Investors in speculative microcap and nanocap securities may have arbitration claims to be pursued before FINRA, in the event that the recommendation to invest lacked a reasonable basis, or if the nature of the investment, including its risk components, was misrepresented to the investor. Both FINRA and the SEC have issued ample guidance with regard to the numerous risks associated with investing in speculative microcap (or “penny”) stocks, including the potential for fraudulent schemes and market manipulation due to the lack of public information concerning the companies’ underlying business and management, as well as verifiable financials.

In certain instances, broker-dealers who transact business in the penny stock arena may expose themselves to regulatory scrutiny and related liability. For example, Aegis Capital Corp. (“Aegis”) (CRD# 15007) has come under considerable regulatory scrutiny by both the SEC and FINRA with respect to its activities concerning low-priced securities transactions. Formed in 1984 and headquartered in New York, New York, Aegis is a mid-sized, full service retail and institutional broker-dealer. As of March 2017, Aegis employed approximately 415 brokers in its sixteen branches, with the bulk of its workforce centered in New York City and Melville, NY.

According to FINRA BrokerCheck, Aegis’ regulatory history includes a total of thirty (30) disclosure events, a number of which involve penny stocks. For instance, in August 2015, Aegis entered into a settlement with FINRA, pursuant to which the broker-dealer agreed to pay $950,000 in sanctions over allegations of improper sales of unregistered shares of penny stocks, as well as certain AML violations. In connection with that regulatory event, two of Aegis’ compliance officers were suspended for 30 and 60 days, and ordered to pay fines of $5,000 and $10,000, respectively. On March 28, 2018, the SEC imposed a cease-and-desist order (“Order”) against Aegis for its alleged supervisory failures concerning penny stocks. Further, the SEC penalized Aegis $750,000 after the brokerage firm admitted that it failed to file required suspicious activity reports (“SAR’s”) on numerous penny stock transactions from “at least late 2012 through early 2014.”

In early 2014, Aegis acted as the underwriter to an IPO for stock priced at $5.50 in Akers Biosciences, Inc. (“Akers”). Akers (Nasdaq: AKER), headquartered in Thorofare, NJ, “[d]evelops, manufactures, and supplies rapid screening and testing products designed to deliver healthcare information to healthcare providers and consumers in the United States, the People’s Republic of China, and internationally.” As recently reported, on May 21, 2018, Akers filed a 8-K with the SEC, disclosing that “the Company has been reviewing the characterization of certain revenue recognition items for the quarter ended March 31, 2018.”

Following Akers’ May 21 disclosure with the SEC, its share price fell over 8% to $0.59 per share on May 22, 2018. Shortly thereafter, on May 29, 2018, Akers issued a press release indicating that “Raymond F. Akers Jr., Ph.D has resigned as a director of the Company…” As a result of this news release, shares of Akers fell another 33% in value to close trading at $0.39 per share on May 29, 2018.

On June 5, 2018, Akers filed another 8-K with the SEC, in response to a letter received from Mr. Akers’ attorney. This June 8^th 8-K characterized the previous 8-K as “false” and “totally misleading” and further, disclosed that Mr. Akers was purportedly acting as a whistleblower and had apparently refused to approve the annual 10-K for 2017. Following this disclosure, class action litigation was initiated against Akers and certain of its officers, alleging that during the class period (May 15, 2017 through June 5, 2018, inclusive), acquirers of AKER shares were damaged due to alleged “false and materially misleading statements regarding the Company’s business, operational and compliance policies.”

Brokerage firms including Aegis have a duty to ensure that their business activities surrounding speculative low-priced securities are conducted in accordance with a reasonable compliance system which includes specific written supervisory procedures. Further, any recommendation by a financial advisor to invest in a speculative penny stock must conform to NASD Rule 2310 and FINRA Rule 2111 – the so-called suitability rule – which is premised on the brokerage firm and financial advisor obtaining information about the customer in order to ascertain that investor’s profile, including the investor’s age, other investments, financial situation and needs, tax status, investment experience and risk tolerance. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience resolving disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct, market manipulation, and unsuitable investment recommendations. Investors may contact a securities attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Based upon recent secondary market pricing, investors in certain publicly registered, non-traded business development companies (“BDCs”), may have suffered losses on their illiquid investments. In the wake of the 2008 financial crisis, many retail investors have been steered into so-called non-conventional investments (“NCIs”), including non-traded REITs and BDCs, often premised upon a sales pitch or marketing presentation from a financial advisor touting the investment’s lack of correlation to stock market volatility and enhanced income via hefty distributions. Unfortunately, in some instances, investors were solicited to invest in such NCIs without first being fully informed of the risk components embedded in these products.

