FINRA Arbitration

Published on: November 22, 2017

FINRA Orders Restitution In First Allied Securities Mutual Fund Sales Charge AWC

Money Maze The Financial Industry Regulatory Authority (“FINRA”) entered into a Letter of Acceptance, Waiver and Consent (“AWC”) with First Allied Securities, Inc. (CRD #32444, San Diego, California) on August 21, 2017 arising from the firm’s practices with respect to mutual fund sales charges. FINRA censured First Allied and required the firm to provide FINRA with a remediation plan for eligible customers for mutual fund sales-charge waivers. First Allied also agreed in the AWC to pay restitution to eligible customers, which is estimated to total approximately $876,915 (the amount eligible customers were allegedly overcharged, with interest).

FINRA alleged that First Allied disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. FINRA alleged that these eligible customers were instead steered toward Class B or C fund shares, or Class A shares with a front-end sales charge, resulting in the customers’ paying higher charges than necessary to purchase the shares.

FINRA also alleged that First Allied failed to apply available fee waivers to mutual fund purchases made by eligible customers. Finally, FINRA alleged that First Allied failed to establish and maintain a supervisory system sufficient to accurately determine the applicability of sales-charge waivers.

Published on: November 21, 2017

Investors in United Development Funding III May Have FINRA Arbitration Claims

by InvestorLawyers

Building Demolished Investors who purchased shares in the publicly registered non-traded REIT United Development Funding III (“UDF III”) upon the recommendation of their stockbroker or financial advisor may be able to recover their losses in FINRA arbitration if the recommendation to purchase shares lacked a reasonable basis or the nature and characteristics of the investment were misrepresented. UDF III is one of a number of successive funds offered by the real estate finance limited partnership, United Development Funding (“UDF”), headquartered in Grapevine, TX. Formed as a Delaware limited partnership in June 2005, UDF III, according to its publicly filed Registration Statement, was “… formed primarily to generate current interest income by investing in mortgage loans.” By April 2009, UDF III had completed its securities offering, having raised net proceeds of approximately $290.7 million.

Following allegations of misconduct by a Dallas hedge fund manager, the share price of UDF III suffered severe decline in late 2015. These allegations by the hedge fund manager concerned UDF and its various funds, including UDF III, allegedly exhibiting potential signs of a Ponzi scheme, including propping up poorly performing investments in earlier funds with new investor capital raised from later fund vintages. By November 30, 2015, UDF III filed an involuntary bankruptcy petition in the U.S. Bankruptcy Court for the Western District of Texas against UDF III’s largest non-affiliated borrower.

Many investors in UDF III have come to learn of the many risks inherent in investing in a non-traded REIT. To begin, a non-traded REIT is generally a very illiquid investment vehicle, given the fact that its shares do not trade on a national exchange. As such, when investors seek to exit their position, they may only do so by redeeming their shares directly with the issuer (often such redemptions are limited in terms of when they may occur, and in what amount), or through attempting to sell shares on a limited and fragmented secondary market.

Published on: November 20, 2017

Investing in Non-Traded BDCs May Get Even Riskier

by InvestorLawyers

On November 15, 2017, H.R. Bill 4267 (the “Bill”), entitled the Small Business Credit Availability Act (the “Act”), passed the House Financial Services Committee by an overwhelming 58-2 vote. This Bill seeks to amend the Investment Company Act of 1940 (’40 Act), specifically the regulations currently governing business development companies (“BDCs”). In recent years, financial advisors have increasingly recommended BDCs, allowing for Mom and Pop retail investors to participate in private-equity-type investing. Many income-oriented investors are attracted to BDCs because of their characteristic enhanced dividend yield.

As an investment vehicle, BDCs were first made available pursuant to the Small Business Investment Incentive Act of 1980, as a result of a perceived crisis in the capital markets. At that time, small businesses were encountering severe difficulties in accessing credit through traditional means. BDCs are a special type of closed-end fund designed to provide small, growing companies with access to capital.

BDCs are structured as hybrid between an operating company and an investment company under the ’40 Act. Regulated as an investment company, BDCs are required to file periodic reports under the Securities Exchange Act, and further, are subject to a number of regulatory requirements. Three of the most notable regulations currently governing BDCs are as follows:

Published on: November 17, 2017

Woodbridge Group of Companies Targeted In Contempt of Court Motion By SEC

by InvestorLawyers

Piggybank In A Cage As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, continues to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities. To date, Woodbridge has been the subject of investigations by state securities regulators in Arizona, Texas, Massachusetts, Pennsylvania, and Michigan. Several of these investigations have resulted in regulators issuing cease-and-desist orders, requiring Woodbridge to stop offering and/or selling unregistered securities, and further, to stop otherwise violating applicable securities laws.

