Wedbush Morgan found liable in suit filed by 22 clients who said they were sold riskier securities than represented.
By MARY ANN MILBOURN THE ORANGE COUNTY REGISTER
Wedbush Morgan Securities Inc. in Newport Beach must pay $3.8 million in damages and legal fees in the first of several cases involving its sale of a form of mortgagebacked securities.
The 22 clients, several of whom were in their 90s, claimed they had asked to be placed in safe, fixed-income investments after the market crash in 2000.
Wedbush denied all allegations of wrongdoing.
The company invested the money in collateralized mortgage obligations, which are securities based on a pool of underlying mortgages. The investments are divided into different bond classes with different components based on risk and maturity.
“My clients were told that these securities were safe enough to put in the trust accounts of widows and orphans,” said Philip M. Aidikoff, the attorney representing the clients.
He said they were led to believe the mortgages were guaranteed by the collateral in homes when in fact they included mortgages for trailerpark homes that depreciate as assets.
“Some (of these investments) are safe, and some are just glow-in-the-dark risks,” Aidikoff said. He said his clients unknowingly were invested in the riskier portion of the securities.
While the clients did not lose all their money, Aidikoff contended they suffered damages and lost opportunity costs for being placed in inappropriate investments that were riskier than represented.
Aidikoff said that he has two more cases involving about 20 clients pending against the Newport Beach Wedbush office and that there are several other litigants being represented by other attorneys.
Collateralized mortgage obligations are among the many new and sometimes complicated securities that are increasingly becoming available to investors. Some are low-risk, others aren’t. Here are some tips from the NASD to consider before you invest:
Collateralized mortgage obligations are based on a pool of mortgages. Ask what kinds of mortgages they are and the risks.
Ask your sales representative for any reports or written information about the security.
You also may want to check with another brokerage firm, an accountant, or a trusted business adviser to get a second opinion.