrick’s Cathedral and the Rockefeller Center Ice Skating Rink. She lives in the Hamptons and this winter bought an $829,000 home on Florida’s Gulf coast, according to a report by Susanne Craig and Evelyn M. Rusli in the New York Times.

Fate has not been as kind to Lehman investors. Those who invested in the firm’s “100% Principal Protection Notes” are slated to receive pennies on the dollar in the bankruptcy, and many have had to sue UBS, the firm that deceptively sold around $1 billion worth of these lemons.

Lehman said in a statement this month that its first payment to creditors would be made on April 17. Wonder how much of that is coming from the directors and officers responsible for the firm’s crash.

The true legacy of Lehman brothers is that the bankers remain fat and happy while the rest of us struggle to navigate the wreckage they left behind.

Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitration and federal and state litigation against financial institutions, including UBS.

Read article by Securities Attorney Jake Zamansky on Forbes.com

Filed under Forbes Articles, Lehman Brothers, Securities Law News

Zamansky & Associates Issues Alert for Lehman 100% Principal Protection Note Holders

by zamassoc on March 9th, 2012 at 7:18 pm : Comments 000

NEW YORK–(BUSINESS WIRE)–Zamansky & Associates advises all holders of Lehman Brothers 100% Principal Protection Notes (including those sold by UBS) that they should carefully guard their legal rights in light of recent developments.

It was just announced that Lehman was emerging from bankruptcy proceedings. Debt holders are scheduled to begin receiving partial payments in April 2012. Those payments will amount to only a small fraction of investors’ losses.

Zamansky & Associates has successfully represented dozens of investors who purchased Lehman Principal Protection Notes from UBS in FINRA arbitration cases. The firm won the first of these cases to go to FINRA arbitration in 2009 and has also won the largest arbitration award to date.

What You May Do

If you would like to discuss your legal rights and how you can recover your losses, you may, without obligation or cost to you, email jake@zamansky.com or call the law firm at (212) 742-1414.

About Zamansky & Associates

Zamansky & Associates is one of the leading law firms specializing in securities fraud and financial services arbitration and class action litigation. We represent both individual and institutional investors. Our practice is nationally recognized for our ability to aggressively prosecute cases and recover losses.

If you have suffered losses as a result of an investment in Lehman notes, please contact us by emailing jake@zamansky.com or calling (212) 742-1414. You can also fill out the contact form below.

Contacts

Zamansky & Associates, LLC
Jake Zamansky, 212-742-1414
jake@zamansky.com

Filed under Lehman Brothers, UBS
and Lehman Brothers, UBS

Chinese Fraud Hiding in Plain Sight

by zamassoc on March 7th, 2012 at 12:57 am : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 03/06/12

With the overheated growth of the Chinese economy, many U.S. investors, eager to cash in, have dabbled in Chinese stocks listed on U.S. exchanges.

The problem is Chinese companies may be keeping two sets of books-one for Chinese financial regulators and a bogus set for the Securities and Exchange Commission and investors here in the United States.

Despite this frightening backdrop, it’s easy to understand why investors are tempted to chase riches from China. China is the “Next Big Thing” for investors, or so they want to believe. They will miss out unless they plow their money in RIGHT NOW, their brokers implore.

This type of hype chillingly reminds us of other “Big Things” that have blown up investors’ portfolios.

We all remember the “new paradigm” for buying the stocks of technology companies that made no profits. What resulted was the great Tech Wreck of 2000.

We all remember the claim that real estate values would defy history and gravity and continue their climb ever-upward. That flight of fancy led to the 2007-2008 popping of the mortgage bubble, which gave us the Great Recession, the effects of which are still with us today: 8% unemployment and a double-dip recession in Europe.

Recent events force the question: Is China the next disaster for investors?

Investors from the United States look like they are going to lose the $100 million they invested into a Chinese coal company in 2010 called Puda Coal. A handful of small, obscure investment banks floated that offering but managed to overlook one major point. According to a recent story in the New York Times, the chairman of Puda Coal transferred a key interest in the coal mining company in 2009 and then turned around and sold that interest to a state-owned Chinese company.

What is truly appalling is how easy it would have been for the investment banks and the auditors to discover the fraud, according to the Times. In fact, the fraud was hiding in plain sight.

“It was basically spelled out in documents that were publicly available in China months before the American and Canadian investment banks, advised by major law firms, raised the money from the investors,” the Times reported. “But it appears no one bothered to look - not the underwriters and not the auditors.”

So, investors who bought Puda Coal on the NYSE Amex exchange spent $12 per share in its IPO for a company that had already been looted by its principals, according to civil fraud charges in February by the Securities and Exchange Commission.

