CITIGROUP TAKES MAJOR HIT IN FINRA ARBITRATION

In what is being reported as the largest Award ever issued by a FINRA panel in favor of an individual investor, Citigroup was ordered to pay over $50 million to two individual investors. The Award includes $17 million in punitive damages and $3 million in legal fees, despite severe limits on the ability to garner punitives and fees in FINRA arbitrations.

As reported in yesterday's Wall Street Journal, the two victorious investors dealt with the same broker at SmithBarney. Beyond the magnitude of the Award, this case is highly unusual in that the broker testified on behalf of the investors. It is unfortunate that this is such an unusual event because the broker's purported testimony is hardly incredible—the broker-dealer misled the broker about the level of risk associated with the municipal bond fund at issue.

Cosgrove Law, LLC has a claim pending against Fisher Investments in which its client alleges that it was misled as to the risk associated with Fisher's 100% equity fund in 2008. According to Fisher's marketing materials, the portfolio was designed to avoid substantial losses due to asset allocations within the portfolio and the hands-on stewardship of Mr. Fischer and his Investment Policy Committee. Ironically, a Fisher Analyst recently published an article in which he states, in part, “Folks...constantly exhibit huge overconfidence in their own great ideas, and display continuous belief they somehow have insights the rest of the world hasn't thought of.” According to the Fisher Investments Education Center, however, “The Fisher Investment Policy Committee…continuously monitors these drivers to ascertain if any of them are indicating an extreme reading, and if so, whether the market has discounted the factors yet. Only material readings not believed to be fully discounted into pricing are acted upon.” Fisher Investments also purports to “discover unique sources of information to exploit inefficiencies uncovered through unique analysis of widely available information.”

Both the Cosgrove Law, LLC client and the Citigroup clients lost over 50% of their portfolio’s value during the market downturn. Fisher Investments denies liability, as did Citigroup. The SEC is reportedly investigating Citigroup, and it will not confirm or deny the existence of an investigation of Fisher Investments.

The Wall Street Journal article can be located at www.wsj.com. An article regarding a prior SEC and NASD investigation of Fisher Investments can be located at www.businessweek.com.

Another Belated Trend in the Investment World?: Litigation Over Secondary-Market Life Insurance Policy Sales Practices

A few years ago, I represented a law professor in his quest for relief after purchasing life insurance policies on the terminally immortal. The defendant/respondent life insurance/investment-advisory Representative encouraged the good professor to liquidate hundreds of thousands of dollars in mutual funds and to invest those funds in to “viaticals,” in addition to an ever-rotating team of variable annuities. And like a school kid in February, the Representative moved from one RIA to another, spreading an influenza-like strain of failure-to-supervise liability.

It wasn't too long ago that I followed with fascination the story of the untimely death of the mother-in-law of the former CEO of life insurance company Conseco, Inc. The beneficiary of a $15 million life insurance policy on the elderly woman--whose body was found in a bath tub in 2008--was a company owned by a young male companion whose company she shared on the night of her death. The woman's family has brought a federal lawsuit against the policy issuer – American International Group. The Wall Street Journal covered the story with a page-one article in April of last year as well as a follow up article in October of 2010.

In the viatical case I handled, the purchaser of the policy in the secondary market suffered from ongoing premium payments years beyond those estimated in fraudulent life-expectancy documentation provided at the time of purchase. The fraudulent medicals went hand-in-hand with negligent, if not deceptive investment advice. Securities regulators prone to ADD symptomology fixated their fickle eyes upon “viaticals” back in the late 1990's and the first few years of this decade. At the time, viaticals structured upon policies insuring the lives of those suffering from – and unexpectedly still living with – AIDS was the focus on the passing scrutiny. But, in recent months it has been the issuers of the policies that that have brought legal actions, claiming that their underwriters were defrauded with applications failing to disclose a secondary-market purpose.

In the most recent iteration of the litigation fall-out, the insureds themselves are bringing legal actions. Yesterday's Wall Street Journal provided us with an example. Bruce Porter claims that his insurance agent defrauded him with false promises regarding the marketability of a policy on Mr. Porter's life, the premiums for which were being financed by a trust funded by a bank loan Mr. Porter allegedly guaranteed without his knowledge.

I just recently settled a case in which my client was assured that the 20 years of $118,000 annual premiums on a variable whole life policy would be satisfied in their entirety with the cash value of the policy. Not so much.

Most observers attribute the recent uptick of litigation in this area to the market woes of the last three years. I , for one, am unsure that there was actually any abatement in the litigation or finger pointing in this murky area of the already murky “insurance-as-investment” market.

COSGROVE LAW, LLC TAKES ON FISHER INVESTMENTS

Cosgrove Law, LLC has locked horns with nationally known investment adviser Fisher Investments, Inc. on behalf of one of its clients. The matter is currently being litigated in the JAMS arbitration forum. Cosgrove Law, LLC has brought claims alleging, among other things, that Fisher Investments failed to satisfy its fiduciary duty to its clients by funneling their clients in to inappropriately aggressive portfolios comprised almost entirely of equities. Needless to say, these portfolios got destroyed by excess market exposure in 2008. Cosgrove Law, LLC has also asserted claims for unlawful merchandising, unregistered investment advice, negligent representations and an unlawfully fraudulent investment advice scheme. Fisher Investments Inc' CEO is best-selling author and Forbes columnist Ken Fisher. Mr. Fisher was recently deposed by Mr. Cosgrove in San Francisco. The case should go to hearing or trial in the first half of 2010. Stay tuned.