Suitability

Published on: June 11, 2013

ProEquities Investors Could Recover Losses for Inappropriate Sale of Non-traded REITs

Securities fraud attorneys are currently investigating claims on behalf of customers of ProEquities Inc. Allegedly, ProEquities has engaged in the inappropriate sale of speculative and illiquid investments, including non-traded REITs.

ProEquities Investors Could Recover Losses for Inappropriate Sale of Non-traded REITs

In one recent claim, a couple from Minnesota read an ad in the newspaper that reportedly contained the words “Retirement” and “Safe.” After reading this ad, they attended a seminar, during which an advisor for ProEquities reportedly used the catchphrases “no stock market risk” and “retirement income – net of fees and expenses.” He allegedly emphasized investments that supposedly avoided exposure to the stock market and risk.

Following the seminar, stock fraud lawyers say the couple followed the advice of the advisor. They invested the majority of their savings according to the ProEquities advisor’s ongoing advice. The investments they made turned out to be highly speculative and illiquid non-traded REITs. ProEquities sold the couple the following products: Behringer Harvard Multifamily REIT I, Behringer Harvard REIT I, ATEL Growth Capital Fund III and LEAF Equipment Leasing Income Fund III.

Published on: June 4, 2013

Non-traded REITs: Five Firms to Pay $7 Million in Massachusetts Settlement

by InvestorLawyers

On May 22, 2013, secretary of the Commonwealth of Massachusetts William Galvin announced settlements with five major independent broker-dealers. According to the settlements, Ameriprise Financial Services Inc. will pay $2.6 million in restitution to investors and a $400,000 fine, Commonwealth Financial Network will pay restitution of $2.1 million and a fine of $300,000, Royal Alliance Associates Inc. will pay restitution of $59,000 and a fine of $25,000, Securities America Inc. will pay restitution of $778,000 and a fine of $150,000 and Lincoln Financial Advisors Corp. will pay restitution of $504,000 and a fine of $100,000. Securities fraud attorneys are currently investigating claims on behalf of investors who purchased Real Estate Investment Trusts (REITs) from these or any other independent broker-dealers.

Non-traded REITs: Five Firms to Pay $7 Million in Massachusetts Settlement

According to a statement made by Mr. Galvin, “Our investigation into the sales of REITs, triggered by investor complaints, showed a pattern of impropriety on the sales of these popular but risky investments on the part of independent brokerage firms where supervision has historically been difficult to monitor.”

According to stock fraud lawyers, this settlement follows the February decision in which LPL Financial LLC was required to pay restitution to investors of $2 million and fines totaling $500,000 regarding non-traded REIT sales.

Published on: May 28, 2013

American Capital Agency, American Capital Mortgage REIT Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses in two mortgage REITs, American Capital Agency and American Capital Mortgage, following the announcement of 2013 first-quarter results. For the first quarter of 2013, American Capital Mortgage suffered losses of $0.56 per share and American Capital Agency suffered losses of $1.57 per share.

American Capital Agency, American Capital Mortgage REIT Investors Could Recover Losses

Reportedly, these losses are a result of increasing interest rates combined with a drop in mortgage-backed securities values and the secondary offering’s failure to foresee these changes. However, mortgage REITs, or real estate investment trusts, are not suitable for all investors. 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, securities arbitration lawyers say brokerage firms must, before approving an investment’s sale to a customer, conduct a reasonable investigation of the securities and issuer.

Published on: May 23, 2013

VSR Financial Services Customers Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses as a result of doing business with VSR Financial Services and/or Michael David Shaw, a financial advisor. Allegedly, Shaw and VSR Financial Services may have engaged in misconduct in connection with the sales of REITs, alternative investments, hedge funds and private placements.

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Reportedly, the Financial Industry Regulatory Authority accepted a Letter of Acceptance, Waiver and Consent on May 15, 2013 from VSR Financial Services. In the letter, the firm agreed to pay a fine of $550,000 which will settle allegations that the firm failed to adequately supervise the sales of alternative investments to customers. In particular, the firm allegedly failed to supervise the concentration of these investments in customer portfolios.

In addition, securities arbitration lawyers say that in October 2011, a trader calling himself Michael Daniel Shaw submitted a Letter of Acceptance, Waiver and Consent. In this letter he consented to the findings that he had recommended the sale of private placements, which were high-risk, to customers for whom he did not have a reasonable basis to believe they were suitable transactions. Furthermore, Shaw allegedly made material omissions or misrepresentations regarding the purchase or sales of the private placements.

