Investment Fraud Schemes

Leading up to the financial meltdown, unscrupulous bank sales people and traders promoted investment fraud schemes that hooked individuals, commercial companies and public sector entities into highly complex securities that they didn’t understand. Lack of regulation and the frenzy around these investment fraud schemes was a recipe for disaster, per Les Leopold author of The Looting of America.

Protect Yourself


• Do research before investing and ask the right questions.
• Learn the definitions of the terms used for some securities and their risk levels.
• Contact securities litigation attorneys at Seeger Weiss for FREE investment fraud schemes evaluation by filling out this form.

Swaps Praised at First


At one time, CDS swaps were praised by former Fed Chairman, Alan Greenspan and others for dispersing risk. Then the housing market collapsed, and CDO tranches started to turn toxic and became the foundation for investment fraud schemes. Instead of dispersing risks, the swaps ended up twining them together and forming a web of counterparties around the world. The collapse of counterparties brought down many companies or counterparties and crippled the world economy.
Derivatives: Derivatives are a type of financial instrument whose value is derived from something else. Tens of thousands of derivative CDO tranches based on combinations of the same underlying real security are currently in place. Since a derivative doesn’t actually contain a “real” item (like a stock, bond, or barrel of oil), there’s no limit to the kinds of derivative CDO tranches a banker can create, which is how investment fraud schemes got their start. They can be packaged, repackaged, stripped, sliced and glued back together in an almost infinite number of sizes and shapes; the perfect components for investment fraud schemes.

Collateralized Debt Obligations: CDO tranches and credit default swaps (CDS) were engineered deep in the heart of the unregulated, free-market which drove the market for subprime lending. A collateralized debt obligation, or CDO, is a security created by financial engineers. It bundles together a pool of similar loans into securities (or CDO tranches) that can be bought or sold. A CDO tranche investor owns a part of pool’s interest income and principal.

Synthetic Collateralized Debt Obligations: Synthetic CDOs are an artificial CDO without assembling or owning the underlying debt pool. They don’t give buyers ownership in anything. Credit Default Swaps, or CDSs, are used as a form of insurance for synthetic CDOs via counterparties protecting the debt.

CDO Tranches: The clever investment fraud scheme folks figured out how create CDO tranche securities from a pool of thousands of subprime mortgages where a large collection of the loans were backed by homes who’s buyers have less than stellar credit ratings. Next, they convinced the rating agencies that the top CDO tranche of the pool was super-safe and should be rated AAA, virtually as good as you can get without being backed by the Fed. Then they promoted their investment fraud schemes to investors with varying risks.

Sliced into three CDO Tranche Levels

  • Senior CDO Tranche: Investors get first dibs on all the interest payments coming out of the pool. Offers minimum risk to the investors.
  • Mezzanine CDO Tranche: Investors get higher rate of return than equity tranche but more risk than the senior CDO tranche. Investors in this level are safer than investing in the pool as a whole.
  • Equity CDO Tranche: Investors get last claim on assets, and they take first hit on default. These investors shoulder the bulk of the risk of the entire pool. And many during the financial crisis got stuck with junk-bond status.

Protect yourself and your money. If you have been victimized by fraudulent investments, contact Seeger Weiss.

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