Investment Fraud Blog

The national plaintiff securities law firm of Dimond Kaplan & Rothstein, P.A. obtained an American Arbitration Association award of more than $250,000 on behalf of a Mexican investor who lost all of his money in the now-infamous Bernie Madoff Ponzi scheme. The investor was placed in the Anchor Hedge Fund, a Madoff "feeder" fund, by the Florida investment advisory firm Sovereign International Asset Management, Inc. ("Sovereign"). Sovereign represented that Anchor was a diversified "fund of funds." In truth, Anchor actually invested investors' money only in the Madoff Ponzi scheme.

On January 13, 2012, the national plaintiff securities law firms of Dimond Kaplan & Rothstein, P.A. ("DKR") and Blum & Silver, LLP ("B&S") received a $9 million-plus FINRA arbitration award against Capwest Securities, Inc. ("Capwest"), a Lakewood, Colorado, brokerage firm. The Colorado FINRA arbitrators found CapWest liable under various common law and state securities statutes claims for selling fraudulent Provident, Shale Royalties, Medical Capital, and DBSI securities. DKR and B&S represented approximately 30 investors and alleged, among other things, that CapWest failed to conduct adequate due diligence on the fraudulent securities before CapWest approved the products for sale to investors. Those allegations involve a fundamental type of stockbroker negligence.

Exchange-traded funds, or ETFs, are investment that can play a role in certain sophisticated trading strategies. Since the first ETF was listed in 1993, these specialized funds have become increasingly popular with investors. Today, there are more than 1,000 ETFs in the United States, allowing investors to allocate their resources in very specific ways. While ETFs first were sold to institutional investors, they increasingly have been sold to individual investors. Today, individual investors own approximately $800 billion in ETFs. But massive ETF investment losses have caused many investors to question the brokers who recommended the investments.

Financial regulators in Europe and the U.S. are struggling to figure out how to respond to the fast growth of the $1.6 trillion exchange-traded fund ("ETF") industry. ETFs have surged in popularity. While many brokers and investors fail to distinguish ETFs from mutual funds, ETFs actually are very different from mutual funds. EFTs can be traded through the day like stocks. They also allow investors to go long or short and to take on leverage in an effort to boost their gains. While ETFs originally were devised for institutional investors, about $800 billion in ETFs are held by individuals. Many of these investors (along with the brokers who sold the ETFs) do not understand the investments. Such misunderstanding often leads to ETF investment losses.

In a shocking admission, former New Jersey Governor and Senator Jon Corzine has stated that he does not know what happened to the "many hundreds of millions of dollars" missing from clients' accounts at MF Global Holdings, the now-bankrupt brokerage Corzine once led. "I simply do not know where the money is, or why the accounts have not been reconciled to date," said Corzine.

Dimond Kaplan & Rothstein, P.A. is investigating brokerage firm UBS's sales of American Depository Shares (the "shares") issued by SinoTech Energy Limited ("SinoTech") (symbol: CTE). Swiss-banking affiliates UBS AG and UBS Securities LLC were underwriters for SinoTech's initial public offering in November 2010. It recently was reported that SinoTech's financial statements were fraudulent. As a result, the price of SinoTech's shares dropped from the IPO price of $8.50 to $2.35 and NASDAQ halted trading of the shares. UBS's failure to detect SinoTech's alleged fraud could subject UBS to liability for SinoTech investors' losses. Such liability would be another in a long string of recent cases where stockbroker negligence was found based on a brokerage firm's failure to understand products it is selling.

The Financial Industry Regulatory Authority ("FINRA") announced on November 29, 2011 that it has ordered Texas-based brokerage firm NEXT Financial Group Inc. to pay a $50,000 fine and $2 million in restitution to clients who bought Provident Royalties LLC private placements from NEXT. The sale of fraudulent Provident Royalties (a/k/a Shale Royalties) private placements by numerous brokerage firms gave rise to thousands of customer complaints and FINRA arbitrations over the past two years. In those cases, customers and their securities arbitration lawyers accused the brokerage firms of negligence for failing to conduct adequate due diligence on Provident.

A number of brokerage firms improperly sold the Highland Floating Rate Advantage Fund (the "Highland Fund" or the "Fund") as an investment that would provide investors with high income and that would protect investors' money. But such representations were misleading and failed to disclose the significant risks of the Highland Fund. Some of the brokerage firms that are believed to have misrepresented the Highland Floating Rate Advantage Fund are Merrill Lynch, E*Trade, and the now-defunct Brookstreet Securities. Misrepresenting the risks of an investment is one of the most common forms of stockbroker negligence.