HJ Sims has reportedly offered to investors a number of private placement investments that the firm itself structures and establishes. These so called Regulation D private or “Reg D” private placement offerings sold by HJ Sims have reportedly totaled about $2.2B billion in principal value sold. Reportedly HJ Sims sold 84 separate private placements. Some of the private placements sold by HJ Sims are the following:

• Fountains Acquisition Finance
• Fox Ridge Finance
• Orchard View, Acquisition
• DRSN Real Estate GP
• Elderwood Acquisition
• Heatherwood Acquisition
• Sims Merrill Gardens III
• Stuart Lodge Living/Stuart Lodge Properties
• Discovery Funding Sarasota Bay
• Athena Acquisition VI
• Epic Finance I
• Carmel Acquisition
• Treeo Funding I
• Fountains of Hope
• Tuscan Isle Property Company
• Tuscan Gardens of Venetia Bay Properties
• Gryphon BH Funding
• HJSI Athena Portfolio Finance
• Tuscan Isle ChampionsGate Prop. Co.
• Affinity Portfolio Funding
• Affinity Portfolio Funding II
• Affinity Portfolio Funding III
• Affinity Development Funding I
• BHCP Acquisition
• Vantage Point Funding I
• Sante Funding I
• Tuscan Gardens of Palm Coast Properties
• Vita Funding I
• LW Development Funding I
• Affinity Funding IV
• NHG Funding I
• Affinity Portfolio Funding V
• Affinity Portfolio Funding VI
• Monarch Funding I
• Sims Benchmark V
• TL Funding I
• Sims Merrill Gardens V
• Stonebridge Funding I
• NHG Funding II
• Riverview ALF Holdings
• Civitas Funding I
• Inspirit Venue Funding I
• Sims High Income Portfolio
• NHG Funding III
• Monarch Funding II
• Monarch Funding III
• Monarch Funding IV
• DRSN Real Estate GP
• TL Funding II
• NREA Southeast Portfolio Three
• Links Funding I
• Family Health Funding I
• Sims Benchmark VI
• NREA Retreat, DST
• Sims Merrill Gardens VI
• Griffin Capital (South Beach – Vegas) DST
• TL Funding III
• TL Funding IV
• Caraday Funding I
• Crown Point Funding I
• Magnolia Funding I
• Voralto Funding I
• Links Funding II
• ALG Funding IX
• Watermark FL Funding
• SAL Funding I
• Commercial Equipment Finance Income Fund
• Elevate Funding I
• Vinebrook Homes Trust
• Parliament Credit Opportunities Fund
• Comprehensive Care Funding I
• PPG Funding I
• PPG Funding II
• Hill Valley Funding I
• Links Funding III
• NexPoint Buffalo DST
• NexPoint Hughes DST
• HBS Acquisition Finance
• Mackenzie Preferred Funding
• Cleveland Thermal
• Sims Cathcart Funding
• Cypress Point Funding
• Riverchase Funding
• Gryphon Finance I
• Madison Funding I
• Tuscan Isle Holdings I
• Tuscan Isle Championsgate Holdings
• Hawkeye Village Finance I
• Meridian Portfolio Funding I
• Poet’s Walk Funding I
• Wakefield Portfolio Funding I
• HJSI Athena Portfolio Finance

Private placements are investments that are not publicly registered with the Securities and Exchange Commission that are offered via various exemptions from registration that permit the sales. Sales of certain private placements including those offered under an exemption known as “Regulation D” are largely limited to sales to “accredited investors” who meet certain eligibility criteria established by the Securities and Exchange Commission (SEC). For example, an investor would be accredited if they had a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Investors can also be deemed accredited based upon professional experience.

Private placements are generally speculative and illiquid, in comparison to publicly traded securities such as common stocks listed on exchanges or mutual funds. However, private placements have been popular with certain independent broker-dealer firms because private placement investments generally carry commissions many times higher than publicly traded securities. Many private placements may carry commissions and other upfront costs ranging from 7% to 12% in total fees, costs, due diligence fees, and selling commissions to the brokerage firm.

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- including private placements under Regulation D. 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 recommendation 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.

Investors who wish to discuss a possible claim 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. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules). THIS ARTICLE IS INTENDED AS ATTORNEY ADVERTISING AND IS NOT AN OFFICIAL LEGAL ANNOUNCEMENT.

Shopoff Land Funds and other private placement investments are generally categorized as alternative investments and may be unsuitable for many inexperienced investors or those with a modest net worth. Private placements are investments that are not publicly registered with the Securities and Exchange Commission that are offered via various exemptions from registration that permit the sales. Sales of certain private placements including those offered under an exemption known as “Regulation D” are largely limited to sales to “accredited investors” who meet certain eligibility criteria established by the Securities and Exchange Commission (SEC). For example, an investor would be accredited if they had a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Investors can also be deemed accredited based upon professional experience.

