REPRESENTATIVE FAILED TO DISCLOSE THAT FANNIE MAE WAS IN SERIOUS FINANCIAL TROUBLE AT THE TIME PURCHASE.

$124,390.00

$11,000.00

CLIENT ALLEGES THAT THE REP DID NOT FULLY DISCLOSE THE RISK OF THE FANNIE MAE PREFERRED. POSITION WAS PURCHASED 6/9/2008. REP STATES AN OFFERING CIRCULAR WAS MAILED TO THE CLIENT BEFORE THE SECURITY WAS PURCHASED. STATEMENT OF CLAIM STATES THAT RESPONDENTS KNOWINGLY AND RECKLESSLY MADE FALSE STATEMENTS OF MATERIAL FACT. ACCOUNT BELIEVED TO BE OPENED IN SEPTEMBER 2007.

$238,687.50

$110,000.00

THIS IS AN UPDATED COMMENT. FROM THE VERY BEGINNING OF THE RELATIONSHIP, THE CLIENT AND I HAD A MUTUAL UNDERSTANDING THAT I WILL MAKE WEALTH MANAGEMENT RECOMMENDATIONS BASED ON THEIR OVERALL FINANCIAL SITUATION COMPREHENSIVELY. MY ROLE WAS TO ALLOW THEM LEVERAGE MY KNOWLEDGE TO HELP THEM MAKE THE BEST DECISION FOR THEMSELVES. FANNIE MAE PREFERRED STOCK RECOMMENDATION WAS MADE WITH THIS BASIS. WITH THEIR OVERALL INVESTABLE ASSETS AND THE NETWORTH IN THE VARIOUS ACCOUNTS, THE FANNIE MAE PREFERREDS ALLOCATION WAS INLINE WITH THEIR INVESTMENT PROFILE. BESIDES THIS $230K TRUST ACCOUNT, THEIR BUSINESS BROKERAGE ACCOUNT WAS ABOUT $500K INVESTED IN SHORT-TERM MUNICIPAL BONDS AND THEY HAD VARIOUS MUTUAL FUNDS ABOUT $300K IN IRAS AT OTHER FIRMS. THEY WERE TO CONTRIBUTE $100K A YEAR INTO A BUSINESS RETIREMENT ACCOUNT. THEIR BUSINESS WAS GROSSING AROUND $3MM A YEAR AND THEIR NET WORTH WAS ABOUT $7MM. WITH THIS OVERALL FINANCIAL PICTURE, THE INVESTMENT DESIGN WAS BUILT ON THE IDEA THAT THE TAX-DEFERRED ACCOUNTS WERE EARMARKED FOR RETIREMENT AND LONG-TERM; THE BUSINESS ACCOUNT INVESTMENT WAS TO BE SHORT-TERM AND LIQUID; AND THIS TRUST ACCOUNT WAS "IN THE MIDDLE" THAT IT'S THERE TO MAKE A HIGHER RETURN THAN BONDS (8.25%), WITH LIQUIDITY FOR POTENTIAL BUSINESS NEEDS (T+3), AND WITH RELATIVE LOWER RISK (AA-). I CALLED [CUSTOMER] IN EARLY JUNE ABOUT THIS IDEA AND WE DISCUSSED WHAT WAS HAPPENING IN THE MARKET, THEIR OVERALL PORTFOLIO, AND WHY INVESTING THE $230K INTO THE FANNIE MAE PREFERRED SERIES T MADE SENSE. WE DISCUSSED THAT THIS ACCOUNT WAS THE INCOME AND FLEXIBLE PORTION OF THEIR OVERALL DIVERSIFIED PORTFOLIO; THAT TO GIVE THEM THE BEST RETURN WITH THE HIGH QUALITY; THAT FANNIE MAE PREFERRED STOCKS' SHARE PRICES HAD BEEN AND SHOULD BE STABLE IN LIGHT OF THE DEPRECIATION ON ITS COMMON SHARES BECAUSE OF THE DIFFERENCE IN NATURE OF THE PREFERRED SHARES AND THE COMMON SHARES, AND WITH THE IMPLICIT GUARANTEES BY THE GOVERNMENT, IT SHOULD BE A GOOD INVESTMENT FOR THEM.