In January 2017, FINRA issued the following guidance with respect to investments in non-traded NCIs:

“While these products can be appropriate for some customers, certain non-traded REITs and unlisted BDCs, for example, may have high commissions and fees, be illiquid, have distributions that may include return of principal, have limited operating history, or present material credit risk arising from unrated or below investment grade products. Given these concerns, firms should make sure that they perform and supervise customer specific suitability determinations. More generally, firms should carefully evaluate their supervisory programs in light of the products they offer, the specific features of those products and the investors they serve.”

Because of the illiquid nature of non-traded NCIs, investors seeking to exit their investment position are constrained by limited options, including redemption of some or all of their shares directly with the sponsor (often at a disadvantageous price and only in an amount approved by the sponsor), as well as selling their investment in a fragmented and inefficient secondary market, typically at a disadvantageous price.

According to recent secondary market pricing, shares of FS Energy & Power Fund (FSEP), a non-traded BDC sponsored by Franklin Square, were recently listed for sale at $5.70 per share. This recent pricing in FSEP suggests that investors in this non-traded BDC may well have suffered considerable investment losses of approximately 40% on their initial investment (which does not include distributions paid to date). With respect to another non-traded BDC, Business Development Corporation of America (“BDCA”), recent secondary market pricing indicates BDCA shares were recently sold at $6.50 per share. BDCA’s shares were offered through its IPO at $11.15 per share; thus, it appears investors seeking liquidity through recent secondary market transactions have sustained losses on their BDCA investment of approximately 40% (excluding distributions and commissions paid to date).

Investors in FSEP or BDCA (or other non-traded BDCs) may be able to recover investment losses in FINRA arbitration if their investment was the subject of an unsuitable recommendation by a stockbroker or investment advisor. 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.

Hard Rock Exploration, Inc. (“Hard Rock”) of Charleston, West Virginia and certain of its affiliate entities, including Blue Jacket Gathering LLC, Blue Jacket Partnership, Caraline Energy Company, and Brothers Realty, LLC (“Hard Rock Affiliates”), are independent oil and gas development companies.

On September 5, 2017, Hard Rock and Hard Rock Affiliates filed for bankruptcy protection in the Southern District of West Virginia Bankruptcy Court (2:17-bk-20459). Shortly after filing for Chapter 11 bankruptcy, Hard Rock reported a monthly cash flow shortage of $325,000. According to Hard Rock’s lender, Huntington National Bank, “rehabilitation of the Debtors’ business is impossible” due to their ongoing hemorrhaging of cash.

Hard Rock and Hard Rock Affiliates operate approximately 390 well sites in the Appalachian Basin. In addition, Caraline Energy Co. owns and maintains approximately 365 miles of pipeline developed to support natural gas collection.

Included among Hard Rock’s offerings are private placement investments such as Hard Rock Partners 2011-A L.P. Structured as a limited partnership, such an investment is very complicated and risky. To begin, private placements often carry considerable up-front commissions and fees, which serve as an immediate “drag” on any investment. Further, private placements are illiquid investments; thus, once an investor buys in, it is often difficult to readily exit the investment position.

Brokerage firms that market private placements must first conduct due diligence on the investment. The due diligence rule stems from FINRA Rule 2111, the so-called suitability rule, which mandates that a brokerage firm have reasonable grounds to believe that an investment recommendation to purchase a security is suitable for a given customer. This principle is further expanded and amplified in FINRA Notice to Members (NTM) 03-71, which states that a brokerage firm must perform significant due diligence before recommending a private placement investment to a customer. By recommending an investment to a customer, the brokerage firm is essentially representing that a reasonable investigation of the merits of the investment has been conducted.

Additionally, through NTM 10-22, FINRA has provided further guidance to brokerage firms and their registered representatives with regard to the degree and scope of due diligence required when vetting oil and gas investments. Specifically, FINRA has advised the brokerage industry that due diligence on an oil and gas investment may include: “visiting and inspecting a sample of the issuer’s assets and facilities,” in addition to “carefully examining any geological, land use, engineering or other reports by third-party experts…”, and “obtaining, with respect to energy development and exploration programs, expert opinions from engineers, geologists and others…” as necessary to determine the suitability of the investment.