Shopoff private placement offerings have reportedly included the following:

• Shopoff Land Fund I
• Shopoff Land Fund II
• Shopoff Land Fund III
• Shopoff Land Fund IV
• Shopoff Land Fund V
• Shopoff Commercial Growth and Income Fund
• Shopoff Commercial Growth and Income Fund II
• Shopoff Commercial Growth and Income Fund III
• Vertimass, LLC
• SCF – 4440 VKA, LLC
• SCF – 2100 Q Street, LLC
• SCGIF II – Franklin, LLC
• SCGIF II – Skypointe, LLC
• SCGIF II – Des Plaines, LLC
• TSG Fund IV

Private placements are generally speculative and illiquid, in comparison to publicly traded securities such as common stocks listed on exchanges or mutual funds. However, private placements have been popular with certain independent broker-dealer firms because private placement investments generally carry commissions many times higher than publicly traded securities. Many private placements may carry commissions and other upfront costs ranging from 7% to 12% in total fees, costs, due diligence fees, and selling commissions to the brokerage firm. According to SEC filings on “Form D”, some of the Shopoff investments listed above carry a 7% selling commission and 3% in due diligence and underwriting costs, for a total of 10% in commissions and fees. The commissions vary from investment to investment and selling commissions listed may or may not include expenses such as reimbursement of organization and offering expenses.

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- including private placements under Regulation D. 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 recommendation 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.

Investors who wish to discuss a possible claim 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. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

The brokerage firm Herbert J Sims & Co., a/k/a HJ Sims reportedly offers to investors a number of private placement investments that the firm itself structures and establishes. For example, a private placement known as Madison Funding I, LLC was brought to market in 2019 by HJ Sims and issued $5,115,000 in bonds due June 1, 2024. The Madison Funding I bonds reportedly defaulted on principal payments due March 2, 2021 and have paid reduced interest since. Despite the default, Madison Funding I bonds are reportedly shown as having a full value of $100 on customer account statements.

In another private placement offering, Poet’s Walk Funding I, LLC, $10,000,000 in bonds were reportedly sold to the public. These bonds have reportedly also defaulted and have paid reduced interest.

Private placements are investments that are not publicly registered with the Securities and Exchange Commission that are offered via various exemptions from registration that permit the sales. Sales of certain private placements including those offered under an exemption known as “Regulation D” are largely limited to sales to “accredited investors” who meet certain eligibility criteria established by the Securities and Exchange Commission (SEC). For example, an investor would be accredited if they had a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Investors can also be deemed accredited based upon professional experience.

Private placements are generally speculative and illiquid, in comparison to publicly traded securities such as common stocks listed on exchanges or mutual funds. However, private placements have been popular with certain independent broker-dealer firms because private placement investments generally carry commissions many times higher than publicly traded securities. Many private placements may carry commissions and other upfront costs ranging from 7% to 12% in total fees, costs, due diligence fees, and selling commissions to the brokerage firm.

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- including private placements under Regulation D. 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 recommendation 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.

Investors who wish to discuss a possible claim 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. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

Now, these problems have apparently come home to roost in the form of investor losses, as it was recently reported that GPB issued revised, lower valuations for two of its funds, GPB Holdings Fund II and GPB Automotive Fund. The funds purportedly lost 25.4% and 39% of their value respectively. Investors are left to guess whether this is the end of the losse, or whether GPB’s other funds including GPB Holdings LP, GPB Holdings III, GPB Waste Management, LP, and GPB NYC Development LP – will also lose value.

GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending. An issuer of private placements, GPB has raised $1.8 billion from accredited investors in funds that in turn invest in auto dealerships and the waste management industry. Stockbrokers and advisors from dozens of brokerage and financial advisory firms sold the high risk, high-commission private placements, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP. According to SEC filings approximately 60 brokerage firms sold clients investments in various GPB Capital Funds. However, the primary sellers of these toxic funds appear to have been Royal Alliance, FSC Securities, SagePoint Financial, and Woodbury Financial Services.

Private placement investments are complex and fraught with risk. To begin, private placements are often sold under a high fee and commission structure. Reportedly, one brokerage executive has indicated that the sales loads for GPB private placements were 12%, including a 10% commission to the broker and his or her broker-dealer, as well as a 2% fee for offering and organization costs. Such high fees and expenses act as an immediate drag on investment performance.

Further, private placement investments carry a high degree of risk due to their nature as unregistered securities offerings. Unlike stocks that are publicly registered, and therefore, must meet stringent registration and reporting requirement as set forth by the SEC, private placements lack regulatory oversight. Accordingly, private placements are typically sold through what is known as a “Reg D” offering. Investing through a Reg D offering is risky because investors are usually provided with very little in the way of information. For example, private placement investors may be presented with unaudited financials or overly optimistic growth forecasts, or in some instances, with a due diligence report that was prepared by a third-party firm hired by the sponsor of the investment itself.

As recently reported, both the SEC and FINRA have commenced their own investigations into GPB Capital Holdings, LLC (“GPB”). GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending. These investigations by federal regulators come on the heels of Massachusetts securities regulators announcing in September 2018 their own investigation into GPB, as well as the sales practices of more than 60 independent broker-dealers who reportedly offered private placement investments in various GPB funds to their clientele.

GPB has raised approximately $1.8 billion in investor funds across its various private placement offerings, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP. Private placement investments are complex and fraught with risk. To begin, private placements are often sold under a high fee and commission structure. Reportedly, one brokerage executive has indicated that the sales loads for GPB private placements were 12%, including a 10% commission to the broker and his or her broker-dealer, as well as a 2% fee for offering and organization costs. Such high fees and expenses act as an immediate drag on investment performance.

