Municipal Securities - Russell L. Forkey

Oriental Financial Services Corp. – South Florida Unsuitable Puerto Rico Bond Investment FINRA Arbitration Attorney

Russell L. Forkey — Sun, 23 Aug 2015 01:20:44 GMT

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Oriental Financial Services Corp. (CRD #29753, San Juan, Puerto Rico)submitted an AWC in which the firm was censured, fined $245,000 and undertakes to submit to FINRA a proposed methodology of how it will identify, review and remediate unsuitably concentrated Puerto Rico (PR) securities purchases. At a minimum, the methodology must include the firm’s review of customers’ concentrated PR securities purchases effected between December 14, 2012, and June 30, 2013, and a provision explaining how restitution, if any, will be calculated. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that the firm reported to FINRA on Form 4530 that it had not disclosed on customer confirmations the markups and markdowns for riskless principal transactions in PR closed-end funds (PR CEFs).

The findings stated that between 2000 and August 5, 2013, the firm effected approximately 2,800 riskless principal transactions involving PR closed-end funds (CEFs) in approximately 1,000 accounts and failed to disclose approximately $2.9 million in markups and markdowns on customer trade confirmations. The findings also stated that the firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with Securities Exchange Act of 1934 Rule 10b-10. The firm’s staff did not appropriately classify PR CEFs as equity securities and its supervisory staff were therefore unaware that the disclosure requirement for riskless principal transactions in equity securities applied to PR CEFs throughout the 13-year time period. The firm failed to have a system in place to ensure that it disclosed markups and markdowns on riskless principal transactions in PR CEFs because it failed to appropriately classify those products as equities that required disclosures. The findings also included that the firm failed to establish, maintain, and enforce a supervisory system and procedures reasonably designed to identify and review concentrated securities purchases, including PR municipal bonds and PR CEFs. The firm’s registered representatives continued soliciting concentrated purchases of PR securities even after a municipal bond rating downgrade of the general obligation rating of the Commonwealth of Puerto Rico. While the firm’s WSPs required that its registered representatives have reasonable grounds to believe that any purchase or sale recommendation was suitable for a particular customer, the WSPs did not outline the steps that the firm should have taken to review the transactions for concentration. Despite having implemented guidelines, the firm did not require that supervisors review for concentrated purchases (i.e., concentration in a single security, substantially similar securities, or securities of a single geographic region), including PR securities, or document their reviews. The firm engaged a consultant to perform a self-review through which it identified six potentially unsuitable purchases of PR securities. (FINRA Case#2013035308801).

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Newbridge Securities Corporation – Boca Raton, Florida Corporate and Municipal Bond Abuse FINRA Arbitration Attorney

Russell L. Forkey — Sun, 23 Aug 2015 01:03:19 GMT

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Newbridge Securities Corporation (CRD #104065, Ft. Lauderdale, Florida)submitted an AWC in which the firm was censured, fined $138,000 and required to revise its WSPs. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it sold (bought) corporate bonds to (from) customers, and failed to sell (buy) such bonds at a price that was fair, taking into consideration all relevant circumstances, including market conditions with respect to each bond at the time of the transaction, the expense involved and that the firm was entitled to a profit. The findings stated that in transactions for or with a customer, the firm failed to use reasonable diligence to ascertain the best inter-dealer market, and failed to buy or sell in such market so that the resultant price to its customer was as favorable as possible under prevailing market conditions. The firm failed to execute orders fully and promptly.

The findings also stated that the firm’s supervisory system did not provide for supervision reasonably designed to achieve compliance with respect to the applicable securities laws and regulations, and FINRA rules. The firm’s supervisory system did not include WSPs providing for any of the four minimum requirements for adequate WSPs regarding corporate bond best execution, sales transactions, OATS, trade reporting, other trading rules (related to clearly erroneous trades), and other rules. The firm failed to provide documentary evidence that on the trade dates reviewed it performed the supervisory reviews set forth in its WSPs concerning order handling, best execution, anti-intimidation/coordination, trade reporting, other rules, automated order handling under SEC Rules611(a) and (c) of Regulation NMS, sales transactions, other trading rules, other trading rules(related to clearly erroneous trades) and OATS. (FINRA Case #2009019877901). To review the complete release, please follow the above link.

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Edward Jones to Pay 20 Million for Overcharging Retail Customers in Municipal Bond Underwritings – Boca Raton, Florida FINRA Arbitration Attorney

Russell L. Forkey — Tue, 18 Aug 2015 01:09:28 GMT

Edward Jones to Pay 20 Million for Overcharging Retail Customers in Municipal Bond Underwritings – Boca Raton, Florida FINRA Arbitration Attorney

Edward Jones to Pay $20 Million for Overcharging Retail Customers in Municipal Bond Underwritings

The Securities and Exchange Commission recently announced that St. Louis-based brokerage firm Edward Jones and the former head of its municipal underwriting desk have agreed to settle charges that they overcharged customers in new municipal bonds sales. It’s the SEC’s first case against an underwriter for pricing-related fraud in the primary market for municipal securities. The firm also was charged with separate misconduct related to supervisory failures in its review of certain secondary market municipal bond trades.

Municipal bond underwriters are required to offer new bonds to their customers at what is known as the “initial offering price,” which is negotiated with the issuer of the bonds. An SEC investigation found that instead of offering bonds to customers at the initial offering price, Edward Jones and Stina R. Wishman took new bonds into Edward Jones’ own inventory and improperly offered them to customers at higher prices. In other instances, Edward Jones entirely refrained from offering the bonds to its customers until after trading commenced in the secondary market, and then offered the bonds at prices higher than the initial offering prices. The firm’s customers paid at least $4.6 million more than they should have for new bonds. In one instance, the misconduct resulted in an adverse federal tax determination for an issuer and put it at risk of losing valuable federal tax subsidies.

Edward Jones agreed to settle the case by paying more than $20 million, which includes nearly $5.2 million in disgorgement and prejudgment interest that will be distributed to current and former customers who were overcharged for the bonds. Wishman agreed to pay $15,000 and will be barred from working in the securities industry for at least two years.

“Edward Jones undermined the integrity of the bond underwriting process by overcharging retail customers by at least $4.6 million and by misleading municipal issuers,” said Andrew J. Ceresney, Director of the SEC Enforcement Division. “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.”

According to the SEC’s order instituting a settled administrative proceeding against Edward Jones, the firm’s supervisory failures related to dealer markups on secondary market trades that involved the firm purchasing municipal bonds from customers, placing them into its inventory, and selling them to other customers often within the same day. Because of the short holding periods, the firm faced little risk as a principal and almost never experienced losses on these intraday trades. The SEC’s investigation found that Edward Jones’ supervisory system was not designed to monitor whether the markups it charged customers for certain trades were reasonable.

“Because current rules do not require dealers to disclose markups on municipal bonds, investors receive very little information about their dealer’s compensation in municipal bond trades,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. “It is therefore important that firms have adequate supervisory systems to ensure that they are complying with their fair pricing obligations.”

