Suitability

Published on: November 15, 2017

Investors Face Losses As Corporate Capital Trust Begins Trading on NYSE

Investors faced the prospect of losses as Corporate Capital Trust, a former non-traded business development company listed its shares on the New York Stock Exchange this week under the ticker symbol CCT. In early trading on November 14 and 15, 2017, the price of CCT shares fluctuated between $16.56 and $18.63 a share. Accounting for the October 31, 2017 2.25-to-1 reverse split in CCT’s shares, this trading range means that a pre-split share of CCT is now worth between $7.36 and $8.28 a share- down from offering prices of between $10.00 and $11.30 a share at which investors purchased shares before the company was publicly traded

CCT is now reportedly the largest publicly-traded business development company, and the company raised billions of dollars in its public offerings of stock. Corporate Capital Trust also commenced a tender offer to purchase up to $185 million in shares of its common stock at $20.01 per share, the company’s most recent net asset value per share, as of September 30, 2017. The tender offer expires at 5:00 p.m. (EST) on December 12, 2017. The tender offer price is a significant premium to the market price.

Corporate Capital Trust’s initial public offering was declared effective by the SEC in April 2011 and raised a total of $3.3 billion before closing its follow-on offering in October 2016. The managing dealer, CNL Securities Corp., sold approximately 141 million shares in CCT’s initial public offering and sold an additional 168 million shares in a follow-on public offering, which closed on November 1, 2016. CNL Securities Corp. was generally entitled to receive selling commissions of up to 7% of the gross proceeds of shares sold in the offerings and a marketing support fee of up to 3% of the gross offering proceeds of shares sold in the offerings, some of which may have been shared with other broker-dealers who sold shares to customers.

Published on: November 14, 2017

Former Janney Montgomery Scott and RBC Financial Advisor Lisa J. Lowi Barred From the Securities Industry

by InvestorLawyers

If you have invested with financial advisor Lisa J. Lowi (a/k/a Lisa Jacqueline Lowi, Lisa Lowi, Lisa Jacqueline Vineberg) (CRD# 1347790) and have sustained losses, you may be able to recover your losses in FINRA arbitration. According to publicly available information through FINRA, on November 3, 2017, Ms. Lowi consented to being barred from the securities industry. Specifically, FINRA enforcement sent Ms. Lowi a written request for on-the-record testimony earlier this year, and following her refusal to appear for testimony, FINRA proceeded to bar Ms. Lowi from future work as a registered representative soliciting securities, effective November 3, 2017. Before being barred, Ms. Lowi was a long-time financial advisor, having first entered the industry in 1985. Ms. Lowi was most recently associated with RBC Capital Markets, LLC (“RBC”) (CRD# 31194) (2009-2015), and most recently, Janney Montgomery Scott LLC (“Janney Montgomery”) (CRD# 463) (2015-2016).

FINRA BrokerCheck indicates that Ms. Lowi has been named as a Respondent or otherwise involved in a total of thirty-seven (37) customer disputes. Review of BrokerCheck appears to indicate that many of these disputes concern allegedly unsuitable investments in high-risk and speculative “junk bonds” in the oil and gas sector. A number of Ms. Lowi’s former clients have alleged that she overconcentrated their investment portfolios in speculative junk bonds. Generally, junk bonds are a high-risk / high-yield investment that offer the potential for enhanced income, in exchange for the increased risk of default. In the event of default, an investor will no longer receive periodic bond coupon (or interest) payments.

Investing in an appropriate allocation of junk bonds may possibly be part of an overall appropriate investment strategy, provided the investor is fully informed of the risks such that he or she is capable of absorbing potential losses. However, overconcentrating an investor in junk bonds is likely a recipe for disaster, particularly in instances where the investor’s stated investment objectives and risk profile suggest that investing in junk bonds is unsuitable.

Published on: November 14, 2017

Investors in Healthcare Trust, Inc. May Have Arbitration Claims

by InvestorLawyers

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Investors with losses in Healthcare Trust, Inc. a non-traded real estate investment trust (Non-Traded REIT) may have arbitration claims if a broker or advisor made a recommendation to purchase the shares without a reasonable basis or misled the customer as to the nature of the investment. Healthcare Trust is an investment trust which seeks to acquire a diversified portfolio of real estate properties focusing primarily on healthcare-related assets including medical office buildings, seniors housing, and other healthcare-related facilities.

According to secondary market providers that allow investors to bid and sell illiquid products such as Non-Traded REITs, shares in Healthcare Trust are selling for about $14.99 per share – which represents a significant principal loss compared with the offering price of $25.00.

