FINRA

Published on: October 10, 2012

FINRA Targets Non-traded REITs

According to stock fraud lawyers, the Financial Industry Regulatory Authority has and will continue to relentlessly target non-traded real estate investment trusts, or REITs. Specifically, the regulatory authority is focusing on how broker-dealers sell these investments and potential shortcomings in their strategies. According to the Executive Vice President of Member Regulation Sales Practices at FINRA, Susan Axelrod, examiners at FINRA have been scrutinizing “numerous retail sellers of non-traded REITs.” Axelrod also stated that, “In several instances, FINRA examiners have found that firms selling these products failed to conduct reasonable diligence before selling a product and failed to make a determination that the product was suitable for investors.”

FINRA Targets Non-traded REITs

Investment fraud lawyers note that independent broker-dealers have a responsibility to perform adequate due diligence when selling any investment, especially complex, illiquid products. Since the 2008 market collapse, FINRA has been aggressive with broker-dealers who failed to do so. Axelrod stated to the Securities Industry and Financial Markets Association’s Complex Products Forum that, “FINRA examiners have noted that in the instances of REITs that have experienced financial difficulties, red flags existed and should have been considered by firms prior to the product being offered to firm clients.”

Another problem with non-traded REITs, according to Axelrod, is that “non-traded REITs may also borrow funds to make distributions if operating cash flow is insufficient, and excessive borrowing may increase the risk of default or devaluation. In addition, non-traded-REIT distributions may actually be a return on principal.”

Published on: October 8, 2012

ProShares Investors Could Still Recover Losses Following Class Action Lawsuit Dismissal

by InvestorLawyers

Following the dismissal of the class action lawsuit against ProShares, securities fraud attorneys are investigating potential claims on behalf of investors who suffered significant losses as a result of their investment in the ProShares leveraged and inverse exchange-traded funds.

ProShares Investors Could Still Recover Losses Following Class Action Lawsuit Dismissal

The U.S. District Court for the Southern District of New York recently dismissed the class action lawsuit that was reportedly filed in 2009. According to securities arbitration lawyers, reports indicated that the plaintiffs’ claims that certain risks were omitted from the registration statements disclosures were rejected by the courts. Reportedly, these omitted risks were associated with holding inverse and leveraged exchange-trade funds, or ETFs, for periods exceeding one day.

In a warning issued by FINRA, the regulatory authority stated that leverage inverse ETFs are unsuitable for ordinary investors and that these investments should be held for a short time period only. Brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market, or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market may or may not be a conservative trading strategy. This depends on the sector of the market and assets in the account relative to the investment’s concentration level. For more information on ETFs and ETNs, see the previous blog post, “Investors Could Recover Losses from their Inverse ETF and ETN Investments.”

Published on: October 5, 2012

News: Arbitration Panel Rules in Favor of Investor, Citigroup to Pay $1.4 Million

by InvestorLawyers

Securities fraud attorneys scored a win for investors in FINRA arbitration against a unit of Citigroup Inc. in a FINRA ruling on September 5. The arbitration panel ordered Citigroup to pay investors losses amounting to $1.4 million. These losses were associated with a municipal bond steeped in derivative securities that were very risky — yet the bond was, allegedly, marketed as “safe” to the investor.

News: Arbitration Panel Rules in Favor of Investor, Citigroup to pay $1.4 Million

New York City investor Margaret Hill filed the case in 2011 and requested over $3.5 million in damages. Her losses were a result of Citi’s Rochester Municipal Fund. Investment fraud lawyers say Hill’s case alleged that she was sold unsuitable investments by Citigroup Global Markets Inc. which, in addition, misrepresented facts.

According to the allegations against Citigroup, Hill bought the Rochester Fund as an alternative to her individual municipal bond funds because Citigroup said it would pay more interest and would be a “safe” alternative to her funds at that time. However, the Rochester Fund reportedly consisted primarily of tobacco bonds and risky derivative securities. After purchasing the bond in 2007, Hill sold the funds in 2009, suffering losses amounting to $2.9 million.