Edward Jones consented to the SEC order without admitting or denying the findings that the firm willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933, Section 15B(c)(1) of the Securities Exchange Act of 1934, and Rules G-17, G-11(b) and (d), G-27, and G-30(a) of the Municipal Securities Rulemaking Board (MSRB). The firm also failed reasonably to supervise within the meaning of Section 15(b)(4)(E) of the Exchange Act. Edward Jones undertook a number of remedial efforts and now discloses the percentage and dollar amount of markups on all fixed income retail order trade confirmations in principal transactions.

Wishman consented to a separate SEC order without admitting or denying the findings that she willfully violated Sections 17(a)(3) of the Securities Act, MSRB Rules G-17, G-11(b) and (d), and G-30(a). She also was a cause of Edward Jones’ violations of Section 17(a)(2) of the Securities Act and Section 15B(c)(1) of the Exchange Act.

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Corporate and High Yield Bonds – South Florida Corporate and High Yield Bond Breach of Fiduciary Duty and Unsuitability FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 21 Mar 2014 10:57:23 GMT

Corporate and Corporate High Yield Bond Breach of Fiduciary, Unsuitability, Churining and Unauthorized Purchase and Sale FINRA Arbitration, Litigation and Probate Attorney:

If you are considering or if your account executive or investment advisor is soliciting you to purchase, hold or sell a corporate bond, you may wish to read this post to refresh your understanding of corporate bonds or, if you are an unsophisticated invesotr, arm youself with questions to ask your investment professional.

What Are Corporate Bonds?

A bond is a debt obligation, like an iou. Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures. To understand bonds, it is helpful to compare them with stocks. When you buy a share of common stock, you own equity in the company and will receive any dividends declared and paid by the company. When you buy a corporate bond, you do not own equity in the company. You will receive only the interest and principal on the bond, no matter how profitable the company becomes or how high its stock price climbs. But if the company runs into financial difficulties, it still has a legal obligation to make timely payments of interest and principal. The company has no similar obligation to pay dividends to shareholders. In a bankruptcy, bond investors have priority over shareholders in claims on the company’s assets to be distributed, if any.

Like all investments, bonds carry risks. One key risk to a bondholder is that the company may fail to make timely payments of interest or principal. If that happens, the company will default on its bonds. This “default risk” makes the creditworthiness of the company-that is, its ability to pay its debt obligations on time-an important concern to bondholders. As set forth below, this default risk has an effect on bond prices.

What are the basic types of corporate bonds?

Corporate bonds issued by listed and non-listed companies make up one of the largest components of the U.S. bond market, which is considered the largest securities market in the world. Other components include U.S. Treasury Bonds, other U.S. government bonds, and municipal bonds.

Companies use the proceeds from bond sales for a wide variety of purposes, including buying new equipment, investing in research and development, buying back their own stock, paying shareholder dividends, refinancing debt, including other bond series, and financing mergers and acquisitions. Call dates on a particular series of bonds are partially designed to assist in the refunding process.

There are a number of factors that you or your stockbroker in recommending the purchase or sale of a bond to you should take into consideration in determining whether a bond transaction is suitable for your investment objective and/or your asset mix. First, bonds can be classified according to their maturity, which is the date when the company has to pay back the principal to investors. Maturities can be short term (less than three years), medium term (four to 10 years), or long term (more than 10 years). Longer-term bonds usually offer higher interest rates, but may entail additional risks.

Second, bonds and the companies that issue them are also classified according to their credit quality. Credit rating agencies assign credit ratings based on their evaluation of the risk that the company may default on its bonds. Credit rating agencies periodically review their bond ratings and may revise them if conditions or expectations change. Based on their credit ratings, bonds can be either investment grade or non-investment grade. Investment-grade bonds are considered more likely than non-investment grade bonds to be paid on time. Non-investment grade bonds, which are also called high-yield or speculative bonds, generally offer higher interest rates to compensate investors for greater risk.

Third, bonds also differ according to the type of interest payments they offer. Many bonds pay a fixed rate of interest throughout their term. Interest payments are called coupon payments, and the interest rate is called the coupon rate. With a fixed coupon rate, the coupon payments stay the same regardless of changes in market interest rates. Other bonds offer floating rates that are reset periodically, such as every six months. These bonds adjust their interest payments to changes in market interest rates. Floating rates are based on a bond index or other bench-marks. For example, the floating rate may equal the interest rate on a certain type of Treasury Bond plus 1%. One type of bond makes no interest payments until the bond matures. These are called zero-coupon bonds, because they make no coupon payments. Instead, the bond makes a single payment at maturity that is higher than the initial purchase price. For example, an investor may pay $800 to purchase a five-year, zero-coupon bond with a face value of $1,000. The company pays no interest on the bond for the next five years, and then, at maturity, pays $1,000-equal to the purchase price of $800 plus interest, or original issue discount, of $200. Investors in zero-coupon bonds generally must pay taxes each year on a prorated share of the interest before the interest is actually paid at maturity.

What happens if a company goes into bankruptcy?

If a company defaults on its bonds and goes bankrupt, bondholders will have a claim on the company’s assets and cash flows. Consider what was just said. The bondholders will have a claim on and will not automatically receive the value of the bond. The bond’s terms determine the bond-holder’s place in line, or the priority of the claim. Priority will be based on whether the bond is, for example, a secured bond, a senior unsecured bond or a junior unsecured (or subordinated) bond. In the case of a secured bond, the company pledges specific collateral-such as property, equipment, or other assets that the company owns-as security for the bond. If the company defaults, holders of secured bonds will have a legal right to foreclose on the collateral to satisfy their claims, which collateral may or may not be sufficient to pay each bondholder in full. Bonds that have no collateral pledged to them are unsecured and may be called debentures. Debentures have a general claim on the company’s assets and cash flows. They may be classified as either senior or junior (subordinated) debentures. If the company defaults, holders of senior debentures will have a higher priority claim on the company’s assets and cash flows than holders of junior debentures. Bondholders, however, are usually not the company’s only creditors. The company may also owe money to banks, suppliers, customers, pensioners, and others, some of whom may have equal or higher claims than certain bondholders. Sorting through the competing claims of creditors is a complex process that unfolds in bankruptcy court.

What are the financial terms of a bond?

The basic financial terms of a corporate bond include its price, face value (also called par value), maturity, coupon rate, and yield to maturity. Yield to maturity is a widely used measure to compare bonds. This is the annual return on the bond if held to maturity taking into account when you bought the bond and what you paid for it.

A bond often trades at a premium or discount to its face value. This can happen when market interest rates rise or fall relative to the bond’s coupon rate. If the coupon rate is higher than market interest rates, for example, then the bond will likely trade at a premium.

What’s the relationship among bond prices, interest rates and yield?

