Arbitration

Published on: May 14, 2013

Broker-dealers’ Info Regarding Non-traded REITs is Inadequate, FINRA Says

Earlier this month, the Financial Industry Regulatory Authority (FINRA) issued a notice to broker-dealers stating that in some cases, they have not provided adequate service to investors in several areas, including the distribution of materials containing inaccurate and misleading statements related to non-traded real estate investment trusts, or REITs. Many securities arbitration claims have been filed by stock fraud lawyers on behalf of investors that cite similar claims.

The way in which investors receive dividends, or distributions, is one matter that is of concern to securities arbitration lawyers. One of the most attractive reasons for many investors to purchase non-traded REITs is the fact that they begin paying distributions immediately after sale. According to the FINRA notice, however, communications from broker-dealers to investors “have emphasized the distributions paid by a real estate program and failed to adequately explain that some of the distribution constitutes return of principal.”

FINRA also stated that “some communications have not provided sufficient discussions of the risks associated with investing in the products in order to balance the presentation of benefits.” Numerous claims have, in fact, been made alleging independent broker-dealers such as Ameriprise Financial Services Inc. and LPL Financial LLC did not adequately disclose the risks of non-traded REITs to investors prior to purchase. According to stock fraud lawyers, some investors are also not made aware that distribution payments can stop at any time.

Published on: May 9, 2013

Securities Fraud: John Thomas Financial Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses as a result of conducting business with Anastasios “Tommy” Belesis and other representatives of John Thomas Financial Inc. Specifically, investors in Liberty Silver Corp. and America West Resources Inc. may be eligible to recover their losses. In January of 2013, the Financial Industry Regulatory Authority issued a Wells Notice to Belesis, the CEO of John Thomas Financial. Allegedly, Belesis was part of a pump-and-dump scheme involving Liberty Silver Corp.

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A FINRA statement alleged that Mr. Belesis “(1) willfully or recklessly sold a substantial portion of a firm proprietary position while failing to execute customer orders to sell shares of the same stock, at prices that would have satisfied the unexecuted customer orders; (2) failed to follow instructions by the customers to sell the shares; (3) used manipulative, deceptive and/or fraudulent means to artificially inflate the price of the stock; (4) made material misrepresentations, to customers, registered representatives and FINRA, about the reasons why the customer orders had not been executed; (5) falsified or failed to preserve the orders in question and other pertinent records; and (6) failed to reasonably supervise the receipt, documentation and execution of the customer orders.” Securities arbitration lawyers are conducting their own investigation into the sales practices of John Thomas Financial, based on FINRA’s claims.

Bloomberg reported that Belesis has also been accused of fraud related to America West Resources Inc. According to FINRA, John Thomas Financial raised $20 million for America West from 2008 to 2011. Investment fraud lawyers say that when America West stock rose significantly in February 2012, Belesis allegedly prevented customers from selling their shares while he instructed an employee to sell the firm’s stock, gaining the firm over $1 million in proceeds. John Thomas Financial allegedly attempted to disguise the alleged fraud by “losing” the customer order tickets. Currently, no decision has been made in this case.

Published on: May 7, 2013

Retirees Targeted for Excessive Trading, Unsuitable Recommendation of REITs

by InvestorLawyers

Securities fraud attorneys are cautioning retirees regarding two potential threats to their retirement investments. Many retirees have suffered significant losses as a result of unsuitable recommendations of risky, illiquid investments. In other cases, losses have resulted from excessive trading in customer accounts.

Reportedly, many seniors are being persuaded to invest in non-traded REITs, or real estate investment trusts, but are not being made aware of the risks and illiquidity of these products. Stock fraud lawyers say that many brokers and advisers with full-service brokerage firms may be tempting senior investors with promises of steady returns that exceed those available in traditional investments such as bonds or CDs while failing to adequately disclose the risks of non-conventional investments such as non-traded REITs.

Many retirees have a low risk tolerance and want conservative, income-producing portfolios. Advisors often tout the steady stream of income produced by non-traded REITs and present them as an alternative to fixed-income investments such as bonds, but there is no guarantee of ongoing distributions by non-traded REITs. In fact, distributions may be suspended or stopped completely. Another problem retirees face with REITs is that they may need access to their funds, but redeeming or selling a non-traded REIT may be difficult, or may be possible only at a price much lower than the investor’s initial investment.

Published on: May 2, 2013

Recovery of Success Trade Promissory Note Losses

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of the customers of Success Trade Securities who purchased Success Trade promissory notes. In April 2013, the Financial Industry Regulatory Authority (FINRA) announced that it had filed a Temporary Cease-and-Desist Order in relation to these notes. The order is intended to halt fraudulent activity and misuse of investors’ assets and funds allegedly being conducted by Success Trade Securities and Fuad Ahmed, the firm’s president and CEO.

