WFG INVESTMENTS SUBPOENAED BY MASSACHUSETTS REGULATORS OVER SALES OF ALTERNATIVE INVESTMENTS TO SENIORS

WFG Investments, Inc. was subpoenaed by Massachusetts in connection with a sweep investigation, which is looking into sales practices involving alternative investments sold to seniors. WFG Investments' principal office is located in Dallas, Texas. On July 10, 2013, the state's securities division sent the subpoena to WFG Investments asking for information on sales of the products to state residents who are 65 or over. Some of the non-traditional investments include oil and gas partnerships, private placements, structured products, hedge funds, and tenant-in-common offerings. The state demanded information from WFG Investments on any such products that have been sold over the past year, the investors who purchased them, the commissions generated, how the sales were reviewed, and all relevant compliance, training and marketing materials - WFG Investments has until July 24 to respond. The state added that being on the list of targeted firms does not indicate wrongdoing.

Although non-traded REITs were not part of the information request, Massachusetts has expressed its heightened concern "that the senior marketplace is being targeted for the sales of these high-risk, esoteric products," Massachusetts Secretary of the Commonwealth William F. Galvin said in a statement. The state has already cracked down on a number of firms for alleged improper sales of non-traded REITs. In February 2013, the state reached a settlement with LPL Financial to pay at least $2 million in restitution and $500,000 in fines related to the sale of non-traded REITs. In May 2013, it settled REIT cases with Ameriprise Financial Services Inc., Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates Inc. and Securities America Inc. The five firms agreed to pay a total of $6.1 million in restitution to investors and fines totaling $975,000.

Senior investors have become the targets of unscrupulous brokers, investment advisors and insurance agents. This is due in part to the fact that as we age, our ability to understand newer and complex investments diminishes every year. Therefore, senior retirement savings are ripe for picking and an epidemic of fraud is underway all across America. As a result many states, such as Massachusetts, have enacted laws with harsh penalties and are performing investigative sweeps to protect senior investors.

Broker-dealers have a duty to protect senior investors from broker misconduct by establishing and implementing an adequate supervisory system to oversee sales practices. If broker-dealers do not so, they may be liable to senior investors for damages flowing from an unreasonable recommendation and sale. Are you a senior investor suffering losses in your WFG Investments, Inc. account due to an unreasonable recommendation and sale by your broker? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against WFG Investments stockbrokers who may have engaged in misconduct and caused investors losses.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE OF ALTERNATIVE BOND FUNDS!

Alternative bond funds, which are typically touted as strategic-income funds, have been marketed to financial advisers or stockbrokers as a way to avoid the risk of rising interest rates, which concerns bond or fixed income investors. Most alternative bond funds, however, were unable to live up to that potential.

Generally, alternative bond funds have the ability to sell short and invest across a variety of markets in order to lessen the blow of rising rates, but those strategies came up short as the 10-year Treasury's yield shot up 46 basis points in May 2013. On average, the funds finished the month with a 0.46% loss. The largest alternative bond fund, the $26 billion Pimco Unconstrained Bond Fund (PUBAX), lost 0.54%, which was worse than the category's average.

Recent interest rate movements were the first real test for alternative bond funds, and the results were unremarkable. Nadia Papagiannis, a Morningstar Inc. mutual fund analyst, said "the reason for the one-month performance woes essentially boils down to the managers not being hedged against rising rates - the funds are basically long credit with the option to hedge." Ms. Papagiannis added that "most of the time, they're not hedged." So, what advisers in these funds are betting on is that the managers will be able to time the market when it comes time to hedge. "That's hard to do," Ms. Papagiannis said.

Have you suffered losses in alternative bond funds sold to you by your broker? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against stockbrokers who recommended unsuitable investments and unsuitable investment strategies that caused investors losses.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WELLS FARGO AND BANK OF AMERICA FINED BY FINRA FOR UNSUITABLE SALES OF FLOATING-RATE BANK LOAN FUNDS

The Financial Industry Regulatory Authority (FINRA) has fined Wells Fargo and Bank of America $2.15 million and ordered the firms to pay more than $3 million in restitution to customers for losses incurred from unsuitable sales of floating-rate bank loan funds. FINRA ordered Wells Fargo Advisors, LLC, as successor for Wells Fargo Investments, LLC, to pay $1.25 million and reimburse approximately $2 million in losses to 239 customers. FINRA ordered Merrill Lynch, as successor for Bank of America Investment Services, Inc., to pay $900,000 and reimburse approximately $1.1 million in losses to 214 customers. Wells Fargo and Bank of America neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

Floating-rate bank loan funds are mutual funds that invest in a portfolio of secured senior loans made to entities whose credit quality is rated below investment-grade, which subjects the funds to significant default risks and illiquidity.

FINRA found that Wells Fargo and Bank of America brokers recommended floating-rate bank loan funds to customers whose risk tolerance, investment objectives, and financial conditions were inconsistent with the risks and features associated with floating-rate loan funds. The subject customers were seeking to preserve their principal or had conservative risk tolerances, but the brokers made recommendations to purchase floating-rate loan funds without having reasonable grounds to believe that the purchases were suitable for the customers. FINRA also found that the firms failed to train their sales forces regarding the unique risks and characteristics of the funds. The firms also failed to reasonably supervise the sales of floating-rate bank loan funds.

