FINRA

Published on: May 21, 2012

Inland American REIT Under SEC Investigation; Investors Could Recover Losses in Securities Arbitration

Securities arbitration lawyers are currently investigating possible claims on behalf of investors who suffered losses as a result of their purchases of Inland American Real Estate Trust Inc. through a full-service brokerage firm. Inland American is the largest non-traded REIT in the industry. Recently, it has been reported that Inland American is under investigation by the U.S. Securities and Exchange Commission (SEC). The SEC is investigating whether there were violations of federal securities laws regarding Inland American’s fees and administration.

Inland America REIT Under SEC Investigation, Investors Could Recover Losses in Securities Arbitration

Inland American’s quarterly report stated that the company “has learned that the SEC is conducting a nonpublic, formal fact-finding investigation to determine whether there have been violations of certain provisions of the federal securities laws.” The potential violations mentioned in the report pertain to “the business manager fees, property management fees, transactions with affiliates, timing and amount of distributions paid to investors, determination of property impairments, and any decision regarding whether the company might become a self-administered REIT.”

As a public non-traded REIT, sales of Inland American may have carried a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as Inland American, 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, according to stock fraud lawyers.

Published on: May 16, 2012

Investors Could Recover Losses from Inverse ETF, ETN Investments

by InvestorLawyers

ETFs (exchange traded funds) and ETNs (exchange traded notes) have recently gained a significant amount of attention in the securities industry. Securities fraud attorneys have been filing arbitration claims on behalf of investors who were unsuitably recommended ETFs or ETNs and suffered significant losses as a result. The Financial Industry Regulatory Authority (FINRA) has started to increase its efforts in regulating inverse ETFs and ETNs, hoping to ensure that unsophisticated investors are not being sold these complicated products.

Investors Could Recover Losses from their Inverse ETF and ETN Investments

In connection with FINRA’s efforts, UBS Financial Services, Morgan Stanley, Wells Fargo and Citigroup Global Markets Inc. have agreed to pay $7.3 million in fines and $1.8 million in restitution, totaling $9.1 million. This will settle allegations that they sold inverse and leveraged ETFs to clients for which the investment was unsuitable. According to FINRA, these four firms did not have a “reasonable basis” for the recommendation of the securities to certain clients and also failed to provide adequate supervision. For more than a year, from January 2008 through June 2009, $27 billion in inverse ETFs were bought and sold by the firms.

With ETFs and ETNs now being recognized as a significant problem, we are likely to see more sanctions leveled by FINRA. According to stock fraud lawyers, the SEC ceased approving applications for ETFs in March 2010, when those ETFs used derivatives. Furthermore, the SEC indicated that it wanted to determine if leveraged and inverse ETFs warranted additional investor protection. There is concern, from both FINRA and the SEC, that inverse and leveraged ETFs are being confused with traditional, less risky ETFs.

Published on: May 14, 2012

The Problem with Non-traded REITs

by InvestorLawyers

Lately, there has been a lot of buzz amongst securities arbitration lawyers about non-traded REITs. Investors who have suffered losses as a result of these investments have been encouraged to come forward to attempt to recover their losses through FINRA arbitration. But what exactly is the problem with these investments?

The Problem with Non-Traded REITs

Generally, a problem with these investments arises when a financial advisor fails to adequately disclose to the customer the risks and illiquidity of the investment. Often, the motivation for the broker/adviser’s failure to disclose when recommending the product is the high commission he or she will earn on the investment.

Valuation problems of these investments are another major issue with non-traded REITs, according to investment fraud lawyers. Currently, FINRA rules only mandate that the sponsors of the investments establish an estimated per-share valuation no longer than 18 months after the investment stops raising investor funds. This is an issue because fund raising can, and often does, last for years. As a result, the per-share valuation can go for years without being updated. Furthermore, there is an obvious conflict of interest when it is the non-traded REIT’s sponsor that establishes the valuation.

Published on: May 10, 2012

Investors of Lehman Return Optimization Security Note, Maluhia Eight Could Recover Losses Through Securities Arbitration

by InvestorLawyers

Securities arbitration lawyers are currently investigating potential claims on behalf of investors who suffered losses as a result of their investments in Lehman Return Optimization Security Note and Maluhia Eight LLC.