Investors in private placement investments may have arbitration claims if the broker or investment advisor who recommended the investment lacked a reasonable basis to make the recommendation, or failed to disclose the risks associated with such an investment. Investors may contact attorneys at Law Office of Christopher J. Gray, P.C. by telephone at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

On April 2, 2018, EV Energy Partners, L.P. (“EVEP”) filed for Chapter 11 bankruptcy in the District of Delaware (Case No. 18-10814 (CIS)). While EVEP continues to operate its business, it now seeks to implement a prepackaged plan of reorganization, under which equity investors who purchased EVEP Units will likely sustain significant losses.

Investors who bought into EVEP upon a recommendation by their broker or financial advisor may be able to recover their losses in FINRA arbitration, in the event the recommendation to invest lacked a reasonable basis, or if the investment was solicited through a misleading sales presentation. EVEP is a publicly traded master limited partnership (“MLP”) specializing in the acquisition and operation and development of onshore oil and gas properties in the continental United States. EVEP’s holdings include oil and gas properties in the Barnett Shale, the San Juan Basin, the Appalachian Basin, as well as the Permian Basin.

As most recently reported, under the currently proposed plan of reorganization, EVEP Unitholders will receive 5% of the new entity (post-bankruptcy), with 5-year warrants to buy up to 8% of the reorganized company’s new equity.

MLPs like EVEP operate in what is known as the upstream of the oil and gas sector, meaning that segment of the market that focuses on energy exploration and production (E&P), as opposed to the more well-known midstream MLPs that primarily transport oil and natural gas by pipeline, barge, etc. Due in part to the risks associated with locating productive reserves and the cost-intensive nature of oil and gas exploration, the upstream market is very risky. Based upon publicly available information, of the 13 companies doing business as upstream MLPs in recent years (post-2008 crisis), 11 of the 13 are now defunct or reorganized due to mergers, bankruptcies, or changed business models.

When recommending an oil and gas investment to a customer, a brokerage firm — and by extension the broker — has a duty to first conduct due diligence on the investment. In addition, an oil and gas investment is unique and carries certain risks associated with the volatile nature of the underlying commodity. Further, the financial advisor recommending such an investment has a duty to determine if the investment is suitable in light of the investor’s profile and stated investment objectives. In instances where an investor’s account becomes over-concentrated in oil and gas investments, or a broker fails to disclose the risks associated with such an investment or investment strategy, the broker and his or her firm may well be liable for losses on the investment.

The attorneys at Law Office of Christopher J. Gray, P.C. have experience in representing investors in oil and gas investments, including investors in futures and options, oil and gas private placements, drilling funds, and other energy-related investment products. Investors may contact a securities arbitration lawyer at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Sierra Income Corporation (“SIC”) recently extended a tender offer to its shareholders, which terminated on December 22, 2017, offering to purchase shares for $7.89 a share. SIC is a publicly registered, non-traded business-development company (“BDC”). This non-traded BDC invests primarily in first lien senior secured debt, second lien secured debt, and certain subordinated debt of middle market companies with annual revenue between $50 million and $1 billion. Investors who participated in the tender offer likely sustained losses on their initial capital investment at $10 per share (exclusive of fees, commissions and any distribution income received). According to publicly available information, a total of 4,923,026 shares were validly tendered.

According to publicly available information, SIC is externally managed by SIC Advisors LLC, which in turn, is affiliated with Medley Management (NYSE: MDLY, “Medley”). Medley operates a national direct origination franchise through which it seeks to market its financial products, including SIC. As of December 31, 2016, Sierra reported that it had raised in excess of $900 million in connection with its equity capital raise.

Investors who purchased shares in SIC’s offering acquired shares at $10 per share. Further, as outlined in SIC’s prospectus, investors who participated in the offering were subject to hefty up-front fees and commissions of nearly 10%, including a “selling commission” of 7.00%, in addition to a “dealer-manager fee” of 2.75%.

In January 2017, FINRA — as part of its ongoing efforts to ensure the integrity of financial markets and offer protection to investors — issued the following guidance with respect to certain illiquid non-traded financial products, including non-traded BDC’s:

While these products can be appropriate for some customers, certain non-traded REITs and unlisted BDCs, for example, may have high commissions and fees, be illiquid, have distributions that may include return of principal, have limited operating history, or present material credit risk arising from unrated or below investment grade products. Given these concerns, firms should make sure that they perform and supervise customer specific suitability determinations. More generally, firms should carefully evaluate their supervisory programs in light of the products they offer, the specific features of those products and the investors they serve.

