FINRA Arbitration

Published on: November 6, 2017

Regulators Accuse California-Based Woodbridge of Sales of Unregistered Securities

Building Explodes The Securities and Exchange Commission (SEC) recently sought documents form a group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators. Woodbridge, based in California, has reportedly raised over $1 billion from investors- allegedly by offering the sale of unregistered securities through unregistered brokers. Woodbridge and its agents have also been sanctioned by multiple state regulators for allegedly offering unregistered securities, including a 2015 cease-and-desist order by Massachusetts, a cease-and-desist order against Woodbridge Fund 3 and principal Robert Shapiro imposed by Texas in 2015, and a 2016 complaint filed by Arizona regulators.

Most recently, Colorado regulators reportedly have opened an investigation into Colorado-based alleged Woodbridge brokers including James Campbell of Campbell Financial Group in Woodland Park, and Timothy McGuire of Highlands Ranch. Woodbridge has reportedly raised $57 million from 450 Colorado investors and continues to solicit investors through online and radio advertising.

Some FINRA-registered stockbrokers and financial advisors have also allegedly sold unregistered Woodbridge securities to clients, including Frank Capuano, who was registered with Royal Alliance Associates in Holyoke, MA. Capuano was alleged to have sold over $1,000,000 of the private notes to Royal Alliance customers and received over $30,000 in commissions.

Published on: November 6, 2017

PR Bonds Plummet In Value After Hurricane Maria- Investors May Have Claims Against Brokers and Financial Advisors

by InvestorLawyers

Investors in Puerto Rico bonds – in particular, retail investors located in the U.S. Territory who invested in various proprietary closed-end funds (“CEFs”) structured and marketed by firms including UBS Puerto Rico, Santander Securities, and Popular Securities — have suffered massive losses since late 2013 when Puerto Rico’s bond prices witnessed significant deterioration following years of recession and ballooning municipal debt. Now, in the wake of Hurricane Maria, these huge losses are deepening as institutional investors with large Puerto Rico bond holdings seek to exit their positions.

As recently reported in the Wall Street Journal on October 25, 2017, Franklin Resources Inc. (NYSE: BEN), one of the largest creditors of Puerto Rico debt (the company sponsors approximately 200 mutual funds under the Franklin Templeton moniker) sold hundreds of millions of dollars of Puerto Rico debt in recent weeks. Franklin Resources and other large institutional investors, including hedge funds and Oppenheimer Holdings Inc. (NYSE: OPY), have collectively determined that holding Puerto Rico debt is untenable in light of the island’s anticipated debt restructuring (a process initiated in 2016) and, more recently, the massive devastation to Puerto Rico due to Hurricane Maria.

Before the hurricane hit Puerto Rico, its General Obligation (“GO”) Bonds maturing in 2035 were already trading at a significant discount to par, priced at around $0.60 on the dollar. Following Maria, these same GO bonds cratered even further, losing approximately 50% of their pre-hurricane value.

Published on: November 3, 2017

Investors in HMS Income Fund May be Able to Recover Losses Through Arbitration

by InvestorLawyers

If you have invested in HMS Income Fund (“HMS”) upon the recommendation of your financial advisor, you may be able to recover your losses through arbitration before the Financial Industry Regulatory Authority (“FINRA”). A Maryland corporation formed in 2011, HMS is sponsored by Hines Interests Limited Partnership (“Hines”). HMS is structured as a closed-end management investment company, and pursuant to the Investment Company Act of 1940 operates as a public, non-traded business development company (“BDC”). HMS’s business focuses on providing mezzanine debt and equity financing to various private middle market companies. As of June 30, 2017, HMS has provided debt financing to 119 companies across a spectrum of industries.

As an investment vehicle, BDCs have been available since the early 1980’s (when Congress enacted legislation making certain amendments to federal securities laws allowing for BDC’s to make investments in developing companies and firms). Frequently, financial advisors have 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.

Traded BDCs that are listed (and thus sold and resold) on national securities exchanges may offer an attractive investment opportunity (although with enhanced dividend yield comes additional risk). However, non-traded BDCs are altogether different, and should be regarded as risky, complex and illiquid investment products. As their name implies, non-traded BDCs do not trade on a national securities exchange, and are therefore illiquid products that are difficult to sell. Typically, investors can only sell their shares through redemption with the issuer, or through a fragmented and inefficient secondary market. Moreover, non-traded BDCs such as HMS usually have high up-front fees (typically as high as 10%), which are paid to the financial advisor selling the product, his or her broker-dealer, and the wholesale broker or manager.

Published on: November 2, 2017

3x Leveraged and Inverse ETFs May Give Rise To Investor Claims

by InvestorLawyers

Money Bags Investors who purchased shares in a leveraged inverse ETF or mutual fund upon the recommendation of their financial advisor may have arbitration claims. In today’s investment environment, many retail investors have been coaxed into investing in financial products beyond the traditional universe of stocks, bonds, and bank deposit products such as CDs. One such alternative or non-conventional investment product that has gained in popularity over the past decade with retail investors is the leveraged inverse ETF (more commonly referred to as an “ultra short fund”).