Investors of Lehman Return Optimization Security Note, Maluhia Eight Could Recover Losses Through Securities Arbitration

Lehman Return Optimization Security Notes were allegedly marketed by brokers as investments designed to guarantee safety much like the safety associated with “capital preservation.” Furthermore, they were marketed as “low-risk investment,” according to investment fraud lawyers. However, the investment’s safety was actually dependent upon the solvency of Lehman Brothers, which acted as the issuer of the note. Following Lehman Brother’s September 2008 declaration of bankruptcy, investments such as this one that were backed by Lehman Brothers suffered disastrous losses. The potential liability of brokerage firms that sold the note to investors is now being investigated.

Brokerage firm liability for a Hawaii real estate deal, Maluhia Eight LLC, is also under investigation by securities arbitration lawyers. Chapter 11 bankruptcy was declared by Maluhia Eight in 2010 in the Northern District of Texas. Many investors have suffered losses as a result of the declaration of bankruptcy, but investors who purchased Maluhia Eight because of an unsuitable recommendation may be able to recover losses.

Published on: May 7, 2012

KBS REIT I Investors Could Recover Losses

by InvestorLawyers

Because of the recent decline in value of KBS Real Estate Investment Trust I, investment fraud lawyers are investigating claims on behalf of investors who suffered significant losses as a result of their investments. Full-service brokerage firms who sold this particular REIT could be held responsible for investor losses.

KBS REIT I Investors Could Recover Losses

In April, investors of KBS REIT were informed that the value of KBS REIT had declined to $5.16 per share from $7.32 per share. While this represents a 29 percent decline since the last value cut of the REIT’s shares, it also represents a decline of nearly 50 percent since the original investment offering at $10 per share. The reduction in share price has resulted in significant losses for investors but, according to securities fraud attorneys, investors may be able to recover losses through securities arbitration.

KBS is a non-traded Real Estate Investment Trust (REIT). According to investment fraud lawyers, REITs typically carry a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as the KBS REIT, 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. For more information on REITs, see the previous blog post, “FINRA Investor Alert: Public Non-Traded REITs.”

Published on: May 3, 2012

RMC Medstone Capital Promissory Note Investors Could Recover Losses

by InvestorLawyers

RMC Medstone Capital promissory note investors who suffered significant losses may have a valid securities arbitration claim, according to investment fraud lawyers. Investors of RMC Medstone Capital apparently received a Notice of Default in September 2011. The Notice of Default informed investors that their RMC Medstone Capital investment is now worthless.

RMC Medstone Capital Promissory Note Investors Could Recover Losses

According to securities arbitration lawyers, approximately $18 million in promissory notes were issued by RMC Medstone Capital and owners of these promissory notes should be seeking recovery of their losses. 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. Brokerage firms and broker-dealers offering the RMC Medstone Capital promissory notes will most likely be unable to demonstrate that the necessary due diligence was performed, based on what attorneys know about the investment.

Specifically, investment fraud lawyers are investigating recovery options for investors who suffered losses in RMC Medstone Capital V and VI promissory notes. Both of these notes were apparently sold under the Regulation D private offerings exemption. This exemption applies to certain private offerings and exempts the investment from normal SEC filing requirements.

Published on: April 27, 2012

FINRA Cracking Down on Leveraged and Inverse ETFs

by InvestorLawyers

According to investment fraud lawyers, the Financial Industry Regulatory Authority (FINRA) will bring enforcement cases related to the selling of exchange-traded funds (ETFs) that were not appropriate for customers, against certain brokerages. Bradley Bennett, FINRA’s enforcement chief, said this month that the cases will involve leveraged and inverse exchange-traded funds, and the unsuitable sales of said funds. Furthermore, allegations of inadequate or improper training for brokers who sell exchange-traded funds will be involved in the cases.

FINRA Cracking Down on Leveraged and Inverse ETFs

Securities fraud attorneys say that leveraged and inverse ETFs amplify short-term returns. They do so by using derivatives and debt. These investments are more suitable for professional traders and are usually unsuitable for long-term retail investors. These investments only make up $29.3 billion of the $1.15 trillion United States ETF market. FINRA has raised concerns that these products are being sold to long-term retail investors, despite the risk involved when holding leveraged and inverse ETFs for more than one day.

“We don’t have a qualm with the product,” Bennett says. “We just want to make sure that people who are selling them understand them.”

