Kemp Klein

Remain Wary of Wall Street Pirates

What to do if you’re caught in an investment scam.

More dangerous than Somalian pirates and Madoffian Ponzi schemes are CMOs, CDOs, CLOs, ARS, CDS, and SIVs. These “securities” are still weapons of choice of our Wall Street gangs (and too often our Main Street gangs). As a securities lawyer, I have become skeptical of Wall Street and all that it promises. You should be skeptical too, and here’s why…

Advisors mislead us

High flying investment advisors promised high returns and the “safety” of profound algorithms and back-testing computer models concocted by their supposedly best trained quants – these are mathematicians, analysts, researchers and Wharton, Harvard, MIT and Michigan MBAs. Advisors offered these “safe” investments to both their best clients, and often to many of lesser wealth, resulting in billions of lost dollars.

But watch out, more “collateralized” and unique investment instruments are being incubated and surely more junk bonds and risky equity investments are just off the horizon. Taking from us billions more than all the Ponzi schemes, the sellers of these unique instruments have wreaked havoc not just on individuals but on entire countries and they’re still on the prowl.

More new offerings to come

As debt incurred in leverage buyouts and commercial real estate deals come due over the next several years, and must be refinanced, we can expect new rounds of stock, bond and debt offerings that will surely highlight generous returns and underplay the risk. Much of the debt will be “pooled,” “collateralized,” overrated by the rating agencies that failed us previously and again presented as alternatives to other safe investments. You need also be aware of “locals,” church friends, business acquaintances, even your own investment advisor or broker pushing their own special, “safe,” “can’t miss” real estate, hi-tech start-ups and other new or special investments. “Get in before the deal is oversubscribed” are words that should make you tremble. Much of the new deals will be as risky as the old ones. Their new debt and equity will be merely Ponzi-like, that is, allowing the promoter to repay old investors with the new soon-to-be losers’ money. Fool me once, shame on you, fool me twice… well, you know.

Take action against scams

So what can you do? Aside from CDs and your mattress, how can we trust again? Of course, the answer is – you can’t. When you wonder what can be done to remedy the inevitable frustration, second guessing and loss of precious and often irreplaceable money, you are not helpless.

Complaints to the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and to your state’s securities regulation department can be a start. More likely, your vindication will come from initiating your own lawsuit, or where agreement provisions require, an arbitration proceeding.

Charges you might bring in such a situation include: negligence, recklessness, knowing and intentional deceit and manipulation, abuse of trust (breach of fiduciary duty), conflicts of interest, failures of due diligence, and outright fraud. Legal actions against the issuer of the unique instruments, their promoters, the broker-dealers and individuals who sold them to you, are available. Trusting that they will voluntarily reimburse you without taking some action yourself would be the same mistake that got you into the investment in the first place.

Call us if you need assistance with what appears to be an investment scam. We strive to remain current on the latest “deals” and we would be happy to help you remedy your situation.

For questions about this please contact Kemp Klein.