Further, private placement investments carry a high degree of risk due to their nature as unregistered securities offerings. Unlike stocks that are publicly registered, and therefore, must meet stringent registration and reporting requirement as set forth by the SEC, private placements do not have the same regulatory oversight. Accordingly, private placements are typically sold through what is known as a “Reg D” offering. Unfortunately, investing through a Reg D offering is risky because investors are usually provided with very little in the way of information. For example, private placement investors may be presented with unaudited financials or overly optimistic growth forecasts, or in some instances, with a due diligence report that was prepared by a third-party firm hired by the sponsor of the investment itself.

Broker-dealers are required by law to conduct due diligence on an investment before it is recommended to a client. Furthermore, financial advisors have a duty to disclose the risks associated with a financial product, as well as to conduct a suitability analysis to determine if such an investment meets an investor’s stated investment objectives and risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex investment products, including illiquid private placements and unregistered securities offerings. Investors may contact us 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. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

On November 9, 2018, GPB Capital Holdings, LLC (“GPB”) notified certain broker-dealers who had been selling investments in its various funds that GPB’s auditor, Crowe LLP, elected to resign. As reported, GPB’s CEO, David Gentile, stated that the resignation purportedly came about “[d]ue to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters.” GPB has since engaged EisnerAmper LLP to provide it with audit services moving forward.

As we recently discussed, GPB has come under considerable scrutiny of late. In August 2018, the sponsor of various private placement investment offerings including GPB Automotive Portfolio and GPB Holdings II, announced that it was not accepting any new investor capital, and furthermore, was suspending any redemptions of investor funds. This announcement followed GPB’s April 2018 failure to produce audited financial statements for its two largest aforementioned funds. By September 2018, securities regulators in Massachusetts disclosed that they had commenced an investigation into the sales practices of some 63 independent broker-dealers who have reportedly offered private placement investments in various GPB funds. To name a few, these broker-dealers include: HighTower Securities, Advisor Group’s four independent broker-dealers – FSC Securities, SagePoint Financial Services, Woodbury Financial Services, and Royal Alliance Associates, in addition to Ladenburg Thalmann’s Triad Advisors.

The various GPB private placement offerings include:

• GPB Automotive Portfolio, LP
• GPB Cold Storage LP
• GPB Holdings, LP
• GPB Holdings II, LP
• GPB Holdings III, LP
• GPB Holdings Qualified, LP
• GPB NYC Development, LP
• GPB Waste Management, LP (f/k/a GPB Waste Management Fund, LP)

As private placement investments, the various GPB funds are very complex and risky investments, and therefore, are typically not suitable for the average, retail investor. Unfortunately, due to the high commission and fee structure associated with the various GPB funds, instances may have arisen where an unscrupulous financial advisor failed to fully inform his or her client of the many risks associated with such a private placement investment. According to certain SEC filings, sales of GPB’s two largest aforementioned funds allegedly netted the broker-dealers marketing these illiquid and esoteric products some $100 million in commissions, at a rate of about 8%, since 2013.

In addition to hefty fees, committing capital to a private placement investment carries with it substantial risks. Private placements are illiquid investments, and as such, investors may not readily sell out of their investment (often for a period of many years). Furthermore, private placements, typically offered pursuant to Regulation D, as promulgated by the SEC, are not required to provide investors with the same depth of information and disclosures as is required with publicly traded securities. Because of their risky and complex nature, private placement investments are most usually only available to accredited and/or sophisticated investors. As defined by the SEC, an investor is considered “accredited” if he or she has an annual income of over $200,000 or has a net worth of more than $1 million of assets (excluding one’s primary residence). It is a financial advisor’s responsibility to ensure that an investor meets this test.

Financial advisors, and by extension their brokerage firm, have an affirmative obligation to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Reg D. Furthermore, financial advisors have a duty to disclose the risks associated with such an investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex investment products, including illiquid private placements and unregistered securities offerings. Investors may contact us 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. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

As recently reported, the Massachusetts Securities Division (the “Division”) has commenced an investigation into the sales practices of some 63 independent broker-dealers who offered private placements sponsored by alternative asset manager GPB Capital Holdings, LLC (“GPB”). Specifically, the Division has intimated that it began an investigation into GPB following a recent tip concerning the firm’s sales practices which allegedly occurred not long after GPB announced that it was temporarily halting any new capital raising efforts, as well as suspending any redemptions.

According to the Division’s head, Mr. William Galvin, the investigation is in its “very nascent stages.” At this time, Massachusetts securities regulators have requested information about GPB from more than 60 broker-dealers, including HighTower Securities, Advisor Group’s four independent broker-dealers, as well as Ladenburg Thalmann’s Triad Advisors.

In August 2018, GPB – the sponsor of certain limited partnership offerings including GPB Automotive Portfolio and GPB Holdings II – announced that it was not accepting any new capital. According to filings with the SEC, sales of the two aforementioned GPB private placements allegedly netted the broker-dealers marketing these investment products some $100 million in commissions, at a rate of about 8%, since 2013.

As recently reported in the Wall Street Journal (WSJ), investments in so-called private placements have experienced a substantial upswing in the wake of the 2008 financial crisis: “In 2017 alone, private placements using brokers totaled at least $710 billion … a nearly threefold increase rise from 2009.” Further, the article indicates that financial advisors recommending private placements are “six times as likely as the average broker to report at least one regulatory action against them…” and, moreover, that 1 in 8 brokers recommending private placement investments have “three or more red flags on their records, such as investor complaint, regulatory action, criminal charge or firing… .”