Investors in non-traded BDCs and other illiquid investments such as non-traded REITs and private placement offerings may be able to recover their investment losses through FINRA arbitration, if the 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 financial advisor. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors who have lost money on the recommendation of their broker or financial advisor to invest in volatility related financial products may be able to recover their losses in FINRA arbitration. As we discussed in a recent blog post, inverse volatility-linked investments are designed to return a profit when the market experiences periods of low volatility. Unlike more traditional investments and corresponding strategies such as a buy-and-hold stock portfolio, investing in volatility-linked products is likely not a suitable strategy for the average, retail investor. In fact, when volatility-linked ETFs first began rolling out in early 2011, Michael L. Sapir, Chairman and CEO of ProShare Capital Management, stated that “The intended audience for these ETFs are sophisticated investors.”

Put simply, investing in a volatility-linked product is a very risky enterprise that is likely only suitable for professional investors seeking to trade on a short-term basis (e.g., several hours or day trading). Further, because the VIX or so-called ‘fear index’ is not actually tradeable, investors who wish to invest in the VIX must trade derivatives instead (including volatility-linked ETFs and ETNs). And when it comes to investing in derivatives, such as future contracts and options on futures, the majority of retail investors do not fully understand the extreme volatility and risk associated with these complex investment products.

Earlier this month, equity indices declined sharply following a steady rally in the prior 12 months that saw the benchmark S&P 500 stock index gain nearly 20%. It was during this year-long market rally that many retail investors were lured into investing in inverse volatility-linked products, essentially seeking to capture even bigger gains, provided that there was no price correction. However, the idea of shorting volatility, or betting on calm stock market conditions, is a strategy best suited for sophisticated, institutional investors.

Because of the complexity of volatility-linked products, including the fact that they are not designed to be purchased and held in the same manner as long-term investments in common stock, or mutual funds, these products are unsuitable for the average, retail investor. Such unsuitable volatility-linked investment products include the following:

ProShares Short VIX Short-Term Futures (SVXY)

ProShares Ultra VIX Short-Term Futures (UVXY)

ProShares VIX Short-Term Futures (VIXY)

VelocityShares Daily 2X VIX Short-Term (TVIX)

VelocityShares Daily Inverse VIX Short-Term ETN (XIV)

iPath S&P 500 VIX Short-Term Futures ETN (VXX)

Nomura Next Notes S&P 500 VIX Short-Term Futures Inverse

Daily Excess Return Index ETN

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have sustained losses due to the negligence or misconduct of stockbrokers and financial advisors. In particular, the firm has represented investors in cases involving non-traditional, or exotic investment products, including managed futures and leveraged and/or inverse ETFs. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On December 13, 2017, the Financial Industry Regulatory Authority (“FINRA”) disclosed that registered representative Brian Michael Travers has been barred from the securities industry. Specifically, pursuant to a Letter of Acceptance, Waiver, and Consent (“AWC”), pursuant to which Brian Travers neither admitted or denied FINRA’s findings, Mr. Travers acknowledged that on November 1, 2017, he received a written request from FINRA seeking his on-the-record testimony.

FINRA’s request concerned: “[a]n investigation into, among other things, potential undisclosed outside business activities and private securities transactions…” As set forth in the AWC, “By refusing to appear for on-the-record testimony as requested pursuant to FINRA Rule 8210, Travers violates FINRA Rules 8210 and 2010.”

Publicly available information through FINRA indicates that Brian Travers (CRD# 4767891) first entered the securities industry in 2004, and was most recently a registered representative of MML Investors Services, LLC (“MML”) (CRD# 10409) until his former employer terminated his registration in April 2017. Previous to working for MML (2013 – 2017), Mr. Travers was a financial advisor affiliated with Lincoln Financial Advisors Corporation (“Lincoln Financial”) (CRD# 3978). According to FINRA BrokerCheck, Mr. Travers was discharged from his employment with MML on April 4, 2017, in connection with an “[u]ndisclosed outside activity.”

