What is a fund liquidation?

A fund liquidation occurs when a fund closes down its operations completely, sells off its assets and generally distributes substantially all of its assets in cash to its shareholders. Fund liquidations may occur for a variety of reasons, including poor performance, a decline in assets under management, lack of investor interest, and more. A liquidation is different than a merger where one fund acquires the assets of another fund. In a merger, shareholders in the “acquired” fund receive shares of the new, “acquiring” fund rather than the proceeds from selling off fund assets. During a liquidation, all fund assets are distributed to shareholders.

Who makes the decision to liquidate a fund?

The requirements for liquidating a particular fund generally depend on state corporate or trust law, on the fund’s charter documents, or both. To liquidate, most funds will require a vote by the fund’s board of directors or trustees. In some cases, a vote by the fund’s shareholders will also be necessary. Shareholders may or may not have a say in finalizing the decision to liquidate a fund.

How will I be notified that my fund is liquidating?

If it is necessary to obtain a shareholder vote to approve a liquidation, the fund will have to call a shareholder meeting and seek to obtain the required number of votes. As a shareholder, you will receive a proxy statement informing you of when and where the shareholder meeting is taking place. The timing of this notice to shareholders about a vote is governed by state law and may provide funds some flexibility (for example, requiring notice not less than 10 days and not more than 90 days before a shareholder meeting). Once a fund liquidation has been approved, the notice shareholders receive may depend on both state law and the fund’s charter documents. Some states require that a written notice of liquidation be sent to shareholders, while others do not. A fund’s charter documents may also address providing notice to shareholders. For mutual funds, the approval of a liquidation would generally be considered a material event that would be disclosed to shareholders in a “sticker”–a supplement to a previously sent prospectus or summary prospectus. Funds with shares that trade on an exchange, such as exchange-traded funds (ETFs), generally announce the liquidation through a press release. The notice that shareholders receive regarding a liquidation will generally include relevant information like the date that the fund will stop accepting new purchases of fund shares, the date that the fund will suspend redemptions (if applicable), and the date on or after which all remaining assets will be distributed pro rata (the “liquidation date,” sometimes also called the closing date or cessation date). The timing and type of notice you receive regarding a liquidation will vary from fund to fund.

What do I need to do?

At some point during the liquidation process, many funds stop accepting new purchases of fund shares. If you are making regular contributions to the fund, you may have to stop those contributions by a particular date in advance of the fund closing. In certain cases, funds may also suspend redemptions as part of the liquidation process. Some funds might give you the option to exchange your fund shares into a different fund within the same fund family prior to liquidation. If you own shares of a mutual fund, you can choose to redeem your shares at net asset value at any time prior to the date that the fund suspends redemptions—although sometimes suspension may happen immediately upon the approval of a liquidation. If you own shares of an ETF, you can sell your shares any time before the fund stops trading. After the liquidation date, any remaining fund assets will generally be sold by the fund managers, and the proceeds will be distributed to the remaining fund shareholders. If you still own shares on the liquidation date, you will receive your share of the fund’s assets in this way. The price you receive may differ from the fund’s prior net asset value or trading price. The timing of converting assets to cash or cash equivalents and paying shareholders will vary from fund to fund and may take more time—sometimes months or even years–if the fund has significant investments in less liquid assets. If you still own shares on the liquidation date, you will receive your share of proceeds from the fund’s remaining assets.

To review a complete copy of the Acceptance, Waiver and Consent.

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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.

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:

August 2015 Disciplinary and Other FINRA Actions

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

Gregory Howard Bray (CRD #2673259, St. Louis, Missouri) submitted an AWC in which he was fined $7,500 and suspended from association with any FINRA member in any principal capacity for six weeks. Without admitting or denying the findings, Bray consented to the sanctions and to the entry of findings that he failed to adequately supervise a registered principal, who was the member firm’s CEO and CCO, in connection with the principal’s sales of certain complex products and recommendations of Class A mutual fund shares. The findings stated that Bray failed to ensure that the principal understood the complex products he sold to customers. Bray himself was not familiar with the risks associated with some of the complex products and did not have any basis for concluding that the principal understood them or that the principal’s recommendations were suitable. Bray’s supervision also was inadequate with respect to the principal’s unsuitable recommendations of Class A shares of leveraged/inverse mutual funds, and he failed to detect the principal’s short-term trading of the Class A shares.

