Published on:

Recently, the Financial Industry Regulatory Authority (“FINRA”) has devoted significant regulatory oversight to one financial product that is rife with potential for abuse: the variable annuity (“VA”).

https://i2.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.6.15-money-whirlpool.jpg?resize=300%2C300&ssl=1
As a general rule, annuities are treated as insurance products.  Accordingly, annuities are subject to regulation at the State level.  Specifically, each State maintains a guarantee fund that will act as a backstop to annuity policies, up to a certain dollar amount, in the event that an insurance carrier experiences insolvency or similar inability to honor its financial obligations.  Additionally, each State has its own insurance commissioner, an individual responsible for overseeing all annuity business within that State.  Fixed annuities, fixed indexed annuities, single premium immediate annuities, and longevity annuities (a/k/a deferred income annuities) are all regulated at the State level.

VAs are also monitored at the State level.  However, because VAs are considered a hybrid insurance / security product, they receive additional scrutiny and regulatory oversight at the federal level.  As investment products, VAs are subject to monitoring by both the Securities and Exchange Commission (“SEC”), as well as the Financial Industry Regulatory Authority (“FINRA”).

Published on:

FINRA fined Carolina Financial Securities, LLC (“CFS”) of Brevard, North Carolina $60,000 and served it with a Letter of Caution in a case involving allegations that CFS made material misrepresentations and omissions in connection with the sale of securities.   FINRA  also found that that the firm recommended securities- certain senior secured notes- to customers without conducting an investigation that was sufficient to provide a reasonable basis for determining that the notes were suitable for any investor.  Further, FINRA found that CFS made false and misleading communications to the public by distributing offering materials that contained false statements.  Finally, FINRA found that CFS failed to enforce the firm’s own Written Supervisory Procedures (WSPs) by in connection with permitting brokers employed by CFS to sell the subject secured notes.

7-ways1

Many retail investors may buy into non-conventional investments such as the subject notes without first being fully informed of the risks.  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 recommedation 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.

 

 

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in  non-conventional investments, including promissory notes.  Depending on the facts and circumstances, investors may be able to recover their losses in FINRA arbitration or litigation.   Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

 

Published on:

The State of Colorado has reportedly indicted former LPL financial advisor Sonya D. Camarco on six counts of securities fraud and seven counts of theft for allegedly diverting more than $850,000 in customer money for her personal use between January 2013 and May.  Ms. Camarco reportedly was terminated by LPL Financial in August 2017for “depositing third-party checks from client accounts into a bank account she controlled and accessing client funds for personal use.”

https://i1.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.2.24-embezzlement-image.jpg?resize=300%2C199&ssl=1
In a news release, the Colorado Securities Division stated that an LPL Securities internal investigation concluded that Ms. Camaro had caused checks to be drawn on customer accounts and deposited in an account she controlled, and that she was using the funds for personal expenditures.

In August 23, 2017, the Securities and Exchange Commission (“SEC”) filed a civil complaint (the “Complaint”) against Ms. Camarco (“Camarco”) in federal court in Colorado.  As alleged in the Complaint, Ms. Camarco’s   fraudulent scheme involving misappropriation of client funds dates back to approximately 2004 and continued through at least August 2017.

Published on:

Investors in VGTel, Inc. (“VGTel”) (OTC PINK: VGTL) may be able to recover their losses through initiating a securities arbitration proceeding with the Financial Industry Regulatory Authority (“FINRA”) if they were sold VGTel shares via misrepresentations or if a stockbroker or financial advisor made an unsuitable recommendation to purchase VGTel shares.

https://i1.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.6.11-building-explodes-300x200.jpg?resize=300%2C200&ssl=1
VGTel has been the subject of a recent SEC Complaint in the Southern District of New York (as of January 2016).  Specifically, the SEC has alleged that, from 2012-2014, Mr. Edward Durante defrauded at least fifty unsophisticated investors in New England, Ohio and California of at least $11 million through the sale of VGTel securities.  The Complaint alleges that Durante essentially controlled VGTel (which was little more than a shell company), and in furtherance of a fraudulent scheme, sold approximately six million shares of VGTel stock using several false names, including ‘Efran Eisenberg’ and ‘Ted Wise.’  Further, the SEC Complaint alleges that Mr. Durante bribed certain financial advisors in order to encourage these brokers to steer their clients into purchasing VGTel stock.

