Suitability

Published on: October 4, 2017

Lightstone Value Plus REIT V and American Finance Trust Investors May Have Arbitration Claims

Investors in American Finance Trust and Lightstone Value Plus REIT V may have viable arbitration claims before the Financial Industry Regulatory Authority (FINRA) if a stockbroker or investment advisor made an unsuitable recommendation to the investor to purchase them, or made a misleading sales presentation in recommending them.

Publicly registered non-exchange traded REITs like American Finance Trust and Lightstone Value Plus REIT V are complex investment vehicles that carry substantial risk, including significant fees and lack of liquidity (often making redemption difficult for a shareholder seeking to exit an investment). Many retail investors are steered into purchasing non-traded REITs upon the recommendation of their broker or financial advisor who will typically tout the investment’s income component to their clients seeking an income stream. Unfortunately, many investors who purchase shares in non-traded REITs are not fully informed of the many complexities and risks associated with such an investment.

American Finance Trust (“AFT”) is a non-traded REIT that was formed in January 2013 and subsequently launched by American Financial Advisors, LLC. More recently, in February 2017, AFT (with $2.1 billion in assets) and American Realty Capital-Retail Centers of America (with $1.25 billion in assets) announced shareholder approval for a merger of the two non-traded REITs.

Published on: July 27, 2017

Private Placements- Know the Risks Before Investing

by InvestorLawyers

With increasing frequency retail investors are encountering scenarios in which they are offered an opportunity to invest in a private placement. A private placement – often referred to as a non-public offering – is an offering of a company’s securities that are not registered with the Securities & Exchange Commission (“SEC”). Under the federal securities laws, a company may not offer or sell securities unless the offering has been registered with the SEC or an exemption from registration applies.

DISTINGUISHING A PRIVATE PLACEMENT FROM OTHER INVESTMENTS

When an investor decides to purchase shares in a publicly traded company, or for that matter purchase shares in a mutual fund or exchange traded fund (“ETF”), he or she will have the opportunity to first review a comprehensive and detailed prospectus required to be filed with the SEC. When it comes to a private placement, however, no such prospectus need be filed with the SEC – rather, these securities are typically offered through a Private Placement Memorandum (“PPM”).

Published on: June 1, 2017

LPL Fined by State of NH for Alleged Unsuitable REIT Sales

by InvestorLawyers

For some time we have been blogging about non-traded REITS (and the real risks associated with investing in these complex investment vehicles. Many investors are familiar with exchange traded Real Estate Investment Trusts (“REITs”). Pursuant to federal law, these companies which own and typically operate income-producing real estate, are required to distribute at least 90% of their taxable income to investors in the form of dividends. Because REITs pay out such a high percentage of their taxable income as dividends, these companies have attracted numerous retail investors (including pensioners and other retirees) seeking to augment their income stream.

While an appropriate allocation of REITs in a retail investment portfolio may well be suitable and warranted in order to achieve diversification and earn decent income, non-traded REITs are an altogether different and often risky investment vehicle. The primary risks associated with non-traded REITs include: (1) a lack of liquidity – non-traded REITs do not trade on an exchange, and therefore, any secondary market for resale will be restricted; (2) pricing inefficiency – in lockstep with their lack of liquidity, investors in non-traded REITs may find that the price offered for share redemption is substantially lower than the price at which shares were initially purchased; (3) high up-front fees – compounding the risk with non-traded REITs are the often steep up-front fees charged investors (as high as 10% for selling compensation) simply to buy in and purchase shares; and (4) confusion over source of income – often, investors in non-traded REITs are unaware that dividend income may actually include return of capital (including possible the proceeds from sale of shares to other, later investors).

THE NEW HAMPSHIRE BUREAU OF SECURITIES REGULATION PROCEEDING AGAINST LPL FINANCIAL

Published on: May 23, 2017

Non-Traded REITs – Investors Should Proceed with Caution!

by InvestorLawyers

With increasing frequency, given the current low interest rate environment, retail investors are steered into investing in products appearing to offer more advantageous yields than are available in traditional interest-bearing investments such as money market funds and CDs. One example is the publicly registered non-exchange traded real estate investment trust (“REIT”) or “non-traded REIT.” While non-traded REITS share certain similarities with their exchange-traded brethren, they differ in a number of key respects.

CHARACTERISTICS AND SOME DISADVANTAGES OF NON-TRADED REITS

To begin, a non-traded REIT is not listed for trading on a securities exchange. Consequently, the secondary market for non-traded REITs is typically very limited in nature. Furthermore, while some of an investor’s shares may be eligible for redemption after a certain passage of time (e.g., one year), and, even then, on a limited basis subject to certain restrictions, such redemption offers may well be priced below the purchase price or current price of the non-traded REIT. Thus, lack of liquidity and pricing inefficiency are two disadvantages to non-traded REITs, as opposed to REITs that trade on an exchange (e.g., NYSE: BXP – Boston Properties).

Published on: October 13, 2016

FINRA Fines Investors Capital Over Unit Investment Trust Sales

by InvestorLawyers

The Financial Industry Regulatory Authority (FINRA) recently fined Investors Capital Corporation $250,000 over the sale of unit investment trusts (UITs). Investors Capital did not admit or deny the allegations leading to the fine, but also agreed to pay $841,500 in restitution to customers, bringing its total payment to over $1 million.

