An increasing number of individual investors who sought safe alternatives for retirement savings and cash reserves are filing arbitration claims against brokerages for misrepresenting t
An increasing number of individual investors who sought safe alternatives for retirement savings and cash reserves are filing arbitration claims against brokerages for misrepresenting the actual risks of loss to their savings in complicated investment products, according to Seattle law firm Ryan Swanson.
These investments were marketed as being like ‘cash equivalents’ offering marginally higher interest yields and low financial risk with liquidity. But for many, the mix of investments included, and may still include, toxic assets, including derivatives and sub-prime mortgage portfolios.
New York State Attorney General Andrew Cuomo this month brought claims against Charles Schwab over its sales and marketing practices relating to these securities. The accusation claims Schwab brokers repeatedly misled investors about the risks of investing in auction rate securities. Cuomo recently announced a USD456m settlement with TD Ameritrade on such securities. In doing so, the attorney general commended the brokerage for ‘working with regulators to restore investor confidence and joining what has become the single largest consumer recovery in history.’
In the last year Citigroup, UBS, Goldman Sachs and several others have agreed to repurchase more than USD61bn in debt to settle regulatory claims they incorrectly marketed investments as safe, liquid securities.
‘Individual investors who have suffered losses in these ‘low risk’ investments may bring claims to recover these lost assets,’ says John Bender, attorney with Ryan, Swanson & Cleveland. ‘And they might be surprised to learn that more than 80 per cent of these cases settle before arbitration.’
In June, Finra launched an enhanced investor protection and education programme in five states, including Washington state, as an initiative to educate investors about the tricks of the trade.
‘Some of the most intelligent people in the world put together these investment funds,’ says Bender. ‘The challenge is once the investment gets marketed to the public, neither the retail brokers nor their customers fully understand the significant undisclosed risks in the investments. And regulators only get involved once the problem is identified, which is too late.’