Have you suffered losses in floating-rate bank loan funds sold by Wells Fargo Advisors, Merrill Lynch, or any other broker-dealer? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against stockbrokers who recommended unsuitable investments and unsuitable investment strategies that caused investors losses.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

FORMER ALEXANDER CAPITAL STOCKBROKER MARK CHRISTOPHER HOTTON NAMED IN FINRA COMPLAINT FOR MISCONDUCT

Former Alexander Capital registered principal Mark Christopher Hotton was named in a Financial Industry Regulatory Industry (FINRA) complaint alleging that while he was employed by Oppenheimer, he improperly used and converted $5,932,000 of customer funds, without his customers knowledge or consent, for his own use and benefit, and caused at least an additional $2,584,078 to be wired from the customers' Oppenheimer accounts to his outside business activities and individual affiliates. Mr. Hotton was allegedly employed by or accepted compensation from outside business entities, which was outside the scope of his relationship with Oppenheimer. Unfortunately, this is not the first set of complaints filed against Mr. Hotton for stock broker misconduct. Numerous customer complaints alleging similar misconduct that go as far back as 1997 were filed against Mr. Hutton while he was employed by American Capital Partners, Oppenheimer, Ladenburg Thalmann, and M.S. Farrell.
In its complaint, FINRA alleges that Mr. Hotton forged and falsified numerous documents and made numerous misrepresentations, verbal and written, to his customers, his firm, and others to further his fraudulent scheme. In addition, the complaint alleges that Hotton provided customers with fabricated statements for a non-existent account at an entity and false written statements about the value of their investments with him. Moreover, the complaint alleges that Hotton exercised control over customers' accounts; recommended and executed transactions that were excessive and unsuitable in light of customers' investment objectives, risk tolerance, and financial situation; loaned $250,000 to firm customers with notifying and receiving written authorization from the firm; he falsely testified during an on-the-record testimony about numerous topics in response to FINRA's questions; he provided FINRA with false statements and claims after authorities made a request for information and documents; and acted with intent to defraud or with reckless disregard for the customers' interests and for the purpose of generating commissions.
Regarding Hotton's U4, FINRA's complaint alleges that he submitted various U4 Forms but failed to disclose his engagement in a number of entities while employed by Oppenheimer; he willfully failed to make any disclosure on his U4 of several legal actions against him, or the settlement of those actions - Hotton failed to disclose that information even after the NASD instructed him to do so; he failed to timely amend his U4 to disclose the commencement of a federal action against him, or the temporary restraining order granted in that action; and when he finally amended his Form U4 to disclose the federal action, he falsely described the action as a business dispute between business partners.
Mr. Hotton also allegedly committed numerous acts of misconduct in clients' accounts and violated his customer-specific suitability obligations. FINRA's complaint states that Hotton executed hundreds of unauthorized trades in customers' accounts without his customers' knowledge, consent, or authorization. FINRA claims that Hotton's customers neither gave Hotton prior written authorization to exercise discretionary powers in their accounts, nor did they give Hotton verbal discretionary power. One of Hotton's customers specifically stated that he was not interested in risky or speculative trading, but Hutton still recommended investments that were contrary to the customer's investment objectives and financial situation. Some of the risky investments recommended were leveraged on inverse exchange traded funds or ETFs, which Hotton did not completely understand. In particular, Hotton did not understand or explain to his clients that the long-term return of a leveraged or inverse ETF can substantially deviate from the underlying index. Therefore, Hotton failed to satisfy the reasonable basis suitability requirement in connection with his investment recommendations.
Have you suffered losses in your Alexander Capital brokerage account? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against Alexander Capital stockbrokers who may have engaged in misconduct and caused investors losses.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WRP INVESTMENTS INVESTOR ALERT - LAX SUPERVISION OF INDEPENDENT BROKERS CAN CAUSE LOSSES

WRP Investments is a small independent broker-dealer whose business model is akin to a franchise operation. WRP Investments is headquartered in Youngstown, Ohio and reportedly has over 370 registered representatives across the state operating in one or two person offices. Most of the WRP Investments registered representatives' gross production of revenues is less than $300,000 per year. Its branch offices are largely comprised of small producers earning commissions at higher pay out rates than the major full-service brokerage firms, a recipe for disaster when it comes to protecting investors' rights.
Independent broker-dealers are notorious for their lax supervisory practices and procedures. The business model of these franchise type operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office with on-site manager, compliance officer and operation personnel. The registered representatives of these independent broker-dealers generally operate as separately incorporated businesses. They are not employees of the broker-dealer and therefore not controlled in the same manner as full-service brokerage firm representatives. The registered representatives control their structure and costs to maximize profits and often leave the protection of investors' rights and interests as their lowest priority.
The typical supervisory organization of independent broker-dealer operations is to have other independent contractors operate Offices of Supervisory Jurisdiction (OSJs) to monitor the registered representatives from geographically remote offices and then report to the main franchisor's compliance office at national headquarters. The supervisors at the OSJs are not employees of the franchisor and often run their own brokerage, insurance and other businesses. They are not devoted full-time supervisors of the smaller branch offices. Consequently, OSJ managers cannot and do not supervise the day-to-day operations of the registered representatives of these Independent broker-dealers.
Generally, there is no immediate review of new accounts opened, securities transactions, business records, cash or securities receipts and deliveries, correspondence and business activities unrelated to the securities brokerage operation at these independent brokerage firms. The lax supervision leaves investors who have transferred their accounts to the smaller independent broker-dealer vulnerable to sales of securities that have not been reviewed or authorized by anyone other than the sales representative earning a commission. There may be no one onsite to detect forgeries of clients' signatures on documents, the placement of inaccurate information about a client's investment objectives and financial condition to document the suitability of a particular investment recommendation. Oftentimes there is no daily review of sales literature and client correspondence to protect against misrepresentations and misleading statements being made to investors. In fact, it is not unusual for there to be only one compliance audit visit per year at many of these offices. These Independent brokerage business operations are worrisome to the North American Securities Administrators Association (NASAA), which has documented more instances of sales abuse and consequently investor losses at these firms.
Have you suffered losses in your WRP Investments brokerage account? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against WRP Investments stockbrokers who engaged in stock brokerage misconduct and caused investors losses.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - ACTIVELY TRADED ETFS WILL ADD RISK TO YOUR PORTFOLIO!

