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Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How do You Recover Your Investment Losses?

If you are reading this article, we are guessing you had a bad experience recently in either a securities-backed line of credit (“SBL”) or margin account that suffered margin calls and was liquidated without notice, causing you to realize losses. Ordinarily, investors with margin calls receive 3 to 5 days to meet them; and if that happened, the value of the securities in your account might have increased within that period and the firm might have erased the margin call and might not have liquidated your account. If you are an investor who has experienced margin calls in the past, and that is your only complaint then, read no further because when you signed the account agreement with the brokerage firm you chose to do business with, you probably gave it the right to liquidate all of the securities in your account at any time without notice. On the other hand, if you are an investor with little experience or one with a modest financial condition who was talked into opening a securities-backed line of credit account without being advised of the true nature, mechanics, and/or risks of opening such an account, then you should call us now! Alternatively, if you are an investor who needed to withdraw money for a house or to pay for your taxes or child’s education but was talked into holding a risky or concentrated portfolio of stocks and/or junk bonds in a pledged collateral account for a credit-line or a margin account, then we can probably help you recover your investment losses as well. The key to a successful recovery of your investment loss is not to focus on the brokerage firm’s liquidation of the securities in your account without notice. Instead, the focus on your case should be on what you were told and whether the recommendation was suitable for you before you opened the account and suffered the liquidation. Should either one of those leveraged accounts have been recommended at all by a financial advisor in the first place? Should the broker-dealer have even allowed you to open one of those type of accounts based upon your investment profile and financial condition? Did the financial advisor misrepresent the nature, mechanics, and/or risks of the securities backed line of credit and/or margin account? Once the accounts were opened, did the financial advisor make unsuitable securities recommendations to purchase especially volatile securities in that account? Did the financial advisor recommend that you over-concentrate your investment portfolio in stocks in any particular sector (such as the oil and gas, hospitality, gaming, air travel, and/or cruise industry) in the leveraged account? Those are the facts and circumstances that probably caused losses but may give you an opportunity to recover all or some of your losses from your stockbrokerage firm. The leverage and liquidation to meet margin calls with or without notice probably only magnified and accelerated the inevitable losses. Your stockbroker had a duty to not only understand but explain the nature, mechanics and all of the risks associated with those investments before he/she sold them to you! Your stockbroker also had a duty to make sure they were suitable investments before they were recommended in light of your risk tolerance and financial condition and not over-concentrate investments in volatile emerging market stocks or any industry in your portfolio. Leveraged investments are not suitable for clients with conservative and moderate risk tolerance. All securities-backed lines of credit and margin accounts employ leverage, and leverage is a “speculative” investment strategy. Individuals close to retirement who are depending upon income from their investment portfolio cannot afford to speculate in leveraged accounts. If your financial advisor misrepresented the nature, mechanics, and/or risks of those accounts; or the investments or the risks were not fully explained; or you were over-concentrated (more than 10%) in any investment sector; or if it was not in your best interest (or unsuitable); and your investments were liquidated with or without notice due to margin calls, you may have the right to bring an arbitration claim against your financial advisor and/or the brokerage firm who employed him. One thing is certain, there is no way you will recover your losses in any SBL or margin account case without some legal action. At The Law Offices of Robert Wayne Pearce, P.A., we represent investors in investment disputes for misrepresented and unsuitable investments in FINRA arbitration and mediation proceedings. The claims we file are for fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of SEC and FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla españolCONTACT US FOR A FREE INITIAL CONSULTATION WITH EXPERIENCED SBL AND MARGIN ACCOUNT INVESTMENT FINRA ARBITRATIONS ATTORNEYS The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many SBL and margin account “blow-out” cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and who work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in SBL and margin investment cases and all kinds of securities law and investment disputes, contact the firm by phone at 561-338-0037, toll free at 800-732-2889, or via e-mail.

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Regulation Best Interest (Reg. BI): Better But Not the Best!

Finally, ten years after the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) was enacted to bring about sweeping changes to the securities industry, the best regulation the U.S. Securities & Exchange Commission (“SEC”) could pass, SEC Regulation Best Interest, is now the law governing broker-dealers giving investment advice to retail customers. Although the SEC had the authority to impose a uniform and expansive “Fiduciary Duty” standard throughout the country upon broker-dealers and investment advisors, it yielded to the stock brokerage industry demands and enacted Regulation Best Interest (“Reg. BI”), which is better than the Financial Industry Regulatory Authority (“FINRA”) “Suitability Rule,” but not the best that it could have been done to protect investors. Last month FINRA amended its Suitability Rule to conform with SEC Reg. BI and made it clear that stockbrokers now uniformly have duties related to disclosure, care, conflicts and compliance, which are equivalent to the common law “fiduciary duty” standard when making recommendations to retail customers. See, FINRA Regulatory Notice 20-18. 1 The controversy of the standard of care applicable to stockbrokers in a non-discretionary account relationship with their customers has been ongoing for decades. Broker-dealers have long advocated for two standards: one standard being a non-fiduciary standard governing the non-discretionary account relationship and a fiduciary standard only governing the stockbroker with a discretionary account relationship. On the other hand, the investment advisory firms have been crying foul for years and advocating for a level playing field where stockbrokers and investment advisers alike are both held to the same “fiduciary” standard in their entire relationship with customers. The investment advisory industry recognized the importance of working in the “best interest” of their clients all of the time and the damage that stockbrokers (who are held to a lower standard) do to the reputation of “investment advisers,” especially those stockbrokers palming off the name “advisers” when doing business with the public. Stockbrokers were able to take advantage of the goodwill and trust associated with “investment advisers” but not accountable to their clients as “fiduciaries.” At the very least, the public was confused about the kind of “adviser” they were dealing with and the degree of investment professional duties the “adviser” owed to them. The SEC recognized that although Congress, in enacting Dodd-Frank authorized it to impose a uniform “fiduciary” standard on stockbrokers, it was not going to do so. It made that decision after the Trump administration took control. Are you surprised? The SEC’s public rationale was a bogus cost factor consideration; it reasoned if the standard was elevated broker-dealers would have to increase the transaction costs to investors with non-discretionary accounts to offset the increased compliance costs. The SEC supposedly wanted to avoid destroying the commission-based broker-dealer business model but expand broker-dealer and stockbroker obligations when they give advice to retail investors. The compromise was Reg. BI which I will attempt to summarize below. First, it is important to point out the new regulation only imposes new obligations upon broker-dealers and their associated persons when making recommendations to natural persons or their personal representative, such as trustees, executors, etc., who are retail customers (not institutions). It’s unclear whether an individual’s wholly owned corporation or family limited partnership would reap any benefit from the new “best interest” rule even though those entities would probably be relying on recommendations for “personal, family or household purposes.” Second, Reg. BI only applies to broker-dealers and their stockbrokers when they make recommendations of any securities transaction or investment strategy involving securities (including securities account type recommendations) to a retail customer. Next, in general terms, the “Best Interest” rule imposes four obligations upon broker-dealers and their associated persons: Disclosure: to provide disclosures about the type of relationships they will have with their customer before or at the time of any recommendations (which will probably be buried somewhere in their website or the fine print of the 80-100 page customer agreement and disclosure booklets only made available via the internet when the account is opened). Due Care: to exercise reasonable diligence, care and skill in making the recommendation. Conflicts: to establish, maintain, and enforce written policies and procedures reasonably designed to address conflicts of interest, preferably to avoid or mitigate them and if they cannot be avoided to make sure they are disclosed to the retail customer in a way the customer will understand the conflict and appreciate its impact on the recommendation. Compliance: to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg. BI. It goes without saying that the new SEC rule also requires broker-dealers to comply with new recordkeeping requirements to be sure Reg. BI is being implemented and enforced. To retail investors, the “Due Care” and “Conflict” obligations will hopefully have the greatest impact. This is because up until this point in time, broker-dealers and their stockbrokers would say, if we can match an investment recommendation to a customer’s profile, we have done our job and complied with FINRA Rule 2111 (formerly NASD Rule 2310), end of story. For example, in the past, the recommendation of high fee proprietary structured products might fit the customer’s profile and be a suitable recommendation. However, now that type of investment might not be in the “best interest” of the retail customer, particularly if the risk-reward analysis of another non-proprietary, plain vanilla, and less expensive security is the same. To make it clear that Rule 2111 was no longer the rule when it came to future recommendations to retail customers, FINRA amended its rule (effective June 30, 2020) to state that Rule 2111 no longer applies to recommendations governed by Reg. BI because Reg. BI incorporates and enhances the principles found in Rule 2111. Some writers of blogs for the defense bar have focused only on the Due Care obligation and said nothing has changed from the old suitability rule. If that were true, the SEC and FINRA would have said so and the new rule would be meaningless! Instead FINRA said it “incorporates and enhances the...