FINRA rules mandate that member firms implement and act upon reasonable safeguards and compliance programs designed to ensure proper supervision of a broker’s activities during the time a broker is associated with that particular brokerage firm.  Accordingly, a brokerage firm that fails to properly supervise its registered representatives may well be liable for investment losses sustained due to the malfeasance or misconduct of certain brokers.

Published on:

Summit Healthcare REIT Inc. (“Summit”), a publicly registered non-traded real estate investment trust, has recommended to shareholders that they reject a third-party tender offer by MacKenzie Realty Capital to purchase shares for $1.34 a share.  The REIT estimates its net asset value per share as $2.53, and therefore says that the $1.34 a share offer is lower than fair value.  Summit’s most recent estimated net asset value per share is $2.53, as of December 31, 2016.

https://i2.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.6.10-moneyand-house-in-hands-1.jpg?resize=300%2C240&ssl=1
As a publicly registered non-traded real estate investment trust (“REIT”), Summit was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares   upon the recommendation of a broker or financial advisor.  Unfortunately for many non-traded REIT investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

One of the more readily-apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%).  These fees act as an immediate ‘drag’ on any investment and can compound losses.  Further, another significant and less readily-apparent risk associated with non-traded REITs has to do with liquidity.  Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange, leaving investors with limited options if they wish to sell their shares after the initial purchase- especially if the issuer is not redeeming shares.

Published on:

Breitburn Energy Partners, L.P. (“Breitburn”) is an independent oil and gas exploration company, headquartered in Los Angeles, CA, with a corporate office in Houston, TX.  Structured as a master limited partnership (“MLP”), Breitburn and its subsidiaries are engaged in the acquisition, exploitation, and development of properties in the United States for purposes of oil and gas production, in addition to natural gas and NGL (NGL is a combination of ethane, propane, butane and natural gasoline, which when removed from natural gas becomes liquid under various levels of higher pressure and lower temperature).

https://i1.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.2.24-oil-rigs-at-sunset-1.jpg?resize=300%2C218&ssl=1
Many investors in Breitburn have suffered extreme losses.  Specifically, Breitburn (OTC: BBEPQ) currently trades at $0.04 per share.  As recently as 2014, when the price of a barrel of crude oil was trading much higher, units of Breitburn were trading in excess of $15 per unit (because Breitburn is structured as an MLP, the investors own units rather than shares, as is the case with an investment in common stock).  By May 2016, Breitburn’s unit price had plunged to $0.31 per unit; shortly thereafter, the company filed for Chapter 11 bankruptcy protection. As it turned out, Breitburn – like many other MLP’s and companies operating in the oil and gas space – had greatly increased risk by borrowing money to conduct operations including oil exploration.  Once the price of oil plummeted, many companies such as Breitburn that had overleveraged their balance sheet with risky borrowing were cast into financial distress.

Brokers and brokerage firms who steered their clients into Breitburn may be liable for investment losses sustained.  For example, with respect to a recent arbitration before the Financial Industry Regulatory Authority (“FINRA”), the arbitration panel ruled in favor of investors Troy and Elizabeth Benitone, awarding the claimants $569,000.  In connection with that FINRA arbitration, the panel determined that the broker and, by extension, the brokerage firm, impermissibly allowed the investors’ account to become overconcentrated in Breitburn.

Published on:

On July 16, 2017, the Wall Street Journal published an article – From $2 Billion to Zero: A Private-Equity Fund Goes Bust in the Oil Patch – discussing the financial distress besetting Houston based EnerVest Ltd. (“EnerVest”), a private equity firm focused on energy investments.  Essentially, the article discussed how falling oil prices (to a then current price of $45 per barrel of crude) had worked against the fund managers at EnerVest, who had borrowed heavily to invest in oil and gas wells before the recent collapse in energy prices.

https://i1.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.2.24-oil-rigs-at-sunset-1.jpg?resize=300%2C218&ssl=1
According to recent reports, several of EverVest’s energy funds employed leverage to purchase oil and gas wells when crude process were much higher.  As a result, investors in those funds will undoubtedly suffer significant losses on their investments.  Further, recent reports have suggested that EnerVest fund managers have engaged in discussions to recapitalize or otherwise sell assets (presumably at firesale prices) from the $1.5 billion EnerVest Energy Institutional Fund XII, which closed in 2010, as well as the $2 billion EnerVest Institutional Fund XIII, which closed in 2013.

