Naples, Fla. — A couple who lost more than $2 million — in under six weeks — on Fannie Mae Preferred Stock has retained the Vernon Healy law firm to investigate disclosures by Merrill Lynch, the firm that recommended the investment and also profited as a managing underwriter of Fannie Mae Preferred Stock for its May 2008 offering.
Besides Merrill Lynch, Vernon Healy is also investigating sales of Fannie Mae Preferred Stock by other major firms such as Wachovia. Both Wachovia and Merrill Lynch profited handsomely from underwriting the imprudent issuance of additional Fannie Mae Preferred Stock in 2008, just months ahead of the government takeover.
Brokerage firms including Merrill Lynch, Wachovia, UBS and others heavily marketed and sold suspect preferred stock as well as so-called “structured products” in recent years. In the case of Fannie Mae Preferred Stock, Merrill Lynch dumped Fannie Mae Preferred Stock on the firms’ own retail clients primarily to benefit the issuer — Fannie Mae — who needed money and to profit itself as an underwriter or packager of the product. Firms like UBS similarly dumped structured products such as Lehman structured notes on the firms’ own retail clients primarily to benefit the underwriter UBS and the issuer — Lehman — who needed money. All this came at the expense of retail investors.
Specifically, the investment firms were in a position to understand the capitalization and stability risks of issuing companies such as Fannie Mae and Lehman Brothers, yet they forged ahead and profited by packaging and pitching these investments to their own clients as safe, stable, income investments. As just one example of this knowledge, Merrill Lynch’s own analyst had downgraded Fannie Mae Preferred Stock in February 2008, citing fears about Fannie Mae’s “highly leveraged exposure to a quickly deflating real estate market.”
As managing underwriter of Fannie Mae’s May 2008 offering, Merrill Lynch also knew or should have known that Fannie Mae’s accounting practices posed significant risks: At the time, the Financial Accounting Standards Board was considering a rule that would have forced Fannie Mae to account for $2 trillion of off-balance-sheet debt on its financial statements
“The Fannie Mae Preferred fiasco shows us that Merrill Lynch has failed to learn from its $100 million regulatory fine in 2003 involving investment banking conflicts of interest. Merrill Lynch can’t neglect its duties to its retail investor clients in favor of its investment banking clients,” said Naples securities attorney Chris Vernon. “This is the same pattern of behavior that prompted Massachusetts regulators to charge Merrill Lynch this summer with civil fraud for its dual role involving auction rate securities.”
Both Merrill Lynch and Wachovia are among the firms facing class action lawsuits filed by investors relating to their sales of Fannie Mae Preferred Stock to their own clients in 2008. The class action lawsuits generally allege bad faith or negligence by firms such as Wachovia and Merrill Lynch and point to their conflicts of interest and their push to sell Fannie Mae Preferred Stock to their own clients during 2008.
Investors who have lost relatively small sums may want to determine whether they are eligible to participate in one of the many class actions filed regarding these types of products. However, investors who have lost significant sums typically fare better by proceeding with their individual legal claims in arbitration or, if available, in court. These investors should seek legal advice concerning the merits of an individual securities arbitration claim or individual claim in Court.
The Financial Industry Regulatory Authority (FINRA) has established rules and regulations to protect investors from sales practice violations. Such violations include the recommendation of unsuitable investments or a concentration in a particular security or sector. Demonstration of these violations may qualify an investor for damages from an individual securities arbitration claim filed with FINRA.
Often, if there are class actions filed regarding the product at issue, investors must proactively take action to "opt-out" as a class member or risk losing the right to bring what may be a much more valuable individual claim in arbitration or, in some circumstances, court.
Vernon Healy represents investors throughout the United States and is currently pursuing claims on behalf of investors who purchased Fannie Mae Preferred Stock, the Schwab YieldPlus Fund, and Lehman Principal Protected Notes and other products.
For more information, contact:
Christopher T. Vernon, attorney at law
Vernon Healy
http://www.protectinginvestors.com
http://www.vernonhealy.com
239-649-5390
1-877-649-5394
e-mail: cvernon@vernonhealy.com
