Suitability

Published on: May 23, 2018

Carter Validus Mission Critical REIT Subject of Tender Offer at $3.36/Share As Largest Tenant Goes Bankrupt

Piggy Bank in a Cage As recently reported, third-party real estate investment firm MacKenzie Realty Capital (“MacKenzie”) launched an unsolicited tender offer to purchase up to 1 million shares of Carter Validus Mission Critical REIT, Inc. (“Carter Validus”) shares for $3.36 per share. The tender offer is set to expire on June 25, 2018. While the Carter Validus Board has recommended that shareholders reject the offer, the non-traded REIT’s share repurchase program is already fully subscribed for 2018. Further compounding the problem, Carter Validus recently reported that its largest tenant by revenue — Bay Area Regional Medical Center, LLC in Webster, TX — has declared bankruptcy. Currently, investors seeking immediate liquidity on their Carter Validus investment have limited options at their disposal.

Headquartered in Tampa, Florida, Carter Validus is a publicly registered, non-traded REIT that is focused on investing in net leased data centers and healthcare properties. As recently reported, Carter Validus’ portfolio consists of 66 properties, including 3 data centers and 63 healthcare properties. The REIT’s offering, declared effective by the SEC in December 2010, closed in June 2014 after raising approximately $1.7 billion in investor equity.

As a publicly registered non-traded REIT, Carter Validus was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or financial advisor. Many ordinary investors may be unaware of the high up-front commissions (typically between 7-10% of the initial investment) associated with non-traded REITs like Carter Validus. Further, some investors may have been improperly steered into Carter Validus, without first being fully informed of the investment’s complex nature and inherent risks.

Published on: April 27, 2018

“Yield Enhancement” Options Strategies, Including UBS “Iron Condors” Program, May Cause Outsized Losses

by InvestorLawyers

money whirlpool In response to the low interest rate environment that has prevailed for a decade, many brokerage firms — including well-known wirehouses such as Merrill Lynch, Morgan Stanley, and UBS — have reportedly recommended various options strategies to their customers as supposedly safe and efficient mechanisms to enhance income. However, when stock markets turn volatile, these strategies can quickly spiral into unexpected investment losses for retail investors — as recently occurred during a spike in stock market volatility that peaked on February 5, 2018.

Despite the risks embedded in options, particularly naked options, brokerage firms like Merrill Lynch, Morgan Stanley and UBS have reportedly presented some retail investors with opportunities to engage in sophisticated, highly complex options strategies, often fraught with risk. One such options strategy, marketed in some instances as a yield enhancement strategy (or “YES”), involves writing so-called iron condors through S&P 500 derived options. In some instances, investors are steered into such strategies seeking the option premium income, without actually understanding the risks associated with options trading strategies.

When it comes to yield enhancement options strategies, perhaps the most commonly used financial instrument is the extremely well-known S&P 500 Index (“SPX”), a stock index based on the 500 largest companies whose stock is listed for trading on the NYSE or NASDAQ. The Chicago Board Options Exchange (“CBOE”) is the exclusive provider of SPX options. In this regard, CBOE provides a range of SPX options with varying settlement ranges and dates, including A.M. and P.M. settlement, weekly options and end-of-month options. Significantly, because SPX is a theoretical index, an investor who engages in options trading using SPX will necessarily be engaging in uncovered, or naked, options trading.

Published on: April 20, 2018

Vista Drilling Programs Investors Solicited by Brokers May Have Arbitration Claims

by InvestorLawyers

Oil Drilling Rigs Investors in various oil drilling programs offered by Vista Resources, Inc. (“Vista”), may be able to recover losses sustained on their investment through arbitration before FINRA, in the event that the investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment — including its risk components — was misrepresented by the advisor and his or her brokerage firm. Founded in 1987, Vista is headquartered in Pittsburgh, PA. Over the course of the past several decades, Vista has managed roughly 60 drilling programs, typically structured as industry joint ventures or limited partnerships.

Included among Vista’s recent programs are: Vista Drilling Program 2011-1, Vista Drilling Program 2012, and Vista Drilling Program 2013-2 (collectively, “Vista Programs”). These Vista Programs are extremely complex and risky investment vehicles, for a number of reasons. To begin, these private oil and gas investments charge very high fees to investors. For example, Vista charges investors an approximate 10% up-front commission. In addition, Vista charges an approximate 12% markup fee on the costs associated with drilling for productive oil reserves. Such high up-front commissions and fees act as an immediate “drag” on the initial investment, and present significant risk to the uninformed retail investor.