The Securities and Exchange Commission (SEC) recently unveiled a policy change that could have a major impact on an exchange traded fund's (ETFs) risk profile. In essence, the SEC has lifted its suspension on the use of derivatives by certain ETFs. This move is in response to pressure from the industry, and it is expected to result in a major increase in the number of actively managed ETFs. Managers will now be able to use derivatives in their investment strategies in order to hedge against risk. Problem is derivatives are also widely used to speculate in order to increase profits, which most certainly increases risk. Fortunately, the SEC is keeping its freeze in place for leveraged and inverse exchange traded funds - funds that can deal a bigger blow to investors because of their use of borrowed funds to increase profits.
ETFs are investment funds that are traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index and are attractive investments because of their low costs, tax efficiency, and stock-like features. By owning an ETF, investors benefit from the diversification of an index fund as well as the ability to purchase as little as one share. In addition, expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, investors pay the same commission to their brokers that they would pay on any regular stock order.
Investors should be concerned with the lifting of the derivatives suspension for ETFs because it will most likely affect management's investment strategy and investors' portfolios. Currently, there are 7,149 mutual funds and 1,444 ETFs. Approximately 6,836 mutual funds are actively managed, and only 54 ETFs are actively managed thus far. With expectations of a rise in actively traded ETFs, Investors and their advisors should review their ETF holdings for any changes in investment strategy and determine whether it is suitable for them. That way, investors can avoid learning the hard way what actively traded ETFs are all about and prevent future monetary losses.
Have you suffered losses resulting from actively traded ETFs? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against stockbrokers who misrepresented and sold unsuitable investments such as actively traded ETFs to investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

UBS WILLOW FUND LIQUIDATES SHARES LEAVING INVESTORS WITH 20 CENTS ON THE DOLLAR

In October 2012, the UBS Willow Fund, a distressed debt hedge fund, informed investors that the fund would be liquidated after having sustained substantial losses. Formed in 2000, UBS Willow has suffered losses exceeding $300 million, which date back to 2007 - its net asset value (NAV) per share was down 80 percent upon UBS Willow's liquidation announcement. In December 2012, a class action lawsuit was filed against UBS Willow alleging a deviation from the fund's investment strategy. The lawsuit, filed in Manhattan, seeks to recover over $200 million for investors who have lost money in the fund. Meanwhile, the Law Offices of Robert Wayne Pearce, P.A. is currently investigating the broker-dealers and financial advisors that marketed and sold the product to investors. Our attorneys are researching potential claims that will hold broker-dealers and financial advisors liable for recommending UBS Willow and recover additional losses resulting from the investment.
Hedge funds are similar to mutual funds in structure. Investor money is pooled together and invested in an effort to make a positive return. However, hedge funds have more flexible investment strategies than mutual funds. Hedge funds seek to profit in all kinds of markets by utilizing strategies involving leverage, short-selling, and other speculative investment practices that are not typically used by mutual funds. Another factor that distinguishes hedge funds from mutual funds is that hedge funds are not subject to the same regulations designed to protect investors. Depending on the amount of assets in the hedge funds advised by a manager, some hedge funds may not be required to file reports with the SEC. Fortunately, hedge funds are subject to the same prohibitions against fraud as are other market participants. In addition, managers owe a fiduciary duty to the funds under management.
Broker-dealers have a duty to perform adequate due diligence, especially when offering risky investments such as hedge funds, to ensure that the investment is suitable for an individual investor's age, risk tolerance, investment experience, net worth, and investment time horizon. If broker-dealers fail to carry out this duty, they can be liable to investors for damages. In the case of UBS Willow, it is evident that financial advisors made certain misrepresentations about the product's risks and investment strategy. As a result, investors who have suffered losses are encourage to file arbitration claims to recover any losses stemming from UBS Willow.
Have you suffered losses resulting from owning shares in the UBS Willow Fund? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against stockbrokers who misrepresented and sold the UBS Willow Fund to investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

