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Articles Posted in Credit Suisse

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Lawyers are investigating claims on behalf of investors who suffered significant losses in exchange-traded notes (ETNs) and exchange-traded funds (ETFs) issued by Credit Suisse and other full-service brokerage firms.

ETF, ETN Investors Could Recover Losses

According to Bloomberg, the $45,000 loss suffered by Jeff Steckbeck in TVIX, a Credit Suisse Group AG note, has set off a probe by the Securities and Exchange Commission. Reportedly, ETNs became more popular with the TVIX in February 2012. That month, Credit Suisse stopped selling the ETN and rising demand caused the investment to veer up to 89 percent from the index. When Credit Suisse began issuing the notes again in March of that year, a FINRA warning cautioned investors that ETNs could trade at a price that was higher than their underlying index.

Bloomberg data indicates that the estimated initial value of the securities is typically 2 to 4 percent less than the price investors paid. Exchange-traded notes like TVIX mimic assets through the use of derivatives and their value is based on volatility shifts in the market. However, the ETN market is small beans compared to the ETF market, which has around $2.4 trillion in assets.

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Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses in their accounts with GenSpring Family Offices LLC, a firm owned by a wholly-owned SunTrust subsidiary. Reportedly, arbitration cases have already been filed on behalf of ultra-high-net-worth investors which allege mishandling of investment accounts by GenSpring.

GenSpring Clients Could Recover Losses

In one case, the investors’ trust interviewed multiple money managers and investment firms including Credit Sussie, CitiGroup, Deutsche Bank, LaSalle Bank and Goldman Sachs. All of these firms recommended diversification across traditional asset classes, such as bonds and equities, as well as selective investments in alternative products for special situations.

However, the claim asserts that GenSpring stood out because of its unique approach which would provide better downside protection and better returns through the use of Multi-Strategy Hedge Funds, such as Silver Creek Funds, instead of the bond or fixed income portion of client portfolios. Allegedly, GenSpring officials claimed that their approach, which had been tested thoroughly, would behave like traditional bonds in terms of asset class correlation and volatility while providing returns across all market cycles that were superior to traditional bonds. The trust invested approximately $10 million and stated its primary goal as capital preservation.

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Stock fraud lawyers are currently investigating claims on behalf of Credit Suisse Securities (USA) LLC customers who received recommendations to invest a significant portion of their funds in the Yield Enhancement Strategy and suffered significant losses as a result. The Yield Enhancement Strategy, or YES, is a high-fee proprietary strategy and may not be suitable for many investors.

Credit Suisse Yield Enhancement Strategy Recommendation Under Investigation

Allegedly, Credit Suisse may have recommended the Yield Enhancement Strategy to some investors without properly explaining the risks to customers or considering their investment objectives and risk tolerances.

According to a recent statement of claim regarding this investment, advisors for Credit Suisse allegedly used literature that stated the goals would be achieved by the strategy by “selling short-term out-of-the-money puts and calls on the S&P 500 index.” Furthermore, the literature allegedly claimed that in order to “manage downside and upside market exposure, short term below-market put and above-market call options are purchased with the same duration as the puts and calls sold.” Securities arbitration lawyers say the allegations in the suit are that the strategy to “provide an additional source of income to portfolios when markets are flat, trending higher or trending lower” failed and, in a little over two years, more than $500,000 in losses and $200,000 in investor fees resulted.

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Law Office of Christopher J. Gray, P.C. won an appeal to Florida’s Fourth District Court of Appeals in West Palm Beach concerning a client’s entitlement to attorneys’ fees under Florida’s Blue Sky law, Fla. Stat. § 517.301.  The attorneys’ fees sought arise from a $765,000 arbitration award that the Gray firm won in Raubvogel v. Credit Suisse, FINRA Case No. 09-02906.  In the underlying award the arbitration panel found that claimants were the prevailing party on their claim for violation of Fla. Stat. § 517.301 but further stated that it “chose not to award attorneys’ fees.”

Due to an unusual wrinkle of Florida law, however,  a prevailing party under Fla. Stat. § 517.301 is entitled to seek an award of attorney’s fees in court after winning an arbitration award unless he expressly waives this right.  The court below ruled that the Raubvogels waived their right to seek attorney’s fees in court by asking for an award of attorney’s fees in their arbitration papers.  The Court of Appeals disagreed, stating that under its precedents an “express waiver” such as an on-the-record stipulation was required in order for a party to give up its right to seek attorney’s fees in court.

The Fourth District Court of Appeals decision is accessible below.  The initial arbitration award is accessible at order on appeal

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Securities arbitration lawyers continue to investigate claims on behalf of investors who suffered significant losses during the 2008 market crash. In many cases, large investment banks allegedly deceived investors as to the risks of complex investments, including mortgage-backed securities, causing devastating losses.

Have Credit Suisse and Wells Fargo Paid their Dues? Many Don’t Think So

Currently, Credit Suisse Securities and affiliates are being sued by the state of New York based on claims that the firm misled investors about the evaluation of residential mortgage-backed securities.

