investment fraud lawyers

Published on: June 15, 2012

FINRA Investor Alert: Beware Nutraceutical Stock Scams

Last month, the Financial Industry Regulatory Authority (FINRA) issued an Investor Alert, “Nutraceutical Stock Scams — Don’t Supplement Your Portfolio with These Companies.” The purpose of the alert is to warn investors to beware of stock scams related to nutraceuticals. Stock fraud lawyers are aware of these scams and say that pitches for these types of stocks can be received in many ways, including email, cold calls, blogs, tweets and message board posts.

FINRA Investor Alert: Beware Nutraceutical Stock Scams

Products that claim to assist in weight loss, provide an energy boost or help people live longer are nutraceuticals. These products can include food and drink products that contain additives that are allegedly beneficial for health and dietary supplements. Investment fraud lawyers say that while there are legitimate nutraceutical companies, many are illegitimate and could be targeting investors for fraud.

According to FINRA, “The con artists behind nutraceutical stock scams may try to lure investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly-traded companies that often have little or no history of financial success.”

Published on: June 8, 2012

Retired, Unsophisticated Investors Targeted Again: Brookstone Found Responsible

by InvestorLawyers

A Financial Industry Regulatory Authority (FINRA) announcement dated June 4, 2012, stated that a hearing panel ruled in favor of claimants against Brookstone Securities of Lakeland, Florida, along with one of its brokers, Christopher Kline, and its owner and CEO, Antony Tuberville. Brookstone, Kline and Tuberville apparently made fraudulent sales of CMOs, or collateralized mortgage obligations, to elderly, retired and unsophisticated investors. Brookstone was fined $1 million in addition to an order of restitution payment of more than $1.6 million to customers. Of that amount, $1,179,500 was imposed jointly with Kline and the remaining $440,600 was imposed jointly with Tuberville. Securities arbitration lawyers say Kline and Tuberville were also barred by the panel from working again in the securities industry. In addition, David Locy, former chief compliance officer of Brookstone, was barred from acting in any principal or supervisory capacity. Locy was also fined $25,000 and was barred for two years from acting in any capacity.

Retired, Unsophisticated Investors Targeted Again: Brookstone Found Responsible

According to the panel’s findings, from July 2005 through July 2007, Kline and Tuberville made intentional fraudulent misrepresentations and omissions regarding the risks associated with CMOs. The affected customers were all retired investors seeking an alternative to equity investments that was safer. Despite the fact that the negative effects that increasing interest rates were having on the CMOs by 2005 were evident to Kline and Tuberville, they failed to explain these conditions to their customers. The clients were instead led to believe that the CMOs were “government-guaranteed bonds” that would generate 10 to 15 percent returns and preserve capital.

For a long time, investment fraud lawyers have been warning investors that retired and elderly investors are often the targets for investment fraud, and this was certainly the case here. Of the seven customers named in the original complaint, all were retired, elderly and/or unsophisticated investors. Furthermore, two were elderly widows who were convinced to put their retirement savings in the risky CMOs and then told that because they were “government-guaranteed bonds,” their money could not be lost. However, in total, the seven investors lost $1,620,100 while Brookstone racked up $492,500 in commissions.

Published on: June 7, 2012

Sun 1031 TIC Investors Could Recover Losses

by InvestorLawyers

Stock fraud lawyers are currently investigating potential claims on behalf of investors who purchased Sun 1031 TICs or other risky tenant-in-common investments. In many cases, broker-dealers improperly recommended these investments to clients for whom the investment was unsuitable.

Sun 1031 TIC Investors Could Recover Losses

TICs became popular in 2002, following a ruling by the Internal Revenue Service that allowed capital gains to be deferred by investors. In this property ownership, a fractional interest is owned by two or more parties. However, following the real estate crisis, TICs saw a significant decline in value. According to stock fraud lawyers, liquidity problems and high risks are not uncommon with TICs and, in many cases, these risks are misrepresented to the clients. Instead, brokers often focus on the promised income stream when persuading clients to purchase TICs. Because of the potential income stream associated with TICs, these investments can be attractive to retired investors who are not informed of the risks involved.