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FINRA Arbitration: What To Expect And Why You Should Choose Our Law Firm

If you are reading this article, you are probably an investor who has lost a substantial amount of money, Googled “Securities Arbitration Attorney,” clicked on a number of attorney websites, and maybe even spoken with a so-called “Securities Arbitration Lawyer” who told you after a five minute telephone call that “you have a great case;” “you need to sign a retainer agreement on a ‘contingency fee’ basis;” and “you need to act now because the statute of limitations is going to run.” You may want to ask yourself whether that attorney is as bad as the stockbrokers you were concerned about in the first place. Some attorneys will rush you to hire them before you speak to anyone else and not tell you about the clause in their contract that allows them to drop you as a client later on if they cannot get a quick settlement. They will solicit you without a real case evaluation and/or without any explanation of Financial Industry Regulatory Authority (“FINRA”) proceedings. The scenario above is not the way for attorneys to properly serve clients, and it is not the way we do business at The Law Offices of Robert Wayne Pearce, P.A. If you are planning on speaking or meeting with us or any other attorney, let us introduce you to the FINRA arbitration proceeding by giving you some information in advance to help you understand the different stages of FINRA arbitration, what you should expect from skilled and experienced FINRA securities arbitration lawyers, and what you should expect to personally do in order to have the best outcome: 1. CASE REVIEW Before we accept any case, our attorneys conduct a thorough interview of you to understand: the nature of your relationship with your broker; the level of your financial sophistication; the representations or promises made to you in connection with any investment recommendation; and your personal investment experience, investment objectives, and financial condition at the time of any recommendation or relevant time period. We will review your account records, including, but not limited to: account statements; confirmations; new account opening documents; contracts; correspondence; emails; presentations; and marketing materials that you may have received in connection with your accounts and the investments made therein, etc. Investors rarely contact our office without knowing whether they have suffered investment losses, but sometimes that occurs because the particular investor does not have all their records and/or is unsophisticated, inexperienced, and unable to decipher the account records they retained. If you retained your account statements and provide them, we should be able to at least estimate (under the different measures of damages) the amount you may be able to recover if you win your arbitration proceeding. If you do not have those records, we will help you retrieve them without any obligation so that all of us are fully aware of the amount we may possibly recover for you if we are successful in arbitration. In addition, we will spend the time necessary to get to know you and the facts of your dispute to have a good chance of success in proving your case. After all, it does not benefit either you or our law firm to file an arbitration claim that, months or years later, we discover has little chance of success. Ultimately, we want to know, and so should you, whether or not you have a claim with merit and are likely to recover damages if we go through a full arbitration proceeding. The fact is Attorney Pearce does not take cases unless he and his team believe you suffered an injustice and are likely to succeed at the final arbitration hearing. 2. THE STATEMENT OF CLAIM Many of these young and/or inexperienced attorneys with flashy websites and Google Ad Word advertisements (to get them to the top of the page) are more interested in marketing and signing up cases to settle early than they are in going all the way and winning your case at a final arbitration hearing for a just result. Oftentimes, they will insert your name in a form pleading, one that they use in every case, which states little more than if you (the “Claimant”) were an investor with brokerage firm ABC and stockbroker XYZ (the “Respondent(s)”) made misrepresentations, failed to disclose facts, made unsuitable recommendations, and violated laws 123, you are entitled to damages. They are unwilling and/or fail to take the time necessary to study the strengths and weaknesses of your case and write a detailed Statement of Claim (also referred to as the “Complaint”) with all of the relevant facts necessary to inform the arbitrators what happened and why you are entitled to recover your damages. That is not the way Attorney Pearce, with over 40 years of experience with investment disputes, files a Statement of Claim, the first and sometimes the only document that the arbitrators will read before the final arbitration hearing. 3. THE ANSWER After we file the Statement of Claim and it is served, the brokerage firm and/or stockbroker will have forty-five (45) days to file the Answer to your allegations. Oftentimes, the Respondent(s) will ask for an extension of time to file the Answer and we will give it to them provided no other deadline is extended, particularly the deadlines associated with the selection of arbitrators and scheduling of the initial pre-hearing conference, where all of the other important deadlines and dates of the final arbitration hearing are scheduled. Some clients have asked why would you give them extra time to file their best Answer? Well, we believe after 40 years of doing these FINRA arbitrations, that it is better to know the story they intend to tell the arbitrators early on and lock them in so we can come up with the best strategy and all the case law necessary to overcome their best defenses and win your arbitration. In other words, we would rather know about the defense early on than be surprised at the final hearing. Besides, Respondent(s) can always try to file...

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A Stockbroker’s Introduction to FINRA Examinations and Investigations