Published on: April 25, 2012

Inland Western REIT Investors Could Recover Losses

by InvestorLawyers

According to securities arbitration lawyers, investors who suffered losses as a result of their investments in the Inland Western REIT may have a valid securities arbitration claim. As a result of the company’s recent move to go public, for the first time, investors have had the opportunity to evaluate, at a publicly set price, the performance of their investment. Because this is the first time they have had this opportunity, many investors are just now realizing that they have suffered significant losses as a result of their investment in this fund.

Inland Western REIT Investors Could Recover Losses

Inland Western REIT, also known as Retail Property of America Inc. REIT, is a non-traded REIT. According to investment fraud lawyers, REITs typically carry a high commission, which motivates some brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent, securities arbitration lawyers say. Non-traded REITs like this one carry a relatively high dividend or high interest, which also helps make them attractive to investors. However, they are inherently risky and illiquid, which limits access of funds to investors. This can become a major problem for investors, especially retired individuals who may need to access their funds when the need arises. In addition, frequent updates of the investment’s current price are not required of broker-dealers, causing misunderstandings about the financial condition of the investment. Because frequent updates are not required, investors may believe the REIT is doing much better than it actually is. For more information on REITs, see the previous blog post, “FINRA Investor Alert: Public Non-Traded REITs.”

If you suffered losses as a result of your investment in the Inland Western REIT (also known as Retail Properties of America Inc. REIT), you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Published on: April 20, 2012

News: FINRA Fines Goldman Sachs Over ‘Trading Huddles’

by InvestorLawyers

According to an announcement on April 12, 2012, from the Financial Industry Regulatory Authority (FINRA), Goldman Sachs & Co. has been fined $22 million for “failing to supervise equity research analyst communications with traders and clients and for failing to adequately monitor trading in advance of published research changes to detect and prevent possible information breaches by its research analysts.” A related settlement with Goldman was announced by the Securities and Exchange Commission on the same day. Securities fraud attorneys say Goldman will pay $11 million each to the SEC and FINRA.

News: FINRA Fines Goldman, Sachs over “Trading Hurdles”

Goldman established “trading huddles” as a business process in 2006, according to FINRA’s statement. These “trading huddles” were designed to allow weekly meetings for research analysts, in which they would share trading ideas with traders for the firm. These traders worked with clients and, occasionally, equity salespersons. In addition, analysts apparently discussed specific securities while they were considering changing the conviction list status or published research rating of the security. Clients had access to the “trading huddle” information and were not restricted from direct participation through calls placed by analysts to high priority clients of the firm.

Unsurprising to investment fraud lawyers, a significant risk was created by trading huddles: material non-public information could be disclosed by analysts. Such information includes conviction list status and rating changes. Despite this risk, Goldman failed to have adequate controls to monitor communications before and after the trading huddles. Furthermore, an adequate monitoring system was not in place to detect possible trading in advance of conviction list and research rating changes in proprietary or employee training, institutional customer or client-facilitation and market-making accounts. Had these practices been allowed to continue, insider trading could have resulted, according to securities fraud attorneys.

Published on: April 19, 2012

Broker Sentenced for Fraud; Investors Could Recover Losses

by InvestorLawyers

Former securities broker Gregory Bartko has been found guilty of fraud and sentenced to 23 years in prison. Allegedly, Bartko defrauded 200 investors in a scheme that took $3.3 million from his clients. Bartko’s sentencing took place April 4 in the Federal District Court in Raleigh, North Carolina. According to stock fraud lawyers, Bartko’s victims may be able to recover losses through a Financial Industry Regulatory Authority (FINRA) arbitration claim.

Broker Sentenced for Fraud, Investors Could Recover Losses

Together with Scott Hollenbeck, Bartko’s fraud took place through the sale of unregistered securities. Hollenbeck, a Kernersville, North Carolina resident, was a member of Gospel Light Baptist Church and used his religions connection to target church members. Hollenbeck made false promises of 12 to 14 percent guaranteed interest rates through a fund that was owned by Bartko, the Caledonia Fund.

In April 2004, North Carolina’s secretary of state’s office issued a cease and desist order. Despite the order, Hollenbeck and Bartko continued to raise money for another fund developed by Bartko, the Capstone Fund. According to stock fraud lawyers, the money raised from investors was used for Hollenbeck’s and Bartko’s personal use.