As a general rule, investing in a private placement carries with it considerable complexity and risk, including hefty commissions, lack of transparency, as well as the illiquid nature of the unregistered offering. Accordingly, such private placement investments are typically only available to accredited and/or sophisticated investors. An investor is considered “accredited” if he or she has an annual income of over $200,000 or has a net worth of more than $1 million of assets (excluding one’s primary residence). It is a financial advisor’s responsibility to ensure that an investor meets this test.

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D, as promulgated by the SEC. Furthermore, financial advisors have a duty to disclose the risks associated with such an investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

Investors who wish to discuss a possible claim concerning an investment in a GPB offering or another private placement may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

As we have discussed in several recent blog posts, on July 27, 2018, 1 Global Capital (a/k/a 1^st Global Capital) (hereinafter, “1GC”) filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of Florida. Formed about 5 years ago, 1GC was purportedly in the business of making short term merchant cash advances to a range of small businesses. In exchange for investor money, 1GC issued so-called “memorandums of indebtedness,” sometimes referred to as First Global Capital Notes (“Notes”), to numerous retail investors through a nationwide network of advisors and sales agents. Investors were promised a high-return, low-risk investment in supposedly safe, short-term deals.

Prior to 1GC’s bankruptcy filing, the SEC had “opened an investigation into the company’s activities related to alleged possible securities laws violations, including the alleged offer and sale of unregistered securities, the alleged sale of securities by unregistered brokers, and by the alleged commission of fraud in connection with the offer, purchase and sale of securities.” In the weeks following 1GC’s $283 million Chapter 11 filing, it has become apparent that numerous investors nationwide have been negatively impacted. As alleged by the SEC, 1GC “used a network of barred brokers, registered and unregistered advisers, and other sales agents – to whom they paid millions in commissions – to offer and sell unregistered securities to investors in no fewer than 25 states.”

Publicly available information indicates that numerous investors in the greater Kansas City, KS area have sustained losses in connection with investing in 1GC Notes. In particular, publicly available information suggests that Overland Park-based investment group Pinnacle Plus Wealth Management (a/k/a Pinnacle Financial) (“Pinnacle”), through its principal and Pinnacle employees / agents, may have recommended investments in 1GC Notes to retail investors. In fact, court records indicate that approximately 160 1GC accounts involved Kansas City area addresses, and moreover, it appears many investors committed their retirement funds to 1GC investments through their retirement accounts.

Pinnacle is structured as a Registered Investment Advisor (“RIA”), and according to publicly available information through the SEC, is licensed to sell securities in Kansas, Missouri, Colorado, and Louisiana. Pinnacle’s CEO and founder, Mr. Matthew Lynn Walker, CRD. No. 153896, also serves as Pinnacle’s Chief Compliance Officer. Upon information and belief, a number of Kansas City area investors may have been steered into 1GC Notes upon the recommendation of Mr. Walker and certain of his employees at Pinnacle.

Investors who invested in any 1^st Global Capital “memorandums of indebtedness” or Notes, or direct merchant cash advances upon the recommendation of a financial advisor, may have viable legal claims if the brokerage firm or Registered Investment Advisor (“RIA”) failed to perform adequate due diligence before recommending the investment.

Investors who wish to discuss a possible claim concerning 1^st Global investments may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

On September 14, 2018, the SEC initiated a civil action (the “Complaint”) in federal court in the Southern District of Indiana against Ms. Tamara Rae Steele (CRD# 3227494) (“Steele”), as well as her eponymous investment advisory firm, Steele Financial, Inc. (“Steele Financial”), alleging that Ms. Steele had defrauded a number of her advisory clients through recommendations to invest in certain high-risk securities issued by Behavioral Recognition Systems, Inc. (“BRS”), in a scheme that purportedly generated $2.5 million in commissions for Ms. Steele’s benefit. According to publicly available information through FINRA, Ms. Steele, a former middle school math teacher, first began working as a financial in or around 1999. Most recently, she was affiliated with broker-dealer Comprehensive Asset Management and Servicing, Inc. (CRD# 43814) (“CAMAS”) from January 2009 – July 2017. Ms. Steele’s CRD record showing her employment history and customer claims filed with FINRA is accessible below.

tamara rae steele

As alleged by the SEC in its Complaint, Ms. Steele was terminated by her former employer, CAMAS, when the “broker-dealer learned that [she] was selling BRS securities outside the scope of her employment with the firm and without the firm’s knowledge and approval, a practice called ‘selling away’ from the firm.” Specifically, the SEC has alleged that Ms. Steele fraudulently recommended “over $13 million in extremely risky securities issued by a private company, Behavioral Recognition Systems, Inc. (‘BRS’).” Further, the SEC has alleged that Ms. Steele violated her fiduciary duty to her clients — many of whom were unaccredited retail investors who were either current or former teachers and public-school employees — by purportedly failing to disclose that she was earning “[c]omissions ranging from 8% to 18% of the funds raised for BRS.” The SEC Complaint is accessible below:

tamara steele sec complaint

In violation of the antifraud provisions of the federal securities laws, the SEC has alleged that Ms. Steele’s purported scheme centered on selling high-risk securities in BRS, a Texas-based corporation now known as Giant Gray, Inc. As alleged by the SEC, Ms. Steele began earning commissions of 8% on sales of BRS securities beginning in December 2012; approximately two years later, her commission was upped to 18%. Furthermore, between December 2012 and May 2014, as alleged by the SEC, she “[r]ecommended and sold approximately $7.2 million in BRS securities.”