Published on: November 11, 2017

SEC Subpoenas Numerous Woodbridge LLCs in Probe of Sales of Unregistered Securities

by InvestorLawyers

House in Hands Recently, the Securities and Exchange Commission (SEC) requested documents form a group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators. The SEC reportedly has now asked a Miami federal judge to enforce subpoenas against nearly 250 companies affiliated with Woodbridge as part of the SEC’s investigation into whether “the company is perpetrating a fraud on its investors.”

The SEC also recently disclosed its ongoing investigation into Woodbridge’s receipt of more than $1 billion in investor funds in connection with securities offerings including a security known as the First Position Commercial Mortgage (“FPCM”), which the company describes as “[a] private third-party loan to Woodbridge [which] provides higher returns with shorter terms secured by commercial real estate.” In connection with FCPMs, investors reportedly loan money to Woodbridge, which says it uses those funds to acquire properties and in return pays investors a 5% annual return. Woodbridge also raises money using investment offerings through entities such as Woodbridge Mortgage Investment Fund III, LLC.

The SEC’s investigation, which began in September 2016, reportedly is focused on “possible significant violations of the securities laws,” including “the offer and sale of unregistered securities, the sale of securities by unregistered brokers, and the commission of fraud in connection with the offer, purchase, and sale of securities.” The recent round of subpoena requests reportedly began after Woodbridge failed to cooperate with less formal requests for documents by the SEC.

Published on: November 10, 2017

Ameritas Fined $180,000 by FINRA Over L-Share Variable Annuity Sales Practices

by InvestorLawyers

Money Maze As part of its continued variable annuity (“VA”) abuse crackdown, the Financial Industry Regulatory Authority (“FINRA”) recently censured and fined member firm Ameritas Investment Corp. (CRD# 14869) (“Ameritas”) $180,000 for alleged lapses in the supervision of VA sales by its financial advisors. In a letter of acceptance, waiver and consent (“AWC”), FINRA has disclosed that between September 2013 and July 2015, Ameritas sold 4,075 individual VA contracts. Of these sales, Ameritas sold nearly 700 L-share contracts, totaling about 17% of its overall VA sales, or about $11 million in aggregate VA L-share sales.

FINRA has prioritized VA sales practice misconduct as warranting enhanced regulatory oversight. Recent enforcement efforts by FINRA with regard to VAs has resulted in numerous fines levied in 2016 concerning allegations of sales abuse by brokers recommending unsuitable VAs and/or recommending the sale of one VA for another in order to generate commissions (a practice akin to churning, and commonly referred to as “switching”).

VAs are very complex financial products that typically charge significant commissions and fees. When a financial advisor sells a VA, they will usually receive a sizeable commission, ranging anywhere from 3-7%. Additionally, a VA contract typically carries various fees, such as a mortality expense (in connection with the contract’s death benefit), investment expenses associated with the sub-accounts holding securities, and administrative expenses on the hybrid security / insurance product. Of significance, L-share contracts usually carry even higher commissions and fees than standard VAs, due to the fact that L-share contracts have shorter surrender periods (after expiration of a surrender period, an investor in a VA can exit their investment without incurring a surrender charge).

Published on: November 7, 2017

American Finance Trust REIT Investors May Have Arbitration Claims

by InvestorLawyers

Money Maze Investors who have suffered losses in American Finance Trust, a non-traded real estate investment trust (REIT) may have arbitration claims if the REIT was recommended by a stockbroker or investment advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by a stockbroker or financial advisor. According to its website, American Finance Trust is designed to protect shareholder capital and produce stable cash distributions through the acquisition and management of diversified portfolio of commercial properties leased to investment grade tenants. The REIT reportedly invests in core retail properties such as power centers and lifestyle centers.

Secondary markets’ reported prices suggest that American Finance Trust shares may be selling for under $15.50 per share – which would mean a significant principal loss for the seller if he or she purchased shares at the offering price of $25.00.

Risks of Non-Traded REITs

Published on: November 3, 2017

Investors in HMS Income Fund May be Able to Recover Losses Through Arbitration

by InvestorLawyers

If you have invested in HMS Income Fund (“HMS”) upon the recommendation of your financial advisor, you may be able to recover your losses through arbitration before the Financial Industry Regulatory Authority (“FINRA”). A Maryland corporation formed in 2011, HMS is sponsored by Hines Interests Limited Partnership (“Hines”). HMS is structured as a closed-end management investment company, and pursuant to the Investment Company Act of 1940 operates as a public, non-traded business development company (“BDC”). HMS’s business focuses on providing mezzanine debt and equity financing to various private middle market companies. As of June 30, 2017, HMS has provided debt financing to 119 companies across a spectrum of industries.

As an investment vehicle, BDCs have been available since the early 1980’s (when Congress enacted legislation making certain amendments to federal securities laws allowing for BDC’s to make investments in developing companies and firms). Frequently, financial advisors have recommended BDCs, allowing for Mom and Pop retail investors to participate in private-equity-type investing. Many income-oriented investors are attracted to BDCs because of their characteristic enhanced dividend yield.