Published on: October 4, 2012

Advanced Equities Investors May Have Securities Arbitration Claim

by InvestorLawyers

Securities arbitration lawyers are currently investigating claims on behalf of Advanced Equities customers who invested in what reportedly was known as Bloom Energy, a Silicon Valley alternative energy company. On September 18, the Securities and Exchange Commission charged co-founders Keith G. Daubenspeck and Dwight O. Badger, a FINRA registered broker-dealer, and Advanced Equities Inc. in connection with the private offerings of an alternative energy company offered in 2009 and 2010. According to the allegations, Advanced Equities misled investors and failed to adequately supervise the offerings in two private equity offerings.

Advanced Equities Investors May Have Securities Arbitration Claim

Reportedly, Daubenspeck is the parent company’s board chairman and Badger was the parent company’s former chief executive. Together, they founded Advanced Equities. The SEC has stated that the sales effort was led by Badger, who misstated facts about the finances of the energy company, and Daubenspeck failed to correct these misstatements, which resulted in a failure to adequately supervise.

One of these misstatements, according to the SEC and stock fraud lawyers, occurred in the 2009 offering when Badger said the company had order backlogs amounting to more than $2 billion when, in fact, this amount never exceeded $42 million. In addition, he said a national grocery store chain had placed a $1 billion order when, in reality, it was only a $2 million order, with a non-binding letter of intent for future purchases, that had been placed by the store. Badger also stated that a U.S. Department of Energy loan had been granted to the company that exceeded $250 million, but only a $96.8 million loan had been applied for. This loan application misstatement was repeated in 2010 during the follow-up offering. Reportedly, Daubenspeck, when hearing these misstatements during his participation in at least two internal sales calls, remained silent. No reasonable corrections were made despite these red flags and, as a result, an obvious risk of investors receiving this false information went unchecked. According to securities arbitration lawyers, when misstatements like this are made in an internal sales call to brokers, it is likely that the brokers will unknowingly pass this false information to investors.

Published on: October 3, 2012

SEC Suspension Could Result in Investor Arbitration Claims

by InvestorLawyers

Following a recent announcement by the Securities and Exchange Commission, securities fraud attorneys are investigating potential claims on behalf of investors who suffered losses in investments from a variety of issuers. The following issuers were temporarily suspended by the SEC pursuant to Section 12(k) of the Securities Exchange Act of 1934:

SEC Suspension Could Result in Investor Arbitration Claims

Alto Group Holdings Inc. (ALTO)
AER Energy Resources Inc. (AERN)

Published on: October 1, 2012

Winex Investments LLC 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 their investment in Winex Investments LLC. Winex Investments is a foreign currency investment. In many cases, broker-dealers may have improperly recommended Winex Investments to their clients. Furthermore, securities arbitration lawyers believe some broker-dealers misrepresented the risks associated with Winex.

Winex Investments, LLC Investors Could Recover Losses

Recent anxiety about the devaluation of the dollar and rising U.S. government debt has made some investors turn to foreign currency investing. However, because this type of investment is relatively unknown to many investors, it is essential that the risks are adequately disclosed before any decisions are made. Trading in foreign currency involves the purchasing of debt of foreign countries. Exchange-traded funds, or ETFs, can either buy options and future contracts or purchase the currencies directly.

Prior to recommending an investment to a client, brokers and firms are required to perform the necessary due diligence to establish whether the investment is suitable for the client, given their age, investment objectives and risk tolerance. Financial Industry Regulatory Authority rules have established that firms have an obligation to fully disclose all the risks of a given investment when making recommendations. Furthermore, brokerage firms must, before approving an investment’s sale to a customer, conduct a reasonable investigation of the securities and issuer.

Published on: September 28, 2012

TIC Investor Losses Could be Recovered in FINRA Arbitration

by InvestorLawyers

Securities arbitration lawyers are currently investigating claims on behalf of investors who suffered significant losses as a result of their investment in TIC, or tenants-in-common, investments with a full-service brokerage firm. The securities industry has watched as TICs have become more common as a result of the IRS rules amendment in 2003, allowing an avoidance in capital gains taxes to investors who invested their property sale proceeds into TIC investments.