MASSACHUSETTS LAWSUIT AGAINST LPL FINANCIAL FOR REIT SALES PAVES THE WAY FOR SUCCESSFUL INVESTOR CLAIMS

A Massachusetts lawsuit against LPL Financial will surely strengthen investors' arbitration claims for losses resulting from illegal sales practices involving real estate investment trusts (REITs). Massachusetts Secretary of the Commonwealth William Galvin charged LPL with failure to supervise registered representatives who sold the non-traded REITs in violation of both state limitations and the company's guidelines. The Massachusetts securities division also charged LPL with dishonest and unethical business practices. Massachusetts charges stem from the sale of $28 million of non-traded REITs to almost 600 clients from 2006 to 2009. Of the REITs listed in the complaint, the highest sales were for Inland American Real Estate Trust, the largest non-traded REIT, with $11.2 billion in real estate assets. Robert Pearce, a 30-year securities and commodities attorney in Boca Raton, FL, believes that Massachusetts' action will certainly generate a flood of cases against LPL. Mr. Pearce added that the Massachusetts complaint will serve as a roadmap for investors and their attorneys to follow when asserting their claims.
REITs invest in a diversified set of income producing real estate properties and mortgages, and they must distribute 90 percent of net earnings to investors. REITs allow investors to partake in real estate investing without directly owning property, which may lock up large amounts of money for long periods of time. The most popular REITs are publicly traded on a stock exchange such as the New York Stock Exchange (NYSE) - they are relatively transparent in their finances and operations and are covered extensively by investment analysts. Non-traded REITs are not listed or registered with securities regulators and are supposed to be available only to accredited investors - $1 million or more in assets or $200,000.00 in annual income. Non-traded REITs disclose their finances publicly and offer shares to the public, but they do not list their shares on an exchange, which is one of many risk factors associated with them.
In LPL's case, Massachusetts' investigation showed significant and widespread issues with LPL's adherence to product prospectus and state requirements. As a result, Massachusetts is seeking full restitution to clients who were sold REITs allegedly in violation of state and prospectus requirements. The state is also seeking an unspecified administrative fine against LPL. Although LPL set forth stringent requirements for the sale for non-traded REITs, it failed to properly review sales of non-traded REITs. In addition, the securities division was able to uncover similar issues with many other REITs sold by LPL. To counter the possibility of future violations, the firm has changed its policies and procedures, creating a separate complex-products team to review all alternative investments. Regardless of the measures taken by LPL, investors are urged to conduct their own investigation prior to making an investment decision involving non-traded REITs. That way, investors will have a clearer understanding of non-traded REITs, which just might keep them from buying the product from the get-go.
Have you suffered losses in real estate investment trusts sold by LPL Financial? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - THERE IS NO "MARGIN" FOR ERROR IN INVESTING WITH BORROWED FUNDS!

The Financial Industry Regulatory Authority (FINRA) is concerned about the slew of investors that underestimate the risks of trading on margin and misunderstand the reason for margin calls. In 2012 alone, investors purchasing on margin has averaged more than $320 billion per month. The problem lies in not being able to satisfy margin calls under unfavorable market conditions - investors can have large portions of their portfolios liquidated, and these liquidations can cause substantial losses for investors. Therefore, before an investor decides to open a margin account, he or she should understand all the risks associated with purchasing securities on margin.
Margin accounts allow investors to borrow money from their brokerage firm to purchase securities. The portion of the purchase price that the investor must deposit is called margin, and it is the investor's initial equity in the account. The loan from the firm is secured by the securities the investor purchases. If the securities on margin go down in price, the firm can issue a margin call, which is a demand that the investor repay all or part of the loan with cash, make a deposit of securities, or liquidate some of the securities in the account. Therefore, buying on margin amounts to getting a loan from the brokerage firm, which entails repaying the amount borrowed plus interest - even if you lose money. Some firms automatically open margin accounts with the account owner knowing.
The Federal Reserve Board, FINRA, and securities exchanges, including the New York Stock Exchange (NYSE), regulate margin trading, and most brokerage firms also establish their own stringent margin requirements. Before purchasing a security on margin, FINRA requires that the investor deposit the lesser of $2000 or 100 percent of the purchase price in the account - called minimum margin. Federal Reserve rules allow investors to borrow up to 50% of the total purchase price of a stock for new, or initial, purchases - called initial margin. If the investor does not already have cash or other securities in the account to cover the share of the purchase price, the investor will received a margin or Fed call from his or her firm that requires the investor to deposit the other 50 percent of the purchase price. Under FINRA's margin maintenance requirements rule, the equity in the account must not fall below 25 percent of the current market value of the securities in the account. If it does, the investor will receive a margin maintenance call that requires the investor to deposit more funds or securities in order to maintain the equity at the 2 percent level in order to avoid the risk of a forced sale of securities by the firm. Also, firms have the right to set their own margin requirements - called house requirements. As long as requirements are set higher than the margin requirements under Regulation T or the FINRA rules and the exchanges, firms are permitted to do so.
Investors should consider the number of risks associated with opening and trading in a margin account. The following points should be kept in mind while making a decision:
-The firm can force the sale of securities in your account to meet a margin call. Investors are responsible for the margin deficiency and shorts falls in the account after the sale should the accounts fall below the maintenance margin requirements under the law or set by the firm.
-Your firm can sell your securities without contacting you. Many investors believe that a firm must contact them first for a margin call to be valid. Although most firms will attempt to contact the account holder, they are not required to do so. Firms can even initiate a sale after a deadline is provided to the account holder.
-You are not entitled to choose which securities or other assets in your account are sold. The firm may decide to sell any of the securities that are collateral for your margin loan to protect its interests.
-Your firm can increase its house maintenance requirements at any time and is not required to provide you with advance notice. If an unexpected house call is made, the firm can liquidate any holdings they choose.
-You are not entitled to an extension of time on a margin call. Although an extension of time may be available under certain conditions, there is not right to an extension.
-You can lose more money than you deposit in a margin account. A decline in value of the securities purchased on margin may require the investor to provide additional money to the firm to avoid forced sale of those securities or other securities held in the account.
Have you suffered losses resulting from your broker's recommendation to open and trade in a margin account? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - A PLEDGED-ASSET MORTGAGE CAN PUT YOUR SECURITIES PORTFOLIO AT RISK!