Brokerage firms like CAMAS have a duty to ensure that their registered representatives are adequately supervised, a duty which includes monitoring their brokers in connection with outside business activities and/or sales of investments in so-called private placements. Brokerage firms must also take reasonable steps to ensure that their financial advisors follow all applicable securities rules and regulations, in addition to internal policies and procedures. 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 successfully resolved a number of disputes on behalf of investors, including losses sustained due to stockbroker and financial advisor misconduct and unauthorized sales of securities (sometimes referred to as “selling away”). Investors may contact us by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

Formed approximately 5 years ago, 1GC was purportedly in the business of financing small business by providing capital to a range of businesses including restaurants, construction companies, manufacturing operations, and healthcare companies. 1GC issued its Notes to retail investors, often referred to in the contract as “lenders” or in other instances as “creditors.” In exchange, these lenders or creditors invested in supposedly safe, short-term deals that would pay out around 7% in interest at the end of the term (e.g., 9-month term).

Upon information and belief, a number of 1GC investors were steered into these Notes by advisors. Advisors who have recommended Notes reportedly may include Matthew Walker or others working for his Overland Park, Kansas-based group of Pinnacle Plus companies.

THE FOREGOING PARAGRAPH IS BASED ON PUBLICLY REPORTED INFORMATION GATHERED BY OUR FIRM, AND HAS NOT BEEN PROVEN IN ANY LEGAL TRIBUNAL, NOR IS THIS ADVISOR THE SUBJECT OF ANY PENDING LEGAL CLAIMS OR ARBITRATIONS INVOLVING 1^ST GLOBAL, TO OUR KNOWLEDGE. WE DO NOT CURRENTLY REPRESENT ANY INVESTORS WITH CLAIMS AGAINST THIS ADVISOR.

Investors who invested in any 1^st Global Capital “memorandums of indebtedness” or Notes, or direct merchant cash advances upon the recommendation of a financial advisor, may have viable legal claims if the brokerage firm or Registered Investment Advisor (“RIA”) failed to perform adequate due diligence before recommending the investment. Many agents who offered 1st Global Capital’s memorandums of indebtedness were not registered as brokers, though some were registered as investment adviser representatives (IARs).

Bankruptcy court filings show that there are more than 4,000 1st Global Capital accounts nationwide, spread through various states including Florida, Illinois, Tennessee, Missouri and Kansas, among others. Many investors placed money from individual retirement accounts (IRAs) with First Global, including 11 IRAs each owed between $621,000 and $922,000, according to bankruptcy court papers.

A court filing by 1st Global Capital blamed liquidity problems for its bankruptcy, and stated that investigations by the Securities and Exchange Commission and the U.S. attorney’s office in southern Florida into “alleged possible securities law violations” led to 1^st Global’s “acute liquidity crisis.”

Investors who wish to discuss a possible claim concerning 1^st Global investments may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Jerome and Shaun Cohen, father and son, run EquityBuild and a subsidiary, EquityBuild Finance. EquityBuild allegedly has raised at least $135 million from more than 900 investors since 2010, according to the SEC suit, filed in federal court in Chicago. EquityBuild allegedly solicited investors to invest in debt used to finance properties. EquityBuild allegedly touted outsize returns of 12 to 20 percent with minimal risk of loss of principal. and downplayed the risks, according to the SEC complaint. The SEC alleges that EquityBuild, based in Marco Island, Florida, skimmed 15 to 30 percent off each investment through fees that the company and the Cohens didn’t disclose. EquityBuild also allegedly paid returns to older investors with the proceeds of newer investments, paying investors about $14.5 million in interest payments between January 2015 through February 2017 although income and fees from EquityBuild properties totaled only $3.8 million, according to the SEC suit.

It is unclear from publicly available information whether EquityBuild investments were sold by FINRA or SEC-registered financial advisors. Investors in EquityBuild may wish to consider claims against professionals such as stockbrokers, financial advisors, or insurance agents who sold them the investments, or any professional services firms (law firms, accounting firms, etc.) that may have materially participated in EquityBuild’s unregistered securities offering. As the SEC has alleged that the EquityBuild investments were securities that were not registered or exempt from registration, investors may be able to pursue claims against various third-parties that materially participated in these transactions.

EquityBuild 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.

The Securities and Exchange Commission (“SEC”) has filed a fraud lawsuit in federal court in Colorado against a group of companies known as “Financial Visions” and their principal, Daniel B. Rudden (“Rudden”), who allegedly bilked at least 150 investors in a $55 million alleged Ponzi scheme.

The SEC’s complaint charges that Rudden, operating under the name Financial Visions and through a group of companies, issued promissory notes to fund a line of business involving providing financing for funeral services and related expenses to consumers. The SEC alleges that Rudden/Financial Vision defrauded as many as 150 investors after promising them annual returns of 12% or more. Since 2010 or 2011, Rudden allegedly used new investor funds to pay interest and redemptions to existing investors and concealed the Financial Visions companies’ true financial performance and condition.

The SEC Complaint is accessible here.