Essentially, leveraged inverse funds seek to deliver the opposite of the performance of the index or benchmark that they track. These ultra short funds employ a strategy akin to short-selling a stock (or basket of stocks), in conjunction with employing leverage, and in so doing these funds seek to achieve a magnified return on investment that is a multiple of the inverse performance of the underlying index.

For example, the ProShares UltraPro Dow30 ETF (NYSE: SDOW) is structured to provide a return that is -3% of the return of the underlying index, the Dow Jones Industrial Average. Thus, if the Dow Jones were to lose 1% in value, SDOW is structured to gain 3%. While in theory this might seem a straightforward proposition, the fact is that such ultra short funds are exceptionally complicated and risky financial products.

Published on: October 31, 2017

Investors in Hospitality Investors Trust, Inc. May Have Arbitration Claims

by InvestorLawyers

Apartment Building Investors who purchased shares in the publicly registered non-traded REIT Hospitality Investors Trust, Inc. (“HIT”) upon the recommendation of their financial advisor may be able to recover their losses in FINRA arbitration. HIT owns a portfolio of hotel properties throughout North America, including various Hilton-, Marriott- and Hyatt- branded hotels, within the select service and full-service markets. As of December 31, 2016, HIT owned 148 hotels; the company was founded in 2013 and is headquartered in New York, NY.

Recently, HIT commenced a defensive tender offer for up to 1 million shares of its common stock at a price of $6.50 per share. According to HIT’s board, the defensive tender was made in order to deter another recent tender offer, made by third-party MacKenzie Realty Capital (“MacKenzie”), a non-traded business development company. On October 23, 2017, MacKenzie notified HIT investors that it had commenced an unsolicited tender offer to purchase up to 300,000 shares of common stock for $5.53 per share. The MacKenzie tender offer is set to expire on December 8, 2017, whereas the more recent HIT tender offer is set to expire on December 11, 2017.

These recent tender offers by both MacKenzie and HIT illustrate one of the significant risks associated with investing in non-traded REITs. Specifically, an investment in a non-traded financial product is generally an illiquid investment that can only be sold through redemption to the sponsor, or in some instances, through a limited and fragmented secondary market. In this instance, the defensive offer to redeem being made by HIT is at $6.50 per share. For investors who purchased shares through the original offering, the shares were priced at $25. Therefore, even when factoring in any distributions paid on the investment, any shareholder who participates in the HIT tender offer will be absorbing a steep loss on their investment of approximately 70%.

Published on: October 26, 2017

Vestin Realty Mortgage I and II and MVP REIT I and II Investors May Have Arbitration Claims

by InvestorLawyers

Building Explodes Investors in certain REITs based in Las Vegas may have arbitration claims against brokers or financial advisors if a FINRA-registered broker dealer that recommended the investment did not live up to its obligations under applicable rules. As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.

Vestin Realty Mortgage I (Previously Vestin Fund I and DM Mortgage Investors)

Vestin Realty Mortgage I (VRM I) was formerly known as DM Mortgage Investors. On March 17, 2000, DM Mortgage Investors registered up to 100,000,000 shares with the Securities and Exchange Commission (SEC) at $1 per share. This registration was later amended to cover the issuance of up to 10,000,000 shares at $10 per share. On June 29, 2001, DM Mortgage Investors changed its name to Vestin Fund I, and later changed its name to Vestin Realty Mortgage I (VRM I) and began trading on the Nasdaq Capital Market on June 1, 2006. In March 2012, VRM I ceased being a REIT, but continued trading on the Nasdaq.

Published on: October 25, 2017

Volatility Linked ETF Investors May Have Arbitration Claims

by InvestorLawyers

Cage Money Recently, the Financial Industry Regulatory Authority (“FINRA”) ordered Wells Fargo & Co. to pay a $3.4 million fine in connection with sales practice issues related to recommendations of volatility-linked exchange-traded funds (“ETFs”) and volatility-linked exchange-traded notes (“ETNs”) to customers. Specifically, FINRA determined that between July 2010 and May 2012, some Wells Fargo brokers affiliated with the company’s wealth management business recommended that their customers purchase volatility-linked exchange-traded funds (“ETFs”) and volatility-linked exchange-traded notes (“ETNs”) “without fully understanding their risks and features.” In addition, FINRA indicated that Wells Fargo lacked the appropriate supervisory procedures and safeguards to facilitate sales of the volatility-linked investment products.

By their very nature, volatility-linked investments are designed to return a profit when the market experience choppiness (or volatility) and are not intended for ordinary investors. In fact, when volatility-linked ETFs began rolling out to retail investors in early 2011, Michael L. Sapir, Chairman and CEO of ProShare Capital Management, stated that “The intended audience for these ETFs are sophisticated investors.”

Investing in a volatility-linked product is a very risky enterprise that is likely only suitable for professional investors seeking to trade on a short-term basis (e.g., several hours or day trading). Furthermore, because the VIX or so-called ‘fear index’ is not actually tradeable, investors who wish to invest in the VIX must trade derivatives instead (including volatility-linked ETFs and ETNs)- products that are beyond the understanding of ordinary retail investors.