It is important to remember that the price of a bond moves in the opposite direction than market interest rates-like opposing ends of a seesaw. When interest rates go up, the price of the bond goes down. And when interest rates go down, the bond’s price goes up. A bond’s yield also moves inversely with the bond’s price. For example, let’s say a bond offers 3% interest, and a year later market interest rates fall to 2%. The bond will still pay 3% interest, making it more valuable than newly issued bonds paying just 2% interest. If you sell the 3% bond, you will probably find that its price is higher than a year ago. Along with the rise in price, however, the yield to maturity for any new buyer of the bond will go down. Now suppose market interest rates rise from 3% to 4%. If you sell the 3% bond, it will be competing with new bonds that offer 4% interest. The price of the 3% bond may be more likely to fall. The yield to maturity for any new buyer, however, will rise as the price falls. It’s important to keep in mind that despite swings in trading price with a bond investment, if you hold the bond until maturity, the bond will continue to pay the stated rate of interest as well as its face value upon maturity, subject to default risk.

What are some of the risks of corporate bonds?

Credit or default risk:

Credit or default risk is the risk that a company will fail to timely make interest or principal payments and thus default on its bonds. Credit ratings try to estimate the relative credit risk of a bond based on the company’s ability to pay. Credit rating agencies periodically review their bond ratings and may revise them if conditions or expectations change.

The corporate bond contract (called an indenture) often includes terms called covenants designed to limit credit risk. For instance, the terms may limit the amount of debt the company can take on, or may require it to maintain certain financial ratios. Violating the terms of a bond may constitute a default. The bond trustee monitors the company’s compliance with the terms of its indenture. The trustee acts on behalf of the bondholders and pursues remedies if the bond covenants are violated.

Interest rate risk:

As discussed above, the price of a bond will fall if market interest rates rise. This presents investors with interest rate risk, which is common to all bonds, even U.S. Treasury Bonds. A bond’s maturity and coupon rate generally affect its sensitivity to changes in market interest rates. The longer the bond’s maturity, the more time there is for rates to change and, as a result, affect the price of the bond. Therefore, bonds with longer maturities generally present greater interest rate risk than bonds of similar credit quality that have shorter maturities. To compensate investors for this interest rate risk, long-term bonds generally offer higher interest rates than short-term bonds of the same credit quality. If two bonds offer different coupon rates while all of their other characteristics are the same, the bond with the lower coupon rate will generally be more sensitive to changes in market interest rates. For example, imagine one bond that has a coupon rate of 2% while another bond has a coupon rate of 4%. All other features of the two bonds-when they mature, their level of credit risk, and so on-are the same. If market interest rates rise, then the price of the bond with the 2% coupon rate will fall by a greater percentage than that of the bond with the 4% coupon rate. This makes it particularly important for investors to consider interest rate risk when they purchase bonds in a low-interest rate environment.

Inflation risk:

Inflation is a general rise in the prices of goods and services, which causes a decline in purchasing power. With inflation over time, the amount of money received on the bond’s interest and principal payments will purchase fewer goods and services than before.

Liquidity risk:

Liquidity is the ability to sell an asset, such as a bond, for cash when the owner chooses. Bonds that are traded frequently and at high volumes may have stronger liquidity than bonds that trade less frequently. Liquidity risk is the risk that investors seeking to sell their bonds may not receive a price that reflects the true value of the bonds (based on the bond’s interest rate and credit- worthiness of the company). If you own a bond that is not traded on an exchange, you may have to go to a broker when you want to sell it. In addition, the bond market does not have the same pricing transparency as the equity market, as the dissemination of pricing information is more limited for corporate bonds in comparison to equity securities such as common stock.

Call risk:

The terms of some bonds give the company the right to buy back the bond before the maturity date. This is known as calling the bond, and it represents “call risk” to bondholders. For example, a bond with a maturity of 10 years may have terms allowing the company to call the bond any time after the first five years. If it calls the bond, the company will pay back the principal (and possibly an additional premium depending on when the call occurs). One reason the company may call the bond back is if market interest rates have fallen relative to the coupon rate on the bond. That same decline in market interest rates would likely make the bond more valuable to bondholders. Thus, what is financially advantageous to the company is likely to be financially disadvantageous to the bondholder. Bondholders may be unable to reinvest at a comparable interest rate for the same level of risk. Investors should check the terms of the bond for any call provisions or other terms allowing for prepayment.

How can investors reduce their risks?

Investors can reduce their overall investment risks by diversifying their assets, if they so choose. Bonds are one type of asset, along with shares of stock (or equity), cash, and other investments. Investors also can diversify the types of bonds they hold. For example, investors could buy bonds of different maturities-balancing short-term, intermediate, and long- term bonds-or diversify the mix of their bond holdings by combining corporate, treasury, or municipal bonds. Investors with a greater risk tolerance may decide to buy bonds of lower credit quality, accepting higher risks in pursuit of higher yields. More conservative investors, however, may prefer to limit their bond holdings solely to high-quality bonds, avoiding riskier or more speculative bonds. Instead of holding bonds directly, investors can invest in mutual funds or exchange-traded funds (ETFs) with a focus on bonds. Investors should base their decisions on their individual circumstances.

How do I research my bond or bond fund investment?

A prospectus is the offering document filed with the SEC by a company that issues bonds for sale to the public in a registered transaction. Among other things, the prospectus relating to a corporate bond issuance describes the terms of the bond, significant risks of investing in the offering, the financial condition of the company issuing the bond, and how the company plans to use the proceeds from the bond sale. Similarly, if you are investing in a bond-focused mutual fund or ETF, these funds also prepare prospectuses detailing important information about the fund. Investors can ask their broker-dealer for the prospectus of any bond or bond fund in which they are interested. Prospectuses also are available to the public without charge on the SEC’s Edgar website. You can also find a bond fund’s prospectus at the bond fund’s website. Additionally, if you are considering purchasing a private company bond, you should make sure that you receive the same type of information that you are entitled to receive in a registered offering.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, you should consult a qualified expert.

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At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Face Value of Bonds, Notes and Other Securities – Florida Securities and Investment Mismanagement and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 01 Jan 2014 21:21:01 GMT

Face Value of Bonds, Notes and Other Types of Securities – South Florida FINRA Arbitration and Litigation Attorney:

When using the term “Face Value” in referring to a security, it means the value as given on the certificate or instrument. For example, corporate bonds are usually issued with $1,000 face values, municipal bonds with $5,000 face values and federal government bonds with $10,000 face values. If these instruments are held to maturity, the investor, absent default, would receive the face value of the instrument. This is not necessarily true if the instrument is sold before maturity as the value of the bonds fluctuate in price from the time that they are issued until redemption. This price fluctuation is based upon a number of factors, including the credit worthiness of the issuer, the interest rate carried by the bond and the length of time until maturity.