Brokerage firms like MML and Lincoln Financial have a duty to ensure that their registered representatives are adequately supervised. In this regard, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

In the event that a financial advisor wishes to consummate a private securities transaction, then he or she must first provide the firm with prior written notice, detailing the contemplated transaction. Such a transaction must first be approved by the firm. In the event that the transaction is not approved by the firm, then the broker cannot participate in the transaction. If the broker fails to notify the firm, in the first instance, or proceeds with an unauthorized transaction in derogation of the firm’s order, then selling away has occurred, in direct violation of FINRA Rule 3280.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct, including selling away, in addition to claims against brokerage firms for their failure to supervise. Investors may be able to recover their losses in FINRA arbitration. Investors may contact a securities arbitration attorney via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Bank of America Merrill Lynch’s (“Merrill Lynch”) brokerage unit offered Strategic Return Notes (“SRNs”) to customers, resulting in losses of as much as 95% of the principal invested. First issued in November 2010 and maturing November 27, 2015, the SRNs were designed to be linked to Merrill Lynch’s own proprietary volatility index (the “VOL”) which was designed to calculate the volatility of the S&P 500 Index. The SRNs, which were issued at $10 per share, ultimately matured at just $0.50 per share. Thus, investors in Merrill Lynch’s proprietary SRN’s were subjected to an enormous 95% loss on their principal investment.

In recent years, many investors have been solicited by their financial advisor to purchase so-called structured notes, which are often presented to customers as a higher-yielding, but still relatively safe alternative to fixed-income investments such as bonds. Structured notes are issued and backed by financial institutions. As hybrid products containing both a bond component and an embedded derivative, structured notes are designed to provide an investor with a return based on an equity index (or some other benchmark), as opposed to an interest rate typically associated with a traditional bond investment.

In theory, a structured note is supposed to provide an investor with an opportunity to earn enhanced income (in excess of the very low interest rates offered in the current environment on most bond investments), while also providing some downside cushion. In practice, however, many structured notes engineered by various investment banks and sold by their brokers have proved to be horrendous investments.

With respect to their pricing, Merrill Lynch accurately disclosed two of the fees surrounding the SRNs: a 2% upfront fee on the initial investment and a 0.75% annual internal fee. Significantly, however, Merrill Lynch allegedly failed to disclose the “execution factor” associated with its SRNs. In fact, in June 2016, the Securities and Exchange Commission (“SEC”) levied a $10 million fine against Merrill Lynch in connection with what the SEC alleged to be Merrill’s failure to “… adequately disclose a third cost included in the volatility index… that imposed a cost of 1.5 percent of the index value each quarter.”

Investments in structured products including Merrill Lynch’s SRNs have increased drastically in recent years, with hundreds of billions in structured product sales occurring in the past decade, alone. These investments are extremely complex and difficult to understand, and accordingly, are likely unsuitable for the average retail investor.

When a financial advisor recommends an investment to a customer, the broker and his or her firm has a duty to first conduct due diligence on the investment. In addition, pursuant to the rules and regulations set forth by the Financial Industry Regulatory Authority (“FINRA”), the financial advisor, and by extension his or her firm, must seek to ensure that they conduct a suitability analysis in order to determine if the investment being recommended is suitable for the investor in light of certain factors, including the customer’s age, risk tolerance and stated objectives, net worth and income, and degree of sophistication with investing.

Investors who suffered losses as a result of advisor-recommended purchases of structured notes may be able to recover losses sustained in FINRA arbitration if the recommendation lacked a reasonable basis. Investors may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On November 15, 2017, H.R. Bill 4267 (the “Bill”), entitled the Small Business Credit Availability Act (the “Act”), passed the House Financial Services Committee by an overwhelming 58-2 vote. This Bill seeks to amend the Investment Company Act of 1940 (’40 Act), specifically the regulations currently governing business development companies (“BDCs”). In recent years, financial advisors have increasingly 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.

As an investment vehicle, BDCs were first made available pursuant to the Small Business Investment Incentive Act of 1980, as a result of a perceived crisis in the capital markets. At that time, small businesses were encountering severe difficulties in accessing credit through traditional means. BDCs are a special type of closed-end fund designed to provide small, growing companies with access to capital.