Brokerage firms are offering up to 100 percent loan-to-value ratio mortgages or pledged-asset mortgages to clients who do not have enough cash to make a down payment on a home. Instead of making a down payment, customers are required to pledge their stocks, bonds, mutual funds, and other securities. Though brokerage firm websites and brochures often tout the advantages of 100 percent mortgages, such as allowing the investor to avoid private mortgage insurance or liquidating their securities, investors may overlook and consign to the fine print without understanding the risks associated with these mortgages. Investors must realize that pledged-asset mortgages, or 100 percent mortgages, are not suitable for everyone. In order to determine whether 100 percent mortgages are suitable, an investor must start by evaluating their risks.
The classic 100 percent mortgage requires little or no cash down payment. Instead, the investor pledges securities in his or her brokerage account, allowing the investor to finance up to 100 percent of the value of the house. The amount of securities required in the pledge will depend on the type of securities proposed in the pledge and the terms of the mortgage. The amount pledged usually exceeds the amount required, which allows for some fluctuation in the value of the securities. However, if the value of the securities pledged goes down below a minimum amount set by the firm, the firm may issue a collateral call, which is a demand that the investor deposit additional cash or securities. If the investor cannot meet the demand or the value of the securities continue to decline, the firm may sell some or all of the securities, sometimes without notification.
100 percent mortgages also bear certain costs. Since the investor is borrowing more money with a 100 percent mortgage, he or she is probably paying more interest than if a cash payment would have been made. This may be economical if the investor's portfolio is able to make returns on investments that are greater than the mortgage payments. Furthermore, if the investor chooses an adjustable-rate 100 percent mortgage and interest rates rise, the returns in the investor's portfolio may not keep up with the rising mortgage payments, particularly if the investor is holding bonds or other fixed income instruments - fixed income principal values decline when interest rates rise. With an adjustable-rate mortgage, the securities markets decline at the same time that interest rates rise, the investor may be stuck with both larger mortgage payments and thousands in markets losses.
Investors considering a 100 percent mortgage must consider the risks associated with them before making a decision. Investors are encouraged to keep in mind the following:
-Even after obtaining a mortgage loan, an investor may be required to deposit more cash or securities if the value of the securities pledged falls below the minimum required by the firm.
-The firm can force the sale of pledged securities to meet a collateral call. The case will remain in the account until the mortgage is paid or refinanced, the firm is instructed to use the funds to pay down the mortgage, the equity in the home reaches a certain level, or the cash is applied to the outstanding mortgage balance upon default.
-The firm can sell the securities without contacting the investor. Most firms will attempt to contact the investor prior to the sale, but they are not required to do so. Even if the investor is contacted and given a specific date to meet a collateral call, the firm may decide to proceed with selling the securities before the date.
-Investors are not entitled to choose which securities are sold. The firm may decide to sell any of the securities that are held as collateral for the mortgage.
-Investors are not entitled to an extension of time on a collateral call. While an extension may be available to an investor to meet a collateral call under certain conditions, there is no right to an extension.
-If the investor defaults on the mortgage, he or she could lose both the home and the securities pledged. Some states allow firms to sell the securities immediately, while others only allow for liquidation after the home is sold for a loss at a public sale.
Have you suffered losses in your portfolio due to a pledged-asset mortgage? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - RISKING YOUR HOME TO BUY SECURITIES COULD LEAD TO FORECLOSURE!

Many investors are tempted to risk their homes by taking out second mortgages, re-financing, or obtaining a line of credit for the specific purpose of investing such funds when mortgage rates are low and the stock market is rising. Typically, the goal is to generate additional wealth while continuing to make mortgage payments. In more than most cases, investors who fail to achieve this ambitious objective end up defaulting on their mortgage. This is why investors must consider the risks associated with "betting the ranch" before they move forward with making such a bold investment decision.
Investing in any type of security entails risk to principal. Using home equity to buy securities compounds this risk in a few different ways. First, when an investor buys securities with mortgage money, he or she is investing with borrowed funds. This action increases the investor's exposure to market risk, similar to buying securities on margin. However, the mortgage money will most likely be greater than any amount a broker-dealer would lend in a margin account. Second, when an investor uses mortgage money to purchase securities, he or she risks losing the principal invested along with the underlying collateral - namely the house. Even if the home is not lost, the investor could lose a significant amount of home equity, which might have taken decades to build up. Last, investors usually maker riskier investments, or investments that offer higher than average yields, to surpass their mortgage rate. If the given investment yield is unsatisfactory, investors may feel compelled to place the money in an even riskier product.
The classic example of investors using mortgage money to purchase securities involves a retired couple who wants to earn a higher income by using the equity in their mortgage-free home. The couple will take out a new mortgage at an interest rate of 6% with hopes of paying the loan and earning more income. On the advice of their broker, the couple will invest in a mutual fund with an average return of 12% over the past five to 10 years. However, instead of posting a gain for that year, the fund loses 15 percent of its value. Since the couple was depending on earning a profit from the fund to pay their mortgage debt, and they have no other assets, they are faced with a tough choice - sell the depleted investment to be able to make mortgage payments and hope that the fund will be profitable soon, or they can sell the house and hope that the price is enough to pay off the outstanding mortgage. Either way, the couple risks losing their home.
If a broker recommends that an investor should consider using home equity to invest in securities, the investor can avoid financial calamity by asking herself a couple simple questions: 1) Will I be able to make mortgage payments in the value of my investments decline?; or 2) Do I have a secure salary or other funds to make mortgage payments if the value of my investments decline? If the answer is no, just say no to betting the ranch on securities.
Have you lost or risked losing your home as a result of your broker's recommendation to use home equity to invest in securities? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

HEDGE FUND INVESTORS NATIONWIDE BEWARE - YOU MAY NOT BE GETTING THE WHOLE TRUTH!