According to investment fraud lawyers, 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. This investment was clearly unsuitable for many of the investors who received the recommendation to purchase the TIC and, in some cases, the necessary due diligence likely went unperformed. Because TICs usually pay a high commission — often as much as 10 percent — many brokers recommend TICs to investors despite their unsuitability.

Published on: June 6, 2012

Fidelity Investors Could Recover Losses Resulting from Facebook Stock

by InvestorLawyers

Securities fraud attorneys are currently investigating potential claims on behalf of investors who suffered losses as a result of their Facebook Inc. investments with Fidelity Investments. Allegedly there may have been execution problems at Fidelity Investments in regards to the Facebook stock. Reportedly, following Facebook’s initial public offering, “thousands” of clients of Fidelity were affected by trading issues.

Fidelity Investors Could Recover Losses Resulting from Facebook Stock

According to investment fraud lawyers, many Fidelity investors have learned that their Facebook stock orders were not executed at previously expected prices. In addition, some Fidelity investors decided to cancel their Facebook stock orders prior to the time it began trading, on May 18 at 11:30 am, but the stock was allegedly assigned to their accounts anyway. Many investors were confronted with margin calls that were unexpected because of Fidelity’s failure to honor the canceled orders. Securities fraud attorneys say this exacerbated the situation.

In a related case, Facebook Inc., Morgan Stanley and other banks are being sued by Facebook’s shareholders. The shareholders claimed Facebook’s weakened growth forecasts were hidden by the defendants prior to its $16 billion IPO. According to the complaint filed in the U.S. District Court in Manhattan, changes in the business forecast during the IPO process were only “selectively disclosed by defendants to certain preferred investors.” The complaint alleges that “the value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result.” A similar lawsuit was filed by another investor in a California state court. In the first three days of trading, Facebook shares declined 18.4 percent, reducing the stock’s value by more than $2.9 billion.

Published on: May 31, 2012

Investors of SCI Real Estate Investment TICs Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered losses as a result of their purchases of SCI Real Estate Investments LLC’s TICs. In some cases, brokerage firms may be held liable for their recommendation of the investment to their clients.

Investors of SCI Real Estate Investment TICs Could Recover Losses

According to securities fraud attorneys, TICs became popular in 2002, following a ruling by the Internal Revenue Service that allowed capital gains to be deferred by investors. In this property ownership, a fractional interest is owned by two or more parties. However, following the real estate crisis, TICs saw a significant decline in value. For more information on TICs, see the previous blog post, “TICs Dangerous for Many Investors.”

SCI Real Estate Investments is a United States real estate company that acquires retail and multi-family properties. It offers co-ownership interests in these United States properties as investments to individual buyers of real estate and 1031 exchanges. SCI is based in Los Angeles and was founded in 1994. A voluntary petition for reorganization was filed by SCI on February 11, 2011, under Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. The firm’s liquidation plan confirmation hearing is scheduled for June 13, 2012.

Published on: May 28, 2012

A & O Fraud Scheme Targets Retired Individuals; Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are investigating claims on behalf of A & O Resource Management investors. A & O Resource Management and other affiliated companies, such as A & O Life Settlements, were used in a fraud scheme that resulted in lengthy prison sentences for two of the principals involved in the fraud. Many investors suffered significant losses as a result of the scheme. Some losses have already been recovered for defrauded investors, but there are still many victims that could recover losses through securities arbitration.

A & O Fraud Scheme Targets Retired Individuals, Investors Could Recover Losses

According to securities arbitration lawyers, A & O marketed bonds that were sold as fixed-maturity investments. Furthermore, investors who purchased the bonds were guaranteed annual returns at a minimum of 10 or 12 percent. The scheme claimed the investments were safe and had been designed to grow retirement assets. However, the targets of the fraud, retired and older individuals, were not made aware of the risks associated with the bonds.

While direct claims against A & O cannot be made easily because the company is currently in receivership, investors who purchased the products through a broker may be able to hold that broker responsible if he or she did not adequately explain the investment’s risks. According to investment fraud lawyers, prior to recommending an investment to a client, brokers and firms are required to perform the necessary due diligence to establish whether or not the investment is suitable for the client given their age, investment objectives and risk tolerance. This investment was clearly unsuitable for many of the investors who received the recommendation to purchase the bond.

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.