Brokers and financial advisors oftentimes do not understand what their responsibilities and obligations are and what may result from a Financial Industry Regulatory Authority (FINRA) examination or investigation. Many brokers do not even know the role that FINRA plays within the industry. This may be due to the fact that FINRA, a self-regulatory organization, is not a government entity and cannot sentence financial professionals to jail time for violation of industry rules and regulations. Nevertheless, all broker-dealers doing business with members of the public must register with FINRA. As registered members, broker-dealers, and the brokers working for them, have agreed to abide by industry rules and regulations, which include FINRA rules. In order to check for compliance with industry rules and regulations, FINRA conducts routine examinations or investigations of broker-dealers, which consist of inspections occurring once every one, two, or three years depending on the firm’s business model, its size, and its perceived risks. FINRA may also conduct an examination if it has reason to believe that a rule violation has occurred – an examination may be initiated based on a Form U-4 or U-5 disclosure, a customer complaint, an arbitration claim, information received from another regulator or law enforcement agency, or information received in the form of tip from a competing broker-dealer. The purpose of the examinations is to make sure that a firm is operating with sufficient capital, is properly supervising it employees and business operations, and has proper internal systems and controls in place. The examinations generally focus on unethical sales practice behavior such as conversion of funds, forgery, theft, selling away, undisclosed outside business activities, unauthorized trading, unsuitable recommendations, and misrepresentations or omissions. Consulting an attorney is highly recommended when facing a FINRA examination because all brokerage firm “Members” and stockbroker “Associate Members” of FINRA have agreed to be subject to its jurisdiction, rules, procedures, disciplinary proceedings and sanctions which could have serious consequences. These disciplinary proceedings are like trials in a courtroom but under FINRA’s lopsided rules and procedures to the stockbroker’s disadvantage. You need to be on guard – FINRA can make referrals to the U.S. Securities & Exchange Commission (“SEC”) for injunctions, fines and/or to federal and state prosecutors for criminal prosecution. THE EXAMINATION PROCESS Upon initiating an examination, FINRA examiners will usually send a written request for information to the broker-dealer as well as to the broker, which seeks basic information about a complaint or other disclosure. A request letter to the broker will often ask for a written response to the allegation, and a request letter to the firm will usually seek a written narrative of the complaint or other disclosure and the firm’s findings. A request letter to a firm may also include a request for relevant documents such as communications with customers and account records. Once FINRA has obtained such information, it will determine whether the issue is one over which FINRA has jurisdiction. FINRA will also determine whether there is a potential rule violation or if any other threshold has been met, which would allow it to continue to review the matter at issue. Examiners obtain the vast majority of information needed to conduct an investigation through written correspondence. Letters requesting information and documents and responses to specific questions sent to firms, brokers, and involved personnel are not uncommon. In many cases, FINRA will require the broker to respond to a specific question with a signed, written statement. Brokers tend to receive two to four or more of such letters. In addition, examiners may conduct telephone interviews with brokers, managers, compliance employees, and customers to obtain relevant information. Although these interviews are considered informal, brokers should proceed with caution because anything they say may be used against them. The majority of examinations that lead to a disciplinary action include an on-the-record interview (OTR), which requires the broker or other associated persons of a firm to meet with the regulators. OTRs are similar to depositions taken in civil proceedings as the witness is sworn to tell the truth, a court reporter is present to record the interview, and transcript of the interview is prepared. Seeing as brokers are permitted to have a lawyer appear at the OTRs with them, brokers are encouraged to obtain legal counsel to assist in preparing for an OTR, for the OTR proceeding itself, and for any future enforcement action. As soon as the examiners believe that they have gathered all the relevant information, documents, and other evidence, a report of the examination is prepared and submitted to a supervisor. The supervisor’s role is to review the report and the evidence and make a recommendation to close the file without action, to pursue some type of informal disciplinary action, or to pursue a formal disciplinary action – matters may also be resolved through a combination of the foregoing choices. FINRA JURISDICTION AND IMPORTANT RULES Brokers should know that FINRA does not have jurisdiction over individuals not affiliated with the securities industry. Therefore, since FINRA cannot ask for or force cooperation from non-affiliated individuals, many examinations are never fully completed if such cooperation is necessary to establish evidence of a violation. This does not mean that brokers should encourage customers to avoid or not cooperate with the authorities because this is a violation of FINRA rules itself, which can lead to sanctions, Brokers should also know that they themselves are not obligated to respond to FINRA requests for information, but this decision may come with a significant price, such as a permanent ban from the industry. Still, FINRA makes use of Rule 8210, which serves as subpoena for FINRA examinations. Rule 8210 requires broker-dealers, registered representatives, and any other individuals subject to FINRA’s jurisdiction to cooperate in an examination and provide written, electronic, and oral information when requested. If a broker chooses not to respond, he or she may be barred from association from any FINRA member firm in any capacity in addition to other sanctions. This consequence may seem contrary to one’s 5th Amendment right...

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Investing in Options Market

INTRODUCTION Nowadays, many investors’ portfolios include investments such as stocks, bonds, and mutual funds. But the variety of securities you have at your disposal does not end there. Another type of security, called an option, presents a world of opportunity to sophisticated investors. The power of options lies in their versatility. They enable you to adapt or adjust your position according to any situation that arises. Options can be as speculative or as conservative as you want. This means you can do everything from protecting a position from a decline to outright betting on the movement of a market or index. This versatility, however, does not come without its costs. Options are complex securities and can be extremely risky. This is why, when trading options, you’ll see a disclaimer like the following: Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital. Despite what anybody tells you, option trading involves risk, especially if you don’t know what you are doing. Because of this, many people suggest you steer clear of options. The Law Offices of Robert Wayne Pearce, P.A. focuses its practice on securities, commodities and other investment disputes in courtroom litigation, arbitration and mediation proceedings. We have over 40 years experience representing domestic and foreign investors from offices located in Boca Raton, West Palm Beach, and Fort Lauderdale, Florida. We handle options fraud and other options stock broker misconduct claims. It is important for all investors to understand the fundamentals of investing and we are pleased to share some of the basics in investing in options to help you understand options and avoid disputes. WHAT ARE OPTIONS? An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties. The Chicago Board of Options Exchange (“CBOE”) brochure is a must read before investing in options. CALLS AND PUTS The two types of options are calls and puts: A call gives the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires. A put gives the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires. PARTICIPANTS IN THE OPTIONS MARKET There are four types of participants in options markets depending on the position they take: Buyers of calls Sellers of calls Buyers of puts Sellers of puts People who buy options are called holders and those who sell options are called writers; furthermore, buyers are said to have long positions, and sellers are said to have short positions. Here is the important distinction between buyers and sellers: Call holders and put holders (buyers) are not obligated to buy or sell. They have the choice to exercise their rights if they choose. Call writers and put writers (sellers), however, are obligated to buy or sell. This means that a seller may be required to make good on a promise to buy or sell. Selling options is more complicated and can be riskier than buying them. THE LINGO To trade options, you’ll have to know the terminology associated with the options market. The price at which an underlying stock can be purchased or sold is called the strike price. This is the price a stock price must go above (for calls) or go below (for puts) before a position can be exercised for a profit. All of this must occur before the expiration date. An option that is traded on a national options exchange such as the Chicago Board Options Exchange (CBOE) is known as a listed option. These have fixed strike prices and expiration dates. Each listed option represents 100 shares of company stock (known as a contract). For call options, the option is said to be in‑the‑money if the share price is above the strike price. A put option is in‑the‑money when the share price is below the strike price. The amount by which an option is in‑the‑money is referred to as intrinsic value. The total cost (the price) of an option is called the premium. This price is determined by factors including the stock price, strike price, time remaining until expiration (time value) and volatility. Because of all these factors, determining the premium of an option is complicated and beyond the scope of this tutorial. WHY USE OPTIONS? There are two main reasons why an investor would use options: to speculate and to hedge. SPECULATION You can think of speculation as betting on the movement of a security. The advantage of options is that you aren’t limited to making a profit only when the market goes up. Because of the versatility of options, you can also make money when the market goes down or even sideways. Speculation is the territory in which the big money is made ‑ and lost. The use of options in this manner is the reason options have the reputation of being risky. This is because when you buy an option, you have to be correct in determining not only the direction of the stock’s movement, but also the magnitude and the timing of this movement. To succeed, you must correctly predict whether a stock will go up or down, and you have to be right about how much the price will change as well as the time frame it will take for all this to happen. And don’t forget commissions! The combinations of these factors means...