The SEC charges that through July 2018, the Financial Visions Companies raised as much as $55 million from investors in multiple states through a promissory note offering. Financial Visions allegedly offered annual interest rates of 12% on promissory notes by earning profits through “life insurance assignments.” These “assignments” allegedly amounted to agreeing that a deceased person’s family members could pay for immediate funeral expenses at a later date by assigning life insurance proceeds to pay for these costs. According to the SEC, Financial Visions would then be reimbursed for the costs advanced, plus a 5% fee, upon receipt of the life insurance policy proceeds.

Rudden allegedly held this business out to investors as highly profitable, even though Financial Visions was not in fact earning sufficient income from its life insurance assignment business to pay interest and redemptions to its investors. Rudden allegedly began using new investor funds to pay interest and redemptions to existing investors- one mark of a Ponzi scheme- in 2010 or 2011.

Investors in non-conventional investments such as promissory notes and private placements should remain on alert for possible signs of fraud. In cases of Ponzi-type schemes, these may include:

• The promise of high returns with guarantees of little or no risk;
• Overly consistent returns with little or no volatility in the investment;
• Marketing through friends and family or through an affinity group such as a church, workplace or community organization;
• Overly complex or indecipherable investment strategies;
• Unregistered investments;
• Unlicensed seller or promoter;
• Suspicious investment documentation with errors;
• Failing to receive a scheduled payment;
• Encountering difficulty in exiting an investment and receiving cash.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have fallen victim to perpetrators of financial frauds, including Ponzi schemes. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in unregistered Woodbridge First Position Commercial Mortgages (“FPCMs”) notes and/or units upon the recommendation of former financial advisor Jerry Davis Raines (CRD# 4578689, hereinafter “Raines”) may be able to recover losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”). According to FINRA BrokerCheck, a number of investors have already filed claims against Mr. Raines in connection with allegations surrounding Mr. Raines’ alleged recommendation of unsuitable Woodbridge investments to customers. Mr. Raines was most recently affiliated with HD Vest Investment Services (CRD# 13686, hereinafter “HD Vest”) from 2014 – May 2017. Previous to that, Mr. Raines was affiliated with Signal Securities, Inc. (CRD#15916) and Woodmen Financial Services, Inc. (CRD# 117365).

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, and certain of its affiliated entities, filed for Chapter 11 bankruptcy protection on December 4, 2017 (U.S. Bankruptcy Court for the District of Delaware – Case No. 17-12560-KJC). The SEC has alleged that Woodbridge, through its owner and former CEO, Mr. Robert Shapiro, purportedly utilized “more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”

Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, as well as various licensed and unlicensed financial advisors. Woodbridge investments came in two primary forms: (1) “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s seven Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” consisting of lending agreements underlying purported hard money loans on real estate deals.

Brokerage firms like HD Vest have a duty to ensure that their registered representatives are adequately supervised. Consequently, 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.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes concerning private placement investments and other illiquid securities, as well as Ponzi schemes. 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.

On July 18, 2018, the SEC filed a lawsuit in the District of Connecticut naming Temenos Advisory, Inc. (“Temenos”) and George L. Taylor (“Taylor”) as Defendants and essentially alleging that Defendants made improper recommendations of certain private placement investments to their investment advisory clients. A copy of the SEC Complaint is accessible here: SEC v Temenos & Taylor

Temenos, founded by Taylor, is a Connecticut corporation headquartered in Litchfield, CT, with additional offices located in St. Simons Island, GA and Scottsdale, AZ. Temenos has been registered with the SEC as a registered investment advisor (RIA) since 1999, and is owned by Mr. Taylor and a trust that was purportedly established for purposes of benefiting Taylor’s former business partner.

As alleged by the SEC, prior to 2014, Temenos’ business was largely focused on the sale of traditional financial products to its clientele, including “[m]utual funds, exchange traded funds, variable annuities, and publicly traded stocks.” Like many RIAs, Temenos charged an advisory fee to its customers based upon a percentage of assets under management. However, as alleged in the Complaint, beginning in 2014 Temenos began recommending private placement investments to its clients: “Between 2014 and 2017, Defendants placed more than $19 million in investments by their clients and others in [the securities of] four private issuers … And they did so without ever sufficiently examining the marketing claims, financial statements, or business activities of those companies.”

As discussed in several recent blog posts, with increasing frequency retail investors have been solicited to invest in so-called private placements. According to a recent Wall Street Journal article, “In 2017 alone, private placements using brokers totaled at least $710 billion….” A private placement, sometimes called a non-public offering, is simply an offering of a company’s securities that are not registered with the Securities & Exchange Commission (“SEC”). Pursuant to federal securities laws, a company may not offer or sell securities unless the offering has been registered with the SEC or an exemption from registration applies.

Perhaps the greatest risk associated with private placement investments concerns the lack of transparency and information available to the retail investor. On the one hand, when an investor decides to purchase publicly traded common stock or shares in a mutual fund or ETF, he or she will have the opportunity to first review a prospectus, as required by the SEC. However, with respect to private placements, no such prospectus is filed with the SEC — rather, private placement securities are typically offered through a Private Placement Memorandum (“PPM”). Ultimately, it is incumbent on the brokerage firm or RIA offering a private placement investment to its customers to conduct adequate due diligence on the investment in order to determine its suitability.

