PHILADELPHIA – PA
Nicholas J. Guiliano of the Guiliano Law Group, P.C., in Philadelphia, Pennsylvania announced today he is actively investigating and pursuing fraud claims against certain securities broker-dealers resulting from the risky or unsuitable recommendation of the securities of certain financial institutions.
Tens of Billions Lost in Securities
Investment Trusts, Labor Unions, Pension Funds, Local Municipalities, School Boards, and Charitable Foundations, required by law in most states to only invest in prudent, and otherwise conservative fixed income securities and preferred shares, have collectively lost tens of billions in the securities of Wachovia, FannieMae, FreddieMac, Bear Stearns, and Lehman Brothers.
Wall Street, it appears, was drinking its own cool-aid, and despite ample evidence of the deterioration of assets connected to the sub-prime market, and global credit crisis, contained in regulatory filings, rating reports, and the comments of independent analysts, as early as February 2007, continued to recommend the purchase of these securities, and in pursuit of their own self interests continued to raise billions of dollars for these otherwise troubled financial institutions.
As early as the spring of 2007, in connection with the reporting of the results of operations for the year ended December 31, 2006, Merrill Lynch, Goldman Sachs, and Wells Fargo, collectively wrote down billions of dollars in subprime debt, in one case reporting: “The current global credit crisis, inventory exposure, and potential counter-party credit exposure, may continue to adversely affect our business and financial results.”
It was widely known and widely reported, certainly by December 2007, that the widespread dispersion of credit risk related to mortgage delinquencies and defaults was expected to have an very significant adverse impact on the performance of large banks, financial institutions, and the owners or originators of mortgage-backed securities.
Either these brokers making such recommendations were negligent in failing to perform their due diligence and should been aware of this adverse information, or were aware of this information, rendering the recommendation of these securities risky or speculative, and certainly inappropriate for these otherwise conservative investors.
Broker-dealers & Agents Liabilities
Broker-dealers and their agents may have liability for the recommendation and sale of the securities of certain financial institutions based upon adverse information in the marketplace as early as the Spring of 2007.
The viability of these claims depends upon, among other things, the timing of any such purchases, and to what extent any particular investment portfolio may have been over-concentrated in the securities, including the preferred securities, of issuers.
Because these claims are claims against the brokerage firms, all such claims are subject to Arbitration Before the Financial Industry Regulatory Authority (“FINRA”), Office of Dispute Resolution.
The Board of Directors or Investment Committees of any Trust, Union, Pension Fund, Municipality, School Board, or Charitable Foundations, may have a fiduciary duty to pursue these claims.
Bear Stearns Cos., Inc.
Bear Stearns Cos., Inc. was one of the world’s leading financial institutions that became insolvent as a result its participation in the origination, trading and ownership of collateralized Debt Obligations (“CDOs”), Collateralized Mortgage Obligations (“CMOs”), and other Asset Backed Securities (“ABSs”) consisting of subprime mortgage loans.1
In the early Spring of 2007, the subprime mortgage industry, and the value of these securities collapsed. Bear Stearns, as an active participant in the $330 billion subprime mortgage industry, was not immune from this collapse, and as of the three month period ended February 28, 2007, the Company reported on SEC Form 10-Q, that it had suffered approximately $372 million in unrealized losses as a result of its derivative and non-derivative fixed income activities. The Company announced in connection with the release of its quarterly financial results that:
Although volumes were strong during most of the quarter, mortgage markets became more cWallenging later in the quarter as investor concern over the rising delinquency levels in the subprime mortgage market escalated.
During February 2007, the ABX subprime mortgage credit indices widened dramatically, reflecting investor concern due to increased delinquencies in subprime mortgages.
(Source: Bear Stears Co., SEC Form 10-Q, Feb. 28, 2007 “Management Discussion & Analysis “).
By July 2007, the extent of BSC?s exposure to the subprime crisis began to further emerge. As of May 31, 2007, the Company?s unrealized losses as a result of its derivative and non-derivative fixed income activities increased to approximately $597 million. The Company?s stock which has been as high as $187 per share decreased to a low of approximately $134 per share losing more than 28% of its value. On July 10, 2007, the Company announced that:
CWallenging market conditions in the U.S. residential mortgage business were experienced in the 2007 quarter as difficulties in the sub-prime mortgage market continued to be a concern.
(Source: Bear Stears Co., SEC Form 10-Q, July 10, 2007).
As of August 31, 2007, according to the Company?s press releases and SEC filings, the Company had total ABS/CDO related exposures of approximately $2 billion. In August 2006, the price of the Company?s common stock decreased to less than $100 per share.
On November 14, 2007, the Company announced via SEC Form 8-K that as a result of its subprime exposure, “the Company will be taking a net write-down of approximately $1.2 billion on these positions and others in our mortgage inventory.”
On December 20, 2007, the Company reported approximately $1.543 billion in unrealized losses as a result of its derivative and non-derivative fixed income activities, and on January 28, 2008, the Company reported that its “Mortgage-related revenues reflect approximately $2.3 billion in net inventory write downs in the second half of fiscal 2007.”
In January 2008, the Company?s common stock, which had been as high as $187 a year earlier, lost more than 60% its value, and decreased to a low of approximately $68 per share.
On January 28, 2008, the Company also reported that:
The current global credit crisis, inventory exposure, and potential counter party credit exposure, may continue to adversely affect our business and financial results.
