Clients of financial service firms may be able to recover some, or all, of their investment losses in Fannie Mae and Freddie Mac preferred stocks.
Financial advisors and brokers at firms like Merrill Lynch, Citigroup Smith Barney, Wachovia and AG Edwards pitched preferred stocks in Fannie Mae and Freddie Mac to over 1 million investors nationally as an conservative investment that was appropriate and suitable for elderly clients or clients in or nearing retirement. The preferred shares also paid a regular dividend.
Clients were often told that they either could not lose money, or would not lose investment principal in the Fannie Mae and Freddie Mac preferred stocks. These types of representations were made to investors as an inducement to invest significant sums into these preferred stocks. Would be investors were told by their full service brokers that in the unlikely event Fannie Mae or Freddie Mac defaulted, the U.S. government would step in and make investors whole or otherwise cover their investment losses. This simply wasn’t the case. While bond holders in Fannie Mae and Freddie Mac would be protected, the common share holders and the preferred shareholders would not be offered any protections. To state otherwise is highly misleading and a misrepresentation under most state security laws.
The real, undisclosed risks to Fannie Mae and Freddie Mac preferred stocks holders were not properly discosed to may investors who may have recourse.
FINRA arbitration is a dispute resolution process offered by the Financial Industry Regulatory Authority (FINRA) to resolve conflicts between investors, brokerage firms, and individual brokers. Unlike traditional court litigation, arbitration is typically faster and less formal. In this process, an impartial arbitrator or a panel of arbitrators listens to both parties’ arguments and evidence before making a binding decision. This method is often chosen for its efficiency and lower costs, making it an attractive option for investors seeking resolution without the complexities of a court trial. The arbitration process is governed by specific rules and procedures, ensuring a fair and equitable hearing. While the decision is final and generally cannot be appealed, parties can still settle the dispute before the arbitration concludes. FINRA arbitration serves as a crucial mechanism in maintaining market integrity and protecting investors’ rights.