FINRA Arbitration

Published on: September 21, 2018

AFIN Update: Upcoming Conversion of American Finance Trust B-1 Shares May Have Dilutive Effect on AFIN Share Price

Money Whirlpool
As discussed in a prior blog post, on June 29, 2018, the board of directors of American Finance Trust, Inc. (“AFIN” or the “Company”), formerly known as American Realty Capital Trust V, Inc., announced the approval of a plan to list AFIN common stock on the Nasdaq Global Select Market (“NasdaqGS”), under the symbol ‘AFIN’. Pursuant to that plan, half of AFIN’s shares — AFIN Class A shares — were recently listed on NasdaqGS. Specifically, since July 16, 2018, shares of AFIN have been publicly traded and are currently priced around $17.50 per share. Therefore, investors who participated in the IPO and paid $25 per AFIN share and continue to hold their position have incurred substantial unrealized losses on their investment of approximately 30% (exclusive of commissions, as well as distributions paid, to date).

Most recently, the AFIN board of directors announced that in connection with their public listing, the former non-traded REIT now intends to convert its Class B-1 shares, which represent approximately 25% of AFIN shares outstanding, into Class A shares one week earlier than previously planned, on October 10, 2018. At this time, Class B-2 shares are still scheduled to convert to AFIN Class A shares on January 15, 2019, as previously planned.

AFIN shareholders have expressed concern that the Company’s plan to list its shares on NasdaqGS in such an incremental, phased manner will likely serve to dilute the value of the AFIN Class A shares, thus creating downward selling pressure on a stock that has already suffered considerable decline from its IPO pricing. In addition, some shareholders have expressed concern over the fact that AFIN recently cut its dividend from approximately $1.30 to $1.10, effective July 1, 2018. This amounts to a reduction in distribution of approximately 15% and is of particular concern to the many retail investors who initially purchased AFIN shares for their income component.

Published on: September 20, 2018

Tamara Steele, Indiana Financial Advisor, Sued by SEC for Sales of Behavioral Recogition Systems, Inc. Stock

by InvestorLawyers

Piggy Bank in a Cage
On September 14, 2018, the SEC initiated a civil action (the “Complaint”) in federal court in the Southern District of Indiana against Ms. Tamara Rae Steele (CRD# 3227494) (“Steele”), as well as her eponymous investment advisory firm, Steele Financial, Inc. (“Steele Financial”), alleging that Ms. Steele had defrauded a number of her advisory clients through recommendations to invest in certain high-risk securities issued by Behavioral Recognition Systems, Inc. (“BRS”), in a scheme that purportedly generated $2.5 million in commissions for Ms. Steele’s benefit. According to publicly available information through FINRA, Ms. Steele, a former middle school math teacher, first began working as a financial in or around 1999. Most recently, she was affiliated with broker-dealer Comprehensive Asset Management and Servicing, Inc. (CRD# 43814) (“CAMAS”) from January 2009 – July 2017. Ms. Steele’s CRD record showing her employment history and customer claims filed with FINRA is accessible below.

tamara rae steele

As alleged by the SEC in its Complaint, Ms. Steele was terminated by her former employer, CAMAS, when the “broker-dealer learned that [she] was selling BRS securities outside the scope of her employment with the firm and without the firm’s knowledge and approval, a practice called ‘selling away’ from the firm.” Specifically, the SEC has alleged that Ms. Steele fraudulently recommended “over $13 million in extremely risky securities issued by a private company, Behavioral Recognition Systems, Inc. (‘BRS’).” Further, the SEC has alleged that Ms. Steele violated her fiduciary duty to her clients — many of whom were unaccredited retail investors who were either current or former teachers and public-school employees — by purportedly failing to disclose that she was earning “[c]omissions ranging from 8% to 18% of the funds raised for BRS.” The SEC Complaint is accessible below:

Published on: September 14, 2018

SII Investments Non-Traded REIT Sales Targeted By Massachusetts Securities Regulator

by InvestorLawyers

Brokerage firm SII Investments, Inc. has been ordered by Massachusetts Secretary of the Commonwealth William Galvin to refund money back to clients who were sold non-traded REITs by SII.

money backing hard money real estate deal
Galvin charges that SII failed to adequately supervise the sale of nontraded REITs to customers. As a result of the settlement, any Massachusetts investor who was identified by Mr. Galvin’s office as having been improperly sold the REITs by SII will be offered their money back. While this conduct may have occurred in other states, only Massachusetts investors are affected by the action by Galvin’s office (and other investors will not receive a refund as a result of this action).

