FINRA

Published on: June 13, 2012

Investment Fraud Red Flags for Elderly Investors

According to securities fraud attorneys, elderly and retired individuals are frequently the targets of securities fraud. While this is not likely to change, elderly investors can be aware of red flags that could indicate fraud has occurred. Some of these red flags include recommendations for investments that are typically unsuitable for elderly investors, unsolicited investment offers, unrealistically high return promises, promises of little or no risk, request for up-front payments, high pressure tactics, direct mail offerings and Internet offerings.

Investment Fraud Red Flags for Elderly Investors

In regards to suitability, FINRA Rule 2111 will replace NASD Rule 2310 on July 9, 2012. Factors determining an investment’s suitability for each investor will now include the customer’s age, tax status, financial situation and needs, liquidity needs, investment experience, investment objectives, risk tolerance, investment time horizon and other investments. A broker or adviser must consider these factors before making a recommendation after July 9.

According to securities fraud attorneys, because of an elderly investor’s age, asset allocations that are weighted in investments with a long time horizon or higher risk investments are often considered inappropriate. Potentially unsuitable investment products for elderly investors include:

Published on: June 8, 2012

Retired, Unsophisticated Investors Targeted Again: Brookstone Found Responsible

by InvestorLawyers

A Financial Industry Regulatory Authority (FINRA) announcement dated June 4, 2012, stated that a hearing panel ruled in favor of claimants against Brookstone Securities of Lakeland, Florida, along with one of its brokers, Christopher Kline, and its owner and CEO, Antony Tuberville. Brookstone, Kline and Tuberville apparently made fraudulent sales of CMOs, or collateralized mortgage obligations, to elderly, retired and unsophisticated investors. Brookstone was fined $1 million in addition to an order of restitution payment of more than $1.6 million to customers. Of that amount, $1,179,500 was imposed jointly with Kline and the remaining $440,600 was imposed jointly with Tuberville. Securities arbitration lawyers say Kline and Tuberville were also barred by the panel from working again in the securities industry. In addition, David Locy, former chief compliance officer of Brookstone, was barred from acting in any principal or supervisory capacity. Locy was also fined $25,000 and was barred for two years from acting in any capacity.

Retired, Unsophisticated Investors Targeted Again: Brookstone Found Responsible

According to the panel’s findings, from July 2005 through July 2007, Kline and Tuberville made intentional fraudulent misrepresentations and omissions regarding the risks associated with CMOs. The affected customers were all retired investors seeking an alternative to equity investments that was safer. Despite the fact that the negative effects that increasing interest rates were having on the CMOs by 2005 were evident to Kline and Tuberville, they failed to explain these conditions to their customers. The clients were instead led to believe that the CMOs were “government-guaranteed bonds” that would generate 10 to 15 percent returns and preserve capital.

For a long time, investment fraud lawyers have been warning investors that retired and elderly investors are often the targets for investment fraud, and this was certainly the case here. Of the seven customers named in the original complaint, all were retired, elderly and/or unsophisticated investors. Furthermore, two were elderly widows who were convinced to put their retirement savings in the risky CMOs and then told that because they were “government-guaranteed bonds,” their money could not be lost. However, in total, the seven investors lost $1,620,100 while Brookstone racked up $492,500 in commissions.

Published on: June 7, 2012

Sun 1031 TIC Investors Could Recover Losses

by InvestorLawyers

Stock fraud lawyers are currently investigating potential claims on behalf of investors who purchased Sun 1031 TICs or other risky tenant-in-common investments. In many cases, broker-dealers improperly recommended these investments to clients for whom the investment was unsuitable.

Sun 1031 TIC Investors Could Recover Losses

TICs became popular in 2002, following a ruling by the Internal Revenue Service that allowed capital gains to be deferred by investors. In this property ownership, a fractional interest is owned by two or more parties. However, following the real estate crisis, TICs saw a significant decline in value. According to stock fraud lawyers, liquidity problems and high risks are not uncommon with TICs and, in many cases, these risks are misrepresented to the clients. Instead, brokers often focus on the promised income stream when persuading clients to purchase TICs. Because of the potential income stream associated with TICs, these investments can be attractive to retired investors who are not informed of the risks involved.

According to investment fraud lawyers, 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. This investment was clearly unsuitable for many of the investors who received the recommendation to purchase the TIC and, in some cases, the necessary due diligence likely went unperformed. Because TICs usually pay a high commission — often as much as 10 percent — many brokers recommend TICs to investors despite their unsuitability.