As alleged by the SEC, Temenos recommended unsuitable and risky securities in four private placements, as follows:

• “Company A marketed an emergency response communications product. Between February 2014 and February 2017, Temenos solicited approximately $11.2 million of investments in Company A from their advisory clients and other individuals.”
• “Company B purported to be building a fiber optic connection between locations along the east coast of the United States. Between September 2014 and March 2017, Temenos solicited approximately $7 million of client investments in Company B.”
• “Company C marketed itself during the relevant time period as a crowdfunding investment portal. Between March 2016 and January 2017, Defendants solicited $805,000 of client investment in Company C.”
• “Company D purported to have developed a new water purification technology. From in or about December 2014 to in or about July 2015, Temenos, through Taylor, solicited investments in Company D.”

As alleged in the Complaint, Temenos failed to conduct even basic due diligence on the four private placement investments marketed to its customers: “Throughout the relevant period, Taylor made statements to clients that misleadingly suggested that the private placement investments… had been carefully vetted and selected from a large group of potential offerings based on their favorable risk/return potential, and were suitable for any wealthy investor.” The SEC has further alleged that Temenos failed to inform clients that the RIA was receiving compensation from the recommended private placement companies.

Investors who have purchased unregistered securities through a private placement may have legal claims if the investment was solicited through a misleading sales presentation or if the recommendation to purchase the investment was unsuitable. Investors may contact Law Office of Christopher J. Gray, P.C. by telephone or email newcases@investorlawyers.net to schedule a no-cost, confidential consultation.

As recently reported by the Wall Street Journal (WSJ), investments in so-called private placements have experienced a substantial upswing in the wake of the 2008 financial crisis. In fact, according to a May 7, 2018 WSJ article entitled, A Private-Market Deal Gone Bad: Sketchy Brokers, Bilked Seniors and a Cosmetologist, “In 2017 alone, private placements using brokers totaled at least $710 billion … a nearly threefold increase rise from 2009.” Of considerable concern, the article indicates that that financial advisors recommending private placements are “six times as likely as the average broker to report at least one regulatory action against them…” and, moreover, that 1 in 8 brokers recommending private placement investments have “three or more red flags on their records, such as investor complaint, regulatory action, criminal charge or firing… .”

In response to growing concerns about the many risks and pitfalls associated with private placements, some securities regulators have stepped up their efforts to combat the problem. For example, on July 2, 2018, the Massachusetts Securities Division (the “Division”) announced its investigation into sales practices linked to private placement investments. Pursuant to the Division’s investigation – which will be spearheaded by Mr. William Galvin, the Secretary of the Commonwealth of Massachusetts – a total of 10 broker-dealers will be subjected to regulatory inquiry. These brokerage firms, which have a demonstrated history of sales practice abuse surrounding private placement investments, include: LPL Financial, Arthur W. Wood Company, Santander Securities, U.S. Boston Capital, Bolton Global Capital, Advisory Group Equity Services, Moors & Cabot, Inc., Detwiler Fenton & Co., BTS Securities, and Winslow, Evans & Crocker.

In connection with its investigation, the Division is seeking to examine firms and advisors with disciplinary reports on file from 2 years ago, when the Division surveyed over 200 brokerage firms regarding their hiring and disciplinary practices. According to Mr. Galvin: “Private placements are risky investments that reward the salesperson handsomely with high commissions. Firms offering these to the public, especially seniors, have an obligation to see that they are sold to benefit the investor, not the broker. Individuals with a history of disciplinary actions magnify the risk of unsuitable sales in connection with private placements.”

As a general rule, investing in a private placement carries with it complexity and considerable risk — including high commissions, lack of transparency, and the illiquid nature of the unregistered offering — and, therefore, is most typically only available to accredited and/or sophisticated investors. An investor is considered “accredited” if he or she has an annual income of over $200,000 or has a net worth of more than $1 million of assets (excluding one’s primary residence). It is a financial advisor’s responsibility to ensure that an investor meets this test.

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D, as promulgated by the SEC. Furthermore, financial advisors have a duty to disclose the risks associated with such an investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with private placement offerings, including investments in oil and gas drilling funds, hedge funds, and other exempt offerings. Investors may contact a securities arbitration attorney at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Essex SEC Complaint

As alleged by the SEC, from 2014 – 2017, Mr. Iannelli attracted investor capital through the sale of promissory notes that paid a high rate of return (typically 8.5%, but as high as 10% per annum). In certain of its marketing materials, Essex claimed that 100% of investor funds would be utilized to purchase equipment, and that investors would be paid back on their investment within a 3-year time frame. In actuality, however, the SEC has alleged that Essex’s business was anything but profitable: “Unbeknownst to the investors… the representations Iannelli made about their investment were materially false and misleading.” By 2014, the SEC has alleged that Essex spent only $2.3 million, or approximately 9% of capital it had raised that year through the sale of promissory notes ($20 million) and certain bank loans ($6 million), to actually purchase equipment.

The SEC’s Complaint suggests that Defendants made Ponzi-like payments to investors, whereby “[E]ssex [used] the bulk of its revenues to pay back investors and banks instead of using it to purchase income generating equipment.” Between 2014 and 2016, Defendants allegedly used approximately $65 million of company revenue to pay back investors on interest due on their notes, as well as to satisfy certain bank lenders. Furthermore, the SEC has alleged in its Complaint that, as Essex’s financial condition deteriorated, Mr. Iannelli “continued to siphon millions of dollars out of the company in the form of discretionary bonuses and interest-free personal loans to himself.”