Published on: May 14, 2013

Broker-dealers’ Info Regarding Non-traded REITs is Inadequate, FINRA Says

by InvestorLawyers

Earlier this month, the Financial Industry Regulatory Authority (FINRA) issued a notice to broker-dealers stating that in some cases, they have not provided adequate service to investors in several areas, including the distribution of materials containing inaccurate and misleading statements related to non-traded real estate investment trusts, or REITs. Many securities arbitration claims have been filed by stock fraud lawyers on behalf of investors that cite similar claims.

The way in which investors receive dividends, or distributions, is one matter that is of concern to securities arbitration lawyers. One of the most attractive reasons for many investors to purchase non-traded REITs is the fact that they begin paying distributions immediately after sale. According to the FINRA notice, however, communications from broker-dealers to investors “have emphasized the distributions paid by a real estate program and failed to adequately explain that some of the distribution constitutes return of principal.”

FINRA also stated that “some communications have not provided sufficient discussions of the risks associated with investing in the products in order to balance the presentation of benefits.” Numerous claims have, in fact, been made alleging independent broker-dealers such as Ameriprise Financial Services Inc. and LPL Financial LLC did not adequately disclose the risks of non-traded REITs to investors prior to purchase. According to stock fraud lawyers, some investors are also not made aware that distribution payments can stop at any time.

Published on: May 7, 2013

Retirees Targeted for Excessive Trading, Unsuitable Recommendation of REITs

by InvestorLawyers

Securities fraud attorneys are cautioning retirees regarding two potential threats to their retirement investments. Many retirees have suffered significant losses as a result of unsuitable recommendations of risky, illiquid investments. In other cases, losses have resulted from excessive trading in customer accounts.

Reportedly, many seniors are being persuaded to invest in non-traded REITs, or real estate investment trusts, but are not being made aware of the risks and illiquidity of these products. Stock fraud lawyers say that many brokers and advisers with full-service brokerage firms may be tempting senior investors with promises of steady returns that exceed those available in traditional investments such as bonds or CDs while failing to adequately disclose the risks of non-conventional investments such as non-traded REITs.

Many retirees have a low risk tolerance and want conservative, income-producing portfolios. Advisors often tout the steady stream of income produced by non-traded REITs and present them as an alternative to fixed-income investments such as bonds, but there is no guarantee of ongoing distributions by non-traded REITs. In fact, distributions may be suspended or stopped completely. Another problem retirees face with REITs is that they may need access to their funds, but redeeming or selling a non-traded REIT may be difficult, or may be possible only at a price much lower than the investor’s initial investment.

Published on: April 30, 2013

Recovery of Apple REIT Losses Still Possible Through Arbitration

by InvestorLawyers

Investors are disappointed, to say the least, that a federal judge recently dismissed an investor class action lawsuit related to the sale of Apple REITs by David Lerner Associates Inc. However, stock fraud lawyers say that this decision will have absolutely no impact on arbitration cases filed against Lerner with the Financial Industry Regulatory Authority (FINRA).

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In May 2011, a complaint was filed against Lerner by FINRA, regarding the firm’s Apple REIT marketing practices. In October 2012, FINRA ordered Lerner to pay $2.3 million for allegedly overcharging clients who had purchased other securities. Lerner was also ordered to pay $12 million to the trust investors. Founder and chief executive, David Lerner, was barred for one year from the securities industry and fined $250,000.

The class action raised allegations that Lerner breached fiduciary duty, was unjustly enriched and negligent in the sale of over $6.8 billion in Apple REITs. Though the class action has been dismissed by a federal judge, Lerner still faces many arbitration claims alleging the unsuitable recommendation of Apple REITs. According to securities arbitration lawyers, the question of misrepresentation is completely different than the question of suitability. Even if an investment firm adequately discloses all the risks of the investment, the investment must still be suitable for each investor receiving the recommendation given their age, investment objectives and risk tolerance. Furthermore, in some cases oral misrepresentations at the time of sale- which were not at issue in the class action- can be a basis for liability in a FINRA arbitration if a stockbroker misrepresented the nature of an investment to a customer.