Further, these Vista Programs are allowed to use up to 20% of investor capital to drill speculative exploratory wells. A broker recommending such an investment has a duty to inform the investor of such risks, and of the capital-intensive and speculative nature of oil drilling as an investment. Moreover, the brokerage firm — and by extension, the broker — recommending such an investment, have a duty to first conduct due diligence on the investment.

Published on: April 18, 2018

Scott William Palmer, Former Janney Montgomery Scott Broker, Barred by FINRA

by InvestorLawyers

stock market chart Former financial advisor Scott William Palmer (CRD# 817586), who was most recently affiliated with Janney Montgomery Scott LLC (“Janney”) (BD# 463), has voluntarily consented to a bar from the securities industry pursuant to a Letter of Acceptance, Waiver & Consent (“AWC”) accepted by FINRA Enforcement on April 10, 2018. Without admitting or denying any wrongdoing, the Hackensack, NJ-based former broker consented to the industry bar following his June 13, 2017 termination from employment by Janney.

Mr. Palmer’s career in the securities industry dates back to 1973, and included stints at now defunct Darby & Co., Dean Witter, Citigroup, and — most recently, Janney — from 2007-2017. In June 2017, Janney permitted Mr. Palmer to resign; according to publicly available information and as disclosed on Mr. Palmer’s Form U-5, his discharge from employment was due to Janney’s “Loss of confidence related to complaint disclosure history.”

FINRA records indicate that Mr. Palmer has been subject to twelve customer disputes, including one case in which relief was denied, and another case that settled in July 2016 for $75,000 alleging that Mr. Palmer had made unsuitable investments in the customer’s account. According to FINRA BrokerCheck, of the ten customer complaints pending arbitration, a number of them allege that Mr. Palmer purportedly recommended unsuitable investments in certain energy stocks, and further, overconcentrated certain customers in energy sector investments.

Published on: March 23, 2018

Wells Fargo Advisers Reportedly Under Investigation by Massachusetts

by InvestorLawyers

money blowing in wind Massachusetts reportedly has begun an investigation concerning whether Wells Fargo Advisors engaged in unsuitable recommendations, inappropriate referrals, and other actions related to its sales of certain investment products to customers. Recently, Wells Fargo disclosed that it is evaluating whether its personnel and registered representatives may have made inappropriate recommendations and referrals concerning 401(K) rollovers and alternative investments.

Massachusetts Secretary of the Commonwealth William Galvin said the state would examine Wells Fargo’s own internal probe and wants to ensure that any Massachusetts investors who were impacted by “unsuitable recommendations” would be “made whole.” He noted that while moving investors toward wealth management accounts brings “more revenues to firms,” these accounts are “not suitable for all investors.”

Industry observers say that major stock brokerage firms have increasingly steered customers to accounts with recurring management fees based on a percentage of assets under management, rather than transaction-based commissions. As Barron’s magazine reports, referring clients to managed accounts tends to earn fee-based advisors significantly more over the long term.

Published on: March 22, 2018

Former Morgan Stanley Broker Thomas Alan Meier Barred in Connection with Customer Complaints

by InvestorLawyers

Money Maze Former financial advisor Thomas Alan Meier (CRD# 1146044), who was most recently affiliated with Morgan Stanley (CRD# 149777), has voluntarily consented to a bar from the securities industry pursuant to a Letter of Acceptance, Waiver & Consent (“AWC”) accepted by FINRA Enforcement on March 19, 2018. Without admitting or denying any wrongdoing, the Miami, FL based broker consented to the industry bar following FINRA’s investigation and findings concerning allegations of, inter alia, unauthorized trading, unsuitable investments, and overconcentration in energy sector investments.

Mr. Meier’s career in the securities industry dates back to the early 1980’s, including stints at Merrill Lynch, now defunct Thomson McKinnon, Prudential Securities, Citigroup — and most recently, Morgan Stanley — from June 2009 – April 2016. According to a previously filed Form U5 notice, Mr. Meier resigned from Morgan Stanley in 2016 while “under internal review.”

Pursuant to the AWC, FINRA Enforcement alleged that between July 2012 and March 2016, Mr. Meier made nearly 1,300 stock trades in six customer accounts without permission, yielding Mr. Meier commissions of about $265,000. Further, FINRA has alleged that these trades cost customers approximately $818,000, as well as more than $2 million in unrealized paper losses.