The suspension was in effect from July 6, 2015, through August 16, 2015. (FINRA Case #2013035045901).

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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.

SEC Announces Fraud Charges Against Investment Adviser Accused of Concealing Poor Performance of Fund Assets From Investors

The Securities and Exchange Commission recently announced fraud charges against an investment adviser and her New York-based firms accused of hiding the poor performance of loan assets in three collateralized loan obligation (CLO) funds they manage.

The SEC’s Enforcement Division alleges that Lynn Tilton and her Patriarch Partners firms have breached their fiduciary duties and defrauded clients by failing to value assets using the methodology described to investors in offering documents for the CLO funds, which have portfolios comprised of loans to distressed companies. Instead, nearly all valuations of loan assets have been reported to investors as unchanged from the time they were acquired despite many of the companies making partial or no interest payments to the funds for several years. Investors have not only been misled to believe that objective valuation analyses were being performed, but Tilton and her firms allegedly have avoided significantly reduced management fees because the valuation methodology described in fund documents would have given investors greater fund management control and earlier principal repayments if collateral loans weren’t performing to a particular standard. Tilton and her firms also consequently have misled investors about asset valuations in fund financial statements.

According to the SEC’s order instituting an administrative proceeding, CLO funds raise capital by issuing secured notes and using proceeds to purchase a portfolio of collateral typically comprised of commercial loans. Investors are paid based on cash flows and other proceeds from the collateral. The three CLO funds managed by Tilton and the Patriarch Partners firms are collectively known as the Zohar funds, and more than $2.5 billion has been raised from investors. Tilton’s investment strategy for the Zohar funds has been to improve the operations of the distressed portfolio companies so they can pay off their debt, increase in value, and eventually be sold for a profit.

The SEC’s Enforcement Division alleges that under the contractual terms of the deals, Tilton and her firms are required to categorize the value of each loan asset in monthly reports by using a specific method set forth in deal documents. To be assigned the highest category, a loan has to be current in its interest payments to the Zohar funds. The category of each asset impacts the calculation of a fund’s “overcollateralization” ratio, which reflects the likelihood that investors will receive a return on their principal. If the overcollateralization ratio falls below a specific threshold, Tilton and her firms are not entitled to receive certain management fees and may be required to cede more control of fund management to investors.

The SEC’s Enforcement Division alleges that rather than following the required methodology for valuing these loan assets, Tilton and her firms have maintained their control over the funds and preserved their management fees by not lowering an asset’s category until she decides to cease financial support of the distressed company. Thus the valuation of an asset simply reflects Tilton’s subjective assessment of the company’s future. Absent an actual overcollateralization ratio test, investors aren’t getting a true assessment of the actual values of their investments, which in reality have declined substantially.

The SEC’s Enforcement Division further alleges that Tilton and her firms were responsible for misstatements in the quarterly financial statements of the Zohar funds. When preparing these financial statements, they failed to conduct a required impairment analysis on the assets of the Zohar funds despite disclosures stating that such analysis had occurred. They also falsely stated that assets of the Zohar funds were reported at fair value. Tilton repeatedly and falsely certified that the financial statements were prepared in accordance with Generally Accepted Accounting Principles (GAAP).

The SEC’s Enforcement Division alleges that Tilton, Patriarch Partners LLC, Patriarch Partners VIII LLC, Patriarch Partners XIV LLC, and Patriarch Partners XV LLC violated Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206-4(8). Patriarch Partners LLC also is charged with aiding and abetting violations by the others. The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

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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.

Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients

The Securities and Exchange Commission recently announced fraud charges against a Houston-based investment advisory firm accused of recommending that clients invest in particular mutual funds without disclosing a key conflict of interest: the firm was in turn receiving compensation from the broker offering the funds.