Published on: April 25, 2013

Morgan Stanley Broker Allegedly Traded on Customer Accounts without Permission

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of customers of Morgan Stanley and other full-service brokerage firms who were the victim of unauthorized trading or discretionary trading on a non-discretionary account without receiving prior written authorization.

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According to FINRA’s discretionary rule, “No member or registered representative shall exercise any discretionary power in a customer’s account unless such customer has given prior written authorization to a stated individual or individuals and the account has been accepted by the member, as evidenced in writing by the member or the partner, officer or manager, duly designated by the member, in accordance with Rule 3010.” However, according to securities arbitration lawyers, this rule doesn’t stop all brokers.

As an example, James Harman McNeill, a Morgan Stanley broker, recently was cited for unsolicited trades and discretion. Allegedly, McNeill violated FINRA Rule 2010 in November 2011 when he exercised discretionary power in Morgan Stanley customer accounts without receiving written authorization prior to doing so. Furthermore, later that month McNeill allegedly marked non-traditional Exchange Traded Fund purchase orders as “unsolicited” even though they were solicited, according to the allegations listed in the Letter of Acceptance, Wavier and Consent that was submitted in March of this year. The Financial Industry Regulatory Authority imposed a 9-month suspension and a $15,000 fine upon McNeill. According to investment fraud lawyers, mis-marked tickets can raise issues regarding inaccurate books and determining if a broker made an unsuitable recommendation.

Published on: April 23, 2013

REIT Investors May be Unaware They Suffered Significant Losses

by InvestorLawyers

According to securities fraud attorneys, many investors may be unaware of the fact that they have suffered losses in non-traded real estate investment trusts, or REITs. Financial statements for REITs usually reflect the investment’s initial purchase price, not the current value of the REIT; this can mislead investors into believing that their investment’s value is stable when, in fact, they have actually suffered significant losses.

Because these investments are unregistered securities, they do not have to follow the same rules that regulated investments must follow. As a result, investors may be subject to high fees both to get in and get out of the investment. Furthermore, non-traded REITs are inherently risky and illiquid, causing them to be difficult to value. Stock fraud lawyers say the nature of these investments makes them difficult to sell, which can cause problems for investors who need access to cash (such as retirees), making REITs clearly unsuitable for such investors.

Unfortunately, even diligent investors who carefully review their financial statements can’t depend on this information to reflect the true value of their non-traded REIT investment. Instead, investors will have to do some research to determine their investment’s value. Securities fraud attorneys are currently investigating many non-traded REITs sold by LPL Financial, Ameriprise Financial and other full-service brokerage firms, including KBS REIT, Inland American, Dividend Capital Total Realty, Cole Credit Property Trust II and III, Wells Real Estate Investment Trust II, Cole Credit Property 1031 Exchange and W.P. Carey Corporate Property Associates 17. For more information on these investigations, see the previous blog posts, “Ameriprise REIT Sales Under Investigation” and “LPL Financial Faces New Complaint Regarding Non-traded REIT Sales.”

Published on: April 18, 2013

Ameriprise REIT Sales Under Investigation

by InvestorLawyers

Securities arbitration lawyers are currently investigating claims on behalf of investors who purchased risky non-traded REITs through Ameriprise Financial. Reportedly, Ameriprise Financial was one of the biggest non-traded real estate investment trust sellers and, in some cases, may not have properly advised customers as to the risks associated with non-traded REITs.

Ameriprise_REIT_Sales_Under_Investigation Many full-service brokerage firms recommended the purchase of REITs to investors, marketing them as safe, low-risk investments. Stock fraud lawyers say that some customers placed a substantial portion of their assets into a single non-traded REIT at the recommendation of a full-service brokerage firm representative, causing an over-concentration of their portfolio that was unsuitable. As a result, securities arbitration lawyers say many investors may have a valid securities arbitration claim that could lead to the recovery of some of their losses.

Some non-traded REITs may have carried a high commission which motivated brokers to recommend the product to investors despite the investment’s unsuitability. The commissions and fees associated with non-traded REITs are sometimes 15 percent or more. Non-traded REITs, like the ones sold by Ameriprise, carry a relatively high distributions of income, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to those investors. However, in many instances non-traded REITs have made distributions to investors that greatly exceeded the actual cash flows from their operations and actually represented returns of principal rather than income.