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Investing in Mutual Funds: Part Two

IMPORTANT FACTORS TO CONSIDER BEFORE INVESTING Before investing in a suitable mutual fund, it is important that you determine your long-term investment strategies and tolerance for risk. The effects of tax consequences and fees on your returns should also be considered. DEGREES OF RISK Not one mutual fund is free of risk, which means you may lose some or all of the money your invested principal. If you are in need of liquidity when the value of your fund goes down, you will suffer a capital loss. Dividend or interest payments are also subject to change as market conditions fluctuate. It is imperative that you read a fund’s prospectus and shareholder report to investigate the fund’s investment strategy and potential risks. Funds exhibiting higher rates of return may take risks that are beyond your tolerance and, therefore, inconsistent with your objectives. FEES AND EXPENSES Operating a mutual fund involves costs, as does any business. Some of the costs include transaction costs, advisory fees and advertising and distribution expenses. These costs are passed along to investors through fees and expenses. It is important that you understand that these charges can lower your returns. Certain funds assess “shareholder fees” on investors whenever shares are bought and sold. However, every fund assesses regular, recurring “operating expenses.” Operating expenses are typically paid out of fund assets, which means that investors pay them. In accordance with SEC rules, funds must disclose shareholder fees and operating expenses in a “fee table” located near the front of a fund’s prospectus. The following list will help you understand the various fees a fund may impose: SHAREHOLDER FEES: Sales Charge or Load on Purchases – a charged assessed when you buy mutual fund shares. Also known as a “front-end load,” the broker responsible for the purchase of the shares receives this fee. A front-end load reduces the amount of your initial investment. For example, assume you have $500 and want to invest it in a mutual fund with a 6% front-end load. The $30 sales load assessed is taken from the initial investment, and the remaining $470 will be invested in the fund. FINRA rules cap front-end loads at no more than 8.5% of your initial investment. Purchase Fee – another charge assessed by some mutual funds when shareholders buy shares. The fund, not the broker, receives the purchase fee, which is typically imposed to cover some of the fund’s costs associated with the purchase transaction. Deferred Sales Charge or Load — a charged assessed when you sell mutual fund shares. Also known as a “back-end load” or “contingent deferred sales load,” the broker responsible for the sale of the shares receives this fee. The amount of the load depends on how long the investor has held his or her shares and typically decreases to zero if shares are held for long enough. Redemption Fee — a fee assessed when shareholders sell or redeem shares. A redemption fee is paid to the fund and is typically used to cover costs associated with the sale of shares. Not all funds charge a redemption fee. Exchange Fee — a fee assessed on shareholders if they exchange or transfer to another fund within the same “family of funds.” Not all funds an exchange fee. Account Fee — a fee assessed on investors for the maintenance of their accounts. For example, an account whose value is less than a certain dollar amount may be charged an account fee. Not all funds separately impose an account fee. Management Fees — fees assessed to pay the fund’s investment adviser for portfolio management and administration of the fund. Management fees are paid out of fund assets and are distinct from “Other Expenses.” Distribution and/or Service Fees (“12b-1” Fees) — fees assessed to cover the marketing and selling of fund shares and the costs of providing shareholder services. Distribution fees are paid out of fund assets and include fees to compensate brokers and prepare sales literature and prospectuses for new investors. “Shareholder Service Fees” are assessed to provide responses to investor inquiries and to provide investors with information about their investments. Other Expenses — expenses related to custodial, legal and accounting, transfer agent, and other administrative expenses that are not already included in management or 12b-1 fees. Total Annual Fund Operating Expenses (“Expense Ratio”) — the total amount of a fund’s annual fund operating expenses. The ratio is expressed as a percentage of the fund’s average net assets and is used to compare funds. “NO-LOAD” FUNDS Some funds coin themselves “no-load” and, therefore, do not charge any type of sales load. However, no-load funds may assess fees that are not sales loads, such as purchase, redemption, exchange or transfer, and account fees. In addition, no-load funds will have operating costs or expenses. A fund’s fee table should be reviewed before investing in a fund, including no-load funds. Even the slightest difference in fees can cause substantial differences in returns over time. For instance, a $10,000 investment in a fund that returned 10% return per year before expenses and had annual operating expenses of 1.5% would amount to $49,725 after 20 years. If the fund’s expenses were 0.5%, the return would amount to $60,858 after 20 years – a difference of 18%! BREAKPOINTS Mutual funds that charge front-end sales loads will offer a discount for larger investments. The sizes of the investments required to obtain a lower sales load are referred to as “breakpoints.” Funds are not required to offer breakpoints, but, if breakpoints are offered, they must be disclosed. Beware of a recommendation to buy mutual funds shares for an amount that is “just below” the fund’s sales load breakpoint. It is possible that your broker is simply trying to earn a higher commission. Breakpoint formulas are created by each fund and calculate whether an investor is entitled to receive a breakpoint. Therefore, breakpoint information can be obtained from your financial advisor or directly from the fund. It is recommended that you look into how a particular...

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Attorneys Who Recover Exchange Traded Fund (ETF) and Exchange Traded Note (ETN) Investment Losses

Brokers and their investor clients may think they understand these investments but we at The Law Offices of Robert Wayne Pearce, P.A. are seeing and hearing otherwise. According to Attorney Pearce one widespread misconception is that they trade like open ended mutual funds; wrong, they trade like closed end funds, at a premium or discount to their actual net asset value. Many of the niche ETFs in the marketplace are very small and illiquid funds and consequently very volatile. Some ETFs and ETNs are heavily leveraged, utilize short trading strategies and invest in derivatives or hedge funds which compound the risk of loss. ETNs add credit risk of the issuers to the mix and so, the issuer due diligence is very important to an investment decision. Representing clients throughout Florida and nationwide ETFs have become more complex in recent years. Wall Street, in its efforts to generate more profits, has created numerous ETFs that utilize leverage and focus on narrower market sectors, which increases risk for investors. Therefore, investors considering ETFs should evaluate each ETF investment individually and not assume all ETFs are alike. Two types of ETFs that pose a significant risk to investors’ portfolios are leveraged and inverse leveraged funds. Leverage is a technique used in the financial industry to multiply investment gains by using borrowed money. If, however, an investment is generating losses, money can be lost at a multiple rate due to the amount of money owed. Leveraged ETFs seek to deliver multiples of the performance of an index by using borrowed funds. Inverse leveraged funds also use borrowed funds to achieve multiples of the opposite of the movement of an index by employing a range of investment strategies such as swaps, futures contracts, and other derivative investments. Thus, leveraged and inverse leveraged funds can lose many times their value in a single day, which could ultimately lead to significant losses for investors. Exchange-traded notes (ETNs) are unsecured debt obligations, usually issued by a bank or other type of financial institution, that trade on an exchange. They are different from traditional bonds in many ways. For example, ETNs usually do not make any interest payments to investors. Instead, the issuer purports to pay the holder of the ETN an amount determined by the performance of the underlying index on the ETN’s maturity date – 10, 30, or in some cases even 40 years from issuance – minus any fees. ETNs trade on exchanges throughout the day at prices determined by the market, similar to stocks. ETNs do not buy or hold assets to duplicate the performance of the underlying index, and they are not registered investment companies and therefore are not subject to the same registration, disclosure, and other regulatory requirements as most ETFs or mutual funds. For more information about ETFs and ETNs and our cases and investigations, click on the links below: UBS ETRAC Exchange Traded Note Investors: How Do You Recover Your UBS ETRAC Investment Losses? Investing in ETFs FREE INITIAL CONSULTATION WITH ETF AND ETN INVESTMENT DISPUTE ATTORNEYS The Law Offices of Robert Wayne Pearce, P.A. understands what is at stake in securities, commodities and ETF and ETN investment law matters and constantly strives to secure the most favorable possible result. Attorney Pearce provides a complete review of your case and fully explains your legal options. The firm works to ensure that you have all of the information necessary to make a sound decision before any action is taken in your case. For dedicated representation by a law firm with substantial experience in all kinds of securities, commodities and investment disputes, contact the firm by telephone at 561-338-0037 or toll free at 800-732-2889 or via e-mail.