Please keep in mind that this information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, you should contact a qualified professional.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

Common Stock, Preferred Stock, Corporate Bonds, Municipal Bonds, ETF’s and Mutual Funds – South Florida Securities and Investment Fraud, Negligence and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 06 Nov 2013 12:08:40 GMT

Common Stocks, Preferred Stocks, Corporate Bonds, Municipal Bonds, Promissory Notes, Exchange-Traded Funds (ETF’s), and Mutual Funds – South Florida Securities and Investment Fraud, Negligence and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney:

The elements of a breach of fiduciary duty action are (1) the existence of a fiduciary duty and (2) the breach of that duty that was the proximate cause of the plaintiff’s damages. A fiduciary relationship exists when confidence is reposed by one party and trust accepted by the other. Such a relationship exists where confidence is reposed on one side and there is resulting superiority and influence on the other. When a fiduciary relationship has not been created by an express agreement, the question of whether the relationship exists generally depends upon the specific facts and circumstances surrounding the relationship of the parties in a transaction in which they are involved.

The law is clear that a broker owes a fiduciary duty of care and loyalty to a securities investor. The type and extent of this duty is fact specific. In other words, your relationship with, in the case, your broker/dealer and/or account executive will be determinative of the type of duty that you are owed. However, please keep in mind that the extent of this duty is organic. It is constantly changing. It is for this reason that your specific circumstances need to be reviewed by a qualified professional.

Fiduciary duties associated with a non-discretionary account. A non-discretionary account is an account in which the customer rather than the broker determines which purchases and sales to make. In a non-discretionary account each transaction is viewed singly. In such cases the broker is bound to act in the customer’s interest when transacting business for the account; however, all duties to the customer cease when the transaction is closed. The duties associated with a non-discretionary account include, but may not necessarily limited to: (1) the duty to recommend a stock only after studying it sufficiently to become informed as to its nature, price and financial prognosis; (2) the duty to carry out the customer’s orders promptly in a manner best suited to serve the customer’s interests; (3) the duty to inform the customer of the risks involved in purchasing or selling a particular security; (4) the duty to refrain from self-dealing or refusing to disclose any personal interest the broker may have in a particular recommended security; (5) the duty not to misrepresent any fact material to the transaction; and (6) the duty to transact business only after receiving prior authorization from the customer.

Of course the precise manner in which a broker performs these duties will depend to some degree upon the intelligence and personality of his customer. For example, where the customer is uneducated or generally unsophisticated with regard to financial matters, the broker will have to define the potential risks of a particular transaction carefully and cautiously. Conversely, where a customer fully understands the dynamics of the stock market or is personally familiar with a security, the broker’s explanation of such risks may be merely perfunctory. In either case, however, the broker’s responsibility to his customer ceases when the transaction is complete. A broker has no continuing duty to keep abreast of financial information which may affect his customer’s portfolio or to inform his customer of developments which could influence his investments. Although a good broker may choose to perform these services for his customers, he is under no legal obligation to do so.

Absent from the above list is the duty, on the part of the broker, to engage in a particular course of trading. So long as a broker performs the transactional duties outlined above, he and his customer may embark upon a course of heavy trading in speculative stocks or in-out trading as well as upon a course of conservative investment in blue chip securities.

Unlike the broker who handles a non-discretionary account, the broker handling a discretionary account becomes the fiduciary of his customer in a broad sense. Such a broker, while not needing prior authorization for each transaction, must (1) manage the account in a manner directly comporting with the needs and objectives of the customer as stated in the authorization papers or as apparent from the customer’s investment and trading history; (2) keep informed regarding the changes in the market which affect his customer’s interest and act responsively to protect those interests; (3) keep his customer informed as to each completed transaction; and (5) explain forthrightly the practical impact and potential risks of the course of dealing in which the broker is engaged.

Although no particular type of trading is required of brokers handling discretionary accounts, most concentrate on conservative investments with few trades usually in blue chip growth stocks. Where a broker engages in more active trading, particularly where such trading deviates from the customer’s stated investment goals or is more risky than the average customer would prefer, the broker has an affirmative duty to explain the possible consequences of his actions to his customer. This explanation should include a discussion of the effect of active trading upon broker commissions and customer profits.

Between the purely non-discretionary account and the purely discretionary account there is a hybrid-type account which usually exists between most customers and their broker. Such an account is one in which the broker has usurped actual control over a technically non-discretionary account. In such cases the courts have held that the broker owes his customer the same fiduciary duties as he would have had the account been discretionary from the moment of its creation.

In Hecht v. Harris, 430 F.2d 1202 (9th Cir. 1970), the plaintiff, a 77 year old widow, opened a non-discretionary account with a major brokerage firm. Consistent with the practice in such accounts plaintiff received confirmation slips of each transaction and monthly statements on the status of her account. In addition, she spoke personally with the defendant broker several times a week. Nonetheless, the court held that the broker was liable to plaintiff for churning her account on the ground that he had traded excessively without informing plaintiff of the potential hazards involved in such a course of trading. Since the plaintiff was informed, for the most part, of the individual transactions in her account, the court’s holding assumed that the defendant owed plaintiff the additional fiduciary duty to explain the risks of pursuing a particular course of trading. That assumption derived from the court’s finding that the broker had taken full control over the plaintiff’s account and thus owed her those fiduciary duties normally associated with discretionary accounts.

In determining whether a broker has assumed control of a non-discretionary account the courts weigh several factors. First, the courts examine the age, education, intelligence and investment experience of the customer. Where the customer is particularly young, old, or naive with regard to financial matters, the courts are likely to find that the broker assumed control over the account. Second, if the broker is socially or personally involved with the customer, the courts are likely to conclude that the customer relinquished control because of the relationship of trust and confidence. Conversely, where the relationship between the broker and the customer is an arms-length business relationship, the courts are inclined to find that the customer retained control over the account. Third, if many of the transactions occurred without the customer’s prior approval, the courts will often interpret this as a serious usurpation of control by the broker. Fourth, if the customer and the broker speak frequently with each other regarding the status of the account or the prudence of a particular transaction, the courts will usually find that the customer, by maintaining such active interest in the account, thereby maintained control over it.

Importantly, the category which you fall in is not something that you should try to figure out yourself. You should attempt to make this determination in conjunction with a qualified professional.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as providing legal or investment advice. If you have any questions concerning this post, you should contact a qualified professional.

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Zero Coupon Bond or Security – Boca Raton, Florida Corporate and Municipal Bond and Stock FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Tue, 15 Oct 2013 10:50:36 GMT

Zero Coupon Bond (Security) – Fort Lauderdale, Boca Raton, Delray Beach and West Palm Beach, Florida Corporate and Municipal Bond and Stock Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

A Zero Coupon Bond (Security) is investment instrument that makes no periodic interest payments bust instead is sold at a deep discount from its face value. The buyer of the instrument receives the rate of return by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date.

There are many kinds of zero-coupon securities. The most commonly known is the zero-coupon bond, which either may be issued at a deep discount by a corporation or government entity or may be created by a brokerage firm when it strips the coupons off a bond and sells the corpus and the coupons separately.