Of note, the Massachusetts action focused on SII treating clients’ annuities as liquid assets rather than nonliquid assets for purposes of calculating the amount of the client’s assets that could be invested in non-traded REITs: “SII’s suitability and disclosure form for nontraded REITs stated that no more than 10% of an investor’s liquid net worth may be invested in any particular nontraded REIT… While SII’s own internal policies made clear that annuities are illiquid products, SII nevertheless included annuities with substantial pending surrender fees as liquid for nontraded REIT liquid net-worth calculations.”

Published on: August 29, 2018

StockCross Charged With Improper UIT Transactions by Massachusetts Securities Regulators

by InvestorLawyers

On August 14, 2018, the Enforcement Section of the Massachusetts Securities Division (the “Division”) filed a Complaint against StockCross Financial Services, Inc. (“StockCross”) (CRD# 6670), as well as one of its registered representatives, Mr. Peter E. Cunningham (“Cunningham”) (CRD# 2400211). Through its administrative action, the Division has alleged that Cunningham engaged in “[i]mproper buys and sells of an investment known as a unit investment trust (“UIT”) throughout Cunningham’s Massachusetts client accounts.” The Division also alleges that StockCross failed to properly supervise Cunningham, and even promoted him, despite its awareness of Mr. Cunningham’s previous checkered regulatory history — including six customer complaints resulting in approx. $330,000 in settlement payments to investors.

Piggybank in a Cage
A UIT is a type of security that shares some similarities to mutual funds and closed-end funds (CEFs), insofar as a UIT consists of a basket of different investments. Historically, most UITs were structured as vehicles in which to purchase a basket of municipal bonds. Over time, UITs have evolved to the point where today, retail investors might invest in a variety of UITs offering exposure to various asset classes and economic sectors. However, unlike traditional mutual funds or CEFs, UITs are structured with a finite lifespan, and thus cease upon a given predetermined date. Additionally, UITs generally charge investors high fees, as high as 3-5% of the initial investment. Unfortunately, as a result of their fee structure, some brokers and investment advisers will encourage their clients to actively trade in and out of UITs, a practice commonly referred to as “switching” and akin to churning an investment portfolio, in an effort to generate excessive commissions for the benefit of the broker, and to the detriment of the uninformed investor. Switching transactions that appear to be fee-motivated may give rise to investor claims against advisors.

As alleged by the Division, since as early as 2012, “[C]unningham has engaged in short-term UIT trading in the accounts of his Massachusetts clients. Of [his] approximate 180 clients, nearly 60, or approximately 30%, are Massachusetts residents. Statements from [his] Massachusetts client accounts reflect sales of UITs as soon as 26 days after purchase and sometimes years before the UIT is predetermined to reach its maturity date. Cunningham often used proceeds of the sales to buy other UITs.”

Published on: July 30, 2018

American Finance Trust (AFIN) Shares Subject to Tender Offer

by InvestorLawyers

stock market chart As previously reported, on June 29, 2018, the board of directors of American Finance Trust, Inc. (“AFIN” or the “Company”), formerly known as American Realty Capital Trust V, Inc., announced the approval of a plan to list AFIN common stock on the Nasdaq Global Select Market (“Nasdaq”), under the symbol ‘AFIN’. The company listed its shares effective July 19, 2018. Although most investors paid $25.00 a share for AFIN shares in the Company’s offerings, AFIN shares have consistently traded well below that price level since the Nasdaq listing. AFIN shares have traded as low as $13.15 a share, and closed on July 30, 2018 at $14.93 a share.

As of July 26, 2018, an investor known as MacKenzie Realty Capital, Inc. has now announced a tender offer for shares of AFIN, offering $15.00 per Class A Share (AFIN), $11.27 per Class B-1 Share, and $10.00 per Class B-2 Share. The performance of the Company since it started trading on July 19 and the relatively low tender offer price may have caught some investors by surprise, since AFIN published an estimated net asset value of $23.56 in June 2018.