As of mid-November 2017, Woodbridge has settled regulatory actions in Pennsylvania, Texas and Massachusetts. The company, which has offered a number of various Woodbridge Mortgage Investment Funds (“Woodbridge Funds”), has marketed so-called “First Position Commercial Mortgages” (or “FPCMs”) to investors nationwide through issuing promissory notes in exchange for investments backing certain hard money loans secured by commercial real estate.

At the federal level, for the past year the Securities and Exchange Commission (“SEC”) has also been investigating Woodbridge. Specifically, according to a publicly available court filing, the SEC “[i]s investigating the offer and sale of unregistered securities, the sale of securities by unregistered brokers and the commission of fraud in connection with the offer, purchase and sale of securities.”

Published on: November 16, 2017

John P. Correnti of AXA Advisors Barred By FINRA

by InvestorLawyers

7-ways As recently reported, the Financial Industry Regulatory Authority (“FINRA”) barred broker John Phillip Correnti (CRD# 5319471) in light of his failure to provide testimony and documents in connection with an investigation into potential violations of applicable securities industry rules. Publicly available information through FINRA indicates that, in a career spanning 2007 – 2016, Mr. Correnti was previously affiliated with four different brokerage firms. Most recently, Mr. Correnti was associated with AXA Advisors, LLC (“AXA”) (CRD# 6627) (2015-2016).

FINRA records also indicate that Mr. Correnti was the subject of a customer dispute in 2011, which concerned allegations of mismanagement, misrepresentations, breach of fiduciary duty, as well as claims grounded in negligence / negligent misrepresentation. Furthermore, FINRA records indicate that Mr. Correnti was discharged from his employment with AXA in July 2016, following allegations concerning “[h]is apparent involvement in the possible manipulation of a low-price security.”

In August 2017, Mr. Correnti, who worked as a registered representative for AXA in Cleveland, Ohio, was barred from the securities industry by FINRA. Specifically, FINRA sanctioned Mr. Correnti with an industry bar following his failure to completely respond to FINRA’s request for documents, as well as his incomplete testimony. In addition, FINRA records suggest that the investigation was aimed, at least in part, on whether Mr. Correnti “[e]ngaged in undisclosed business activities….”

Published on: November 16, 2017

FINRA Fines Hornor, Townsend & Kent $275,000 Over L-Share Variable Annuity Sales Practices

by InvestorLawyers

Money in Wastebasket As part of its ongoing enforcement focus on variable annuity (“VA”) sales practices, the Financial Industry Regulatory Authority (“FINRA”) recently censured and fined Hornor, Townsend & Kent, Inc. (“HTK”) $275,000 for its alleged failure to supervise its brokers’ sales of VAs. HTK (CRD# 4031), headquartered in Horsham, PA, is a full-service broker-dealer that offers a range of investment, including VAs.

In recent months, FINRA has ramped up its enforcement focus on VA sales practices. Ever since handing down a $20 million fine against MetLife Securities, Inc. (“MSI”) in May, 2016 (in addition, FINRA ordered MSI to pay $5 million to customers in connection with allegations of making negligent material misrepresentations and omissions on VA replacement applications), FINRA enforcement has continued to fine numerous member firms concerning VAs sales practice issues. In particular, FINRA has targeted brokers recommending unsuitable VAs, in the first instance, as well as recommending the sale of one VA for another in order to generate commissions (a practice akin to churning, and commonly referred to as “switching”).

FINRA’s recent censure and fine against HTK involves sales of L-share VAs, which were allegedly made without proper supervision. FINRA determined that the activities in question took place between April 2013 and June 2015; during this time frame, it was determined that 7,398 or nearly 47% of the 15,815 VA contracts sold by HTK registered representatives were L-share contracts.

Published on: November 16, 2017

Court Orders Woodbridge To Produce Documents To SEC

by InvestorLawyers

woodbridge-300x82 The U.S. Securities and Exchange Commission (“SEC”) obtained an order on September 21, 2017 requiring the Woodbridge Group of Companies LLC (“Woodbridge”), of Sherman Oaks, California, to produce the documents of several company executives and employees, including the President and CEO. This order reportedly relates to an SEC investigation of Woodbridge.

The SEC is reportedly investigating whether Woodbridge and others have violated or are violating the antifraud, broker-dealer, and securities registration provisions of the federal securities laws in connection with Woodbridge’s receipt of more than $1 billion of investor funds. According to the SEC’s application and supporting papers filed in federal court in Miami on July 17, 2017, investors from around the country may have been affected.

On January 31, 2017, in furtherance of the SEC’s probe into Woodbridge, SEC staff in the Miami Regional Office reportedly served Woodbridge with a subpoena seeking the production of electronic communications that the company maintained relating to Woodbridge’s business operations, as well as other documents. Court papers filed by the SEC allege that the company has failed to produce any relevant communications in response to the subpoena, including those of three high-level Woodbridge officials, despite being legally required to make the production. The Court overruled Woodbridge’s objections and ordered the documents produced.