Because zero-coupon securities bear no interest, they are the most volatile of all fixed-income securities. Since zero-coupon bondholders do not receive interest payments, zeros fall more dramatically than bonds paying out interest on a current basis when interest rates rise. However, when interest rates fall, zero-coupon securities rise more rapidly in value than full-coupon bonds, because the bonds have locked in a particular rate of reinvestment that becomes more attractive the further rates fall.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the contents of this post, you should contact a qualified professional.

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Registration Rules for Municipal Advisors – Florida Municipal Bond Litigation Attorney

Russell L. Forkey — Thu, 19 Sep 2013 23:57:43 GMT

SEC Approves Registration Rules for Municipal Advisors

The Securities and Exchange Commission recently voted to adopt rules establishing a permanent registration regime for municipal advisors as required by the Dodd-Frank Act. The rule is currently slated to become effective 60 days after publication in the Federal Register.

The Final Rule:

The Commission has adopted a final rule requiring municipal advisors to register with the SEC. In particular, the rule clarifies who is and isn’t a “municipal advisor” and offers guidance on when a person is providing “advice” for purposes of the municipal advisor definition.

The final rule exempts employees and appointed officials of municipal entities from registration, and narrows the application of the term “investment strategies” to apply only to the investment of proceeds from the sale of municipal securities rather than to all public funds.

Exemptions provided under the rule are based on the activities of the advisor rather than the type of market participant. The SEC staff believes this approach avoids giving certain market participants an inappropriate competitive advantage.

Additionally, instead of the proposed approach that would have required individuals associated with registered municipal advisory firms to register separately, the final rule requires these firms to furnish information about these individuals. The final rule also allows the SEC to censure these individuals if necessary.

Defined Terms:

The rule defines the following terms:

Advice. A person is providing “advice” to a municipal entity or an “obligated person” based on “all of the relevant facts and circumstances,” including whether the advice:

Involves a “recommendation” to a municipal entity.
Is particularized to the specific needs of a municipal entity.
Relates to municipal financial products or the issuance of municipal securities.

Advice, however, does not include giving out certain general information.

An “obligated person” essentially means an entity such as a non-profit university or non-profit hospital that borrows the proceeds from a municipal securities offering and is obligated by contract or other arrangement to repay all or some portion of the amount borrowed.

Investment Strategies. A person providing advice to a municipal entity or an “obligated person” with respect to “investment strategies” only has to register if such advice relates to:

The investment of proceeds of municipal securities.
The investment of municipal escrow funds.
Municipal derivatives.

Exemptions From the Municipal Advisor Definition:

To avoid confusion, the final rule clarifies exemptions from the municipal advisor definition for certain people engaging in specified activities.

The following people conducting the specified activities would not be required to register as a municipal advisor:

Public Officials and Employees. Public officials do not have to register to the extent that they are acting within the scope of their official capacity. This exemption addresses an unintended consequence of the original proposal that generated significant public comment and created the impression that public officials and municipal employees would be covered if they provide “internal” advice.

This exemption covers people serving as members of a governing body, an advisory board, a committee, or acting in a similar official capacity as an official of a municipal entity or an “obligated person.”

For instance, it covers:

• Members of a city council, whether elected or appointed, who act in their official capacity.

• Members of a board of trustees of a public or private non-profit university acting in their official capacity, where the university is an obligated person by virtue of borrowing proceeds of municipal bonds issued by a state governmental educational authority.

Similarly, this exemption covers employees of a municipal entity or an obligated person to the extent that they act within the scope of their employment.

Underwriters. Brokers, dealers, and municipal securities dealers serving as underwriters do not have to register if their advisory activities involve the structure, timing, and terms of a particular issue of municipal securities.

This exemption begins when the municipal issuer engages the underwriter on a particular transaction and would continue until the end of the underwriting period for that transaction.

The exemption does not apply to advice on investments of proceeds of municipal securities (or related municipal escrow investments in refinancings) or municipal derivatives. That is because this type of advice is outside the scope of underwriting the issuance of municipal securities and involves potential conflicts of interest.

Registered Investment Advisers. Registered investment advisers and associated persons do not have to register if they provide investment advice regarding the investment of the proceeds of municipal securities or municipal escrow investments. This exemption helps ensure the rule does not create duplicative regulation of investment advisers.

This exemption does not apply to advice on the structure, timing, and terms of issues of municipal securities or municipal derivatives. That is because advice in these areas is outside the focus of investment adviser regulation.

Registered Commodity Trading Advisor. Registered commodity trading advisors under CFTC rules and their associated persons do not have to register if the advice they provide relates to swaps. This exemption helps ensure the rule does not create duplicative regulation with existing CFTC regulation of swap advisers.

Attorneys. Attorneys do not have to register if they are providing legal advice or traditional legal services with respect to the issuance of municipal securities or municipal financial products.

This exemption does not apply to advice that is primarily financial in nature or to an attorney representing himself or herself as a “financial advisor” or “financial expert” on municipal advisory activities.

Engineers. Engineers do not have to register if they provide engineering advice such as feasibility studies and cash flow analysis and similar activities related to engineering aspects of a project.

This exemption does not apply to activities in which an engineer provides advice regarding municipal financial products or the issuance of municipal securities.

Banks. Banks do not have to register to the extent they provide advice on certain identified banking products and services (such as deposit accounts, extensions of credit, or bond indenture trustee services).

This tailored exemption does not apply to banks that:

• Engage in other municipal advisory activities such as providing advice on municipal derivatives or the issuance of municipal securities.

• Provide advice on municipal derivatives, in part because municipal derivatives were a source of significant losses by municipalities in the financial crisis.

Accountants. Accountants do not have to register if they are providing accounting services that include audit or other attest services, preparation of financial statements, or issuance of letters for underwriters.

Independent Registered Municipal Advisor. People who provide advice in circumstances in which a municipal entity has an independent registered municipal advisor with respect to the same aspects of a municipal financial product or issuance of municipal securities do not have to register, provided that certain requirements are met and certain disclosures are made.

Swap Dealers. Registered swap dealers under CFTC rules do not have to register as municipal advisors if they provide advice with respect to swaps in circumstances in which a municipal entity is represented by an independent advisor. This exemption helps ensure that the rule does not create duplicative regulation with existing CFTC regulation of swap dealers and recognizes a similar exemption under CFTC rules.

This exemption does not apply to swap dealers that engage in other municipal advisory activities such as providing advice on the issuance of municipal securities or the investment of the proceeds of municipal securities or municipal escrow investments.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the contents of this post, you should contact a qualified professional.

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False and Misleading Information Investment and Securities Fraud Florida Litigation and FINRA Arbitration Attorney

Russell L. Forkey — Tue, 17 Sep 2013 00:24:50 GMT

Securities and Exchange Commission Charges Operator of Miami-Dade County’s Largest Hospital with Misleading Investors about Financial Condition

The Securities and Exchange Commission (“Commission”) recently charged the operator of the largest hospital in Miami-Dade County with misleading investors about the extent of its deteriorating financial condition prior to an $83 million bond offering.

