Suitability

Published on: April 4, 2013

LPL Financial Faces New Complaint Regarding Non-traded REIT Sales

Securities fraud attorneys say LPL Financial LLC is facing another complaint regarding its sale of REITs to unsophisticated investors. The complaint was filed by the State of Montana Auditor’s Department and was reported in The New York Times and Investment News. LPL Financial faced the Montana Auditor’s Department last year as well for allegedly failing to properly supervise one of its brokers. Reportedly, the new case involves multiple brokers and questions how sophisticated the broader compliance efforts of LPL Financial are.

A spokesman for the Montana Auditor’s Department would not make comments regarding any investigation into LPL Financial but did confirm that the state has more complaints about LPL Financial’s advisers than other firms.

Stock fraud lawyers say this case follows a complaint filed against LPL Financial by the Massachusetts Securities Division, which alleged shortcomings in the firm’s compliance practices with respect to the sales of non-traded REITs, or real estate investment trusts. That complaint, which was filed in December of 2012, alleged that the firm did not adequately supervise its registered representatives in the sales of non-traded REITs, which violated the company’s rules and state limitations. In February, Massachusetts ordered LPL Financial to pay a fine of $500,000 and restitution to clients of up to $2 million.

Published on: April 3, 2013

UPS Employees Could Recover Investment Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of employees of the United Parcel Service, better known as UPS, some of whom allegedly suffered significant losses as a result of the recommendation of financial advisers to maintain a leveraged, concentrated position in UPS stock. Through UPS’s Managers Incentive Program, many UPS employees received company stock. Some employees then transferred the stock to full-service brokerage firms.

UPS Employees Could Recover Merrill Lynch Investment Losses

In many cases, the company stock was used as collateral for a “hypo loan,” which is obtained through the pledging of the securities to secure a loan. However, full-service brokerage firms may not have informed UPS employees of the risks associated with this type of loan. Those employees suffered significant losses from October 2008 through April 2009 when the value of UPS stock declined and they liquidated their investment.

One of the risks of maintaining a hypo loan is that of a margin call, which can result in a forced liquidation. As a result, the investor is not able to recover losses when or if the price of the stock rebounds. In the case of many UPS employees, securities arbitration lawyers say some of their losses could have been recovered as the company’s stock value rose since 2009. However, due to the hypo loans some employees were forced to liquidate their UPS stock and therefore did not benefit from the subsequent recovery in UPS’s share price.

Published on: March 28, 2013

Customers of Merrill Lynch, Phil Scott Group Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of customers of the Phil Scott Group and Merrill Lynch regarding the unsuitable recommendation of investments. Walter Schlaepfer, also known as Phil Scott, and the Phil Scott Group reportedly worked out of the Merrill Lynch branch office in Bellevue, Washington.

At least six customer complaints have been filed against Scott since 2008, according to the Phil Scott Group’s securities license. All of these complaints allege that Scott made misrepresentations and/or unsuitable recommendations of investments.

Financial Industry Regulatory Authority rules have established that brokers and firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. Furthermore, brokerage firms must, before approving an investment’s sale to a customer, conduct a reasonable investigation of the securities and issuer. In addition, securities arbitration lawyers say firms like Merrill Lynch have a duty to properly supervise their brokers and can be held liable for broker misconduct if they fail to do so.

Published on: March 26, 2013

TNP Non-traded REIT Loss Recovery

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of TNP Strategic Retail Trust Inc. investors. TNP Strategic Retail Trust is a non-traded REIT, or real estate investment trust, which has filed a Securities and Exchange Commission Form 8-K March 19, 2013 that announced its dividend payments are suspended. No dividend payments will be paid for the first quarter of this year. Furthermore, TNP Strategic Retail Trust customers were told that they should not assume that they will receive dividends for the rest of 2013, either.

TNP Non-traded REIT Loss Recovery

The reason for the suspension of dividends stated by TNP Strategic Retail Trust is that it is unable to access short-term cash because it is in negotiation with lenders regarding whether it is in loan default. Declared effective on August 7, 2009, by the SEC, TNP Strategic Retail Trust is a non-traded REIT that, according to REIT Wrecks, raised $21 million through the end of Q3 2010. Additionally, TNP Strategic Retail Trust reportedly suffered a net loss and had a negative operating cash flow throughout the first nine months of 2010.