Published on: November 15, 2017

Oil and Gas Master Limited Partnerships At Issue In FINRA Arbitration Case Won By Customer

by InvestorLawyers

Oil Drilling RIgs If your financial advisor has recommended an unsuitable investment in a Master Limited Partnership (or “MLP”) without a reasonable basis for the recommendation, you may be able to recover losses through arbitration before the Financial Industry Regulatory Authority (“FINRA”). Recently, a three-member all public FINRA arbitration panel ordered RBC Capital Markets and one of its registered representatives to pay $723,000 to a former client, an elderly customer from Norwell, MA, in connection with losses sustained on an overconcentrated portfolio of oil and gas MLPs (FINRA Case No. 17-0305 – Nourie, et al v. RBC Capital Markets).

The investments at issue before the panel in the Nourie case included the following:

Breitburn Energy Partners (OTC MKTS: BBEPQ);

Published on: November 15, 2017

Investors Face Losses As Corporate Capital Trust Begins Trading on NYSE

by InvestorLawyers

Investors faced the prospect of losses as Corporate Capital Trust, a former non-traded business development company listed its shares on the New York Stock Exchange this week under the ticker symbol CCT. In early trading on November 14 and 15, 2017, the price of CCT shares fluctuated between $16.56 and $18.63 a share. Accounting for the October 31, 2017 2.25-to-1 reverse split in CCT’s shares, this trading range means that a pre-split share of CCT is now worth between $7.36 and $8.28 a share- down from offering prices of between $10.00 and $11.30 a share at which investors purchased shares before the company was publicly traded

CCT is now reportedly the largest publicly-traded business development company, and the company raised billions of dollars in its public offerings of stock. Corporate Capital Trust also commenced a tender offer to purchase up to $185 million in shares of its common stock at $20.01 per share, the company’s most recent net asset value per share, as of September 30, 2017. The tender offer expires at 5:00 p.m. (EST) on December 12, 2017. The tender offer price is a significant premium to the market price.

Corporate Capital Trust’s initial public offering was declared effective by the SEC in April 2011 and raised a total of $3.3 billion before closing its follow-on offering in October 2016. The managing dealer, CNL Securities Corp., sold approximately 141 million shares in CCT’s initial public offering and sold an additional 168 million shares in a follow-on public offering, which closed on November 1, 2016. CNL Securities Corp. was generally entitled to receive selling commissions of up to 7% of the gross proceeds of shares sold in the offerings and a marketing support fee of up to 3% of the gross offering proceeds of shares sold in the offerings, some of which may have been shared with other broker-dealers who sold shares to customers.

Published on: November 14, 2017

Former Janney Montgomery Scott and RBC Financial Advisor Lisa J. Lowi Barred From the Securities Industry

by InvestorLawyers

If you have invested with financial advisor Lisa J. Lowi (a/k/a Lisa Jacqueline Lowi, Lisa Lowi, Lisa Jacqueline Vineberg) (CRD# 1347790) and have sustained losses, you may be able to recover your losses in FINRA arbitration. According to publicly available information through FINRA, on November 3, 2017, Ms. Lowi consented to being barred from the securities industry. Specifically, FINRA enforcement sent Ms. Lowi a written request for on-the-record testimony earlier this year, and following her refusal to appear for testimony, FINRA proceeded to bar Ms. Lowi from future work as a registered representative soliciting securities, effective November 3, 2017. Before being barred, Ms. Lowi was a long-time financial advisor, having first entered the industry in 1985. Ms. Lowi was most recently associated with RBC Capital Markets, LLC (“RBC”) (CRD# 31194) (2009-2015), and most recently, Janney Montgomery Scott LLC (“Janney Montgomery”) (CRD# 463) (2015-2016).

FINRA BrokerCheck indicates that Ms. Lowi has been named as a Respondent or otherwise involved in a total of thirty-seven (37) customer disputes. Review of BrokerCheck appears to indicate that many of these disputes concern allegedly unsuitable investments in high-risk and speculative “junk bonds” in the oil and gas sector. A number of Ms. Lowi’s former clients have alleged that she overconcentrated their investment portfolios in speculative junk bonds. Generally, junk bonds are a high-risk / high-yield investment that offer the potential for enhanced income, in exchange for the increased risk of default. In the event of default, an investor will no longer receive periodic bond coupon (or interest) payments.

Investing in an appropriate allocation of junk bonds may possibly be part of an overall appropriate investment strategy, provided the investor is fully informed of the risks such that he or she is capable of absorbing potential losses. However, overconcentrating an investor in junk bonds is likely a recipe for disaster, particularly in instances where the investor’s stated investment objectives and risk profile suggest that investing in junk bonds is unsuitable.