TIME PERIOD IS FROM 05/17/2007 TO 09/17/2008. RECEIVED WRITTEN COMPLAINT FROM CLIENT ON 9/17/2008.CLIENT CLAIMS LOSS OF 637,984 PRIMARILY DUE TO A FANNIE MAE PREFERRED THAT WAS PURCHASED. COMPLAINT IS UNDER REVIEW. RESPONCE WAS SENT ON 10/17/2008 AND THE CLAIM WAS DENIED.

$637,984.00

$100,000.00

I FIRST MENTIONED FANNIE MAE PREFERREDS IN JUNE 2008. FANNIE MAE WAS RATED AA- BY S&P AT THE TIME. AT THE MEETING, I EXPLAINED THE DETAILS OF THE FANNIE MAE PREFERRED STOCKS AND OFFERED THE OFFERING CIRCULAR OF THE SERIES T. THEY WANTED TO THINK IT OVER BEFORE MAKING A DECISION. ON JULY 11TH, THE MARKET TANKED TO AROUND $12 PER SHARE AND I CALLED THEM FOR A MEETING TO DISCUSS POTENTIAL STRATEGIES. WE MET ON JULY 16TH WHEN THE MARKET CLOSED AROUND $15.60 PER SHARE. AT THE MEETING, WE AGREED TO SET LIMIT BUY ORDERS FOR $200K AT $15, AND $100K AT $14, $12, AND $10, RESPECTIVELY. WHEN WE GET THE SHARES, WE AGREED TO EITHER SELL FOR A GAIN OR HOLD FOR INCOME. WITH THEIR CONSENT, I CALLED THE TRADING DESK TO PLACE THE LIMIT BUY ORDERS IN THE MORNING OF JULY 17TH. THE FIRST $200K WAS EXECUTED ON AUGUST 13TH. I RESIGNED FROM COLONIAL BANK ON AUGUST 15TH AND CALLED [CUSTOMER] ON AUGUST 16TH TO LEAVE A MESSAGE. HE CALLED ME BACK ON AUGUST 17TH AND I REMINDED HIM OF THE REMAINING $300K LIMIT BUY POSITIONS OUTSTANDING ON THE FANNIE MAE PREFERREDS. AFTER THAT, $100K WAS EXECUTED ON AUGUST 18TH, ANOTHER $100K ON AUGUST 19TH, AND THE LAST $100K ON AUGUST 21ST. AT THIS POINT, ALL $500K WAS FILLED WITH AN AVERAGE COST BASIS AROUND $13.2 PER SHARE OR LOWER - I DON'T KNOW THE EXACT PRICE AS I HAVE LEFT THE FIRM. [CUSTOMER] TOLD ME THAT HE WILL MEET WITH PEOPLE FROM COLONIAL BROKERAGE IN THE WEEK OF AUGUST 25TH AND WILL MEET WITH ME AFTER THAT. WE EVENTUALLY SAT DOWN ON SEPTEMBER 5TH, TWO DAYS BEFORE THE ANNOUNCEMENT OF THE CONSERVATORSHIP ON SEPTEMBER 7TH. ON SEPTEMBER 5TH ABOUT 10AM, WE EXCHANGED IDEAS EITHER TO SELL THEM FOR SHORT-TERM GAIN ($13.2 TO $13.7 DURING THAT DAY) OR TO HOLD THEM WITH AN EXIT STRATEGY BY PUTTING A SELL LIMIT ORDER FOR $200K AT $16, $200K AT $17, AND KEEPING $100K FOR THE TIME BEING. I REMINDED HIM TO CONTACT THE PERSON AT COLONIAL BROKERAGE IN CHARGE OF HIS ACCOUNTS TO MAKE SURE THIS TAKES PLACE IF THAT IS WHAT HE WANTS TO DO.