Archive for the ‘Securities’ Category

Beware the Fees

February 3, 2008

According to a report in Bloomberg News, hidden fees in 401(k) plans can sap your earnings for retirement.  Many times there are fees in these investments which are never openly disclosed to the employee/investor, and the employee/investor never sees them in statements or reads about them in disclosure documents (who could read all of that fine print anyway?). 

What are these fees for?  Record-keeping, legal services, toll-free telephone numbers, office rent, theatre tickets (yes), trips and fancy meals for money managers, and trading commissions.  The U.S. Department of Labor lists 17 distinct 401(k) fees.  If these fees total one percent (1%), they can reduce returns by fifteen percent (15%) over thirty (30) years according to Stephen Butler, president and founder of Pension Dynamics Corp.  Greg Kasten, a financial planner at Unified Trust Co. states that the most an investor should pay for a 401(k) is one percent (1%). 

When fees are not disclosed to investors, it is like stealing investors’ money.  This is why arbitration hurts.  When NASD arbitrators decide claims brought by investors over such misrepresentation, it is like the fox guarding the henhouse.  Wouldn’t these companies be more accountable, if they thought they might have to explain to a jury why the fees for travel and entertainment were hidden?  I suggest they would.  As it is, the National Association for Securities Dealers (NASD) arbitrates investor disputes.  Which would you rather have if you paid excessive fees on your hard earned money, a jury of your peers or an NASD arbitrator?

Alfa Buyout, Is it Stealing?

August 18, 2007

According to an article in the Birmingham News Friday, August 17, 2007, eight shareholders of Alfa Corp. filed a lawsuit opposing the proposed buyout of Alfa by three affiliated companies which own 55 percent of Alfa stock.  The lawsuit was filed in Delaware by attorneys John Somerville, of Galloway & Somerville, LLC in Birmingham, Alabama, and Frank DiPrima, an attorney in New Jersey.  Somerville and DiPrima helped HealthSouth Corp. shareholders recover $31 million from Richard Scrushy.

The shareholders who filed the suit own almost 900,000 shares of Alfa stock, and they believe that the affiliated companies are attempting to steal the company at an unfair price.  Two similar lawsuits have been filed as well.  According to the minority shareholders, the deal is rife with conflicts of interest because most of the directors and officers of the three affiliates are also directors and officers of Alfa Corp.  Consequently, they are sitting on both sides of the deal to the detriment of the minority shareholders.

Is it surprising in this day and age that a large corporation’s shareholders would try to enter into a deal which would favor the officers and directors over the minority shareholders (owners of the company)?  When will the public wake up?  How many corporate scandals do we need to see before we realize why corporations want to take over the court systems and move everything to confidential arbitrations?  Corporations like confidentiality so they don’t have accountability.

Stay tuned to see the end of this one, but my money will be on a large settlement in favor of the minority shareholders because, in the end, that will be the fair deal where both sides profit.

Just for Feet Settlement

April 25, 2007

In an unusual occurrence, the outside directors of Just for Feet have agreed to settle a lawsuit brought by Charles Goldstein, the bankruptcy trustee.  According to the Wall Street Journal, the directors agreed to pay $41.5 million to settle the claims which brings the total settlement for outside creditors to approximately $80 million (Deloitte & Touche agreed to a $24 million settlement, and $15 million was paid by the founder’s estate and his son).

Many are concerned that such a result broadens the usual narrow liability for outside directors.  However, according to one of the attorneys, Eric Breithaupt of the Birmingham firm Christian & Small, the company could have been saved if bankruptcy had been filed earlier.  Additionally, the trustee claimed that there were too many conflicts of interest which led to the company’s downfall.  Among them, Randall Haines was the President of Compass Bank which was also one of the company’s primary lenders. 

Clearly, this case stands for the premise that executives and directors of corporations must take an active roll to insure that conflicts are avoided and that decisions must be informed decisions, not blind ones.  Corporate decisions can be wrong as long as they are thoughtful and not fraught with conflict.


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