Stock fraud lawyers are investigating the possibility that brokerage firms may be held liable for the recommendation of TNP investments. Financial Industry Regulatory Authority rules have established that brokers and firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. Furthermore, brokerage firms must, before approving an investment’s sale to a customer, conduct a reasonable investigation of the securities and issuer. The firms that recommended this investment to clients may have done so improperly, in which case investors may be able to recover losses.

Published on: March 21, 2013

Firm May Be Liable for Actions of Tracy Morgan Spaeth

by InvestorLawyers

Stock fraud lawyers are currently investigating claims on behalf of customers of Tracy Morgan Spaeth in relation to his sales of ProfitStars Int’l Corp. Spaeth, a former broker with BrokersXpress LLC, entered into a Letter of Acceptance, Wavier and Consent regarding his ProfitStars sales. According to the Financial Industry Regulatory Authority, Spaeth did not receive written approval, nor did he provide written notice to BrokersXpress, a FINRA member firm, prior to participating in private securities transactions. The alleged misconduct occurred from October 2010 through December 2010. During this time, Spaeth promoted ProfitStars Int’l Corp. limited partnership interests and assisted around 115 clients with the purchasing of the security. Investments in the security amounted to more than $8,000,000.

Firm May Be Liable for Actions of Tracy Morgan Spaeth

FINRA also alleged that “in connection with the private securities transaction described above, Spaeth provided a webinar to his clients regarding foreign exchange currency trading software. The webinar failed to provide a sound basis for evaluating the products and services being offered, failed to disclose the risks of the software and strategy being promoted, was exaggerated and misleading, and contained performance forecasts, all in violation of NASD Rule 2210 and FINRA Rule 2010.”

Securities arbitration lawyers say that according to FINRA rules, BrokersXpress LLC was obligated to adequately supervise Spaeth from July 2009 through December 2010, the entire time he was registered with the FINRA-registered firm. Spaeth’s alleged misconduct occurred during the time he was registered with the firm and, as a result, stock fraud lawyers say that BrokersXpress may be held liable for customer losses resulting from Spaeth’s alleged misconduct.

Published on: March 19, 2013

Dividend Capital REIT Investors Could Recover Losses

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses in the non-traded Dividend Capital Total Realty Trust Inc. Potential claims related to the Dividend Capital REIT include unsuitable recommendations, misrepresentation and overconcentration of investment funds. Dividend Capital REIT invests in diverse real estate-related securities and debt as well as real properties.

Dividend Capital REIT Investors Could Recover Losses
The 8-K form filed by Dividend Capital Diversified Property Fund on February 1, 2013 stated that its current NAV, or net asset value, is $6.72 per share. However, this “book value” may not reflect what investors can actually get for their shares. Because the Dividend Capital REIT is non-traded, investors are forced to sell through a relatively illiquid secondary market, in which there may be no buyers of Dividend Capital shares at prices at or near the REIT’s book value.

Securities fraud attorneys say new investor concerns are being raised about Dividend Capital REIT’s redemption plan. According to the company’s 10-Q form, during the quarter ending September 30, 2012, the REIT has not redeemed any Class I, Class W or Class A shares. Furthermore, at any time, Dividend Capital can terminate, suspend or modify the share redemption program.

Published on: March 14, 2013

Credit Suisse Yield Enhancement Strategy Recommendation Under Investigation

by InvestorLawyers

Stock fraud lawyers are currently investigating claims on behalf of Credit Suisse Securities (USA) LLC customers who received recommendations to invest a significant portion of their funds in the Yield Enhancement Strategy and suffered significant losses as a result. The Yield Enhancement Strategy, or YES, is a high-fee proprietary strategy and may not be suitable for many investors.

Credit Suisse Yield Enhancement Strategy Recommendation Under Investigation

Allegedly, Credit Suisse may have recommended the Yield Enhancement Strategy to some investors without properly explaining the risks to customers or considering their investment objectives and risk tolerances.