BDCs are structured as hybrid between an operating company and an investment company under the ’40 Act. Regulated as an investment company, BDCs are required to file periodic reports under the Securities Exchange Act, and further, are subject to a number of regulatory requirements. Three of the most notable regulations currently governing BDCs are as follows:

• Character of Investments – a BDC must generally invest at least 70% of its assets in “qualifying assets” pursuant to Section 55(a) of the ’40 Act;
  • The qualifying assets requirement means that BDCs must typically invest in “eligible portfolio companies,” which are private U.S. companies with a market cap of no greater than $250 million;
• Adviser Compensation – Investment Advisers to BDCs are able to receive capital gains incentive fees in an amount not to exceed 20% of realized capital gains;
  • Investment advisers to other investment companies are generally prohibited from receiving capital gains incentive fees;
• Leverage – a BDC must maintain at least a 200% asset coverage ratio. This means that for every dollar invested in the BDC, only one dollar can be borrowed for additional investment purposes (1:1 ratio).

If the proposed Bill passes the House and Senate, then the current 1:1 leverage requirement imposed on BDCs will no longer apply. If enacted, the Bill will allow BDCs to leverage 2:1 against their investment dollars. Proponents of the bill argued that asset coverage rules for BDCs are far more restrictive than for other lending vehicles, including traditional banks, as well as Collateralized Loan Obligation (“CLO”) funds. Further, proponents of the Bill have reasoned that with increased leverage, BDCs will be better positioned to focus on investing in senior debt that is less inherently risky than junior, or even junk, debt.

If the Bill passes, investors in BDCs — particularly non-traded BDCs — should be aware of the significant risk associated with allowing their investment vehicle, and its manager(s), to further leverage their investment dollars. As our office has discussed in previous blog posts, non-traded BDCs should rightly 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 difficult to exit. Typically, investors can only sell their shares through redemption with the issuer, or through a fragmented and inefficient secondary market.

In addition, non-traded BDCs 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. These high fees may create an incentive for some financial advisors to recommend a non-traded BDC, without first conducting the necessary due diligence on the investment, or performing a meaningful suitability analysis to determine if the investment meets the customer’s stated objectives and risk profile.

If the Bill passes, investors in non-traded BDCs will not only face the risks associated with illiquidity and high fees, but they will also be encountering the risk associated with additional leverage, particularly on an investment vehicle that also permits its managers to earn considerable performance fees of up to 20% of capital gains. Thus, the risk becomes whether some BDC managers will consciously (or subconsciously) make riskier investments (with leveraged capital) on the hopes of netting outsized returns and performance fees. Under the ’40 Act, other traditional lending vehicles do not permit such outsized performance fees.

If you have invested in any of the following non-traded BDCs, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring losses), you may have legal claims to be pursued through FINRA arbitration:

• FS Investment Corporation II (FSIC II);
• FS Investment Corporation III (FSIC III);
• FS Investment Corporation IV (FSIC IV);
• FS Energy and Power Fund (FSEP);
• FS Global Credit Opportunities;
• CNL Corporate Capital Trust II;
• CION Investment Corporation (offered by ICON Investments);
• Business Development Corporation of America (BDCA);
• Business Development Corporation of America II (BDCA II).

To find out more about your rights and options, 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.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by their broker or money manager based on the investment’s income-producing potential. Unfortunately, many investors were not 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 may only do so through direct redemption with the issuer or by selling shares on an illiquid secondary market, such as Central Trade & Transfer.

In November 2008, SRT filed a Form S-11 with the Securities and Exchange Commission (“SEC”) in order to raise capital for its IPO. By August 2009, SRT initiated its IPO at $10 per share for up to $ 1 billion in investor capital. Unfortunately for SRT investors who purchased shares at $10, the secondary market now lists SRT shares at a deep discount. For example, Central Trade & Transfer has recently listed shares of SRT with a bid-ask spread of $4.60 – $4.50 per share.

The recent pricing in SRT suggests that investors in this non-traded REIT may well have suffered considerable investment losses of approximately 55% on their initial investment of $10.00 per share.

If you have invested in SRT, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, 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.

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.

When a broker recommends that a client purchase or sell a security, the broker must have a reasonable basis for believing that the recommendation is suitable for the investor. In making this assessment, a broker must consider the investors income and net worth, investment objectives, risk tolerance, and other security holdings.

If you received an unsuitable recommendation of securities from a broker or investment adviser, and suffered significant losses are a result, you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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.

A UIT is a type of fund that holds a fixed portfolio of income-producing securities that is purchased and held to maturity as a long-term investment. UITs usually carry significant upfront sales charges of 2.5% to 3.5% of the purchase amount, according to FINRA.

When a broker recommends that a client purchase or sell a security, the broker must have a reasonable basis for believing that the recommendation is suitable for the investor. Recommendations of short-term transactions in UITs would likely be unsuitable in many circumstances due in part to the high transaction costs imposed by the upfront sales charges carried by UITs.