“We need real accountability for the illegal and deceptive conduct in the creation of the housing bubble in order to bring justice for New York’s homeowners and investors,” says Eric Schneiderman, the state’s attorney general.

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According to investment fraud lawyers, the Financial Industry Regulatory Authority (FINRA) will bring enforcement cases related to the selling of exchange-traded funds (ETFs) that were not appropriate for customers, against certain brokerages. Bradley Bennett, FINRA’s enforcement chief, said this month that the cases will involve leveraged and inverse exchange-traded funds, and the unsuitable sales of said funds. Furthermore, allegations of inadequate or improper training for brokers who sell exchange-traded funds will be involved in the cases.

FINRA Cracking Down on Leveraged and Inverse ETFs

Securities fraud attorneys say that leveraged and inverse ETFs amplify short-term returns. They do so by using derivatives and debt. These investments are more suitable for professional traders and are usually unsuitable for long-term retail investors. These investments only make up $29.3 billion of the $1.15 trillion United States ETF market. FINRA has raised concerns that these products are being sold to long-term retail investors, despite the risk involved when holding leveraged and inverse ETFs for more than one day.

“We don’t have a qualm with the product,” Bennett says. “We just want to make sure that people who are selling them understand them.”

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On December 27, 2011, the Financial Industry Regulatory Authority (FINRA) announced its securities arbitration decision to fine USA-based Credit Suisse Securities LLC $1.75 million. The fine is a result of Credit Suisse’s failure to properly mark sale orders and supervise short sales. These violations resulted in millions of short sales orders that were conducted “without reasonable grounds to believe that the securities could be borrowed and delivered and mismarked thousands of sales orders,” according to the FINRA press release.

FINRA Decision: Credit Sussie Fined $1.75 Million

A short sale occurs when a security is sold that is not owned by the seller. Upon delivery, the security is either purchased or borrowed by the short seller to make the delivery. A broker or dealer must have reasonable grounds to believe the security can be available for delivery in order to perform a short sale order, according to Reg SHO. The “locate” requirement effectively reduces potential failures to deliver, protecting the investment. Furthermore, a broker or dealer must mark the sales as long or short. Failure to do so results in broker misconduct that is potentially dangerous for clients.

FINRA Executive Vice President and Chief of Enforcement Brad Bennett stated that “Credit Suisse’s Reg SHO supervisory and compliance monitoring system was seriously flawed. Millions of short sale orders were being entered in its systems without locates for over four years because the firm did not have adequate Reg SHO technology and procedures in place.”

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The Federal Housing Finance Agency (FHFA), acting as conservator for Fannie Mae and Freddie Mac, has filed securities lawsuits against a total of 17 financial entities in both federal and state courts. States in which the lawsuits were filed are New York and Connecticut. Financial institutions affected by the lawsuits, which were filed in September 2011, include Bank of America, Credit Suisse, Citigroup, Countrywide, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley and Deutsche Bank. These institutions, along with 8 others, violated federal securities and common laws when selling mortgage-backed securities. This is not the first time many of these financial institutions have been charged with securities fraud, and investment attorneys are doubtful that it will be the last.

The FHFA is seeking civil penalties as well as damages. Allegedly, the financial institutions violated fiduciary duty by providing misleading loan descriptions as a part of their sales and marketing materials. The marketing materials did not reveal the true risk factors associated with the loans. According to the FHFA’s press release, “Based on our review, FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the Enterprises for those securities.”

Congress and regulators have put forth a continuing effort to deal with the practices of institutions that led to the financial crisis of 2008 and this lawsuit is part of that goal. It is similar to the one filed on July 27, 2011 against UBS Americas Inc. The Housing and Economic Recovery Act of 2008 gives the FHFA the authority to file complaints such as this one.

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Citigroup settled charges brought by the U.S. Securities and Exchange Commission, and has agreed to pay $285 million to do so. According to the SEC, Citigroup defrauded investors by betting a toxic housing-related debt would fail, but selling the CDO to investors anyway. According to an article by Reuters, “The SEC said the bank’s Citigroup Global Markets unit misled investors about a $1 billion collateralized debt obligation by failing to reveal it had a ‘significant influence’ over the selection of $500 million of underlying assets, and that it took a short position against those assets.”

Citigroup to Pay $285 Million for CDO Fraud

Citigroup is the third major bank to settle with the SEC for failing to disclose betting against a collateralized debt obligation, or CDO, and then marketing it to customers. JPMorgan settled for $153.6 million in June and Goldman Sachs settled for $550 million in July 2010.

In November 2007, the CDO defaulted and, while investors faced losses, Citigroup made $160 million. This contributed to the 2007-2009 financial crisis and is, therefore, a part of the mission to reduce broker fraud and hold Wall Street figures accountable for triggering the recession. According to the SEC, the Citigroup employee who was primarily responsible for structuring the transaction was Brian Stoker. In response to the files charged against him by the SEC, one of his lawyers said the allegations had “no basis.”

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