The Investor's Lawyer - by Georgia Securities Lawyer Joel Beck

New Rules for Money Market Funds

At the end of January, the SEC approved new rules relating to money market funds in response to the recent financial crisis, including the Reserve Primary Fund's breaking the buck in September 2008. A fund breaks the buck when its NAV (net asset value) drops below a dollar.  Typically, money market funds make it a goal to keep their NAV at $1.00. 

According to the SEC's release, the new rules, which are not yet final and effective, will focus on a few areas:

    * Improved liquidity:  the rules will have both daily and weekly liquidity requirements for the funds, with rules regarding maturities as well as restrictions from investing in illiquid securities.

    *Credit quality: the rules will place restrictions on a fund's ability to purchase lower credit quality securities.

    * "Know Your Investor" Procedures: The rules will require fund manager's to hold liquid securities to meet expected or foreseeable redemptions.  That will require funds to identify investors "whose redemption requests may pose risks for funds." 

In addition to these, the rules will cover other areas, including certain required disclosures to publish holdings to the fund's website for investors or potential investors to see. 

New Year's Resolutions for Investors

From time to time, folks ask me for tips on how they can keep from becoming a victim of stockbroker fraud.  Here's a few.  If you don't practice these, then these are resolutions you'll want to keep this year.

1.  Know who you're dealing with.  Before working with a stockbroker or an investment advisor, check them out.  If their with a broker-dealer, check out their BrokerCheck report, for free, at www.finra.org.  If they are with an investment advisor firm, check them out with your state and/or the SEC, and also obtain a copy of their Form ADV.  These reports will let you know if they are registered (licensed) to do business in your state, and also tell you about other things such as regulatory actions, certain customer complaints and arbitration claims or lawsuits against them.

2.  Make sure you understand the proposed investments.  If you can't explain it to someone, do you think you ought to invest in it - with your own money. 

3.  Keep your eyes open.  One of the worst things you can do, especially in a bad market, is to bury your head in the sand.  Open your account statements and review them.  Make sure you understand what is going on in your account, and make sure that you have authorized all of the purchases and sales of investments from your account.

4.  Be careful about "off the book" investments.  If your broker asks you to make a check for an investment payable to someone or something other than the firm, get more details.  Make sure the investment is approved by the firm, and that the broker is not selling away. 

5.  If you have questions or concerns about your account, get them answered.  This may include talking to someone at the firm other than your broker, such as a branch manager or a compliance department representative.  If something is troubling you, check it out.  And if you get an unsatisfactory answer, keep following up.  Its your money. 

Ponzi Schemes up in 2009

According to an AP report over at Investmentnews.com, the number of busted ponzi schemes more than tripled in 2009, with more than 150 ponzi scheme collapsing in 2009, compared to about 40 in 2008.  The financial meltdown certainly attributed to more scams falling apart.  Perhaps the financial crisis also attributed to more investors falling for these scams, as they looked for alternative investments and were perhaps wooed into their investment by guarantees of safety and/or a guaranteed return on their investment. 

Investors should do their homework before investing.  Read this post for more information on ponzi schemes and how to help keep from becoming a victim. 

FINRA Warns of Green Energy Investment Scams

FINRA issued an Investor Alert yesterday advising investors to be watchful regarding investments related to green energy including companies that promise significant gains from their work in alternative, renewable or waste energy products.  The Alert details how some of these schemes are working, including attracting attention through Twitter and text messages, etc. 

As always,investors should understand fully the products in which they are investing, and should always be wary of tips that point to a scam or an unsuitable investment for them.

SEC Launches Investor.gov Website

The SEC recently launched a new website, www.investor.gov, designed to provide investors with information on investing wisely and avoiding fraud.  According to the SEC's press release making the announcement, it is the SEC's first website devoted exclusively to investor education.  The site provides tools and calculators to help investors made wise choices, as well as provides information to help investors identify a potentially fraudulent investment. 

Schwab Reports Receipt of "Wells" notice from SEC regarding YieldPlus Funds

For those following the Schwab YieldPlus case, Schwab reported last week in SEC filings that it received a "Wells" notice from the SEC.  A "Wells" notice is issued to advise a potential defendant that the SEC staff intends to recommend that the SEC take action for alleged violations of the securities laws or the SEC's rules, in either an administrative proceeding before the SEC, or in a US District Court.  The Wells notice was reported online at the WSJ here.  Its too early to tell, but this may prompt Schwab to change its approach to responding to the class action lawsuit against it for the YieldPlus fund, as well as the individual arbitration claims filed against it by investors.   

Schwab YieldPLus Class Notice Issued

Recently the US District Court for the Northern District of California allowed the Notice of Pendency of the class action lawsuit to be issued in the Schwab YieldPlus case.  The notice can be found online here.  The notice sets forth the scope of the class members and the date by which opt-out notices must be filed with the class administrator.  All class members should review the notice carefully and consider their options.  Some class members may choose to opt out of the class and proceed with their own case, oftentimes in FINRA arbitration.  If you are a class member who has lost a significant sum in the YieldPlus fund, you should immediately consult with a competent securities attorney about your options. 

SEC Files Action Against Frank Bluestein In Connection With Ed May Ponzi Scheme

The SEC announced earlier this week that it filed civil charges against former broker and investment adviser Frank Bluestein in connection with the Edward May ponzi scheme.  According to the SEC's press release, Blustein was the largest seller of the ponzi scheme, raising about $74 Million from over 800 investors.  The SEC alleges that Blustein targeted elderly and/or retired folks to purchase the "investment" and recommended that some of them refinance their homes to gain access to funds to make an investment.  The Complaint alleges that Bluestein pitched these investments as safe and guaranteed and that he had completed sufficient due diligence to check out the issuer and the investment, when he had not. The SEC's Complaint can be found here.

Don't become a victim in a scheme such as this.  Be wary of purchasing investments from a broker that do not go through the brokerage firm.  And, be wary of an investment that sounds too good to be true.  In a;most every circumstance, large gains don't come from low-risk, safe and guaranteed investments. 

New Federal Agency to Protect Consumers in Financial Matters Being Considered

Last week draft legislation to create the Consumer Financial Protection Agency began circulating.  This new federal agency's mission would be to stand up for the consumers with respect to financial markets regulation.  Among other things, the draft legislation would require the new agency to coordinate with existing regulators such as the SEC and the CFTC , as well as to maintain a central database of customer complaints relating to financial products and services, and to track the resolution of those complaints.  This new agency would coordinate rule-making efforts with the SEC and CFTC and imposes requirements for reports on initiates, regulation, and trends in complaints to be sent to the President and Congressional oversight committees.  The bill, currently before the House Financial Services Committee, might come before the House in November. 

Court Certifies Class for Schwab YieldPlus Class Action Lawsuits

On August 21, 2009, the United States District Court for the Northern District of California entered an order certifying the class in the class action lawsuits against Charles Schwab relating to the YieldPlus fund.  The plaintiffs in the class action suits have alleged that Schwab misrepresented the fund's risk profile and improperly changed the fund's investment policies, in violation of the laws, causing damage to investors when the fund declined significantly in value.  Numerous investors have brought individual arbitration claims against Schwab for these and other allegations.  Those arbitration cases are before FINRA Dispute Resolution.

If you were an investor in the Schwab YieldPlus fund and suffered damages, you should carefully consider your options to determine whether you should opt-out of the class action cases and pursue your own case.  The Beck Law Firm, LLC is representing investors who lost funds in the YieldPlus fund.  If you were a YieldPlus investor, contact us today for a complimentary consultation.