If you believe you have been the victim of stockbroker misconduct, you may wish to consult an attorney to find out more about your legal rights and options. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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

Finlay was registered with Cadaret, Grant & Co. from 4/ 1998-12/2013. He is not currently registered as a stockbroker or financial advisor.

Non-traded and private placement real estate investment trusts (REITs) are highly risky products 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.

Brokers and financial advisors are required to make investment recommendations that are consistent with their clients’ risk tolerance, net worth, investment objectives and experience in the market. However, due to the high sales commissions brokers typically earn for selling REITs – as high as 15%- brokers can be tempted to make “one size fits all” recommendations to investors in order to reap commissions. Brokerage firms such as Cadaret, Grant & Co. are required by FINRA rules to supervise brokers and investment advisors- even those who work in independent branch offices- to ensure that the brokers make only suitable recommendations.

If you have suffered significant losses as a result of unsuitable recommedations of REITs or other non-conventional investments by a stockbroker or financial advisor, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investor rights attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Lawrence’s most recent history as a broker was with Southwest Securities, where he was registered from August 2011 through December 2013. Prior to that, he worked for Oppenheimer & Co. from June 2008 through July 2011, and Merrill Lynch from April 2003 through June 2008. During his time at both Southwest Securities and Oppenheimer & Co., there were several complaints issued against Lawrence by customers who claimed to have received unsuitable recommendations. One client even alleged that Lawrence borrowed $850,000 and failed to return the funds. This alleged borrowing occurred while Lawrence was with Oppenheimer & Co. and the FINRA report states that he intended to “…pay for the losses. I [Lawrence] then voluntary resigned and left the appropriate funds in my personal account to be used to cover the losses.” Despite this response, Lawrence failed to appear for testimony with FINRA regarding this, or any of the other complaints, which included additional allegations of misappropriated funds and failure to provide appropriate investment recommendations.

If you suffered significant losses as a result of doing business with Wade James Lawrence or believe that another stockbroker or financial advisor led you to inappropriately use investment funds, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a securities fraud attorney at the Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Prior to starting with Merrill Lynch in 2009, Zeng worked for UBS Financial Services and before that for Morgan Stanley.

If you suffered significant losses as a result of doing business with David Zeng or received an unsuitable recommendation in any of the mentioned investment categories 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 Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Reportedly, the New York State Department of Financial Services (“DFS”) launched an investigation in 2011 concerning alleged omissions on the part of AXA Equitable regarding its applications for approval to alter the Equi-Vest and Accumulator variable annuities. The change would substitute ATM-managed funds for previous managers. According to DFS’ allegations, AXA Equitable misled DFS regarding the change’s impact and failed to disclose the underperformance of the ATM funds under the previous managers. Allegedly, these actions resulted in a reduced return for investors, especially for those who paid fees to receive guaranteed minimum benefits and those who wanted to be more aggressive in their investment strategy. In order to settle the investigation, AXA Equitable agreed to pay $20 million on March 17, 2014.

Some AXA Equitable investors may have been misled about the variable annuity contract changes. In addition, certain characteristics of variable annuities, including high penalties for early withdrawal, long surrender periods and low rate of return, make these products unsuitable for many investors. Many brokers are motivated to make unsuitable recommendations because of the large commissions associated with variable annuities.

Variable annuities are a type of insurance product. With this product, the investor pays into an account now in exchange for the guarantee of a future payout. The investment is tied to a stock index return, making it variable. According to attorneys, firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance.

If you believe you were misled regarding Equi-Vest or Accumulator variable annuity contracts, or that you received an unsuitable recommendation to invest in variable annuities, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On March 27, a complaint was filed with the Financial Industry Regulatory Authority Office of Hearing Officers against Birli and Chapin regarding the State University of New York retirement program. According to the complaint, Birli and Chapin recommended their customers switch MetLife variable Annuities with new ones held outside the retirement plan in MetLife IRA accounts.

Allegedly, Birli and Chapin circumvented their firm’s general prohibition of direct annuities exchange by recommending to their customers that they surrender their annuities to purchase another product available within the retirement program, wait 90 days, and then sell the second product in order to purchase the MetLife IRA annuity.

According to stock fraud lawyers, the new annuities were unsuitable because their liquidity was affected by the seven-year surrender schedules they came with. Furthermore, investors lost accrued death benefits above and beyond their contract value. Allegedly, Birli and Chapin each received commissions of 7.15 percent through the switch.