An SEC investigation found that the Public Health Trust, which is the governing authority for Jackson Health System, misstated present and future revenues due to breakdowns in a new billing system that inaccurately recorded revenue and patient accounts receivable. The Public Health Trust projected a non-operating loss in the official statement accompanying the bond offering in August 2009, but reported a figure that was more than four times lower than what was ultimately reported at the end of the 2009 fiscal year. The Public Health Trust also failed to properly account for an adverse arbitration award, and misrepresented that its financial statements were prepared according to U.S. Generally Accepted Accounting Principles (GAAP).

The Public Health Trust has agreed to settle the SEC’s charges.

According to the SEC’s order instituting settled administrative proceedings, the official statement accompanying the bond offering represented that the Public Health Trust (PHT) projected a $56 million non-operating loss for its fiscal year ending Sept. 30, 2009. Several months after the bonds were sold, external auditors discovered problems with the PHT’s patient accounts receivable valuation. This discovery required a large accounting adjustment to the reported net income, and the PHT ultimately reported a non-operating loss of $244 million for fiscal year 2009 – more than four times the projection made to bond investors.

The SEC’s order found that the PHT was aware of the rising level of patient accounts receivable and declining cash-on-hand prior to the bond offering, which caused concern among trustees and executive management. They raised questions about the accounts receivable amounts and collection rates that were used to calculate the PHT’s revenue figures. The $56 million non-operating loss amount included in the bond offering’s official statement was generated by the budget department using stale cash collection numbers amid the known problems with the new billing system. The budget department was not updating its collection rates in a timely fashion due to a lack of adequate communication among departments. Therefore, the PHT lacked a reasonable basis for its loss projection, and the official statement was materially misleading.

The SEC’s order also found that the PHT failed to properly account for a December 2008 arbitration award that negatively impacted patient accounts receivable in its 2008 audited financial statements that were attached to the bond offering’s official statement. The arbitration award required the PHT to pay a third-party receivables company $3.9 million in cash, and transfer to the company $360 million face amount of existing accounts receivable and $250 million face amount of future accounts receivable. The PHT failed to perform an analysis to determine the value of the replacement accounts receivable awarded to the third-party company. The analysis is required under the relevant accounting standards in order to evaluate whether to accrue an expense related to the arbitration award or disclose the arbitration award in the notes to its financial statements. Without the proper analysis, the PHT failed to accurately account for the arbitration award in the audited financial statements.

The SEC’s order directs the PHT to cease and desist from committing or causing any violations of Sections 17(a)(2) and (3) of the Securities Act of 1933. The PHT neither admitted nor denied the SEC’s findings. The Commission determined not to impose a monetary penalty due to the PHT’s current financial condition. The Commission also considered the PHT’s cooperation with the investigation and the remedial measures undertaken.

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Insured Municipal Bonds – Florida Municipal and Corporate Bond Investment Loss FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Tue, 27 Aug 2013 10:25:40 GMT

Insured Municipal Bond – South Florida Municipal and Corporate Bond Investment Loss and Default FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

Insured Municipal Bonds are insured against default be a Municipal Bond Insurance company such as MBIA and AMBAC Indemnity Corporation. The insurance company pledges to make all of the interest and principal payments, as they become due, if the issuer of the bonds defaults on its payment obligations. In return, the bond’s issuer pays a premium to the insurance company. Insured bonds usually trade based on the credit rating of the insurer rather than the rating of the underlying issuer, since the insurance company is ultimately at risk for the repayment of principal and interest. Insured bonds usually pay slightly lower yields, because of the cost of the insurance than comparable non-insured bonds.

However, the market value of the bond, especially intermediate and long term bonds, is effected by interest rates in much the same manner as non-rated bonds.

Please keep in mind that this information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the contents of this post, you should consult a qualified professional.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities, municipal and corporate bond law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

High Yield – Junk Bond – Florida Investment Loss Litigation and FINRA Arbitration Attorney

Russell L. Forkey — Fri, 23 Aug 2013 11:02:59 GMT

High Yield – Junk Bond Investment Loss – Florida Litigation and FINRA Arbitration Attorney:

A High Yield or Junk Bond is a bond with a credit rating of BB or lower by a recognized rating agency such as Fitch Ratings, Moody’s Investors Services, Morningstar Rating System and others. Although the term Junk Bond is commonly used, issuers and holders of such securities prefer the securities be call high yield bonds. Junk Bonds are usually issued by companies without long track records of sales and earnings, or by those with questionable credit strength. Since they are more volatile and pay higher yields than investment grade bonds, many risk-oriented investors specialize in trading them. The phrase “risk-oriented” being the operative term.

If you are an average investor, with fairly conservative investment objectives, these types of bonds are not for you. If you own these bonds, the current yield section of your statement, more likely than not, reflects a yield of around 10% or higher but compare that against the current market value. At the end of the day, especially when comparing the maturity of the bond to your age or when you might need the principal returned, what is more important, high risk yield or the protection of your principal.

Please keep in mind that the information being provided herein is for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, you should contact a qualified professional.

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Short-Term Bond Fund – South Florida Sock and Bond Investment Loss FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Thu, 22 Aug 2013 10:38:45 GMT

Short-Term Bond and Common Stock Investment Loss – South Florida FINRA Arbitration and Litigation Attorney:

A Short-Term Bond Fund is a bond mutual fund which invests in short-to-intermediate term bonds. Such bonds typically mature in 3 to 5 years and pay higher yields than the shortest maturity bonds of 1 year or less, which are held by ultra–short term bond funds. Short-term bond funds also usually pay higher yields than money market mutual funds, which buy short-term commercial paper maturing in 90 days or less. Short-term bond funds, while yielding less than long-terms bond funds, are also much less volatile, meaning that their value falls less when interest rates rise and rises less when interest rates fall.

Please keep in mind that the above information is being provided for educational purposes only. However, the focus on this article, especially based on the fact that it appears that higher interest rates are on the horizon, is that the duration of the bond and rising interest rates probably will have an adverse effect on the value of the bond. Notwithstanding the foregoing, this post is not designed to be complete in all material respects. Thus it should not be relied upon as providing legal or investment advice. If you have any questions concerning the contents of this post, please contact a qualified professional.

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High Yield Bonds – Florida Bond Investment Loss FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 14 Aug 2013 09:50:28 GMT

Corporate and Municipal Bond, Florida Investment Loss FINRA Arbitration and Commercial Litigation Attorney, Russell L. Forkey, Esq.

A High-Yield Bond can be issued by a private or public company, as well as various municipalities and other governmental units. Many of these High-Yield Bonds are also known as Junk Bonds. These types of bonds usually have a rating of BB or lower and pay a higher yield to compensate for their greater risk.