An SEC Enforcement Division investigation found that Robare Group Ltd. received a percentage of every dollar that its clients invested in certain mutual funds through an undisclosed compensation agreement with the brokerage firm. Therefore, unbeknownst to investors, Robare Group and its co-owners Mark L. Robare and Jack L. Jones Jr. had an incentive to recommend these funds to clients over other investment opportunities and generate additional revenue for the firm. Robare Group ultimately received approximately $440,000 in such payments from the brokerage firm during an eight-year period.

“Payments to investment advisers for recommending certain types of investments may taint their ability to provide impartial advice to their clients,” said Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit. “By failing to fully disclose its agreements with the brokerage firm, Robare Group deprived its clients of important information they were entitled to receive.”

The Asset Management Unit has undertaken an enforcement initiative to shed more light on undisclosed compensation arrangements between investment advisers and brokers. For example, the SEC previously charged an Oregon-based investment adviser for failing to disclose revenue sharing payments and other conflicts of interest to clients.

According to the SEC’s order instituting administrative proceedings against Robare Group and its co-owners, the firm revised its Form ADV in December 2011 to disclose the compensation agreement, but this and later disclosures falsely stated that the firm did not receive any economic benefit from a non-client for providing investment advice. The disclosures also were inadequate because they stated that Robare Group may receive compensation from the broker when in fact the firm was definitively receiving payments.

The SEC Enforcement Division further alleges that Robare Group and the broker entered into a new agreement in late 2012 that provided similar payments. But it wasn’t until June 2013 that the firm disclosed the conflict of interest associated with its arrangement with the broker, and even then it failed to disclose the incentive to recommend buying and holding certain mutual funds through the broker’s platform or the magnitude of the conflict. Robare reviewed and approved the Forms ADV, and Jones reviewed and signed all but one of the filings.

The SEC’s Enforcement Division alleges that Robare Group and Robare willfully violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Jones aided and abetted these violations. The Enforcement Division further alleges that Robare Group, Robare, and Jones each willfully violated Section 207 of the Advisers Act.

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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 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.

The Commission issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 as to OX Trading, LLC and optionsXpress, Inc. (OX Order). The OX Order finds that OX Trading, LLC (OX Trading) willfully violated Sections 15(a) and 15(b)(8) of the Securities Exchange Act of 1934 by operating as an unregistered dealer from October 2009 to November 2010 and transacting in securities while not a member of a national securities association or a national exchange from March 2009 to November 2010, respectively. The OX Order also finds that optionsXpress, Inc. caused OX Trading’s violations. The OX Order ordered OX Trading and optionsXpress to cease and desist and ordered OX Trading to pay $2,750,000 in disgorgement, prejudgment interest of $253,094.39, and a civil money penalty of $750,000. (Rel. 34-70739).

The Commission also issued an Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Section 9(b) of the Investment Company Act of 1940 as to Thomas E. Stern (Stern Order). The Stern Order finds that Thomas E. Stern (Stern), OX Trading’s Chief Financial Officer and Chief Compliance Officer during the relevant time period, willfully aided and abetted and caused OX Trading’s violations of Sections 15(a) and 15(b)(8) of the Exchange Act. The Stern Order ordered Stern to cease and desist and to pay a civil money penalty of $50,000. (Rel. 34-70740) Respondents consented to the issuance of the Orders. These proceedings were instituted on April 19, 2012. (Rel. 34-66831).

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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.

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.

A “No-Load” fund is a mutual fund offered by an open-end investment company that imposes on sales charge (load) on its shareholders. Investors buy shares in no-load funds directly from the fund companies, rather than through a broker, as is done in load funds. Many no-load fund families allow switching of assets between stock, bond, and money market funds. The net asset value, market price, and offer prices of this type of mutual fund are exactly the same, since there is no sales charge.

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.

Contact Us:

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.

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.

Income Mutual Funds are designed to produce current income for shareholders. Some examples of income mutual funds are municipal, international and junk bond (high-yield) funds. Several kinds of equity-oriented funds also can have income as their primary investment objectives, such as utilities income funds and equity income funds.