Variable annuities are a type of insurance product. With this product, the investor pays into an account now in exchange for the guarantee of a future payout. The investment is tied to a stock index return, making it variable. According to securities fraud attorneys, firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance.

If you suffered significant losses as a result of an unsuitable recommendation regarding variable annuities, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a stockbroker claims lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

According to Bloomberg, the $45,000 loss suffered by Jeff Steckbeck in TVIX, a Credit Suisse Group AG note, has set off a probe by the Securities and Exchange Commission. Reportedly, ETNs became more popular with the TVIX in February 2012. That month, Credit Suisse stopped selling the ETN and rising demand caused the investment to veer up to 89 percent from the index. When Credit Suisse began issuing the notes again in March of that year, a FINRA warning cautioned investors that ETNs could trade at a price that was higher than their underlying index.

Bloomberg data indicates that the estimated initial value of the securities is typically 2 to 4 percent less than the price investors paid. Exchange-traded notes like TVIX mimic assets through the use of derivatives and their value is based on volatility shifts in the market. However, the ETN market is small beans compared to the ETF market, which has around $2.4 trillion in assets.

In addition, the Securities and Exchange Commission recently announced that it will reconsider a 2008 rule proposal regarding ETFs. Reportedly the proposal will address the underlying and direct instrument transparency, differences between active and index funds, creative flexibility and inverse leverage. Reportedly, unauthorized trading and the unsuitable sale of inverse and leveraged ETFs increased following the 2008 economic downturn. As a result, securities arbitration lawyers have filed numerous arbitration claims on behalf of investors who suffered significant losses in inverse and leveraged ETFs.

If you purchased unsuitable ETFs or ETNs from Credit Suisse or another full-service brokerage firm, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Allegedly, Morgan Stanley did not adequately disclose the risk associated with the recommended investment strategy of concentrating all of their funds into these three investments. The firm also allegedly failed to adequately disclose the risks associated with low credit ratings and long-duration bonds. Allegedly, the couple was led to believe that the Puerto Rico Bonds were constitutionally guaranteed by the Commonwealth of Puerto Rico.

Some of the bonds and bond funds currently being investigated by securities fraud attorneys are:

• Puerto Rico Sales Tax Financing Corp.
• Puerto Rico Public Finance Corp.
• Puerto Rico Electric Power Authority
• Puerto Rico Mortgage Backed & US Govt. Fund
• Puerto Rico Fixed Income Funds I-VI
• Puerto Rico AAA Portfolio Bond Funds I and II
• Puerto Rico AAA Portfolio Target Maturity Fund
• Puerto Rico Investors Bond Fund II
• Puerto Rico Investors Tax-Free Funds I-VI
• Puerto Rico GNMA &US Gov. Target Maturity Fund
• Puerto Rico Tax-Free Target Maturity Fund I and II
• Tax-Free Puerto Rico Target Maturity Fund
• Tax-Free Puerto Rico Funds I and II

If you suffered significant losses as a result of purchasing unsuitable Puerto Rico Bonds from Morgan Stanley, you may be able to recover your losses through FINRA arbitration. To find out more about your legal rights and options, contact a lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Reportedly, Pennsylvania regulators are currently looking into non-traded REIT sales conducted by Securities America employees. Securities America is owned by broker-dealer Ladenburg Thalmann & Co. Inc., which also owns two more independent brokerage firms. Ladenburg stated in its annual report that Pennsylvania regulators wanted to be provided with data regarding non-traded REITs purchased by Pennsylvania residents since 2007.

Securities arbitration lawyers are currently unsure if the non-traded REIT sales investigation will extend to firms other than Securities America.

Last year, multiple independent brokerage firms, including Securities America, paid to settle charges regarding non-traded REIT sales with the Massachusetts Securities Division. Securities America’s piece of that pie included a $150,000 fine and restitution to clients totaling $8.4 million. The Massachusetts probe found that several firms had trouble abiding state rules, as well as their own policies, regarding non-traded REIT sales.

According to investment fraud lawyers, firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. Non-traded REITs are inherently risky and illiquid, which limits access of funds to investors and makes them unsuitable for many individuals with conservative risk tolerances and those who need easy access to funds.

If you are a Securities America customer, or customer of another full-service brokerage firm, who suffered significant losses because of the unsuitable recommendation of non-traded REITs, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.