For example, in times of low interest rates such as are being experienced now, high-yield bonds seem attractive to investors that are seeking increased income as a means of supplementing their income. However, the trade-off is that the investor could end up suffering extreme loss of principal as a result of the business operations of the issuer or in times of rising interest rates.

If your stockbroker solicited you to invest in such an investment, especially if you were concerned with safety of principal, this may have been an unsuitable investment for you. Factors that the stockbroker should have taken into consideration in researching the investment, include the financial condition of the issuer, the source of funds that will be used to pay the bond obligations, the security, if any, associated with the bond, the duration of the bond obligation and the credit rating of the bond.

Please keep in mind that this information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions relative to this post, you should contact a qualified professional.

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Taxable Municipal Bond – Bond Investment Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 27 Jul 2013 12:11:34 GMT

Taxable Municipal Bond – South Florida Bond Investment Fraud, Mismanagement and Misrepresentation, FINRA Arbitration and Litigation Attorney:

A taxable municipal bond is a taxable debt obligation of a state or local governmental entity. Taxable municipal bond are issued as private purpose bonds to finance such projects as a sports stadium, as municipal revenue bonds where caps apply or as public purpose bonds where the 10% private use limitation has been exceeded.

A municipal revenue bond is a bond that is issued to finance various types of public work projects like bridges, tunnels or sewer systems and with payments to the bondholders coming directly from the revenues of the project. For example, if a municipal revenue bond is issued to build a bridge, the tolls collected from the motorists using the bridge are committed for paying of the bond. As with all bond issues, it is important to read the indenture establishing the bond for holders of municipal revenue bonds hove no claims on the issuer’s other income or assets unless stated otherwise in the indenture. Consequently, the risk associated with these types of bonds rise and fall with the economic viability of the project.

Please keep in mind that the above referenced information is being provided for educational purposes only. Thus, it is not designed to be complete in all material respects. It should not be relied upon for legal or investment advice. If the reader has any questions concerning the contents of this post, you should contact a qualified professional.

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Premium Bond – Florida Municipal, Corporate and Revenue Bond Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 26 Jul 2013 00:41:35 GMT

Municipal, Corporate and Revenue Bond – South Florida Breach of Fiduciary Duty, Breach of Contract and Negligence FINRA Arbitration and Litigation Attorney:

A premium bond is a bond (Corporate, Revenue and Municipal) with a selling price above face or redemption value. For example, a bond with a face value of $1,000 would be called a premium bond if it sold for $1,100. This price does not include any accrued interest due when the bond is purchased. When a premium bond is called before scheduled maturity, bondholders are usually paid more than face vale, though the amount may be less than the bond is selling for at the time of the call.

Please keep in mind that the above information is being provided for educational purposes only. Thus, it is not designed to be complete in all material respects. It should not be relied upon as legal or investment advice. If the reader has any questions concerning this post, you should contact a qualified professional.

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City of Miami and Michael Boudreaux – South Florida (Miami) Municipal Bond Offering Fraud and Misrepresentation Litigation and FINRA Arbitration Attorney

Russell L. Forkey — Fri, 19 Jul 2013 20:30:21 GMT

City of Miami and Michael Boudreaux – South Florida (Miami) Municipal Bond Offering Fraud and Misrepresentation Litigation and FINRA Arbitration Attorney:

Securities and Exchange Commission v. City of Miami, Florida, and Michael Boudreaux, Civil Action No. 1:13-cv-22600 (U.S. District Court for the Southern District of Florida, filed July 19, 2013)

The Securities and Exchange Commission announced that it recently charged the City of Miami and its former Budget Director with securities fraud in connection with several municipal bond offerings and other disclosures made to the bond investing public. The SEC’s action also charges the City with violating a 2003 SEC Cease-and-Desist Order which was entered against the City based on similar misconduct. This case is the SEC’s first ever injunctive action against a municipality already under an existing SEC cease-and-desist order.

The SEC alleges in its complaint that beginning in 2008, the City and Michael Boudreaux made materially false and misleading statements and omissions concerning certain interfund transfers in three 2009 bond offerings totaling $153.5 million, as well as in the City’s fiscal year 2007 and 2008 Comprehensive Annual Financial Reports (“CAFRs”) distributed to broad segments of the investing public, including investors in previously issued City debt. The interfund transfers moved monies from the City’s Capital Improvement Fund to its General Fund. Boudreaux orchestrated the transfers in order to mask the increasing deficits in the City’s General Fund, its primary operating fund, viewed by investors and bond rating agencies as a key indicator of financial health, at a time when the City was actively marketing bonds to the investing public.

The SEC’s complaint, which was filed in the United States District Court for the Southern District of Florida, alleges that the City, through Boudreaux, transferred a total of approximately $37.5 million from its Capital Improvement Fund and a Special Revenue Fund to the General Fund in 2007 and 2008 in order to mask increasing deficits in the General Fund. The SEC also alleges that the City and Boudreaux omitted to disclose to bondholders that the transferred funds included legally restricted dollars which, under City Code, may not be commingled with any other funds or revenues of the City. They also failed to disclose that the funds transferred were allocated to specific capital projects which still needed those funds as of the fiscal year end or, in some instances, already spent that money. The transfers enabled the City to meet or come close to meeting its own requirements relating to General Fund reserve levels. In the wake of the transfers, the City’s bond offerings were all rated favorably by credit rating agencies.

After reversing most of the transfers following a report by its Office of Independent Auditor General (OIAG), the City had to declare a state of fiscal urgency once it failed to meet statutorily mandated fund levels in its General Fund, and bond rating agencies downgraded their ratings on the City’s debt.

The SEC’s complaint charges the City with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges the City with violating the SEC’s 2003 Cease-and-Desist Order. The complaint charges Boudreaux with violations of Section 17(a) of the Securities Act and violations and aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint seeks injunctive relief and financial penalties against the City and Boudreaux, and an order commanding the City to comply with the SEC’s 2003 Order.

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Risks of High Yield Corporate Bonds – South Florida High Yield Corporate Bond Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 03 Jul 2013 00:50:04 GMT

Risks Associated With High-Yield Corporate Bonds. Florida High Yield Corporate Bond Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney.

Some investors with a greater risk tolerance may find high-yield corporate bonds attractive, particularly in low interest rate environments. If you are considering buying a high-yield bond, it is important that you understand the risks involved.

Default Risk. Also referred to as credit risk, this is the risk that a company will fail to make timely interest or principal payments and default on its bond. Defaults also can occur if the company fails to meet certain terms of its debt agreement. Because high-yield bonds are typically issued by companies with higher risks of default, this risk is particularly important to consider when investing in high-yield bonds.

Interest Rate Risk. Market interest rates have a major impact on bond investments. The price of a bond moves in the opposite direction than market interest rates-like opposing ends of a seesaw. This presents investors with interest rate risk, which is common to all bonds. In addition, the longer the bond’s maturity, the more time there is for rates to change and, as a result, affect the price of the bond. Therefore, bonds with longer maturities generally present greater interest rate risk than bonds of similar credit quality that have shorter maturities.