FINRA has issued a complaint against Ahmed and Success Trade Securities that charges promissory note sales fraud. These promissory notes were issued by Success Trade Inc., Success Trade Securities’ parent company. According to the complaint’s allegations, “Success Trade Securities, Ahmed and other registered representatives at the firm sold more than $18 million in Success Trade promissory notes to 58 investors, many of whom are current or former NFL and NBA players, while misrepresenting or omitting material facts. [They] misrepresented that they were raising $5 million through the sale of promissory notes and continued to make this representation, even as the sales exceeded the original offering by more than 300 percent.” According to investment fraud lawyers, FINRA also claimed that Success Trade Securities and Ahmed misrepresented the way in which they would use the proceeds and used the funds improperly, using them to pay existing noteholders’ interest payments and making unsecured loans to the president and CEO.

According to the allegations, Success Trade Securities and Ahmed also failed to disclose to investors the actual amount of the existing debt the company owed investors and the fact that it required raising money from additional investors to make future interest payments. Some of the promissory notes allegedly promised to pay as much as 26 percent interest, while most promised a 12.5 percent annual interest rate payment, due monthly, over the course of three years. Another FINRA allegation was that the exempt status and rate of return of the private placement offering used to sell the notes was misrepresented. Misrepresentations become material and therefore grounds for securities arbitration when it can be proven by a securities fraud attorney that the investor would have made a different investment choice if the misrepresentation or omission had not occurred. This, combined with the sales fraud allegations, suggests that Success Trade promissory note investors may have strong arbitration claims.

Published on: April 30, 2013

Recovery of Apple REIT Losses Still Possible Through Arbitration

by InvestorLawyers

Investors are disappointed, to say the least, that a federal judge recently dismissed an investor class action lawsuit related to the sale of Apple REITs by David Lerner Associates Inc. However, stock fraud lawyers say that this decision will have absolutely no impact on arbitration cases filed against Lerner with the Financial Industry Regulatory Authority (FINRA).

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In May 2011, a complaint was filed against Lerner by FINRA, regarding the firm’s Apple REIT marketing practices. In October 2012, FINRA ordered Lerner to pay $2.3 million for allegedly overcharging clients who had purchased other securities. Lerner was also ordered to pay $12 million to the trust investors. Founder and chief executive, David Lerner, was barred for one year from the securities industry and fined $250,000.

The class action raised allegations that Lerner breached fiduciary duty, was unjustly enriched and negligent in the sale of over $6.8 billion in Apple REITs. Though the class action has been dismissed by a federal judge, Lerner still faces many arbitration claims alleging the unsuitable recommendation of Apple REITs. According to securities arbitration lawyers, the question of misrepresentation is completely different than the question of suitability. Even if an investment firm adequately discloses all the risks of the investment, the investment must still be suitable for each investor receiving the recommendation given their age, investment objectives and risk tolerance. Furthermore, in some cases oral misrepresentations at the time of sale- which were not at issue in the class action- can be a basis for liability in a FINRA arbitration if a stockbroker misrepresented the nature of an investment to a customer.

Published on: April 25, 2013

Morgan Stanley Broker Allegedly Traded on Customer Accounts without Permission

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of customers of Morgan Stanley and other full-service brokerage firms who were the victim of unauthorized trading or discretionary trading on a non-discretionary account without receiving prior written authorization.

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According to FINRA’s discretionary rule, “No member or registered representative shall exercise any discretionary power in a customer’s account unless such customer has given prior written authorization to a stated individual or individuals and the account has been accepted by the member, as evidenced in writing by the member or the partner, officer or manager, duly designated by the member, in accordance with Rule 3010.” However, according to securities arbitration lawyers, this rule doesn’t stop all brokers.

As an example, James Harman McNeill, a Morgan Stanley broker, recently was cited for unsolicited trades and discretion. Allegedly, McNeill violated FINRA Rule 2010 in November 2011 when he exercised discretionary power in Morgan Stanley customer accounts without receiving written authorization prior to doing so. Furthermore, later that month McNeill allegedly marked non-traditional Exchange Traded Fund purchase orders as “unsolicited” even though they were solicited, according to the allegations listed in the Letter of Acceptance, Wavier and Consent that was submitted in March of this year. The Financial Industry Regulatory Authority imposed a 9-month suspension and a $15,000 fine upon McNeill. According to investment fraud lawyers, mis-marked tickets can raise issues regarding inaccurate books and determining if a broker made an unsuitable recommendation.

Published on: April 23, 2013

REIT Investors May be Unaware They Suffered Significant Losses

by InvestorLawyers

According to securities fraud attorneys, many investors may be unaware of the fact that they have suffered losses in non-traded real estate investment trusts, or REITs. Financial statements for REITs usually reflect the investment’s initial purchase price, not the current value of the REIT; this can mislead investors into believing that their investment’s value is stable when, in fact, they have actually suffered significant losses.

Because these investments are unregistered securities, they do not have to follow the same rules that regulated investments must follow. As a result, investors may be subject to high fees both to get in and get out of the investment. Furthermore, non-traded REITs are inherently risky and illiquid, causing them to be difficult to value. Stock fraud lawyers say the nature of these investments makes them difficult to sell, which can cause problems for investors who need access to cash (such as retirees), making REITs clearly unsuitable for such investors.