According to a recent statement of claim regarding this investment, advisors for Credit Suisse allegedly used literature that stated the goals would be achieved by the strategy by “selling short-term out-of-the-money puts and calls on the S&P 500 index.” Furthermore, the literature allegedly claimed that in order to “manage downside and upside market exposure, short term below-market put and above-market call options are purchased with the same duration as the puts and calls sold.” Securities arbitration lawyers say the allegations in the suit are that the strategy to “provide an additional source of income to portfolios when markets are flat, trending higher or trending lower” failed and, in a little over two years, more than $500,000 in losses and $200,000 in investor fees resulted.

Published on: March 12, 2013

Hines REIT Investors Could Recover Losses

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses in the non-traded Hines REIT. Potential claims related to the Hines REIT include unsuitable recommendations, misrepresentation and overconcentration of investment funds. The Hines REIT was launched in 2004; as of September 20, 2012, it comprised 55 properties in 24 geographic markets. As of December 2009, Hines suspended its share redemption plan except when in connection to the disability or death of a stockholder.

Hines REIT Investors Could Recover Losses

Unfortunately, Hines REIT investors have found themselves in a tight spot when they want to sell their investment. Because the Hines REIT is non-traded, investors are forced to sell through a secondary market, through an auction or privately. Investors who sell through a secondary marketmay be forced to accept a price far below their purchase price. Investors also may choose to hold onto their shares in the hopes that the real estate investment trust will decide to make a public offering and register with the Securities and Exchange Commission or pursue another liquidity event such as a merger with a publicly traded company.

Investment fraud lawyers are investigating the possibility that full-service brokerage firms may be held liable for the recommendation of the Hines REIT. Financial Industry Regulatory Authority rules have established that brokers and firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. Non-traded REITs like this one are illiquid and inherently risky and, therefore, not suitable for many investors.

Published on: March 5, 2013

CommonWealth REIT Announcement More Bad News for Investors

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses in CommonWealth REIT. CommonWealth REIT recently announced that it would commence a public offering intended to pay down as much as $450 million in senior notes. The public offering would be for 27 million shares of stock, which would dilute its outstanding share count by almost 30 percent.

CommonWealth REIT Announcement More Bad News for Investors

The CommonWealth real estate investment trust primarily owns and operates real estate, such as industrial buildings, office buildings and leased industrial land. Following the announcement for CommonWealth REIT’s fourth-quarter earnings results and the 27 million share offering, the REIT’s price dropped by as much as 11 percent. According to the fourth-quarter report, a loss of $1.96 million was reported by the company as a result of a $168.6 million asset impairment.

Furthermore, between January 10, 2012 and August 8, 2012, CommonWealth allegedly issued false and misleading statements regarding its financial standing and prospects which, if proved to be true, would be a violation of the Securities Exchange Act of 1934. Furthermore, in an announcement on August 8, 2012, CommonWealth stated that it would likely be reducing its dividend payment. Investment fraud lawyers also note that from 2008 to 2011, the company’s net income fell from $244.65 million to $109.98 million, a decline of $134.67 million. For more information on this issue, see the previous blog post, “CommonWealth REIT Investors Could Recover Losses.”

Published on: February 28, 2013

Recovery of Grubb & Ellis REIT Losses Possible

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses as a result of their investment in Grubb & Ellis REITs. For the period ending March 21, 2011, Grubb & Ellis Company reported an $18.3 million net loss. The company included charges of $2.3 million for bad debt, $3.5 million for depreciation and amortization, $1.7 million for amortization of signing bonuses, $1.7 million in share-based compensation and $0.5 million for intangible asset impairment.

Recovery of Grubb & Ellis REIT Losses

Grubb & Ellis is an investment and commercial real estate services firm. Grubb & Ellis Healthcare REIT acquired Oklahoma City Medical Portfolio in 2008, which consisted of two medical office buildings. Grubb & Ellis Healthcare REIT II acquired four properties comprising five medical office buildings in 2011. Grubb & Ellis Apartment REIT made arrangements to acquire Bella Ruscello Luxury Apartment Homes in 2010.

Securities arbitration lawyers say non-traded REIT investments like the Grubb and Ellis REITs typically offer commissions between 7-10 percent, which is significantly higher than traditional investments like mutual funds and stocks. In some cases, the commission generated by these investments can be as high as 15 percent. This higher commission can explain why brokerage firms are motivated to recommend these investments despite their possible unsuitability.