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Investing in Mutual Funds: Part One

WHAT ARE THEY? Over the past decade, American investors have increasingly preferred mutual funds to accumulate savings for retirement. Many mutual funds offer diversification and professional management. However, as with other investment choices, investing in mutual funds does not go without risk. It pays to understand both the pros and cons of mutual fund investing and how to go about choosing a fund that meets your goals and tolerance for risk, as well as fees and tax implications that may diminish your returns. WHAT ARE MUTUAL FUNDS? A mutual fund company pools money from a number of investors and invests in stocks, bonds, short-term cash instruments, or a combination of these investments. The “portfolio” represents the combined holdings of the mutual fund, and each mutual fund share represents a portion of an investor’s ownership of the holdings in the portfolio. Mutual fund characteristics include: Mutual fund shares are purchased from the fund itself (or from the fund through a broker) instead of from the secondary market, such as the NYSE or Nasdaq. The net asset value or “NAV” is the price investors pay for each share plus any applicable fees or “sales loads” at the time of purchase. Investors can sell their shares back to the mutual fund or to a broker acting for the fund. Mutual funds are created and sold to new investors on a continuing basis. However, some funds will stop selling shares, for instance, when the fund has grown too big. “Investment advisers” registered with the SEC manage the funds’ portfolios ADVANTAGES AND DISADVANTAGES Mutual funds have their advantages and disadvantages. Investors should consider their unique circumstances before deciding whether mutual fund investing would be advantageous. Some of the reasons mutual funds are advantageous and attractive include: Qualified Management – Skilled money managers research, analyze, select, and actively follow the performance of the fund’s holdings. Diversification – Diversification, or “don’t put all your eggs in one basket, is the crux of investing. An investment portfolio should consist of a wide range of industry sectors and companies to help lower your risk. Mutual funds facilitate diversification through ownership of mutual fund shares, which represent ownership in individual stocks, bonds, or other holdings. Affordability – Mutual funds provide access to markets to investors who do not have the financial ability to purchase a wide range of securities. Liquidity – Mutual fund shares can be redeemed at the current NAV at any time. Investors should consider the potential impact of any fees and charges prior to redemption. A few possible disadvantages include: Costs Regardless of Poor Performance – Sales charges, annual fees, and other expenses, regardless of how the fund performs, are always assessed. Taxes on any capital gains may also be assessed depending on the timing of the investment. Control – Investors can rarely determine the exact holdings of a fund’s portfolio at any given time. In addition, they cannot control the fund manager’s purchase or sale transactions or the timing of those trades. Price Ambiguity – Individual stock price information can be obtained by simply looking up quotes online or by calling your financial advisor. By contrast, mutual fund prices will depend on the fund’s NAV, which might not calculated until many hours after an order has been placed. Mutual fund NAVs are calculated at least once every business day, usually after the market close. DIFFERENT TYPES OF FUNDS Investors interested in mutual funds have a plethora of choices. Before investing in a fund, it is important that you investigate the investment strategy and risks of the fund and determine whether it fits your investment profile. Developing an investment profile, or determining your goals and risk tolerances, is the first step of sound investing and is typically prepared with the assistance of an experienced financial professional. Mutual fund choice are more easily narrowed after the investment profile is completed. There are three main categories of mutual funds: “equity” or stock funds, “fixed income” or bond funds, and “money market” or short-term debt instrument funds. Each fund type will have its own risk/reward tradeoff; i.e., the higher the potential return, the higher the risk of loss. MONEY MARKET FUNDS Money market funds are less risky than other mutual funds because they can only invest in high-quality, short-term investments issued by the U.S., state, and local governments, as well as corporations. Money market funds try to maintain their NAVs $1.00 per share, but the NAV may fall below $1.00 if the fund performs poorly. Therefore, it is possible to lose money. Money market funds are also subject to “inflation risk.” Since money market funds pay dividends linked to short-term interest rates, their returns have been historically lower than both bond and stock funds. If inflation outpaces the dividend rate, investment returns will be eroded over time. BOND FUNDS Bond funds are generally riskier than money market funds because they aim to producing higher yields or returns. Unlike money market funds, the SEC does not restrict bond funds to high quality, short-term investments. Bond funds can vary dramatically in their risks and rewards because each fund holds different types of bond issuances. Some of the risks associated with bond funds include: Credit Risk — the possibility that a bond issuer will fail to pay their debt obligations to bondholders. Bond funds that invest primarily in U.S. government or insured bonds have less credit risk than high yield bond funds that invest in companies with poor credit ratings. Interest Rate Risk — the risk that an increase interest rates will cause the market value of bonds to go down. Even bond funds that invest only in U.S. government and insured bonds are subject to interest rate risk. Funds that focus on longer-term bonds tend to have greater interest rate risk than funds that invest in bonds with shorter durations. Prepayment Risk — the risk that a bond will be paid off before it matures. For example, if interest rates decrease, a government entity or company may decide to pay off (or...

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Investing in Mutual Funds: Part Three

Do not make assumptions about a fund based solely on its name, past performance, rankings, ratings and fund managers. Be sure to gather and review as much information about the fund in order to make a sound investment decision. SOURCES OF INFORMATION PROSPECTUS If you purchase mutual fund shares, the fund is required to send you a prospectus. However, you should obtain and read a fund’s prospectus in detail before investing. The prospectus contains valuable information, such the fund’s investment objectives, investment strategies, risks, fees and expenses, historic performance and managers and advisers. It also describes how to go about purchasing and redeeming shares. Mutual fund prospectuses may seem overwhelming at first, buy they contain a world of valuable information. Pursuant to SEC requirements, funds must include specific information in their prospectuses and must present important data in a standard format, which aids investors when comparing different funds. The following can be found in a mutual fund prospectus: Date of Issue — The date of the prospectus is located on the front cover. Mutual funds are required to update their prospectuses at least once a year, so checking the date will ensure that you have the most recent version. Risk/Return Bar Chart and Table — Bar charts can also be found near the front of the prospectus, usually after a description of the funds characteristics. The bar chart will display the fund’s annual returns for each of the last 10 years. If a fund has had an annual return for at least one calendar year, it must include the bar chart. Funds must also include a table outlining both before and after taxes for the past 1, 5 and 10-year periods, as well as broad-based index returns for purposes of comparison. Here’s what the table will look like: 1- 5-year(or 10-year (or year life of fund) life of fund) Return before taxes ____% ____% ____% Return after taxes on distributions ____% ____% ____% Return after taxes on distributionsand sale of fund shares ____% ____% ____% Index (reflects no deductions for[fees, expenses, or taxes]) ____% ____% ____% Note: you should thoroughly review any footnotes or supplemental explanations to make sure that you fully understand the bar chart and table data. In addition, take into account that the bar chart and table for a multiple-class fund will usually display performance data and returns for only one particular class. Fee Table — a table that breaks down a fund’s fees and expenses typically follows the bar chart and returns table. The fees shown usually include the shareholder fees and annual operating expenses. The fee table will also include a $10,000 hypothetical investment over a 1-, 3-, 5-, and 10-year period that will allow you to compare costs among different funds. Financial Highlights — This section contains audited information pertaining to the fund’s performance for each of the past 5 years and is located towards the back of the prospectus. NAVs, total returns, and numerous ratios, including expenses to average net assets, net income to average net assets and the portfolio turnover rate, can also be found in this section. PROFILE A mutual fund “profile” summarizes key information in the fund’s prospectus, such as the fund’s investment objectives and strategies, risks, past performance, fees and expenses, after-tax returns, investment adviser, and other information. STATEMENT OF ADDITIONAL INFORMATION (“SAI”) The SAI breaks down a fund’s operations in greater detail than the prospectus. The SAI will contain information pertaining to the fund’s financial statements; the history of the fund; fund borrowing and concentration parameters; the identity of officers, directors, and control persons; investment advisory and other services; commissions; tax issues; and performance. If requested, the fund must send you an SAI, also know as “Part B.” The back cover of the fund’s prospectus usually contains information for obtaining an SAI. SHAREHOLDER REPORTS A mutual fund also must provide shareholders with annual and semi-annual reports within 60 days after the end of the fund’s fiscal year and 60 days after the fund’s fiscal mid-year. These reports contain a variety of updated financial information, a list of the fund’s portfolio securities, and other information. The information in the shareholder reports will be current as of the date of the particular report (that is, the last day of the fund’s fiscal year for the annual report, and the last day of the fund’s fiscal mid-year for the semi-annual report). PAST PERFORMANCE Past performance should not be given as much importance as investors give it. Although rankings and ratings tout how well a fund has performed in the past, studies show that the future results are often different. This year’s best fund can easily become next year’s disappointment. Investors should first look into how long a fund has been in existence. Smaller, newly created funds sometimes have stellar short-term performance records as they may invest in only a few successful stocks that can have a large impact on performance. As these funds increase in size and add more stocks to their portfolios, each stock will have less of an impact on the funds’ overall performance. This makes it more difficult to repeat past results. Past performance does serve to indicate how volatile (or stable) a fund has been. Funds that have a history of volatility are generally riskier investments. If you are in need of liquidity to meet certain goals or obligations in the near-term, you should not risk investing in a historically volatile fund as you will most likely not have enough time to weather declines in the stock market. LOOKING BEYOND A FUND’S NAME A fund labeled “ABC Stock Fund” does not necessarily invest 100% of its cash in stocks. The SEC requires a mutual fund purporting to invest in a particular type of security to invest at least 80% of its assets in that specific security. Therefore, funds can still invest 20% of their holdings in other types of securities, including securities that may not be suitable for your investment objectives. BANK PRODUCTS VERSUS MUTUAL FUNDS Many...