Unfortunately, even diligent investors who carefully review their financial statements can’t depend on this information to reflect the true value of their non-traded REIT investment. Instead, investors will have to do some research to determine their investment’s value. Securities fraud attorneys are currently investigating many non-traded REITs sold by LPL Financial, Ameriprise Financial and other full-service brokerage firms, including KBS REIT, Inland American, Dividend Capital Total Realty, Cole Credit Property Trust II and III, Wells Real Estate Investment Trust II, Cole Credit Property 1031 Exchange and W.P. Carey Corporate Property Associates 17. For more information on these investigations, see the previous blog posts, “Ameriprise REIT Sales Under Investigation” and “LPL Financial Faces New Complaint Regarding Non-traded REIT Sales.”

Published on: April 18, 2013

Ameriprise REIT Sales Under Investigation

by InvestorLawyers

Securities arbitration lawyers are currently investigating claims on behalf of investors who purchased risky non-traded REITs through Ameriprise Financial. Reportedly, Ameriprise Financial was one of the biggest non-traded real estate investment trust sellers and, in some cases, may not have properly advised customers as to the risks associated with non-traded REITs.

Ameriprise_REIT_Sales_Under_Investigation Many full-service brokerage firms recommended the purchase of REITs to investors, marketing them as safe, low-risk investments. Stock fraud lawyers say that some customers placed a substantial portion of their assets into a single non-traded REIT at the recommendation of a full-service brokerage firm representative, causing an over-concentration of their portfolio that was unsuitable. As a result, securities arbitration lawyers say many investors may have a valid securities arbitration claim that could lead to the recovery of some of their losses.

Some non-traded REITs may have carried a high commission which motivated brokers to recommend the product to investors despite the investment’s unsuitability. The commissions and fees associated with non-traded REITs are sometimes 15 percent or more. Non-traded REITs, like the ones sold by Ameriprise, carry a relatively high distributions of income, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to those investors. However, in many instances non-traded REITs have made distributions to investors that greatly exceeded the actual cash flows from their operations and actually represented returns of principal rather than income.

Published on: April 16, 2013

Investigations on Behalf of Cole Credit Property Trust III Shareholders

by InvestorLawyers

Securities attorneys are currently investigating claims on behalf of Cole Credit Property Trust III investors. Cole Credit III is a non-traded real estate investment trust, or REIT. A press release issued on March 21, 2013 announced that Cole Credit III’s Board of Directors Special Committee affirmed that it was committed to pursuing a New York Stock Exchange listing and the acquisition of Cole Holdings Corp.

Investigations_on_Behalf_of_Cole_Credit_Property_Trust_III_Shareholders Lawyers are reviewing whether shareholders are paying fair or excessive value in the Cole Holdings Corp. acquisition, in addition to whether or not the transaction itself may c0nstitute a breach of fiduciary duty. Reportedly, the transaction indicated that Chris Cole and Cole Holdings management would receive cash and stock amounting to $127 million in the transaction. Since the announcement of the acquisition, shareholders have filed at least three lawsuits.

Meanwhile, InvestmentNews reported on April 11, 2013 that almost one week after the acquisition of Cole Holdings closed for 10.7 million shares and $20 million in cash, Chief Executive Nicholas Schorsch and American Realty Capital Properties Inc. had withdrawn their bid to acquire Cole Credit III. Schorsch stated in an interview, “We made a good faith offer, $9.7 billion.” After the $12 per share offering was rejected by Cole management, ARCP increased the bid to $12.50 per share but, according to Schorsch, Cole Credit III never negotiated seriously.

Published on: April 11, 2013

Full-service Brokerage Firms Held Liable for Spousal Theft

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who have been the victim of spousal theft from their full-service brokerage accounts. A recent Financial Industry Regulatory Authority panel decision in Indianapolis ruled in favor of an investor in her case against E*Trade Securities LLC and Wells Fargo Advisors LLC.

Wells Fargo was found liable for $50,253 in compensatory damages to the investor, while E*Trade Securities was found liable for $33,502. Furthermore, E*Trade Securities and Wells Fargo Advisors were ordered to pay attorney fees of $22,500, interest of $11,960, and arbitration hearing session and fees of $4,500.

According to the investor’s securities arbitration lawyer, the investor’s ex-husband exhibited classic signs of identity theft and falsified documents in order to transfer funds from the investor’s Wells Fargo accounts into multiple E*Trade accounts. Reportedly, the investor was unaware of and did not consent to the transfers. The investor’s attorney also stated that the client “was the victim of a very focused and intentional scheme that was permitted to occur – if not facilitated – by both Wells Fargo and E*Trade.” Furthermore, the investor alleged that Wells Fargo Advisors and E*Trade Securities failed to take responsibility for misconduct despite having previous opportunity to do so.