It looks like justice will not be served in the Puda coal matter. According to the Times, the United States is powerless when it comes to protecting investors from the likes of the executives at Puda.

“The two men charged by the SEC are evidently in China and have no intention of coming to the United States to face the allegations,” Times columnist Floyd Norris reported. “Most likely, there is nothing the commission can do and there is probably nothing Puda investors can do.” Once valued at $12 per share, the stock’s share price on Monday was hovering below 30 cents.

The lesson? Investors must be vigilant and focused on the risks of foreign investments. And brokers and investment banks should stop pushing Chinese stocks where fraud is hiding in plain sight.

Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitration and federal and state litigation against financial institutions and other companies, including Chinese companies.

Read article by Securities Lawyer Jake Zamansky on Forbes.com

Filed under Forbes Articles, Jake Zamansky

The New Gordon Gekko: Greed is Bad

by zamassoc on March 1st, 2012 at 3:01 am : Comments 000

Below is a recent article published by Securities Lawyer Jake Zamansky on Forbes.com - 02/29/12

Investors, take heart: one of the all-time Bad Boys of Wall Street, mean and greedy Gordon Gekko, has turned over a new leaf.

We all remember Gordon Gekko, the conniving trader from the terrific Oliver Stone movie “Wall Street.” Set in the booming 1980s, the film’s most memorable line is delivered by a slick-haired Michael Douglas, who portrayed Gekko as a delightful creep of a trader with absolutely no morals.

“The point is… that greed, for lack of a better word, is good,” Gekko famously said. “Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit.”

Traders and investment bankers cheered at that line. In fact, some of the old-timers love to recite that line to this day.

Now, Michael Douglas is calling this ethic a bunch of bunk. In a public service announcement that takes on insider trading, the very crime for which the fictional Mr. Gekko did hard time, Mr. Douglas says greed is bad.

“I’m Michael Douglas,” the message begins. “In the movie ‘Wall Street,’ I play Gordon Gekko… The movie was fiction, but the problem is real… To report insider trading, contact your local FBI office.”

The ad is a bit of Madison-Avenue populism to draw focus to the FBI’s far-reaching and historic probe of insider trading on Wall Street.

And it worked. Then-and-now portraits of Mr. Douglas as Gordon Gekko dominated the front page of Tuesday’s Wall Street Journal.

The FBI is right to draw attention to its solid work in this arena. So far, federal prosecutors have charged 66 individuals at hedge funds and other companies with insider trading since 2009 and won 57 guilty pleas or jury convictions, according to the report by Jenny Strasburg and Reed Albergotti in Tuesday’s Journal.

And the FBI is not giving up the chase anytime soon. In fact, the FBI is expanding its investigation, which has already shaken up Wall Street. According to the Journal, federal authorities are looking to build insider trading cases against almost 120 individuals on and off the Street.

Punctuating that point, today’s Journal brings word that the FBI and federal prosecutors are “investigating whether a top Goldman Sachs manager “passed inside information about technology stocks to the firm’s hedge-fund clients.” According to reporters Susan Pulliam and Michael Rothfeld, they are focused on a senior salesman, David Loeb, “who acts as a middleman” between the rarified firm and its institutional clients. Apparently, the hits just keep coming for Goldman, whose former director Rajat Gupta, is slated for a May trial on insider-trading charges that he passed key secret information along to another of the firm’s hedge-fund clients, the now-convicted Raj Rajaratnam, during the darkest days of the 2008 financial crisis.

Of course, not everyone is a fan of the transformation.

The New York Post on Tuesday called Gekko/Douglas a Wall Street turncoat for having the nerve to speak the truth about the culture of greed that fueled the housing bubble that led to the collapse of the world’s financial institutions in 2008. “‘Gekko’ turns rat for FBI’s fraud-buster ad,” the Post declares in its headline. “Douglas on other side of ‘Street.’”

But, according to people close to Mr. Douglas, the need to reverse the “Greed is Good” mantra is quite real. Here are a couple of eye-opening paragraphs from the WSJ story:

“While filming the one-minute television spot at the Trump International Hotel, (FBI agent David Chaves) said Mr. Douglas told him he often gets stopped in the street by Wall Street professionals who admire the conniving Mr. Gekko,” the Journal reported.

“Mr. Chaves said that Mr. Douglas was dismayed. ‘He’s like ‘where are the values? What are people thinking when I’m hailed as a hero in that role?’”

Indeed, Mr. Douglas: where are the values? We’ve been asking that same question for years.

Disclosure: Zamansky & Associates are securities attorneys representing investors in arbitration and federal and state litigation against hedge funds and financial institutions including Goldman Sachs.

Read article by Securities Lawyer Jake Zamansky on Forbes.com

Filed under Forbes Articles, Jake Zamansky