FINRA alleged that certain Investors Capital brokers recommended that customers engage in unsuitable short-term transactions in UITs, and also alleged that the firm failed to apply sales charge discounts that should have been available to some customers. FINRA further alleged that Investors Capital Corporation lacked adequate systems and procedures to supervise the sales of UITs, leading to the violations. Short-term trading in UITs may be uneconomical in many cases due to relatively high up-front sales charges, and UITs are typically recommended only as long-term investments.

Investors Capital’s alleged violations occurred between 2010 and 2015.

Published on: October 6, 2016

FINRA Fines Investors Capital for Alleged Unsuitable UIT Sales

by InvestorLawyers

Investors Capital will pay $1.1 million in fines and restitution over the sale of unit investment trusts (UITs) to resolve an investigation by the Financial Industry Regulatory Authority Inc. (FINRA). FINRA alleges that certain Investors Capital brokers recommended unsuitable short-term trading of UITs and other complex financial products known as steepener notes in accounts of 74 clients, according to the settlement.

old bird cage

Investors Capital also allegedly failed to apply sales charge discounts to certain customers’ purchases of UITs, and inadequately supervised its representatives, according to FINRA’s allegations. To resolve the FINRA case, Investors Capital agreed to pay $250,000 in fines and $842,000 in restitution. The firm has already reportedly paid close to $224,500 in restitution to clients.

Published on: June 15, 2015

Securities Consultancy Estimates That Non-Traded REITs Cost Investors $50 billion

by InvestorLawyers

Securities Litigation Consulting Group of Fairfax, Virginia has estimated that shareholders of non-traded REITs are about $50 billion worse off for having put money into non-traded REITs rather than exchange-traded REITs. The estimate is based on the difference between the performance of more than 80 non-traded REITs and the performance of a diversified portfolio of publicly-traded REITs over a period of twenty years. According to research by the consultancy, the difference in performance between the two asset groups is largely due to the relatively high up-front expenses associated with non-traded REITs.

Non-traded real estate investment trusts (REITs) are investments that pose a significant risk that the investor will lose some or all of his initial investment. Non-traded REITs are not listed on a national securities exchange, limiting investors’ ability to sell them after the initial purchase. Such illiquid and risky investments are often better suited for sophisticated and institutional investors, rather than retail investors such as retirees who do not wish to have their money tied up for years, or risk losing a significant portion of their investment. Non-traded REITs usually have higher fees for investors than publicly-traded REITs and can be harder to sell.

A partial list of non-traded REITs is as follows (not all of the REITs listed have performed poorly):

Published on: June 10, 2015

Former Cadaret, Grant & Co. Broker Douglas William Findlay Suspended Over REIT Sales

by InvestorLawyers

Douglas William Finlay, Jr., a stockbroker formerly associated with Cadaret, Grant & Co., has entered into a Letter of Acceptance Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA) to settle a case in which FINRA alleged that Finlay over-concentrated a customer’s assets in an unsuitable illiquid real estate investment trust (REIT).

In the AWC, in which Finlay neither admitted nor denied the FINRA charges, FINRA found that Finlay failed to adequately disclose information to the customer about the REIT and also allegedly falsified a firm document that misrepresented the customer’s net worth and income.

As a result of the charges, Finlay’s license was suspended for 18 months. FINRA also fined Finlay $15,000 and ordered him to pay disgorgement of $6,639. The case is FINRA Disciplinary Proceeding No. 2013035576601

Published on: February 23, 2015

Investors Over-Concentrated In Funds Exposed To Losses Due To Drops In Oil Prices May Have Viable Arbitration Claims

by InvestorLawyers

Oil prices have rapidly tumbled to under $50 a barrel, from well over $100 a barrel, leaving prices at their lowest level since 2009. As a result of the plummet in oil prices, some investors whose portfolios were concentrated in investments whose value is linked to the price of oil or other energy products have lost significant sums. Such investments may include private placements, stocks, and ETFs. On the private placement side alone the Securities Exchange Commission (SEC), has stated that since 2008, approximately 4,000 oil and gas private placements have attempted to raise nearly $122 billion in investor capital. However, research has shown that some of these oil and gas private placements pose enormous risks and, a significant majority of the oil and gas funds offered by some sponsors have lost money (even before the recent drop in oil prices).

Leveraged ETFs

In addition to the inherent risks of such investments, some investors’ portfolios may be over-concentrated in oil and gas stocks or ETFs. Some of these ETFs may be leveraged or non-traditional ETFs. These types of funds will tend to rise or fall in value even more rapidly than the price of oil and gas, due to internal leverage, or the borrowing of money by the funds to increase their exposure energy prices.

Published on: June 24, 2014

Investor Files FINRA Arbitration Claim Against First Allied Regarding Private Equities

by InvestorLawyers

Stockbroker arbitration lawyers are looking into accusations made against First Allied Securities, Inc. and broker Rami Yahalom regarding risky investments in AE Luxtera Investments II, LLC, a private technology start-up company. According to reports of a FINRA arbitration claim filed by investors, First Allied and Yahalom offered Luxtera to customers without disclosing sufficient information regarding the investment.

Allegations Made Against First Allied Regarding Private Equities

According to the allegations, Luxtera was represented as a late stage equity, which means that it was due for an initial public offering (IPO) within 12-36 months. Additionally, the complaints report that First Allied indicated expected revenues in excess of $300 million, when in reality the company had not achieved sales above $1 million.

This is not the first time stockbroker arbitration lawyers have received complaints regarding First Allied and private equity investments. If you suffered significant losses as a result of doing business with Rami Yahalom or First Allied, or received an unsuitable recommendation of advanced private equities from another stockbroker or financial advisor, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at the Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.