In the way of brief background, EnerVest is a private-equity firm that focuses on energy investments, claiming to operate more U.S. oil and gas wells than any other company operating in that space.  EnerVest began raising investor capital in 2013 when oil and gas was trading at an average price of $90 per barrel; since that time, energy prices have collapsed, with crude currently trading around $50 per barrel (as of October 2017).

Published on:

Investors who have lost money in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds may be able to pursue recovery of any losses through securities litigation or arbitration.

https://i0.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.6.15-money-in-a-garbage-can-1.jpg?resize=223%2C300&ssl=1

 

Brokerage firms that sell private placements such as the Woodbridge funds must conduct due diligence on the investment before recommending it to their clients.  The due diligence rule stems from FINRA Rule 2310 the so-called suitability rule, which requires that a brokerage firm must have reasonable grounds to believe that a recommendation to purchase a security is suitable for the customer.   This principle is further explained in National Association of Securities Dealers Notice to Members 03-71, which elaborates that a brokerage firm must perform significant due diligence before recommending a private placement investment to any customer(s).  By recommending a security to customers, the brokerage firm effectively represents that a reasonable investigation of the merits of the investment has been made.

Published on:

Oil and gas private placements use some of investors’ money to drill and operate oil and gas wells. Oil and gas DPPs are sponsored and managed either by investment companies or oil and gas exploration companies, each of which may suffer from its own conflicts of interests in structuring the investments due to the very high fees and commissions associated with such investments.

https://i2.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.6.2-offshore-rig-no-logo-1.jpg?resize=300%2C191&ssl=1
Brokerage firms that sell private placements must conduct due diligence on the investment before recommending it to their clients.  The due diligence rule stems from FINRA Rule 2310 the so-called suitability rule, which requires that a brokerage firm must have reasonable grounds to believe that a recommendation to purchase a security is suitable for the customer.   This principle is further explained in National Association of Securities Dealers Notice to Members 03-71, which elaborates that a brokerage firm must perform significant due diligence before recommending a private placement investment to any customer(s).  By  recommending a security to customers, the brokerage firm effectively represents that a reasonable investigation of the merits of the investment has been made.

The following private placements could give rise to an arbitration claim against a stockbroker or financial advisor if the recommendation to purchase them lacked a reasonable basis, or if the investments were sold based on misrepresentations or omissions of material fact:

Published on:

On August 11, 2017, the Securities and Exchange Commission (“SEC”) filed a Complaint against Defendants David R. Greenlee, David A. Stewart, Jr., and Richard “Ric” P. Underwood, in connection with various oil limited partnerships and joint ventures.  Specifically, the SEC has alleged that the Defendants engaged in a fraudulent scheme whereby at least $15 million in limited partnership and joint venture interests were sold to more than 150 investors.

https://i2.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.2.24-oil-rigs-at-sunset.jpg?resize=300%2C218&ssl=1
According to the SEC Complaint, Defendants Greenlee and Stewart operated the alleged scheme through two Tennessee corporations, Southern Energy Group, Inc. (“SEG”) and Black Gold Resources, Inc. (“BGR”), which later changed its name to Tennstar Energy, Inc. (“Tennstar”).  Further, the SEC Complaint alleges that Defendant Underwood substantially assisted in facilitating and perpetuating the scheme by acting as principal salesman, assisting in drafting false offering materials given to potential investors, and overseeing the operations of a ‘boiler room’ sales team that solicited the oil investments.

In soliciting funds from prospective investors, the SEC has alleged that the Defendants represented that the limited partnerships and joint ventures would use investor funds in order to acquire “working interests” in various oil wells, as well as employ enhanced oil recovery techniques, such as fracking, to develop and recover oil from the wells.  Moreover, the SEC has alleged that the Defendants represented to investors that the entities would sell enough oil to earn investors returns ranging from 15-55%, or more, per year “for decades.”

Contact Information