Published on: June 6, 2012

Fidelity Investors Could Recover Losses Resulting from Facebook Stock

by InvestorLawyers

Securities fraud attorneys are currently investigating potential claims on behalf of investors who suffered losses as a result of their Facebook Inc. investments with Fidelity Investments. Allegedly there may have been execution problems at Fidelity Investments in regards to the Facebook stock. Reportedly, following Facebook’s initial public offering, “thousands” of clients of Fidelity were affected by trading issues.

Fidelity Investors Could Recover Losses Resulting from Facebook Stock

According to investment fraud lawyers, many Fidelity investors have learned that their Facebook stock orders were not executed at previously expected prices. In addition, some Fidelity investors decided to cancel their Facebook stock orders prior to the time it began trading, on May 18 at 11:30 am, but the stock was allegedly assigned to their accounts anyway. Many investors were confronted with margin calls that were unexpected because of Fidelity’s failure to honor the canceled orders. Securities fraud attorneys say this exacerbated the situation.

In a related case, Facebook Inc., Morgan Stanley and other banks are being sued by Facebook’s shareholders. The shareholders claimed Facebook’s weakened growth forecasts were hidden by the defendants prior to its $16 billion IPO. According to the complaint filed in the U.S. District Court in Manhattan, changes in the business forecast during the IPO process were only “selectively disclosed by defendants to certain preferred investors.” The complaint alleges that “the value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result.” A similar lawsuit was filed by another investor in a California state court. In the first three days of trading, Facebook shares declined 18.4 percent, reducing the stock’s value by more than $2.9 billion.

Published on: June 4, 2012

Possible Securities Arbitration Claims for David Lerner Associates Clients

by InvestorLawyers

In May 2012, the Financial Industry Regulatory Authority ordered David Lerner Associates Inc. to pay claimants Florence Hechtel and Joseph Graziose $24,450 following the return of their Apple REIT Nine shares to the firm. According to securities arbitration lawyers, this could be the first of possibly hundreds of securities arbitration proceedings that are related to David Lerner Associates Inc. and its sale of Apple REITs.

Possible Securities Arbitration Claims for David Lerner Associates Clients

The fourteenth largest non-traded REIT in the United States, Apple REIT Nine is only one of the Apple REIT investments involved in recent arbitration claims. Apple REIT Six, Apple REIT Seven and Apple REIT Eight are also involved in current and potential claims. Since 1992, David Lerner Associates allegedly sold almost $7 billion in Apple REITs, according to FINRA. As a result, stock fraud lawyers believe many more claims could potentially be filed on behalf of David Lerner clients.

With respect to David Lerner’s sales practices of Apple REITs, FINRA launched an investigation in May 2011 and class actions were filed in June 2011 with similar allegations. Recently, David Lerner allegedly changed the way the REITs are valued on account statements, stating that they are “unpriced.” This is the first time it has been acknowledged that the value of the Apple REIT shares may not be the same as what investors paid, according to securities arbitration lawyers. Furthermore, clients who requested a redemption prior to the last quarterly deadline on June 20, 2011 were allegedly informed that only a partial redemption was possible and the only known offer of purchase for Apple REIT shares is allegedly $3 per share, despite the alleged book value of around $7 per share.

Published on: June 1, 2012

Pacific Cornerstone Faces More Problems; FINRA Arbitration Offers Hope for Investors

by InvestorLawyers

Securities arbitration lawyers continue to file claims against Pacific Cornerstone Capital Inc. on behalf of investors. In a February Securities and Exchange Commission filing, Pacific Cornerstone stated that it was “involved with an arbitration proceeding before FINRA and one FINRA investigation.” Pacific Cornerstone did not, however, state any specifics about the investigation referred to in the filing, or in its Focus report, which is the firm’s annual report of audited financials.

Pacific Cornerstone Faces More Problems, FINRA Arbitration Offers Hope for Investors

Pacific Cornerstone is Cornerstone Real Estate Funds’ broker-dealer arm and manager of the devaluated REITs. According to stock fraud lawyers, Pacific Cornerstone’s SEC filing stated that it didn’t know what the results of the FINRA matters would be.

In 2009, Pacific Cornerstone was fined $700,000 by FINRA for allegedly misstating material facts related to private placement sales. Recently, Pacific Cornerstone saw severe devaluations of two non-traded REITs, or real estate investment trusts. Investors received word in March that Cornerstone Core Properties REIT’s value had dropped from $8 per share to $2.25 per share and it raised only $158 million, falling dramatically short of its target of $439 million. Last year, the Cornerstone Healthcare Plus REIT replaced the fund’s adviser and changed its name to Sentio Healthcare Properties Inc. Cornerstone Healthcare’s value has dropped from $10 per share to $9.02 per share. A third Cornerstone offering, CIP Leveraged Advisors, has also seen severe declines in value.