Traded BDCs that are listed (and thus sold and resold) on national securities exchanges may offer an attractive investment opportunity (although with enhanced dividend yield comes additional risk). However, non-traded BDCs are altogether different, and should be regarded as risky, complex and illiquid investment products. As their name implies, non-traded BDCs do not trade on a national securities exchange, and are therefore illiquid products that are difficult to sell. Typically, investors can only sell their shares through redemption with the issuer, or through a fragmented and inefficient secondary market. Moreover, non-traded BDCs such as HMS usually have high up-front fees (typically as high as 10%), which are paid to the financial advisor selling the product, his or her broker-dealer, and the wholesale broker or manager.

Published on: November 2, 2017

3x Leveraged and Inverse ETFs May Give Rise To Investor Claims

by InvestorLawyers

Money Bags Investors who purchased shares in a leveraged inverse ETF or mutual fund upon the recommendation of their financial advisor may have arbitration claims. In today’s investment environment, many retail investors have been coaxed into investing in financial products beyond the traditional universe of stocks, bonds, and bank deposit products such as CDs. One such alternative or non-conventional investment product that has gained in popularity over the past decade with retail investors is the leveraged inverse ETF (more commonly referred to as an “ultra short fund”).

Essentially, leveraged inverse funds seek to deliver the opposite of the performance of the index or benchmark that they track. These ultra short funds employ a strategy akin to short-selling a stock (or basket of stocks), in conjunction with employing leverage, and in so doing these funds seek to achieve a magnified return on investment that is a multiple of the inverse performance of the underlying index.

For example, the ProShares UltraPro Dow30 ETF (NYSE: SDOW) is structured to provide a return that is -3% of the return of the underlying index, the Dow Jones Industrial Average. Thus, if the Dow Jones were to lose 1% in value, SDOW is structured to gain 3%. While in theory this might seem a straightforward proposition, the fact is that such ultra short funds are exceptionally complicated and risky financial products.

Published on: October 31, 2017

Investors in Hospitality Investors Trust, Inc. May Have Arbitration Claims

by InvestorLawyers

Apartment Building Investors who purchased shares in the publicly registered non-traded REIT Hospitality Investors Trust, Inc. (“HIT”) upon the recommendation of their financial advisor may be able to recover their losses in FINRA arbitration. HIT owns a portfolio of hotel properties throughout North America, including various Hilton-, Marriott- and Hyatt- branded hotels, within the select service and full-service markets. As of December 31, 2016, HIT owned 148 hotels; the company was founded in 2013 and is headquartered in New York, NY.

Recently, HIT commenced a defensive tender offer for up to 1 million shares of its common stock at a price of $6.50 per share. According to HIT’s board, the defensive tender was made in order to deter another recent tender offer, made by third-party MacKenzie Realty Capital (“MacKenzie”), a non-traded business development company. On October 23, 2017, MacKenzie notified HIT investors that it had commenced an unsolicited tender offer to purchase up to 300,000 shares of common stock for $5.53 per share. The MacKenzie tender offer is set to expire on December 8, 2017, whereas the more recent HIT tender offer is set to expire on December 11, 2017.

These recent tender offers by both MacKenzie and HIT illustrate one of the significant risks associated with investing in non-traded REITs. Specifically, an investment in a non-traded financial product is generally an illiquid investment that can only be sold through redemption to the sponsor, or in some instances, through a limited and fragmented secondary market. In this instance, the defensive offer to redeem being made by HIT is at $6.50 per share. For investors who purchased shares through the original offering, the shares were priced at $25. Therefore, even when factoring in any distributions paid on the investment, any shareholder who participates in the HIT tender offer will be absorbing a steep loss on their investment of approximately 70%.

Published on: October 26, 2017

Vestin Realty Mortgage I and II and MVP REIT I and II Investors May Have Arbitration Claims

by InvestorLawyers

Building Explodes Investors in certain REITs based in Las Vegas may have arbitration claims against brokers or financial advisors if a FINRA-registered broker dealer that recommended the investment did not live up to its obligations under applicable rules. As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.

Vestin Realty Mortgage I (Previously Vestin Fund I and DM Mortgage Investors)

Vestin Realty Mortgage I (VRM I) was formerly known as DM Mortgage Investors. On March 17, 2000, DM Mortgage Investors registered up to 100,000,000 shares with the Securities and Exchange Commission (SEC) at $1 per share. This registration was later amended to cover the issuance of up to 10,000,000 shares at $10 per share. On June 29, 2001, DM Mortgage Investors changed its name to Vestin Fund I, and later changed its name to Vestin Realty Mortgage I (VRM I) and began trading on the Nasdaq Capital Market on June 1, 2006. In March 2012, VRM I ceased being a REIT, but continued trading on the Nasdaq.