It is important to remember that mutual funds are offered by prospectus. The prospectus will provide all necessary information for an informed investor to make an intelligent investment decision. For example, a prospectus may contain information about such things as:

• Disclosures relating to sales charges and shareholder privileges.
• Description of principal risks associated with a particular fund. Just because the fund is labeled as an income fund or an offshoot of one does not necessarily mean that fund is conservative in nature.
• Disclosure of the holdings in the portfolio.
• Who is managing the fund and what is being charged for the management thereof.
• How to purchase, redeem and exchange shares within the fund.
• How the fund shares are priced.
• How and under what circumstances the fund will make distributions.
• What are the tax consequences associated with investing in the fund.
• The characteristics and risks of the securities within the fund and the investment techniques associated with the management of the fund.
• Financial highlights associated with the fund.

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 the contents of this post, you should contact a qualified expert.

Contact Us:

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.

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.

If a company defaults on its bonds and goes bankrupt, bondholders will have a claim on the company’s assets and cash flows. 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. 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 bond holders. Sorting through the competing claims of creditors is a complex process that unfolds in bankruptcy court.

However, investors usually purchase and sell corporate and municipal bonds through securities broker/dealers. Under certain circumstances, investments losses suffered by investors, in these types of bonds, may be recoverable from the brokerage firm. Therefore, it is important for the reader to consult with a qualified professional.

Also, 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. Again, if the reader has any questions concerning the contents of this post, you should consult with a qualified professional.

Contact Us:

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.

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.

Corporate bonds 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, and financing mergers and acquisitions.

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.

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.

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-mark. 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.

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 its contents, you should consult with a qualified professional.

Contact Us:

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.

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.

The Securities and Exchange Commission recently barred an Arizona-based mutual fund manager from the securities industry for failing to follow the investment objectives of a stock mutual fund managed by his firm, leading to the fund’s collapse.

An SEC investigation found that the prospectus of Z Seven Fund (ZSF) stated that it sought long-term capital appreciation and restricted the use of options. Nonetheless, beginning in September 2009, Barry C. Ziskin and his firm Top Fund Management (TFM) invested ZSF in put options for speculative purposes contrary to the fund’s stated investment policy. The losses from options trading and the ensuing investor redemptions ultimately resulted in ZSF’s liquidation in December 2010.

“ZSF investors expected the fund to pursue capital appreciation by buying stocks, but TFM and Ziskin took the fund down a very different and disastrous path,” said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. “Mutual fund advisers who deviate from their fund’s investment strategy and keep investors in the dark will be held accountable for their fraudulent actions.”

According to the SEC’s order instituting settled administrative proceedings against TFM and Ziskin, disclosures in ZSF’s prospectuses and statements of additional information provided that the fund could trade options only to hedge its portfolio. However, because TFM and Ziskin traded put options in such large amounts relative to the size of ZSF’s equity portfolio, their strategy amounted to speculation. For example, ZSF’s equity portfolio had a market value of $1,835,607 on July 6, 2010, but ZSF held enough option contracts to protect a portfolio worth $32,858,000 (17.9 times the value of the equity portfolio). ZSF’s options trading also caused the fund’s performance to plummet. As of October 2009, ZSF had net assets of $5.3 million, but over the next 15 months the fund suffered $3.7 million in losses from options. TFM and Ziskin misled ZSF investors by misrepresenting in a shareholder report that options trading was for hedging purposes.

The SEC’s order finds that TFM and Ziskin willfully violated the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. The order also finds that TFM and Ziskin violated Section 34(b) of the Investment Company Act of 1940 and caused ZSF to violate Section 13(a)(3) of that act. Without admitting or denying the SEC’s findings, TFM and Ziskin agreed to cease and desist from committing or causing any violations and any future violations of these provisions. They also consented to the entry of an SEC order that censures TFM and bars Ziskin from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and prohibits him from serving as an officer, director or employee of a mutual fund.

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