TIC Investor Losses Could be Recovered in FINRA Arbitration

According to stock fraud lawyers, following the crash of the real estate market, many TIC investors, as fractional owners in a single property, saw a significant decline in the value of their investment. However, because of the sales practices of some FINRA registered brokerage firms, some of these investors may be able to recover losses through securities arbitration. These products were often represented as “guaranteed” and/or “safe” investments that would return between 7 and 12 percent each year. However, in many cases, investors were not properly advised on the risks associated with TIC investments.

A Financial Industry Regulatory Authority panel has already ordered one firm, LPL Financial, to reimburse investor losses amounting to $1.4 million in Braintree Park LLC and Heron Cove LLC. These two TICs were sponsored by Direct Invest LLC.

Published on: September 27, 2012

Victim of Stephen B. Blankenship Fraud Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of individuals who invested with Stephen B. Blankenship and were, as a result of Blankenship’s actions, victims of securities fraud. A recent announcement by the Securities and Exchange Commission stated that it has charged Blankenship and his company with stealing from customers. These customers, who were persuaded by Blankenship to make withdrawals from their brokerage accounts to invest directly with him, lost at least $600,000 to his fraud. The accounts from which they withdrew these funds were managed by Blankenship but were held at other firms.

Victim of Stephen B. Blankenship Fraud Could Recover Losses

According to the SEC’s allegations, Blankenship lured customers in with assurances of greater rates of return if they would transfer their money to Deer Hill Financial Group, Blankenship’s firm. Furthermore, he claimed to be investing in publicly-traded mutual funds and other established securities but, instead, made no such investments and transferred his customer’s money to his personal bank account. The money was then allegedly used to pay various personal expenses, including travel, grocery bills and mortgage payments.

“Blankenship took advantage of fellow churchgoers and senior citizens who relied on their savings for retirement and placed their trust in him,” says David P. Bergers, director of the SEC’s Boston Regional Office. “He betrayed that trust by using their money to make personal credit card payments and home improvements.”

Published on: September 26, 2012

JP Turner Victims of Churning Could Recover Losses

by InvestorLawyers

Stock fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses as a result of their investment with JP Turner, Ralph Calabro, Jason Konner or Dimitrios Koutsoubos. Earlier in September, the Securities and Exchange Commission charged three brokers, formerly employed at JP Turner & Company in Atlanta, with “churning” accounts, incurring significant fees for themselves and causing significant losses to investors.

JP Turner Victims of Churning Could Recover Losses

In this case, the investors whose accounts were churned had conservative investment objectives. However, securities fraud attorneys say that when “churning” an account, the broker will disregard investment objectives and, instead, excessively trade in the account in order to generate commissions, margin interest, and fees for themselves or the firm at which they are employed. According to the SEC allegations, Calabro, Konner and Koutsoubos engaged in churning between January 2008 and December 2009, while they were employed with JP Turner.

Together, these three brokers generated approximately $845,000 through churning, while their customers suffered significant aggregate losses totaling around $2.7 million. If it can be proven that the firm failed to adequately supervise their brokers, in many cases that firm may be held liable for customer losses regardless of the employees’ ability to reimburse their clients for fraud.

Published on: September 13, 2012

Investors in Icon Leasing Fund Eleven May Have Securities Arbitration Claim

by InvestorLawyers

Stock fraud lawyers are currently investigating claims on behalf of investors of Icon Leasing Fund Eleven investors. A recent announcement stated that investors will not be able to withdraw their money from Icon for another seven years longer than originally agreed. ICON Leasing Fund Eleven LLC participates in the purchasing and leasing of various types of equipment to third parties in Europe, Canada and the United States. Based in New York and founded in 2004, Icon also provides equipment and other financing.

Icon Leasing Fund Eleven Investors may have Securities Arbitration Claim

Like any private placement, the high risks associated with Icon Leasing Fund Eleven investments are only appropriate for sophisticated, high-net-worth investors. However, according to securities arbitration lawyers, the commissions offered to brokers and brokerage firms for this investment were high enough that some broker-dealers recommended this investment to clients for whom it was unsuitable without adequately disclosing the risks associated with the investment. Furthermore, stock fraud lawyers say information that is now available indicates that many of the firms selling the product did not adequately perform the necessary due diligence.

The following investments made up the bulk of Icon Leasing Fund Eleven’s portfolio as of March 21, 2012: