Naples, Fla. — The Vernon Healy law firm filed a claim against Citi Smith Barney today on behalf of a Naples couple who suffered millions in losses following their stockbroker’s trades in the couple’s account without their permission and inappropriate investing activity in municipal bonds and preferred stocks.
The portfolio, which contained more than $10 million in municipal bonds when it was transferred to Citi Smith Barney, now known as Morgan Stanley Smith Barney (Symbol: C, MS), was initially designed to generate a fixed income for living expenses for the young couple who retired early to Florida following a successful sale of their businesses.
After dramatic losses in the couple’s municipal bond account, managers at Citi Smith Barney arrogantly rejected the couple’s complaints about unauthorized trades and other broker improprieties and failed to conduct an objective investigation, according to the claim. This failure to adequately investigate was especially inappropriate in light of the 9 other customers who have lodged complaints against the same broker. The previous customer complaints include ones involving unauthorized trading as well.
The broker’s previous employer, Merrill Lynch, has paid more than $550,000 to settle past customer abuse complaints, according the claim.
The Vernon Healy law firm is seeking phone records of the brokerage firm and broker in addition to other documents as further evidence of the allegations of unauthorized trading.
Of note, the broker purchased preferred stock in his own employer, Citigroup, in early 2008 for the couple’s account, a practice barred by Citigroup internal rules, the claim states. Citi Smith Barney’s managers and compliance department failed to discover and stop the broker’s Citigroup trades on which the couple lost more than $400,000 in principal, according to the claim.
The Smith Barney broker moved greater portions of the couple’s fixed income bond portfolio to financial industry preferred stocks in early 2008 as the troubled financial industry sector rapidly deteriorated. For example, the broker added preferred stock in HSBC, Lehman Brothers, PNC, Royal Bank of Scotland, AIG, Merrill Lynch, Wachovia, and Bank of America in early 2008, the claim states.
After the monumental collapse of Bear Sterns in March 2008, the Smith Barney broker executed unauthorized trades in the couple’s account and purchased Morgan Chase, Citigroup, Deutsche Bank, Credit Suisse, Barclays, and Wells Fargo, Allianz, ING, Fannie Mae, and Freddie Mac preferred stocks and convertible products, according to the claim.
The couple’s account lost $650,000 in principal as a result of the broker’s purchases of AIG, ING, Freddie Mac, and Fannie Mae between May 2008 and July 2008, the claim states.
In addition, the claim asserts that the stockbroker purchased Main Street Natural Gas bonds backed by Lehman Brothers at a premium in April 2008 in the couple’s account, despite significant industry concerns about the financial sector and especially Lehman Brothers. The couple lost more than $100,000 in principal on this bond alone, which has come under regulatory scrutiny since it lost 75 percent of its value within a year of its issuance and sale to the public.
According to Chris Vernon, the lead attorney for the investors, increasingly his law firm is seeing a pattern involving inappropriate activity by brokers and brokerage firms in connection with the sale of both preferred stocks and municipal bonds.
Financial industry regulator FINRA recently expressed concerns over municipal bond sales to retail investors that included a specific focus on the municipal gas bonds backed by Lehman discussed above that were sold to retail investors.
“I’m hopeful regulators will enact reforms to protect future municipal bond investors, but unfortunately there are a great many investors who have already been overcharged for bonds and who have already been exposed to far greater bond investing risks than they were led to believe by brokers,” Vernon said.
Vernon Healy is a Naples, Florida based law firm that assists investors nationwide in recovering significant losses caused by all manner of financial fraud and negligence in both court and arbitration.
For more information, contact:
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law
Toll Free: (877) 649-5394