Published on: March 21, 2018

Strategic Realty Trust Subject of $3.81/Share Tender Offer

by InvestorLawyers

investing in real estate through a limited partnership Strategic Realty Trust, Inc. (“SRT”), formerly known as TNP Strategic Retail Trust, Inc. is a non-traded REIT that owns a portfolio of shopping centers. SRT has reportedly recently been the subject of a tender offer under which a third-party investor known as MacKenzie Realty Capital has offered to purchase shares for just $3.81/share. According to SEC filings, the most recent Net Asset Value for SRT estimated by the issuer was $6.27/share. SRT shares were originally sold at $10 a share to investors, meaning that most investors have likely incurred principal losses.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by stockbrokers or financial advisors. Frequent selling points for non-traded REIT investments include presenting these securities as steady income-producing investments and as solid long-term investments due to their underlying investments in real estate. Some investors may not have been informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees and illiquid nature.

Currently, investors who wish to sell their shares of SRT have limited options available to exit their investment position. For example, SRT suspended its share redemption program effective as of January 15, 2013. During the years ended 2013 and 2014, SRT did not redeem any shares under the redemption program. Thereafter, on April 1, 2015, SRT’s Board approved the reinstatement of the share redemption program, but only as it relates to the death or qualifying disability of the shareholder.

Published on: March 1, 2018

Inventrust Shares Subject of $1.49 A Share Tender Offer- Investors Face Heavy Losses

by InvestorLawyers

Money Bags In the past six months alone, several third-party real estate investment firms have launched unsolicited tender offers to purchase InvenTrust Properties Inc. (“InvenTrust”) shares at a significant discount. InvenTrust investors may have arbitration claims to be pursued before FINRA, in the event that their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the broker. According to its website, InvenTrust is a “[p]remier, pureplay REIT that owns, leases, redevelops, acquires and manages open-air centers in key growth markets…”

Based on publicly available information through filings with the SEC, InvenTrust was incorporated as Inland American Real Estate Trust, Inc. in October 2004 as a Maryland REIT (the company changed its name in April 2015). As a publicly registered, non-traded REIT, InvenTrust was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager. Through the initial offering, shares were purchased at $10 per share.

Recently, several unsolicited tender offers have been made by certain third-party real estate investment firms for InvenTrust shares. For example, on or about September 2017, MacKenzie Realty Capital (“MacKenzie”) launched an unsolicited tender offer to purchase up to 10,000,000 shares at a price of $1.49 per share. More recently, Liquidity Partners Trust I, filed disclosure paperwork with the SEC in connection with their tender offer for purchase of up to 2,000,000 shares of InvenTrust at a price of $1.55 per share.

Published on: February 28, 2018

Investors In Non-Conventional Investments and REITs Face Suspended Redemptions

by InvestorLawyers

money whirlpool Investors who have recently tried to redeem investments made in real estate investment trusts (REITs) or limited partnerships (LPs) may have encountered an unpleasant surprise – many sponsors of such investments have ended or suspended redemption programs for investors.

Redemption programs are mechanisms by which investors in non-publicly traded securities may sell their securities back to the sponsor or the company for a stated price, sometimes with certain restrictions.

Redemption programs in many of the larger-capitalization REIT and LP investments recommended by financial advisors and stockbrokers have been suspended in recent years. Since these investments are not generally traded on any conventional exchange, there may be a limited or no market should you want or need to liquidate your investment in these non-traded financial products.

Published on: February 27, 2018

LJM Preservation and Growth Fund Plummets In Value During VIX Spike

by InvestorLawyers

Wastebasket Filled with Crumpled Dollar Bills Investors in the LJM Preservation and Growth Fund suffered substantial losses in early February, 2018 as volatility in broad stock market indices spiked. LJM Preservation and Growth Fund (“LJM P&G Fund” or the “Fund”) (LJMAX, LJMCX, LJMIX) is a mutual fund advised by LJM Funds Management, Ltd., (“LJM”). LJM is headquartered in Chicago, IL, and was founded in 2012, as an affiliate of LJM Partners, an investment management firm that has been managing alternative investment strategies since 1998.

Since its inception in 2013, the LJM P&G Fund has employed an investment strategy that “seeks capital appreciation and capital preservation with low correlation to the broader U.S. equity market. The Fund attempts to profit, primarily, from the volatility premium – the spread between implied volatility (investors’ forecast of market volatility reflected in options pricing) and realized (actual) volatility. The Fund aims to capture this premium by writing (selling) call and put options on S&P 500 Index futures.”

A put option is a contract that allows the purchaser of the underlying contract to sell a security at a specified price (the strike price). This allows the purchaser to hedge a position or a portfolio, by essentially creating a price floor, where a drop in a security price below a certain level will nevertheless deliver a profit on the option contract. Conversely — when an investor, or institutional fund manager, sells a put option — the seller is betting that the price will stay higher than the option price. And in instances when the seller of the option contract does not own the underlying security, then the seller is engaged in naked option writing. This is an inherently risky strategy fraught with risk; in fact, some market pundits have referred to selling naked puts as “picking up nickels in front of a steamroller.”