Published on: May 31, 2012

Investors of SCI Real Estate Investment TICs Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered losses as a result of their purchases of SCI Real Estate Investments LLC’s TICs. In some cases, brokerage firms may be held liable for their recommendation of the investment to their clients.

Investors of SCI Real Estate Investment TICs Could Recover Losses

According to securities fraud attorneys, TICs became popular in 2002, following a ruling by the Internal Revenue Service that allowed capital gains to be deferred by investors. In this property ownership, a fractional interest is owned by two or more parties. However, following the real estate crisis, TICs saw a significant decline in value. For more information on TICs, see the previous blog post, “TICs Dangerous for Many Investors.”

SCI Real Estate Investments is a United States real estate company that acquires retail and multi-family properties. It offers co-ownership interests in these United States properties as investments to individual buyers of real estate and 1031 exchanges. SCI is based in Los Angeles and was founded in 1994. A voluntary petition for reorganization was filed by SCI on February 11, 2011, under Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. The firm’s liquidation plan confirmation hearing is scheduled for June 13, 2012.

Published on: May 30, 2012

Healthcare Trust of America Investors Could Recover Losses

by InvestorLawyers

Securities fraud attorneys are investigating potential claims on behalf of investors who purchased the Healthcare Trust of America REIT and suffered significant losses as a result of their investment. In many cases, brokers improperly recommended the purchase of Healthcare Trust of America to investors for which the REIT was unsuitable, and marketed it as safe and secure despite its risky nature.

Healthcare Trust of America Investors Could Recover Losses

Healthcare Trust of America is a non-traded Real Estate Investment Trust (REIT). According to stock fraud lawyers, REITs typically carry a high commission which motivates brokers to make the recommendation to their clients despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, like Healthcare Trust of America, carry a relatively high dividend or high interest, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors.

Healthcare Trust of America is, according to its website, a “fully integrated, self-administered, self-managed real estate investment trust.” The REIT has invested around $2.5 billion, since it was formed in 2006, in real estate projects. According to a recent SEC filing, the REIT is seeking a $10.10 per share IPO price. However, it is possible that Healthcare Trust of America’s initial IPO share price will be lower than that, in light of what recently happened with Inland Western REIT’s IPO, in which the actual share price was considerably lower than the anticipated share price.

Published on: May 25, 2012

TVIX ETF Investors Could Recover Losses

by InvestorLawyers

Stock fraud lawyers are investigating claims on behalf of investors who suffered losses as a result of their investment in the TVIX ETF. It is possible that brokerage firms who recommended this high-risk, complicated product could be held liable for their clients’ losses.

TVIX ETF Investors Could Recover Losses

Traditional, conservative ETFs have become very popular and, as a result, some unsophisticated investors may have invested in the very risky TVIX ETF, believing it to be a traditional ETF. However, TVIX, the VelocityShares Daily 2x VIX Short-Term ETN, is linked to an index that is made up of front month futures and offers leveraged exposure to VIX contracts.

The total share price of TVIX went down 29.3 percent on March 22, 2012. Following this drop, investors frantically sold off their positions and the next trading day saw 29.8 percent losses. At that time, TVIX was trading at $7.16 per share, a dramatic decline from the closing price before the initial drop, which was $14.43 per share. After closing on the second day, net losses amounted to a little over 50 percent. According to securities fraud attorneys, many investors suffered significant losses in a matter of hours.

Published on: May 23, 2012

Securities Arbitration Claims Could Help Inland Western Investors Recover Losses

by InvestorLawyers

Securities fraud attorneys are continuing to file claims on behalf of investors who suffered losses as a result of their investments with Inland Western REIT. Inland Western, which is now known as Retail Properties of America Inc., is the third-largest shopping center REIT in the nation.

Securities Arbitration Claims Could Help Inland Western Investors Recover Losses

Inland Western’s recent IPO offering resulted in some disastrous effects on investors. Recent reports indicate that Inland Western’s $8 offering price was the result of reverse-stock-split engineering. This price is significantly less than the expected pre-offering price, which was $10 to $12. In actuality, investors who paid $10 per share for the REIT originally are receiving a split-adjusted value of only $3 per share. This 70 percent decline could result in staggering losses. However, it may be possible for investors to recover their losses through FINRA securities arbitration.

Inland Western is a non-traded Real Estate Investment Trust (REIT). According to stock fraud lawyers, REITs typically carry a high commission which motivates some brokers to make the recommendation to their clients despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, like Inland Western, carry a relatively high dividend or high interest, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors.