Zamansky & Associates is expanding the scope of its investigation of China Stocks for possible securities fraud violations to include Mecox Lane (Nasdaq: MCOX), Le Gaga (Nasdaq: GAGA), China Education Alliance (NYSE: CEU) and CNInsure (Nadsaq: CISG). Investors who purchased securities in the following companies may wish to contact us immediately about protecting your rights or filing a lawsuit to recover your losses.
The Wall Street Journal ran an impressive page one story over the weekend about how the auction rate securities debacle is hurting the economic recovery. Some 400 companies are holding more than $20 billion in securities that can’t be unloaded or are worth dramatically less in value. These companies claim they would use this money to bolster their businesses if it were liquid.
Unlike individual investors who regulators forced Wall Street to make whole, companies who bought auction rate securities pretty much have to fend for themselves. Under the terms of regulatory settlements last year, securities firms who sold auction rate securities to corporations only have to make “best efforts” to make these companies whole because corporate treasurers are supposedly “sophisticated” and understood risks relating to auction rate securities. “Best efforts” is a nebulous term that in practicality means “as little as possible.”
At the end of the day, the auction rate securities market was rigged and its beyond me how or why corporate treasurers should have been wise to the wrongdoing. Moreover, if corporate treasurers should have known about the wrongdoing, why is it that the SEC and FINRA weren’t on to the scheme, particularly as the SEC launched an action against some 15 Wall Street firms in 2006 for rigging the auction rate securities market (link to settlement announcement).
Regulators were wrong to exempt institutional investors from the auction rate securities settlements. Admittedly, redeeming $20 billion in securities would be a prohibitive undertaking. But Wall Street made the auction securities mess. They should be forced to clean it up - all of it.
There is a great scene in the cult-classic movie Animal House that provides an appropriate comparison to FINRA’s second warning to its member firms about inappropriately marketing structured products, such as principal protected notes, to unwitting retail investors.
In the scene, Dean Wormer, whose character is a severe yet inept disciplinarian, declares that he is going to put the roguish Delta Fraternity on “double secret probation” after being told that he already had them on probation. But the Delta frat boys don’t take Dean Wormer seriously and ante up their campus debauchery.
Sadly, FINRA is proving to be Dean Wormer’s regulatory equivalent. A week before Christmas the agency issued a notice reminding its members that when peddling principal-protected notes they “must present a fair and balanced picture regarding both their risks and potential benefits.” The select few on Wall Street who actually read FINRA’s notices no doubt felt a sense of déjà vu; in September 2005 FINRA issued a dramatically similar notice advising members that when selling structured products they “must present a fair and balanced picture regarding both the risks and potential benefits.”
FINRA’s decision to dust off its four year old decree quite possibly has to do with an arbitration award Zamansky & Associates won on behalf of a South Carolina client in early December. An arbitration panel ruled that our client’s UBS broker didn’t properly advise her of the risks involved when he sold her Lehman Brothers “100 Percent Principal Protected Notes.” In addition to ordering UBS to reimburse my client for a significant portion of her principal, the panel found that UBS violated South Carolina’s securities fraud law and also required UBS to pay interest, plus all related expenses, including attorneys’ fees.
UBS reportedly sold nearly $1 billion of Lehman principal-protected notes to retail investors and my client’s award is the first arbitration ruling relating to them in the country. Our office has several more cases pending and without exception, the evidence is overwhelming that our clients were not properly advised of the risks in buying these note, despite FINRA’s 2005 UBS regulatory notice.
Delta Fraternity ultimately was disbanded because the frat boys flunked their college exams, not because of any meaningful action by Dean Wormer. Similarly, retail investors cannot expect FINRA to take any meaningful action to protect them other than re-issue a warning as hollow as Dean Wormer’s “double secret probation.”
January 27th, 2012
January 24th, 2012
January 12th, 2012
December 16th, 2011
December 9th, 2011