Economic Risk. If the economy falters, some investors are likely to try to sell their bonds. In what is known as a “flight to quality,” a number of investors may decide to replace their riskier high-yield bonds with safer ones, such as U.S. treasury bonds. If there are more sellers than buyers for high-yield bonds, the supply will exceed demand and prices of the bonds will fall. In addition, some companies that issue high-yield bonds may be less able to weather challenging economic circumstances, increasing the risk of default.

Liquidity Risk. Liquidity is the ability to sell an asset, such as a bond, for cash when the owner chooses. Bonds that are traded frequently and at high volumes may have stronger liquidity than bonds that trade less frequently. Liquidity risk is the risk that investors seeking to sell their bonds may not receive a price that reflects the true value of the bonds (based on the bond’s interest rate and creditworthiness of the company). High-yield bonds may be subject to more liquidity risk than, for example, investment-grade bonds.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If after reading this post, you have any quesions, the reader should contact a qualified professional.

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High Yield Corporate Bond – Florida High Yield and Fixed Income Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 03 Jul 2013 00:40:14 GMT

High Yield Corporate Bonds – Florida High Yield Corporate Bond and Fixed Income Breach of Fiduciary Duty, Negligent Supervision and Breach of Contract FINRA Arbitration and Litigation Attorney:

A high-yield corporate bond is a type of corporate bond that offers a higher rate of interest because of its higher risk of default. When companies with a greater estimated default risk issue bonds, they may be unable to obtain an investment-grade bond credit rating. As a result, they typically issue bonds with higher interest rates in order to entice investors and compensate them for this higher risk. High-yield bond issuers may be companies characterized as highly leveraged or those experiencing financial difficulties. Smaller or emerging companies may also have to issue high-yield bonds to offset unproven operating histories or because their financial plans may be considered speculative or risky.

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Risks Associated With Corporate and Municipal Bonds – Florida Corporate and Municipal Bond FINRA Arbitration and Litigation Attorney – Investors May Be Able to Recover Their Investment Losses

Russell L. Forkey — Mon, 01 Jul 2013 02:14:16 GMT

South Florida Corporate and Municipal Bond FINRA Arbitration and Litigation Attorney. Various Risks Associated With Corporate Bond:

There are a number of risks associated with corporate bonds. The following list is not designed to be complete. However, this post does describe many of the more well known. Please keep in mind that this post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the following, you should consult a qualified professional.

Credit or Default Risk: Credit or default risk is the risk that a company will fail to timely make interest or principal payments and thus default on its bonds. Credit ratings try to estimate the relative credit risk of a bond based on the company’s ability to pay. Credit rating agencies periodically review their bond ratings and may revise them if conditions or expectations change.

Interest Rate Risk: The price of a bond will fall if market interest rates rise. This presents investors with interest rate risk, which is common to all bonds, even U.S. treasury bonds. A bond’s maturity and coupon rate generally affect its sensitivity to changes in market interest rates. The longer the bond’s maturity, the more time there is for rates to change and, as a result, affect the price of the bond. Therefore, bonds with longer maturities generally present greater interest rate risk than bonds of similar credit quality that have shorter maturities. To compensate investors for this interest rate risk, long-term bonds generally offer higher interest rates than short-term bonds of the same credit quality. If two bonds offer different coupon rates while all of their other characteristics are the same, the bond with the lower coupon rate will generally be more sensitive to changes in market interest rates. For example, imagine one bond that has a coupon rate of 2% while another bond has a coupon rate of 4%. All other features of the two bonds-when they mature, their level of credit risk, and so on-are the same. If market interest rates rise, then the price of the bond with the 2% coupon rate will fall by a greater percentage than that of the bond with the 4% coupon rate. This makes it particularly important for investors to consider interest rate risk when they purchase bonds in a low-interest rate environment.

Inflation Risk: Inflation is a general rise in the prices of goods and services, which causes a decline in purchasing power. With inflation over time, the amount of money received on the bond’s interest and principal payments will purchase fewer goods and services than before.

Liquidity Risk: Liquidity is the ability to sell an asset, such as a bond, for cash when the owner chooses. Bonds that are traded frequently and at high volumes may have stronger liquidity than bonds that trade less frequently. Liquidity risk is the risk that investors seeking to sell their bonds may not receive a price that reflects the true value of the bonds (based on the bond’s interest rate and credit- worthiness of the company). If you own a bond that is not traded on an exchange, you may have to go to a broker when you want to sell it. In addition, the bond market does not have the same pricing transparency as the equity market, as the dissemination of pricing information is more limited for corporate bonds in comparison to equity securities such as common stock.

Call Risk: The terms of some bonds give the company the right to buy back the bond before the maturity date. This is known as calling the bond, and it represents “call risk” to bondholders. For example, a bond with a maturity of 10 years may have terms allowing the company to call the bond any time after the first five years. If it calls the bond, the company will pay back the principal (and possibly an additional premium depending on when the call occurs). One reason the company may call the bond back is if market interest rates have fallen relative to the coupon rate on the bond. That same decline in market interest rates would likely make the bond more valuable to bondholders. Thus, what is financially advantageous to the company is likely to be financially disadvantageous to the bondholder. Bondholders may be unable to reinvest at a comparable interest rate for the same level of risk. Investors should check the terms of the bond for any call provisions or other terms allowing for prepayment.

If the investor is purchasing the bond based upon the recommendation of a broker/dealer, the broker/dealer should, as part of the solicitation process, provide a description of all risks to the investor. If the risks are not fully disclosed to the investor, the investor may be able to recover their investment losses from the brokerage firm.

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The Relationship Between Corporate and Municipal Bond Prices, Interest Rates and Yield – South Florida FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 01 Jul 2013 02:02:49 GMT

The Relationship Between Corporate and Municipal Bond Prices, Interest Rates and Yield. South Florida FINRA Arbitration and Litigation Attorney.

The price of a bond moves in the opposite direction than market interest rates. When interest rates go up, the price of the bond goes down. When interest rates go down, the bond’s price goes up. A bond’s yield also moves inversely with the bond’s price. For example, let’s say a bond offers 3% interest, and a year later market interest rates fall to 2%. The bond will still pay 3% interest, making it more valuable than newly issued bonds paying just 2% interest. If you sell the 3% bond, you will probably find that its price is higher than a year ago. Along with the rise in price, however, the yield to maturity for any new buyer of the bond will go down. Now suppose market interest rates rise from 3% to 4%. If you sell the 3% bond, it will be competing with new bonds that offer 4% interest. The price of the 3% bond may be more likely to fall. The yield to maturity for any new buyer, however, will rise as the price falls.

It’s important to keep in mind that despite swings in trading price with a bond investment, if you hold the bond until maturity, the bond will continue to pay the stated rate of interest as well as its face value upon maturity, subject to default risk.

This post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If the reader has any questions concerning the contents of this post, you should consult with a qualified professional.

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