During 2007, higher interest rates, falling property prices and a significant increase in the number of subprime mortgages originated in 2005 and 2006 contributed to dramatic increases in mortgage delinquencies and defaults in 2007 and anticipated future delinquencies among high-risk, or subprime, borrowers in the United States.
The widespread dispersion of credit risk related to mortgage delinquencies and defaults through the securitization of mortgage-backed securities, sales of collateralized debt obligations (“CDOs”) and the creation of structured investment vehicles (“SIVs”) and the unclear impact on large banks of mortgage-backed securities, CDOs and SIVs caused banks to reduce their loans to each other or make them at higher interest rates.
It is difficult to predict how long these conditions will continue, whether they will continue to deteriorate and which of our markets, products and businesses will continue to be adversely affected. As a result, these conditions could adversely affect our financial condition and results of operations. In addition, we may be subject to increased regulatory scrutiny and litigation due to these issues and events.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
(Source: Bear Stears Co., SEC Form 10-Q, Jan. 28, 2008).
On March 11, 2008, or less than two weeks later, Deutsche Bank AG reported that the Company will probably have $1.9 billion more write downs in the first half of 2008. Subsequently, Oppenheimer & Co. analyst Meredith Whitney wrote that “this investment simply is mired in too much risk,” and that BSC shares “could become worthless’ if the company is forced to sell assets.”
On March 14, 2008, the Company announced that its financial condition had “significantly deteriorated,” and that absent additional capital the Company would be required to withdraw from its securities related activities.
Following this announcement and the merger of BSC with JP Morgan, on March 17, 2008, the price of BSC common stock opened at $3.17 per share.
Lehman Brothers Securities
Lehman Brothers was one of the world?s leading financial institutions that became insolvent as a result its participation in the origination, trading and ownership of collateralized Debt Obligations (“CDOs”), Collaterialized Mortgage Obligations (“CMOs”), and other Asset Backed Securities (“ABSs”) consisting of subprime mortgage loans.
In the early Spring of 2007, the subprime mortgage industry, and the value of these securities collapsed. Lehman, as an active participant in the $330 billion subprime mortgage industry, was not immune from this collapse, and as of the three month period ended February 29, 2007, the Company reported on SEC Form 10-Q, that its revenue had decreased more than 52%, as the company suffered from the “continued deterioration in the broader credit markets, in particular residential mortgages, commercial mortgages and acquisition finance.”
In fact, prior to the release of the results of operations for the Lehman?s quarter ended February 29, 2008, it was widely anticipated, and widely reported on Bloomberg News and in the Financial Times, that Lehman was expected to lose up to $700 million dollars on its hedging positions. On June 9, 2008, Lehman reported a net loss of $2.8 billion.
On September 15, 2008, Lehman filed a voluntary petition to reorganize under Chapter 11 of the Federal Bankruptcy Code. As of even date, the preferred securities of Lehman Holdings are substantially worthless.
Fannie Mae
In September 2004, the Office of Federal Housing Enterprise Oversight (“OFHEO”) announced that the Federal National Mortgage Association (“Fannie Mae”) was under investigation for engaging in deceptive accounting practices. Subsequently, in December 2004, Fannie Mae announced a $6.3 billion restatement of its earnings, the largest restatement in American history, and in May 2006, announced a $400 million settlement with securities regulators and the OFHEO for violating certain accounting standards.
In November 2007, Fannie Mae announced its results of operations for the third quarter of 2007, and reported a loss of $900 million. Fannie Mae reported $56.2 billion in subprime and Alt-A loans, and for the period ended September 30, 2007, reported a $8.7 billion decline in the value of its assets.
In a November 9, 2007 conference call with securities analysts, Fannie Mae President and Chief Operating Officer, Daniel H. Mudd, told investors that the Company had approximately $3 trillion dollars at risk in residential home mortgages, and that the Company had reserves of approximately $41 billion.
On December 4, 2007, Fannie Mae announced that the Company would reduce its dividend, and in February 2007, the Company, citing continued deterioration in the housing market and an increase in its credit loss experience, reported a $7.1 billion decline in the value of its assets and a net loss of $2.1 billion.
In July 2008, several investment analysts reported that Fannie Mae would require an additional $46 billion in capital, following a report by the Federal Reserve that suggested that the company was insolvent. On September 7, 2008, federal regulators seized control of Fannie Mae, and notwithstanding that Claimants liquidated their Fannie Mae shares in July 2008, as of even date, these securities are also substantially worthless.
Freddie Mac
Similarly, as early as 2004, The Federal Home Loan Mortgage Company (“Freddie Mac”) was the subject of warnings that the Company was taking on excessive risk in subprime and Alt-A loans. Both the Wall Street Journal and the New York Times reported that in mid 2004 it was widely known that Freddie Mac?s underwriting standards were becoming “shoddy” and that the Company?s lending practices “would likely pose an enormous financial and reputational risk to the Company.”
In November 2007, Freddie Mac announced a third quarter loss of $2 billion due to the Company?s “deteriorating mortgage portfolio.” In a November 20, 2007 conference call with securities analysts, the Company stated that it was expecting a $10 to $12 billion in credit losses in 2008 and 2009. Subsequently, OFHEO reported that Freddie Mac “had fallen below the capital level required to maintain safety and soundness and was in danger of being ordered to cease and desist buying mortgages until it replenished its capital base.
On September 7, 2008, federal regulators seized control of Freddie Mac, and notwithstanding that Claimants sold their Freddie Mac shares in July 2008, as of even date, these securities are also substantially worthless.
Guiliano Law Group
Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