Hedge fund investors do not receive all the federal and state law protections that typically apply to mutual fund investments. For example, hedge funds are not required to provide the same level of disclosure as one would receive if investing in mutual funds. This poses a serious concern for investors because it can be more difficult to evaluate the terms of an investment in a hedge fund. In addition, it may also be difficult to verify the representations an investor receives from the hedge fund. The Securities and Exchange Commission (SEC) has brought numerous actions against hedge funds and their managers for defrauding investors. Some examples include actions for managers misrepresenting their experience and track record, Ponzi schemes, and phony account statements to cover up losses and stolen cash. That is why it is extremely important to thoroughly check every aspect of any hedge fund one might consider investing in.
Hedge funds are similar to mutual funds in structure. Investor money is pooled together and invested in an effort to make a positive return. However, hedge funds have more flexible investment strategies than mutual funds. Hedge funds seek to profit in all kinds of markets by utilizing strategies involving leverage, short-selling, and other speculative investment practices that are not typically used by mutual funds. Another factor that distinguishes hedge funds from mutual funds is that hedge funds are not subject to the same regulations designed to protect investors. Depending on the amount of assets in the hedge funds advised by a manager, some hedge funds may not be required to file reports with the SEC. Fortunately, hedge funds are subject to the same prohibitions against fraud as are other market participants. In addition, managers owe a fiduciary duty the funds under management.
Investors interested in hedge funds can safeguard themselves from abuses and monetary losses by taking the following actions: 1) read a fund's offering memorandum and related materials to determine its investment strategy, the geographical location, fees earned by the manager, expenses charged by the manager, and any conflicts of interest that may exist; 2) understand the level of risk taken by the hedge fund and determine whether it is suitable; 3) determine if the fund is using leverage or other speculative investment techniques; 4) understand the fund's valuation process in case the fund is investing in highly illiquid securities; 5) understand how the fund's performance is determined; 6) understand any limitations on rights of redemption; and 7) research the backgrounds of the hedge fund managers. These simple investigations will help to shed light on whether a hedge fund is suitable for an inexperienced hedge fund investor, who should certainly employ every available measure in order to avoid losing his or her hard earned money.
Have you suffered significant losses in a hedge fund? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - CHURCH BONDS ARE RISKY AND ILLIQUID INVESTMENTS!

The Financial Industry Regulatory Authority (FINRA) is concerned about sales of church bonds through inappropriate sales practices by brokers. This matter has earned church bonds a spot on FINRA's list of examination and enforcement priorities for 2012. Inappropriate sales of church bonds are usually affiliated with affinity fraud, making it somewhat easier for scam artists to hide the real risks associated with the bonds. This is why FINRA is initiating efforts to prevent broker misconduct and to make sure that firms are performing their due diligence, which will ultimately aid it protecting investors' assets.
Church bonds have numerous risks and problems. Among the risks associated with the bonds is their lack of liquidity. Liquidity issues arises because church bond issuances are small ($10 million or less), which translates into a lack of any secondary market for the bonds to trade in. In addition, the true financial condition and creditworthiness of church bond issuers are difficult to determine because their underlying source of revenue is never really clear. Still, church bond salespersons have been able to capitalize on the low interest rate environment and the desire for a relatively secure source of income, primarily by retirees - the impact of an increasing number of church bond defaults on retirees' investment portfolio has been devastating. This unfortunate reality was sparked by the general economic decline, which hindered the ability of many churches to pay their debt due to a slowdown in church donations.
The law requires broker-dealers and investment advisers to perform adequate due diligence before recommending investments such as church bonds to their clients. Some of the responsibilities include: 1) having a reasonable basis to believe that the investment is suitable; 2) examining the risks associated with the investment; and 3) making full disclosure of the risks associated with the investment. Unfortunately, these responsibilities often go unfulfilled. Therefore, investors can bring forth claims against broker-dealers for losses incurred.
Affinity fraud is a form of illegal conduct typically associated with an appeal to a common interest. Some examples of a common interest include a church, club, and cultural association. Scam artists target and exploit the tendency of members to ascribe to the trustworthiness of a fellow member. In the case of a church, scam artists pitch the notion that the funds will be to support the mission of the church.
Have you suffered losses in church bonds? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - AUCTION RATE SECURITIES MAY LEAVE YOU WITH AN ILLIQUID INVESTMENT!

Recent developments in the credit market have led many auction rate securities (ARS) auctions to fail, which may inhibit existing ARS holders from selling their holdings. Consequently, many ARS investors who treated ARS as a ready source of cash are finding themselves short on liquidity. In response, ARS issuers have announced redemptions of shares - most of the time at par value. However, not all outstanding shares are redeemed by the issuer. This dilemma may leave many investors with holdings they will be unable to liquidate.
ARS are unlike traditional bonds that are issued with a set interest rate for the life of the bond or preferred stocks that specify a dividend yield. Generally speaking, ARS refer to long-term investments with a short-term twist: the interest rates or dividends they pay are reset in intervals through auctions. Investors interested in ARS are seeking cash-like investments that pay higher yields than money market mutual funds or CDs. There are typically two types of ARS: bonds with long-term maturities (20 to 30 years) and preferred shares that pay cash dividends. Both the interest paid by the bonds and the dividends paid by the preferred shares vary based on rates that are set through auctions for a specified term usually measured in days - 7, 14, 28, or 35 days. Auction rate bonds are issued by municipalities, student loan-authorities, museums, and many other institutions, and auction rate preferred shares are issued by closed-end funds.
When auctions fail, liquidity issues arise. It is important to know how ARS auctions in order to understand how they fail. Prior to each auction, current ARS investors have the ability to request either to sell their ARS, hold their position at a particular interest rate or dividend yield, or hold whatever new interest rate or dividend yield is established by the auction. The size of the auction will depend on how many ARS investors want to sell and want to hold. Prospective purchasers then indicate how much they wish to buy and what interest rate or dividend yield they are willing to accept. Buy orders with the lowest rates get accepted first, followed by higher bids until all available securities are sold. The highest rate accepted, or the "clearing rate," then becomes the interest rate or dividend yield that applies to all the ARS at the next auction. ARS auctions fail when supply exceeds demand - when there are not enough bids to purchase all the securities offered for sale in the auction. Current ARS holders will continue to hold their securities and will typically receive an interest rate or dividend yield set above market rates for the next holding period up to any maximum disclosed in the offering documents. Recent developments in the markets such as credit downgrades have caused a significant number of investors who counted on having access to their funds without any options.
Issuers of ARS have started to redeem shares to address the failed auctions. In many cases, the issuers are calling the entire issue for redemption. In other cases, the issuers are offering to redeem only some of the outstanding shares. Investors need to be aware that in a partial redemption, it is possible that a broker-dealer holding ARS shares may not be allocated redemptions. Customers of broker-dealers that do not get an allocation will not be able to participate in the partial redemption. Customers should also be aware that a brokerage firm that receives an allocation might not be able to redeem all the shares of all its customers.
Did you purchase auction rate securities, but have not been able to redeem them? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA) RULE 2111 EXPANDS STOCKBROKER DUTIES OWED TO CUSTOMERS