Because AFIN was registered with the SEC, the non-traded REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager. AFIN commenced its initial public offering in April 2013, which closed approximately six months later, raising $1.6 billion in investor equity. Investors who participated in the IPO paid $25 per share. AFIN later merged with another REIT known as American Realty Capital Retail Centers of America in a controversial 2017 transaction.

Published on: July 24, 2018

Infinex Investments Charged by Mass. With Unsuitable Sales at Bank Branches

by InvestorLawyers

Money Bags Infinex Investments (“Infinex”, CRD No. 35371) of Meriden, Connecticut has entered into a Consent Order with Massachusetts securities regulators, agreeing to pay a fine of $125,000 and make restition to investors to resolve allegations that it failed to adequately supervise agents who were selling high-commission securities products. Infinex registered representatives allegedly targeted customers at bank branches, primarily senior citizens, for unsuitable investment recommendations, including real estate investment trusts REITs and variable annuities, primarily to senior customers at local banks who didn’t understand the products.

Infinex is majority-owned by a group of nearly 40 banks that offer securities on bank premises and has selling agreements with approximately 30 banks in Massachusetts. Infinex also operates in other states and, according to the Financial Industry Regulatory Authority (“FINRA”), is licensed to operate in 53 U.S. states and territories. Therefore, it is possible that sales of investments such as those that allegedly occurred in Massachusetts may have occurred in bank branches in other states.

The Massachusetts Securities Division reportedly began investigating sales practices by Infinex after senior citizens complained that they had been sold investments they did not ask for or did not understand. The Consent Order is accessible below.

Published on: July 23, 2018

Jerry Raines, Formerly of HD Vest, Allegedly Sold Unregistered Woodbridge Securities

by InvestorLawyers

woodbridge mortgage funds Investors in unregistered Woodbridge First Position Commercial Mortgages (“FPCMs”) notes and/or units upon the recommendation of former financial advisor Jerry Davis Raines (CRD# 4578689, hereinafter “Raines”) may be able to recover losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”). According to FINRA BrokerCheck, a number of investors have already filed claims against Mr. Raines in connection with allegations surrounding Mr. Raines’ alleged recommendation of unsuitable Woodbridge investments to customers. Mr. Raines was most recently affiliated with HD Vest Investment Services (CRD# 13686, hereinafter “HD Vest”) from 2014 – May 2017. Previous to that, Mr. Raines was affiliated with Signal Securities, Inc. (CRD#15916) and Woodmen Financial Services, Inc. (CRD# 117365).

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, and certain of its affiliated entities, filed for Chapter 11 bankruptcy protection on December 4, 2017 (U.S. Bankruptcy Court for the District of Delaware – Case No. 17-12560-KJC). The SEC has alleged that Woodbridge, through its owner and former CEO, Mr. Robert Shapiro, purportedly utilized “more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”

Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, as well as various licensed and unlicensed financial advisors. Woodbridge investments came in two primary forms: (1) “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s seven Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” consisting of lending agreements underlying purported hard money loans on real estate deals.

Published on: July 20, 2018

Hines Real Estate Investment Trust Approves Final Liquidating Distribution

by InvestorLawyers

investing in real estate through a limited partnership As recently announced, the board of directors of Hines Real Estate Investment Trust, Inc. (“Hines REIT” or the “Company”) — one of three publicly registered non-traded REITs sponsored by Hines — has unanimously voted for approval of a plan of liquidation and dissolution of the Company (“Liquidation Plan”). Under the Liquidation Plan, which calls for shareholder approval, the Company will sell seven of its West Coast office building assets in a cash transaction valued at $1.162 billion to an affiliate of Blackstone Real Estate Partners VIII. In addition, Hines REIT also seeks to liquidate the remainder of its portfolio, including Chase Tower in Dallas, TX, 321 North Clark in Chicago, and a grocery-anchored retail portfolio located in the Southeastern U.S.