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Note Linked Structured Products

The Law Offices of Robert Wayne Pearce, P.A. has had many cases involving these complex products made of a combination of securities, including notes (IOUs) linked to other assets such as a stock or basket of stocks or derivatives such as options which may be linked to other assets. According to Attorney Pearce, they have been misrepresented by many brokers as fixed income investments to lull retirees seeking to supplement their retirement income to invest in them. Many investors seeking safe investments were hooked by the false and misleading words “principal protected” in the names of the products, such as the Lehman Brothers’ “100% Principal Protected Notes” which, in reality, were no more than unsecured obligations of a company now in bankruptcy and nearly worthless. Representing clients throughout Florida and nationwide. Note-linked structured products were developed in the 1980s and sold primarily to institutional investors in the 1990s. In recent years, broker-dealers have increasingly targeted general retail investors. Although many of the note-linked products sold to retail investors are based upon “blue chip” and “household-name” stocks that comprise the S&P 500 or the NASDAQ -100 indexes, firm sales practices have created concerns about the manner in which the products are marketed to investors. Over $100 billion worth of note-linked structured products have been sold in recent years, often to senior investors looking to earn more interest while protecting their principal. In addition, they tend to pay higher commissions to brokers than conventional fixed income products do. FREE INITIAL CONSULTATION WITH “PRINCIPAL PROTECTED” NOTE INVESTMENT DISPUTE ATTORNEYS The Law Offices of Robert Wayne Pearce, P.A. understands what is at stake in Principal Protected Note investment law matters and constantly strives to secure the most favorable possible result. Attorney Pearce provides a complete review of your case and fully explains your legal options. The firm works to ensure that you have all of the information necessary to make a sound decision before any action is taken in your case. For dedicated representation by a law firm with substantial experience in all kinds of securities, commodities and investment disputes, contact the firm by telephone at 561-338-0037 or toll free at 800-732-2889 or via e-mail.

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Attorneys Who Recover UBS Puerto Rico Bond Fund Investment Losses

The Law Offices of Robert Wayne Pearce, P.A. is currently investigating the UBS Puerto Rico bond funds and seeking to recover losses of many investors residing in Puerto Rico. Many investors purchased the island’s debt through closed-end mutual funds, which in many cases held more than 70 percent of assets in Puerto Rican bonds and employed leverage. The steep decline in Puerto Rican bond prices is believed to be linked to worries about Puerto Rico’s shrinking economy, double-digit unemployment rate, and individual debt. Such fears ignited a wave of selling that briefly pushed some Puerto Rican bond yields to over 10 percent, which in turn caused bond prices to spiral downward. UBS Puerto Rico is the island’s market leader in closed-end funds, operating more than a dozen bond funds such as: Tax-Free Puerto Rico Fund, Inc. Tax-Free Puerto Rico Fund II, Inc. Tax-Free Puerto Rico Target Maturity Fund, Inc. Puerto Rico AAA Portfolio Target Maturity Fund, Inc. Puerto Rico AAA Portfolio Bond Fund, Inc. Puerto Rico AAA Portfolio Bond Fund II, Inc. Puerto Rico GNMA & US Govmt. Target Maturity Fund, Inc. P.R. Mortgage-Backed & US Govmt. Securities Fund, Inc. Puerto Rico Fixed Income Fund, Inc. Puerto Rico Fixed Income Fund II, Inc. Puerto Rico Fixed Income Fund III, Inc. Puerto Rico Fixed Income Fund IV, Inc. Puerto Rico Fixed Income Fund V, Inc. Puerto Rico Fixed Income Fund VI, Inc. UBS Puerto Rico also served as a co-underwriter and co-manager of the following closed-end funds: Puerto Rico Investors Tax-Free Fund Puerto Rico InvestorsTax-Free Fund II Puerto Rico InvestorsTax-Free Fund III Puerto Rico InvestorsTax-Free Fund IV Puerto Rico InvestorsTax-Free Fund V Puerto Rico InvestorsTax-Free Fund VI Puerto Rico Tax-Free Target Maturity Fund Puerto Rico Tax-Free Target Maturity Fund II Puerto Rico Investors Bond Fund Many of these closed-end funds have declined between 50 and 60 percent. Santander Securities and Popular Securities also manage closed-end funds with Puerto Rican bond holdings that suffered losses. In May of 2012, UBS Puerto Rico settled with the Securities and Exchange Commission (SEC) for $26.6 million over claims alleging that UBS Puerto Rico misrepresented and omitted material facts related to the above-listed bond funds. Many of the funds were leveraged (purchased with borrowed funds), which magnified investors’ losses. However, investors may be able to recover their investment losses by filing Financial Industry Regulatory Authority (FINRA) arbitration claims against UBS Puerto Rico that would be heard in San Juan, Puerto Rico. UBS FINANCIAL SERVICES INC. OF PUERTO RICO CLOSED-END BOND FUNDS We have successfully represented over 75 investors in arbitrations against UBS-PR and are still accepting cases against UBS Financial Services Incorporated of Puerto Rico (UBS-PR). Our latest arbitration resulted in a $5.88 million securities fraud award against UBS-PR. Please call us if you have not filed a claim as time is running out to do so. We know what happened behind the scenes and why over 10,000 UBS-PR clients suffered over $1 billion in losses investing in UBS-PR sponsored Puerto Rico closed-end bond funds and Puerto Rico municipal bonds. The UBS-PR integrated business model was to become the dominant investment banker, investment advisor, and brokerage firm in the Puerto Rico credit market. UBS-PR was a consultant to the Government Development Bank of Puerto Rico (“GDB”) and the government of the Commonwealth of Puerto Rico and underwriter of many of the Commonwealth and its enterprise agencies’ municipal bonds (“Puerto Rico Bonds”). Beginning in the mid-1990s, to facilitate the growth of its business, UBS-PR became the issuer, manager, and/or co-manager of 23 closed-end bond mutual funds (the “UBS-PR Closed-End Funds”). UBS-PR acted in conflict with its duties as a fiduciary under federal and Puerto Rico law by placing its integrated business model of dominance of the Puerto Rico credit market over the interests of its clients. UBS-PR’s management pushed its brokers to encourage investors to purchase and hold concentrated positions in Puerto Rico Bonds and in shares of the UBS-PR Closed-End Funds. The UBS-PR Closed-End Funds became the depository of many Puerto Rico Bonds that UBS-PR purchased in connection with its investment banking business. UBS Trust, a UBS-PR affiliate, managed or co-managed the UBS-PR Closed-End Funds. UBS-PR controlled the secondary market trading of the UBS-PR Closed-End Funds, and UBS Trust used leverage to enhance fund yields and attract investors. In addition, UBS-PR encouraged its registered representatives to solicit investors to leverage their investments and open “Repo/Reverse Repo Accounts” and take out lines of credit through UBS’ affiliate, UBS Bank (USA) from the state of Utah, and unwittingly double the leverage risk clients were exposed too. It has been estimated that 9 out of 10 investors in Puerto Rico owned Puerto Rico Bonds and UBS-PR Closed-End Funds. The typical UBS-PR arbitration claim arises out of a series of unsuitable securities recommendations by a UBS-PR and UBS financial advisor that investors purchase then hold an excessive concentration of Puerto Rico Bonds and UBS-PR Closed-End Funds. As a result, UBS-PR customers’ investment portfolios were not diversified from not only an asset allocation standpoint but also overly concentrated in securities issued in a single geographic area – Puerto Rico. The excessive concentration in Puerto Rico securities and leverage strategy implemented made the accounts highly speculative, which was inconsistent with many UBS-PR clients’ investment objectives and UBS-PR and UBS financial advisors’ representations. Through its representatives, UBS-PR disseminated false and misleading information to customers about the nature, mechanics, and risks of owning leveraged and concentrated positions in Puerto Rico Bonds and UBS-PR Closed-End Funds and the investment strategy employed in many of their best clients’ accounts. In so doing, UBS-PR and its representatives not only violated the Puerto Rico Uniform Securities Act (“PRUSA”), but also committed common law securities fraud, breached their fiduciary duties to investors, breached their contracts and the FINRA Code of Conduct, and were negligent in advising their clients on how to safeguard their investment capital. We have alleged and proven that UBS-PR negligently failed to supervise its employees in connection with the management of customers’ accounts. As a result...