The new FINRA rule 2111 clarifies the suitability standard as follows:

1. It codifies the three main suitability obligations requiring brokers to (i) perform due diligence to understand the risks of an investment or investment strategy, and determine whether it is suitable for anyone, (ii) have a reasonable basis for believing the investment or investment strategy is suitable for the particular customer based on that customer's investment profile; and (iii) have a reasonable basis for believing that a series of securities transactions are not excessive (if the broker has control over the account).

2. It expands the factors that brokers must consider when making recommendations to customers to include age, investment experience, time horizon, liquidity needs, and risk tolerance, as well as other factors.

3. It covers recommendations of investment strategies (not just securities transactions), which it defines broadly to include recommendations to "hold" (or refrain from selling) a security, even one that the broker did not make the original recommendation to purchase.

In Regulatory Notice 12-25 (captioned "Suitability - Additional Guidance on FINRA's New Suitability Rule"), FINRA further explicitly reaffirms that "a broker's recommendation must be consistent with his customer's best interests," and that this "prohibits a broker from placing his or her interests ahead of the customer's interests." The hallmark of a fiduciary is the requirement to always put the client's interests first. Thus, according to FINRA, brokerage firms and their registered representatives are subject to a fiduciary standard of care when they recommend an investment or investment strategy.

Regulatory Notice 12-25 also clarifies that the term "customer" includes a potential customer or anyone with whom the firm has even an informal business relationship, even if that person does not have an account at the firm. An investor takes a huge risk when cashing in pension assets on the advice of a broker, which is often before the investor has opened an account with the firm. Thus FINRA's own written guidance debunks the argument that the firm owed no duty under those circumstances because the investor was "not a customer."

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - CLASS B MUTUAL FUND SHARES MAY NOT BE RIGHT FOR YOU!

When investors buy mutual funds through their brokers, it usually involves choosing among different share classes. The only difference between share classes is the amount of fees the broker will be paid and the amount of expenses the funds will charge. Oftentimes, investors are persuaded into purchasing Class B mutual fund shares when it may not be cost-effective for them, particularly when the trade plus assets already managed by that family exceeds $100,000.00. By purchasing B shares, investors may also be forgoing breakpoint discounts they are eligible for.
Class B shares do not impose a front-end sales fee or "load" that is deducted at the moment of investment - unlike Class A shares, all of the investor's money will be put to work. B share owners do incur higher 12b-1 fees (to cover marketing and distribution costs) than A shares, and B shares also impose a contingent deferred sales charge (CDSC), which the investors will pay if he or she sells shares within a certain number of years. The CDSC typically reduces each year, and is usually eliminated after six or more years. Selling class B shares during the period in which the CDSC applies can significantly diminish the overall return of the investment.
Mutual fund investors must be aware that when purchasing large amounts of B shares, normally over $50,000, they cannot take advantage of breakpoint discounts that may be available to them in A shares. Abuses regarding B share sales have been reported and are currently under investigation. That is why investors interested in investing an amount of cash large enough to qualify for breakpoints should discuss with their brokers whether A shares would be a better option than B shares.
Do you believe your purchase of Class B shares resulted from an improper sale? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

VARIABLE ANNUITIES LISTED AMONG FINRA'S NATIONWIDE DISCIPLINARY ACTIONS

The Financial Industry Regulatory Authority (FINRA) recently reported that it will focus its attention on examining products that are held out to outperform the market. According to FINRA, the economic environment that many investors have faced since 2008 has fostered an increase in appetite for high yield investments given the low yield in Treasuries. It has also fostered fraud, misappropriation, illegal sales practices, and unsuitable recommendations by brokers. Some of the products FINRA will be focusing on are: variable annuities, non-traded real estate investment trusts, municipal offerings, leveraged exchange traded funds, mortgage-backed securities, private placements, structured products, and life settlements. FINRA will also look into fee schemes since it is concerned that broker-dealers are charging their clients hidden, mislabeled, or excessive fees. Several cases have already been filed by FINRA against firms who have been taking advantage of their clients through fees.

An annuity is a form of insurance that offers a series of payments for a period of time. Variable annuities are typically higher in risk when compared other types of annuities and depend on how the stock market is performing. Buyers have the option to allocate the cash invested into different types of assets such as mutual funds, indices, fixed income investments or bonds, and cash. Variable annuities do not guarantee principal protection, so investors can lose money if markets deteriorate.

With respect to variable annuity costs, an agent can collect at least 5% from the moment of sale and 0.5% or more every year for the life of the investment; variable annuities with common riders can take over 3% off annual returns. Surrender charges of as much as 9% may apply if an investor is in need of cash due to an unexpected emergency. Also, insurance companies are offering Guaranteed Lifetime Withdrawal Benefits (GLWB) without clearly telling investors the costs associated with taking early distributions. GLWBs allow percentage withdrawals based on the total amount without having to annuitize the investment. The problem with GLWBs is the immense cost of withdrawal, which is hidden away from investors in the terms of the agreement.