Published on: October 25, 2017

Atlas Resources 28-2010 L.P. Investors May Have Arbitration Claims

by InvestorLawyers

Oil Rig Daytime Investors in Atlas Resources 28-2010 L.P. (“Atlas 28-2010” or, the “Partnership”) may be able to recover investment losses through FINRA arbitration. Atlas 28-2010 is a Delaware limited partnership formed on April 1, 2010, with Atlas Resources, LLC serving as its Managing General Partner and Operator (“Atlas Resources” or “MGP”). Atlas Resources is an indirect subsidiary of Titan Energy, LLC (“Titan”). According to publicly available SEC filings, Titan is an independent developer and producer of natural gas, crude oil, and natural gas liquids, with operations throughout the United States.

As part of its business, Titan sponsors and manages certain investment partnerships, including Atlas 28-2010. As an oil and gas partnership, Atlas 28-2010 has drilled and currently operates wells located in Pennsylvania, Indiana, and Colorado. Atlas 28-2010 seeks to earn revenue through operation of its wells, which produce natural gas. The Partnership raised investor capital through a private placement offering governed by Regulation D (“Reg D”) of the federal securities laws, allowing for the sale of unregistered (or exempt) securities.

Investing in a private placement carries significant risk, and for this reason, is typically only available to accredited investors (in general, to be accredited an investor must have an annual income of $200,000 or joint annual income of $300,000, for the last two years, or alternatively, have a net worth in excess of $1 million, either jointly or with a spouse). One risk with private placements involves their high cost; many oil and gas limited partnerships have high expense ratios, making the investment a risky proposition from the outset. Up-front expenses may be as high as 7-10%, in addition to due diligence fees that may range from 1-3%. Furthermore, oil and gas private placements are risky because of the extreme volatility associated with the underlying commodity: oil. Due to recent sharp declines in the oil and gas market (crude oil has significantly declined in price from recent highs in 2014), many oil and gas limited partnerships are now teetering at the brink of default.

Published on: October 25, 2017

Hospitality Investors Trust Inc. (formerly ARC Hospitality Trust) Subject Of $5.53 A Share Tender Offer

by InvestorLawyers

Hospitality Investors Trust Inc. (formerly known as ARC Hospitality Trust, Inc.) is a non-traded real estate investment trust (REIT) focused on ownership of hotels and other lodging properties in the United States. As a publicly registered non-traded REIT, Hospitality Investors Trust was permitted to sell shares to the investing public at large, oftentimes upon the recommendation of a broker or financial advisor. The REIT sold shares to the public for $25.00/share. Some investors may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

According to reports, Hospitality Investors Trust has terminated redemptions, and the company no longer pays a dividend. The company must get approval from Class C units before doing future redemptions, and according to SEC filings it “no longer pays distributions.” The NAV of Hospitality Investors Trust has reportedly decreased by 47% since initial issuance to just $13.20, down from the $25 initial purchase price. Thus, investors who bought shares at the $25.00 offering price have experienced a loss of nearly half of their principal.

On October 23, 2017, MacKenzie Realty Capital, Inc. reportedly extended a tender offer to purchase shares of Hospitality Investors Trust Inc. for $5.53 a share- suggesting that shares may be worth even less than the REIT’s reported NAV.

Published on: October 24, 2017

Investors in ATEL 14 LLC May Have Arbitration Claims

by InvestorLawyers

Money on Fire Investors in ATEL 14 LLC (“ATEL 14,” or the “Company”), or a similar illiquid investment product, may be able to recover losses on their investment through FINRA arbitration, or in some instances, securities litigation. The attorneys at Law Office of Christopher J. Gray, P.C. possess considerable experience in representing aggrieved investors who have lost money due to unsuitable recommendations to purchase inappropriate securities, including illiquid non-traded investment products that do not trade on a national securities exchange.

According to publicly available SEC filings (from March 2017), ATEL 14 was formed as a California LLC in April 2009, for the purpose of funding equipment financing and acquiring equipment to engage in equipment leasing and sales activities. The Company’s primary investment objective is to acquire investments primarily in low-technology, low-obsolescence equipment such as the core operating equipment used by companies in the manufacturing, mining, and transportation industries. ATEL 14 conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”) at a price of $10 per Unit. As of December 31, 2016, cumulative gross contributions to ATEL 14 (net of distributions paid and syndication costs) totaled $83.7 million – as of this same date, 8,316,662 Units were issued and outstanding.

Recently, Units of ATEL 14 were listed for sale on Central Trade & Transfer – which provides a secondary market for certain illiquid investments including private placements in LLCs such as ATEL 14 – for $3.10 per Unit. It would appear this pricing represents a significant loss for many investors who purchased Units through the IPO at $10 per Unit. Additionally, investors in ATEL 14 may not have fully appreciated the risk associated with the 9% sales commission brokers earned for recommending purchase of ATEL 14 Units to their clients.