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The Law Offices of Robert Wayne Pearce, P.A. Wins $6 Million Plus Award Against UBS and UBS Puerto Rico

In an arbitration proceeding against UBS Financial Services, Inc. (UBS) and UBS Financial Services, Inc. of Puerto Rico (UBS-PR), the Law Offices of Robert Wayne Pearce, P.A. won $4.25 million in compensatory damages plus interest at 6.25% from February 28, 2014 and costs of $170,000 for one of the firm’s clients last month. A summary of our clients’ allegations against UBS and UBS-PR are set forth below. If you or any family member received similar unsuitable recommendations from UBS-PR and its stockbrokers, or found yourself with an account overconcentrated in Puerto Rico municipal bonds and/or closed-end bond funds, or if you borrowed monies from UBS and used your investments as loan collateral, we may be able to help you recover your losses. Contact our office as soon as possible for a free consultation about your case. Time is of the essence! INTRODUCTION This arbitration arose out of a series of unsuitable recommendations by a UBS-PR and UBS financial advisor that our clients purchase and then hold an excessive concentration of Puerto Rico Bonds and UBS-PR Closed-End Funds. As a result, our clients’ investment portfolios were not diversified from not only an asset allocation standpoint but also overly concentrated in securities from a single geographic area – Puerto Rico. The excessive concentration in Puerto Rico securities and leverage strategy implemented made the accounts highly speculative, which was inconsistent with not only our clients’ investment objectives but also the UBS-PR and UBS financial advisor’s representations. UBS and UBS-PR, through their representatives, disseminated false and misleading information to our clients about the nature, mechanics and risks of owning leveraged and concentrated positions in Puerto Rico Bonds and UBS-PR Closed-End Funds and the investment strategy employed in their accounts. In so doing, the UBS, UBS-PR, and their representatives not only violated the Puerto Rico Uniform Securities Act (“PRUSA”), but also committed fraud, breached their fiduciary duties to our clients, breached their contracts and the FINRA Code of Conduct, and were negligent in advising our clients on how to safeguard their investment capital. UBS-PR and UBS negligently failed to supervise its employees in connection with the management of our clients’ accounts. As a result, our clients suffered substantial damages. BACKGROUND Our clients (the Claimants), a husband and wife, were both retired individuals, 61 and 53 years of age. They have been married for 26 years with three children. Our client owned and operated a 100 year old family business until he sold the business and retired. The profit from that sale was the source of their retirement savings and entrusted to their UBS-PR and UBS registered financial advisors to preserve their capital and generate income to support them during their retirement. During the relevant period, our client and his family maintained at least seven UBS-PR accounts, including, individual, joint, corporate and a trust account for the benefit of him and/or his family. Claimants’ uniform instruction to their stockbroker was to invest in “inversiones seguras” or “safe investments” in their UBS-PR accounts and generate the income the family needed to support their lifestyle. Claimants relied primarily upon their stockbroker for investment advice and management of all of the investments in their UBS-PR accounts in accordance with their instructions. However, on at least two occasions, our client met with the Chairman of the Board and Chief Executive Officer of UBS-PR and of its Puerto Rico affiliate companies and also Chairman of the Board of each of the 23 UBS-PR Closed-End Funds, and discussed the Puerto Rico Bonds and UBS-PR Closed-End Bond Funds in his family’s accounts. Unfortunately, all of the UBS-PR representatives misrepresented the risks of the investments and investment strategy implemented in our clients’ accounts. Our clients were told by their stockbroker that the investments in their accounts were “conservadoras,” (i.e., “conservative”). The UBS-PR representatives told Claimants that the Puerto Rico General Obligation bonds (“GO Bonds”) and Sales Tax and Financing Authority bonds (“Cofina Bonds”) were “garantantizados,” (i.e., “guaranteed”) to be paid by the Commonwealth of Puerto Rico (the “Commonwealth”). The Cofina Bonds were described as “el estándar de oro” and “blindados,” (i.e., “the gold standard” and “bulletproof”). The stockbroker had also purchased what were described to Claimants as “fondos mutuos conservadores, seguros, y de bajo riesgo,” (i.e., “safe, low risk, and conservative mutual funds”). The stockbroker also told Claimants that the bonds in the so-called “fondos mutuos” were either backed by the U.S. government or “garantantizados por Puerto Rico,” (i.e., “guaranteed by Puerto Rico,”) which was false and/or misleading. The UBS-PR representative told our client the so-called “fondos mutuos” were so safe that he had his aunts fully invested in them. But, the so-called “fondos mutuos” were not really typical mutual funds; they were leveraged, illiquid closed-end bond funds concentrated in a single geographic area (Puerto Rico) and suitable for only the most aggressive bond investors. Over the years, the stockbroker offered financing opportunities to our client. He offered lines of credit at interest rates lower than banks whenever our clients needed to make large withdrawals for purchases. According to the stockbroker, our clients would profit from the difference in the high interest paid on the bonds by the government and the low interest charged on their variable line of credit through UBS Bank (USA) that was collateralized with the pledged shares of the UBS-PR Closed-End funds in their UBS-PR accounts. He assured them that the strategy was safe and used all of the time by banks to make money when interest rates were low. The only risk the stockbroker mentioned was that they would need to stop using the strategy if and when interest rates rose in the future. There was no discussion about the risk of leverage or what could happen in the account if the bond and funds prices declined. Our clients let the stockbroker manage their accounts and periodically received verbal reports from him that all was well. He never expressed any concerns about economic or political issues developing within the Commonwealth, not even after our clients approached him in September and October...