Have you suffered a loss of principal in your variable annuity? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTOR ALERT - THE COST OF OWNING A VARIABLE ANNUITY IS HIGH FOR ALL INVESTORS NATIONWIDE

Without a doubt, variable annuities are costly to investors. An agent can collect at least 5% from the moment of sale and 0.5% or more every year for the life of the investment; variable annuities with common riders can take over 3% off annual returns. Surrender charges of as much as 9% may apply if an investor is in need of cash due to an unexpected emergency. On top of all this, insurance companies are offering Guaranteed Lifetime Withdrawal Benefits (GLWB) without clearly telling investors the costs associated with taking early distributions. GLWBs allow percentage withdrawals based on the total amount without having to annuitize the investment. The problem with GLWBs is the immense cost of withdrawal, which is hidden away from investors in the terms of the agreement.

So do the costs of owning a variable annuity confer a significant benefit to investors? The answer is most certainly not! Insurance companies have the numbers all figured out. They employ a slew of experts to compute prices and draft terms and conditions that make it advantageous to them to own the market risk they are purportedly taking away from investors.

An annuity is a form of insurance that offers a series of payments for a period of time. Variable annuities are typically higher in risk when compared other types of annuities and depend on how the stock market is performing. Buyers have the option to allocate the cash invested into different types of assets such as mutual funds, indices, fixed income investments or bonds, and cash. Variable annuities do not guarantee principal protection, so investors can lose money if markets deteriorate.

Investors cannot be urged enough to read the fine print when investing in a variable annuity. Even then, the complexity of the product may confuse an investor who is not experienced or financially savvy. This is why investors are often led into believing that variable annuities are safe and suitable and that the research should be left up to their broker. Unfortunately, those brokers oftentimes misrepresent and mislead investors into purchasing unsuitable variable annuities.

Have you suffered a loss of principal in your variable annuity? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

REVERSE CONVERTIBLES POSE A LEGITIMATE RISK FOR INVESTORS NATIONWIDE

Several warnings have been issued over the years by sources such as the Wall Street Journal regarding the risk of investing in reverse convertibles. These risks have now become a reality for many investors who have allocations of the product in their portfolio.

The surge in demand for reverse convertibles began when Wall Street marketed a product with yields between 7 and 25% and very little downside risk. Sales began to soar while demand for fixed income products dropped due to the decline in conventional interest bearing product yields. Small investors purchased $8.5 billion in reverse convertible in 2007 alone. Some of the firms that have offered reverse convertibles include Morgan Stanley, Barclays, Wells Fargo, and ABM AMro Holding NV.

Reverse convertibles are alternative investments that are not suitable for all investors. Their complexity is hardly ever understood, and they are oftentimes misrepresented as fixed income products. Reverse convertibles are made of a note and a derivative. The note is a loan by the investor to the issuer that pays an income stream to the investor, while the derivative establishes the payment at maturity. The derivative can either be a put option, which would allow the issuer to sell the underlying derivative or security back to the investor, or it can be a call option, which would allow the issuer the right to buy the underlying security at a predetermined price. Also, investors may risk capital if they try to sell their reverse convertible prior to its maturity.

The Financial Industry Regulatory Authority (FINRA) has sent inquiries to brokerage firms regarding monitoring reverse convertible sales and marketing practices. Still, firms continue to hold out reverse convertibles as safe investments. Some firms even list reverse convertibles under CD alternatives. The NASD has suggested that only investors who are approved to trade options be allowed to purchase reverse convertible, but they pose a risk for even the most sophisticated investors.

Most investor are not capable of evaluating whether reverse convertibles are suitable investments. What investors should recognize though is that reverse convertibles put principal at risk if the price of the underlying security rises above or falls below a predetermined amount. The issuer will either sell or buy the security, which may cause investors to lose a significant amount of principal. However, investors are attracted to reverse convertibles because of their yields; reverse convertibles have average 13% in certain years. This comes as no surprise since yields on CDs and other conservative investments are near all-time lows, and fixed income investors need to generate income to pay bills and keep up with increasing costs. Still, investors must realize that reverse convertibles are not the solution. Rather than chase yields and risk losing hard earned savings, investors need to stick to what is suitable for them in order to avoid financial calamity.

Have you suffered a loss in a reverse convertible? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WATCH OUT INVESTORS--EXOTIC ETFS CAN BLOW UP YOUR PORTFOLIO

Look at Morningstar's list of the 20 best-performing ETFs year-to-date. These ETFs, which have shot up between 22% and 112% so far this year, could just as quickly lose that much and more. They may be liquid, but it is no place for the average investor to be. They are all ultra-high-risk speculative ETFs that are designed for day-trading and use leverage, short-selling and derivatives to try to achieve returns, or are niche-specialty exchange traded funds. To give you an idea of what they are talking about, the top five are:

ProShares UltraShort DJ-UBS Natural Gas
Direxion Daily Nat Gas Rltd Bear 3X Shares
Direxion Daily Retail Bull 3X Shares
ProShares UltraShort DJ-UBS Crude Oil
ProShares Ultra Nasdaq Biotechnology.

And it's ultra-high risk all the way down to number 20 and beyond.

Investors who cannot afford to lose (or are unwilling to lose) every penny of their "investment" have no business buying such ETFs, and financial advisers have a legal obligation not to recommend the purchase of these kinds of ETFs to most investors. According to Morningstar, investors should "beware" of specialty ETFs and use care (to say the least) in considering leveraged ETFs.

Investors and their advisers need to be wary and skeptical of ultra-high-risk securities and misleading sales pitches that seek to entice them to invest in them. These ETFs are about gambling, not investing.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.