New York Securities Lawyer Blog

Published on: April 2, 2007

Reviewing Arbitrators’ Prior Awards in Securities Arbitration

One of the most important aspects of securities arbitration proceedings is choosing your arbitrators. It is more art than science. Securities arbitration attorneys ought to spend a ton of time researching and vetting potential panel members. This includes not only reviewing prior awards but assessing value to said awards.

It is essential that attorneys review all of the arbitrators’ prior awards, not just the ones from the NASD. NYSE and AAA awards are available from the Securities Arbitration Commentator. NYSE awards are available on the NYSE website and on Westlaw.

Attorneys should not just review the awards from securities cases. Employment awards may be important too. For example, whether an arbitrator has awarded punitive damages in an employment case would be important to know.

Published on: April 1, 2007

Securities Arbitration Attorneys Should Bring These Five Things To The Hearing

By Rich, Intelisano & Katz

We are often asked what materials an attorney should bring to a large and complex, customer versus brokerage firm, securities arbitration hearing besides evidentiary documents. Below is a list of five things every practitioner should not be without:

1. Exhibit Binders and Tabs

You’d be surprised how many attorneys come to arbitration proceedings without bringing binders and tabs for the arbitrators to hold exhibits. It’s a mistake. Arbitrators appreciate the organized presentation of exhibits. Bring one for opposing counsel and a witness binder as well.

Published on: March 13, 2007

Mortgage Securities Fraud? We Shall See

By Rich, Intelisano & Katz

The stock market has been tumbling since announcements by HSBC and other banks that there is great concern about exposure to subprime mortgage defaults. Could this be the beginning of a potential giant mortgage securities fraud investigation? Maybe.

Subprime mortgages are loans given to potential home buyers who are not creditworthy or have almost no cash to put down as collateral. According to some reports, up to 35 percent of all mortgage securities issued in 2006 were of the subprime variety which to us seems very high.

These subprime mortgages are then packaged with investment grade mortgages and sold as securities by banks to investors. The loan originators, banks, attorneys and everyone else who is involved have been reaping huge returns in recent years on mortgage securities. However, owners of pooled mortgage securities only mark the securities to market when a rating agency changes its rating. There are whispers on the Street that institutional investors may be reporting inflated values for their pooled mortgage securities.

Published on: March 9, 2007

Stockbroker Fraud in Trusts Can Be Caught By Trustees By Investigating

By Rich, Intelisano & Katz

Trustees have fiduciary duties to trusts. When stockbroker fraud has potentially been committed in a trust, what should the trustee do? Investigate.

A trustee has the duty to investigate red flags of fraud or wrongdoing by stockbrokers and to pursue any legitimate claims for the trust’s benefit. Failure to investigate may make the trustee liable to the trust’s beneficiaries.

Trustees should review the brokerage statements and new account documents of the trust’s brokerage account immediately. If the trustee does not have the expertise to decipher potential fraud, he should speak to an attorney who represents investors in securities fraud cases. If there’s a claim, the trustee should commence an arbitration.

Published on: March 7, 2007

Stockbroker Fraud of Seniors Can Be Caught By Reviewing Their Monthly Statements

By Rich, Intelisano & Katz

I received two very similar telephone calls this week from baby boomers who were worried that their elderly parents may have been the victim of stockbroker fraud by major Wall Street brokerage firms. Both of them had just learned of the issue.

Ordinarily, we would analyze the brokerage statements and the facts and decide whether the seniors had viable claims. However, there was a problem. The potential stockbroker fraud activity occurred as early as 1999. The children did not know about the issues because the elderly parents never shared their financial information with their grown children.

Huge mistake. There are various statutes of limitations or eligibility rules which can bar investors from bringing claims against brokerage firms. In these two matters, the seniors may have had potential claims but we decided not to take either case because the facts took place many, many years ago.

Published on: March 3, 2007

Securities Fraud Charges Lodged By SEC Against UBS, Morgan Stanley and Bear Stearns Employees for Insider Trading

By Rich, Intelisano & Katz

We thought huge, brazen insider trading cases went out with Gordon Gekko and Ivan Boesky in the eighties. Apparently not. The SEC charged 14 defendants with securities fraud in one of the boldest insider trading rings in recent years. A total of $15 million was misappropriated.

UBS, Morgan Stanley and a few hedge funds were front and center. Mitchel Guttenberg, an executive director of research at UBS, allegedly provided inside information about UBS research analysts changing opinions on stocks to a hedge fund manager named Erik Franklin. Not only did Franklin trade on the inside information since 2001, his broker buddies at Bear Stearns did too.

Meanwhile, at Morgan Stanley, a lawyer in the compliance department allegedly tipped off her attorney husband and a high school friend about impending mergers. They traded on the inside information and also tipped the same broker buddies at Bear Stearns. The SEC figured out the overlapping schemes because of unusual trading in Adobe, one of the stocks involved in a merger handled by Morgan.

Published on: March 2, 2007

Hedge Fund Fraud Ruling Against Bear Stearns Costs Firm $125 Million

By Rich, Intelisano & Katz

Bear Stearns was ordered to pay at least $125 million by a New York bankruptcy judge for failing to disclose to investors that Manhattan Investment Fund was committing hedge fund fraud and the firm was instead accepting Manhattan’s funds to cover Bear’s margin exposure. This is a huge decision.

For many years, clearing firms and prime brokers have enjoyed significant protection from the courts when one of their clients have committed securities fraud. The firms have always argued: “all we were doing was clearing trades and providing margin.” The firms forgot to add “and minting money.”

Wall Street firms earn up to $10 billion in prime brokerage revenue each year. A big portion of this is from hedge funds. All the while, firms have been primarily shielded from potential liability when a fund blows up due to hedge fund fraud. The Manhattan decision may change that. Now, when a prime broker sees red flags of potential fraud by a hedge fund it does business with, it better start doing some due diligence.