“Sub-Prime” Arbitration under a Mississippi Blue Sky
By: Jeremy Chalmers (Mars, Mars & Chalmers, Philadelphia, Miss.)

 
Mississippi has the highest rate of sub prime lending in the country. A newly released report from the Mississippi Economic Policy Center (MEPC) shows that Mississippi has the eighth highest foreclosure rate and the highest percentage of borrowers with past due home loan payments in the country.
 
By now we have all heard of some horrific sub-prime loan story. However the borrowers are not the only people loosing their homes because of sub-prime loans.
Many seniors have lost significant portions of their retirement. How the two relate is another example of a boom and bust on Wall Street.
Beginning at ground zero, mortgage brokers made loans. The loans would be packaged together and securitized. In other words, the future payment stream was sold and traded on the market. On Wall Street, the security was called a collateralized debt obligation (CDO). A bond fund could own hundreds of CDOs. A bubble emerged as more and more loans were generated. Billion of dollars in fees were generated on Wall Street. As mortgages began to default the risk associated with some CDOs increased. The last purchaser of the CDO, think bond mutual fund, could be stuck holding a batch of mortgages that were going through foreclosure. , The value of the bond fund was thus affected by sub prime loans.
Senior investors, as a rule, need to avoid risk and certainly need to avoid uncompensated risk. Unfortunately, as the baby boomer generation ages more and more, seniors will fall victim to unsuitable investment recommendations. Suitability is a fact specific question. Like all litigation a case is only as good as the facts and significant due diligence is recommended in evaluating cases on the front end. However, if you have a legitimate case, odds are you will be forced to arbitrate the claims. It has been common practice by the industry for many years to include mandatory arbitration clauses in new account opening documents.
The vast majority of all individual securities litigation will take place in FINRA arbitration. “The Financial Industry Regulatory Authority (FINRA)” is the largest non-governmental regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 5,000 brokerage firms, about 173,000 branch offices and more than 677,000 registered securities representatives.”

 
 
In addition to breach of contract, breach of fiduciary duty and common law fraud, etc., elements do not forget to evaluate the facts under the Blue Sky law. The Mississippi Securities Act, also known as the Mississippi Blue Sky law covers among other things the sale of securities in the State of Mississippi. The act has a 2-year statute of limitations and provides a statutory remedy.
 
Mississippi Securities Act
 
ARTICLE 9. FRAUDULENT AND OTHER PROHIBITED PRACTICES
§ 75-71-501.    Fraud or deceit in connection with offers, sales or purchases.                   
                       
It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly,                        
                       
            (1) To employ any device, scheme or artifice to defraud;                     
                       
(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or                       
                       
(3) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.     
 
§ 75-71-717.    Liability to buyers for illegal or fraudulent sales or offers.
…. is liable to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at eight percent (8%) per year from the date of payment, costs and reasonable attorneys' fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security.
 
Good luck.