Pursuant to the Liquidation Plan, Hines REIT shareholders will receive $0.08 per share, to be paid on or about July 31, 2018. Specifically, the Liquidation Plan entails a final distribution of $0.07 per share, as well as an additional $0.01 per share stemming from a recent class action settlement. The class action settlement involves a lawsuit filed by Baltimore City in the Circuit Court of Maryland, alleging breach of fiduciary duty, waste of corporate assets, and misappropriation of assets surrounding certain payments made in connection with the Liquidation Plan.

Hines REIT shareholders previously approved the Liquidation Plan in November 2016; subsequent to shareholder approval, the Company declared an initial liquidating distribution of $6.20 per share in December 2016, as well as a $0.30 per share liquidating distribution in April 2017. Following the final distribution of $0.08 per share, Hines REIT investors will have received total special and liquidating distributions of approximately $7.59 per share, in addition to regular annual distributions. Shares were originally sold for $10 each.

Published on: July 19, 2018

American Finance Trust (AFIN) Lists on NASDAQ- Revealing Heavy Investor Losses

by InvestorLawyers

money whirlpool American Finance Trust, Inc. (“AFIN” or the “Company”) listed its shares on Nasdaq Global Select Market (“Nasdaq”) on July 19, 2018, with trading opening at $13.15 a share with. AFIN sold shares to public at $25.00 a share,. While the trading price of AFIN may fluctuate, it appears that pre-listing investors in the REIT have likely suffered substantial principal losses.

On June 29, 2018, the board of directors of AFIN, formerly known as American Realty Capital Trust V, Inc., announced the approval of a plan to list AFIN common stock on the Nasdaq under the symbol ‘AFIN’. In order to effectuate the Nasdaq listing and account for possible downward selling pressure upon listing, AFIN’s board also approved a phased liquidity plan, which includes the following important components through filing amendments to the Company’s charter:

2-to-1 reverse stock split: pursuant to this reverse split, every two shares of AFIN (par value $0.01) are to be converted into one share of common stock (par value $0.02);

Published on: July 19, 2018

Massachusetts Securities Regulator Targets Brokerages in Private Placement Sales

by InvestorLawyers

Financial Fraud As recently reported by the Wall Street Journal (WSJ), investments in so-called private placements have experienced a substantial upswing in the wake of the 2008 financial crisis. In fact, according to a May 7, 2018 WSJ article entitled, A Private-Market Deal Gone Bad: Sketchy Brokers, Bilked Seniors and a Cosmetologist, “In 2017 alone, private placements using brokers totaled at least $710 billion … a nearly threefold increase rise from 2009.” Of considerable concern, the article indicates that that financial advisors recommending private placements are “six times as likely as the average broker to report at least one regulatory action against them…” and, moreover, that 1 in 8 brokers recommending private placement investments have “three or more red flags on their records, such as investor complaint, regulatory action, criminal charge or firing… .”

In response to growing concerns about the many risks and pitfalls associated with private placements, some securities regulators have stepped up their efforts to combat the problem. For example, on July 2, 2018, the Massachusetts Securities Division (the “Division”) announced its investigation into sales practices linked to private placement investments. Pursuant to the Division’s investigation – which will be spearheaded by Mr. William Galvin, the Secretary of the Commonwealth of Massachusetts – a total of 10 broker-dealers will be subjected to regulatory inquiry. These brokerage firms, which have a demonstrated history of sales practice abuse surrounding private placement investments, include: LPL Financial, Arthur W. Wood Company, Santander Securities, U.S. Boston Capital, Bolton Global Capital, Advisory Group Equity Services, Moors & Cabot, Inc., Detwiler Fenton & Co., BTS Securities, and Winslow, Evans & Crocker.

In connection with its investigation, the Division is seeking to examine firms and advisors with disciplinary reports on file from 2 years ago, when the Division surveyed over 200 brokerage firms regarding their hiring and disciplinary practices. According to Mr. Galvin: “Private placements are risky investments that reward the salesperson handsomely with high commissions. Firms offering these to the public, especially seniors, have an obligation to see that they are sold to benefit the investor, not the broker. Individuals with a history of disciplinary actions magnify the risk of unsuitable sales in connection with private placements.”