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Real Estate Investment Trusts (REITs)

Just as the real estate limited partnerships proliferated in the 1980s and 90s, non-traded real estate investment trusts (REITs) were the real estate investment du jour of the past decade. In many cases handled by The Law Offices of Robert Wayne Pearce, P.A., the sales solicitations were gross misrepresentations about the sponsors track record, market valuations, rates of return, liquidity, risks and fees. Unfortunately, Attorney Pearce says investors are now realizing they have been duped by the promoters of many non-traded REITs such as the Apple REITs, Cornerstone REITs and others. Representing clients throughout Florida and nationwide. Se habla español Investing in non-traded REITs is not for everyone. Investors must understand that these are complex and risky investments. First, REIT distributions are never guaranteed. The REIT Board of Directors decides when and the amount of any distribution. The lack of a publicly traded market creates illiquidity and valuation issues. Early redemption is usually limited and may be costly. Non-traded REITs can be expensive due to front-end fees and “issuer costs” that may be hidden from investors. Most non-traded REITs start out as blind pools, which have not yet specified the properties to be purchased. The diversification of properties within REITs is not always present which increases the risk of these investments. For more information about REITs and a complete list of our REIT cases and investigations, the links below: Our REIT Blog Archives FREE INITIAL CONSULTATION WITH REAL ESTATE INVESTMENT TRUST (REIT) INVESTMENT DISPUTE ATTORNEYS The Law Offices of Robert Wayne Pearce, P.A. understands what is at stake in securities, commodities and REIT investment law matters and constantly strives to secure the most favorable possible result. Attorney Pearce provides a complete review of your case and fully explains your legal options. The firm works to ensure that you have all of the information necessary to make a sound decision before any action is taken in your case. For dedicated representation by a law firm with substantial experience in all kinds of securities, commodities and investment disputes, contact the firm by telephone at 561-338-0037 or toll free at 800-732-2889 or via e-mail. We may also be able to arrange a meeting with you at offices located in Boca Raton, Fort Lauderdale, Miami and West Palm Beach, Florida and elsewhere.

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Investing in Bond Markets

The first thing that comes to most people’s minds when they think of investing is the stock market. After all, stocks are exciting. The swings in the market are scrutinized in the newspapers and even covered by local evening newscasts. Stories of investors gaining great wealth in the stock market are common. Bonds, on the other hand, don’t have the same sex appeal. The lingo seems arcane and confusing to the average person. Plus, bonds are much more boring ‑ especially during raging bull markets, when they seem to offer an insignificant return compared to stocks. However, all it takes is a bear market to remind investors of the virtues of a bond’s relative safety and stability. In fact, for many investors it makes sense to have at least part of their portfolio invested in bonds to stocks. The Law Offices of Robert Wayne Pearce, P.A. focuses its practice on securities, commodities and other investment disputes in courtroom litigation, arbitration and mediation proceedings. We have over 40 years experience representing domestic and foreign investors from offices located in Boca Raton, West Palm Beach, and Fort Lauderdale, Florida. We handle bond fraud and other bond broker misconduct claims involving the municipal, corporate and government bond markets. It is important for all investors to understand the fundamentals of investing and we are pleased to share some of the basics in investing in bonds to help you understand bonds and avoid disputes. WHAT ARE BONDS? Have you ever borrowed money? Of course you have! Just as people need money, so do companies and governments. A company needs funds to expand into new markets, while governments need money for everything from infrastructure to social programs. The problem large organizations run into is that they typically need far more money than the average bank can provide. The solution is to raise money by issuing bonds (or other debt instruments) to a public market. Thousands of investors then each lend a portion of the capital needed. Really, a bond is nothing more than a loan for which you are the lender. The organization that sells a bond is known as the issuer. You can think of a bond as an IOU given by a borrower (the issuer) to a lender (the investor). Of course, nobody would loan his or her hard‑earned money for nothing. The issuer of a bond must pay the investor something extra for the privilege of using his or her money. This “extra” comes in the form of interest payments, which are made at a predetermined rate and schedule. The interest rate is often referred to as the coupon. The date on which the issuer has to repay the amount borrowed (known as face value) is called the maturity date. Bonds are known as fixed income securities because you know the exact amount of cash you’ll get back if you hold the security until maturity. For example, say you buy a bond with a face value of $1000, a coupon of 8%, and a maturity of 10 years. This means you’ll receive a total of $80 ($1 000*8%) of interest per year for the next 10 years. Actually, because most bonds pay interest semi‑annually, you’ll receive two payments of $40 a year for 10 years. When the bond matures after a decade, you’ll get your $1,000 back. DEBT VERSUS EQUITY Bonds are debt, whereas stocks are equity. This is the important distinction between the two securities. By purchasing equity (stock) an investor becomes an owner in a corporation. Ownership comes with voting rights and the right to share in any future profits. By purchasing debt (bonds) an investor becomes a creditor to the corporation (or government). The primary advantage of being a creditor is that you have a higher claim on assets than shareholders do: that is, in the case of bankruptcy, a bondholder will get paid before a shareholder. However, the bondholder does not share in the profits if a company does well ‑ he or she is entitled only to the principal plus interest. To sum up, there is generally less risk in owning bonds than in owning stocks, but this comes at the cost of a lower return. WHY BOTHER WITH BONDS? It’s an investing axiom that stocks return more than bonds. In the past, this has generally been true for time periods of at least 10 years or more. However, this doesn’t mean you shouldn’t invest in bonds. Bonds are appropriate any time you cannot tolerate the short‑term volatility of the stock market. Take two situations where this may be true: Retirement ‑ The easiest example to think of is an individual living off a fixed income. A retiree simply cannot afford to lose his/her principal as income for it is required to pay the bills. Shorter time horizons ‑ Say a young executive is planning to go back for an MBA in three years. It’s true that the stock market provides the opportunity for higher growth, which is why his/her retirement fund is mostly in stocks, but the executive cannot afford to take the chance of losing the money going towards his/her education. Because money is needed for a specific purpose in the relatively near future, fixed‑income securities are likely the best investment. These two examples are clear cut, and they don’t represent all investors. Most personal financial advisors advocate maintaining a diversified portfolio and changing the weightings of asset classes (cash, stock, bonds, real estate, etc.) throughout your life. For example, in your 20s and 30s a majority of wealth should be in equities. In your 40s and 50s the percentages shift out of stocks into bonds until retirement, when a majority of your investments should be in the form of fixed income. CHARACTERISTICS Bonds have a number of characteristics of which you need to be aware. All of these factors play a role in determining the value of a bond and the extent to which it fits in your portfolio. FACE VALUE/PAR VALUE The face value...

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