Mr. Iannelli, a resident of Santa Barbara, CA, is the president and founder of Essex. In 1974, he was charged by the SEC in connection with allegations that he violated the antifraud provisions of the federal securities laws by purportedly manipulating the price of stock through the purchase of over 100,00 shares of stock on behalf of clients, without their consent. See SEC v. Iannelli et al, Case No. 74-cv-3417, 1975 WL 348 (SDNY 1975). With regard to that matter, Mr. Iannelli consented to a permanent injunction, and later an order, permanently barring him from the securities industry (subsequently, in March 1976, Mr. Iannelli was convicted of criminal contempt for violating the 1974 permanent injunction).

Essex investors who suffered losses may be able to recover their losses in FINRA arbitration or litigation, depending on the circumstances. As we have discussed in prior blog posts, certain alternative investments — including investments in various equipment leasing funds — are often conducted through so-called private placements. In general, investing in a private placement is a risky proposition. To begin, private placements are often complex in nature (investors should be prepared to lose their entire investment) and typically are opaque insofar as investors only have limited information off which to make an ultimate decision as to whether an investment is warranted (as unregistered securities, private placements do not provide the same scope and depth of information as with other investments, such as publicly traded, registered stocks or mutual funds). The majority of private placements are offered pursuant to Regulation D (“Reg D”), an SEC regulation that allows private companies to raise capital without conducting a public offering. Finally, both the SEC and FINRA have provided ample guidance concerning the prevalence of fraud in connection with private placement transactions, in light of their lack of transparency and the general lack of regulatory oversight for such investments.

Furthermore, broker-dealers and registered investment advisory firms have a duty to ensure that their registered representatives and investment advisers are adequately supervised, a duty which includes monitoring their financial advisors in connection with outside business activities and/or sales of private placements. In instances when brokerage firms or registered investment advisors fail to adequately supervise their financial advisors, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct such as Ponzi schemes, and related misconduct. Investors with questions about a possible claim may contact us by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in numerous non-traded REITs and real estate limited partnerships may have recently encountered difficulty in exiting their investment position through redemption of shares with the sponsor. As we have highlighted in several previous blog posts, non-traded REITs and similar limited partnership investments (often sold via private placement), are extremely complex and risky investments.

Unlike exchange traded REITs that trade on deep and liquid national securities exchanges, publicly registered non-traded REITs are sold through an offering or successive offerings to the retail investing public, often over the course of several years. Once the offering has closed, investors may find that their ability to redeem shares with the sponsor is severely restricted, or in some instances, outright suspended. This is particularly problematic for retail investors who quite often were steered into the investment by a financial advisor who, in some instances, may have failed to fully disclose the nature of the investment, including its illiquid nature.

In the same vein, investments in real estate limited partnerships are often conducted via a private placement, pursuant to Regulation D as promulgated by the SEC. As a general rule, a private placement investment in real estate carries with it many of the same risks embedded in investing in non-traded REITs. These risks include: (1) high fees and commissions, (2) a general lack of transparency concerning the investment (while publicly registered non-traded REITs will typically provide more information than a private placement, the fact remains that many non-traded REITs are structured as blind pools, and accordingly an investor will not be able to readily ascertain the nature of the underlying property portfolio), and (3) difficulty exiting an illiquid investment position.

Investors in the following non-traded REITs and real estate limited partnerships may have recently discovered that their ability to exit their investment and redeem shares has been restricted (perhaps as to timing and amount), or altogether suspended:

• American Finance Trust
• ARC Healthcare Trust III
• ARC New York City REIT
• Behringer Harvard Opportunity REIT I
• Highlands REIT
• Hospitality Investors Trust (formerly known as ARC Hospitality)
• InvenTrust Properties
• KBS Legacy Partners Apartment REIT
• KBS REIT II
• Rancon Realty Fund IV
• Strategic Realty Trust
• Summit Healthcare REIT (formerly Cornerstone Core REIT)
• Uniprop MHC Income Trust II
• United Development Funding III

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.

The Securities and Exchange Commission (SEC) reportedly has settled charges against the operators of a real estate investment business that caused millions in loses to investors. Up to 300 investors may have lost money on interests in a fund known as Alaska Financial Company III, LLC (“AFC III”), which two individuals named Tobias Preston and Charles Preston sold to investors via their company McKinley Mortgage Co. LLC (“McKinley”).

The SEC accused defendants of falsely portraying AFC III as a safe investment and reporting that it had profitable operations. However, according to the SEC, in reality AFC III was insolvent and unable to make interest payments as they came due. According to the SEC, although a portion of the raised funds were invested as promised to investors, Messrs. Preston and McKinley diverted millions of dollars in proceeds of outside investments to fund business and personal expenses as well as McKinley’s operations.

AFC III has made so-called Form D filings with the SEC since 2013 stating that AFC III qualifies for an exemption from registration of its securities offering under Rule 506(c), which allows for general solicitation of investors, such as through AFC III’s website and social media platforms, but limits sales to accredited investors. As a general rule, offers of securities to the public (which includes offers made over the internet) must be registered with the SEC under the Securities Act of 1933. However, under federal securities law, the SEC recognizes certain instances where companies seeking to raise capital are exempt from registering securities. Securities offerings exempt from registration are sometimes referred to as “private placements.” AFC III sought to be treated as exempt from registration by the SEC and was marketed as a private placement.

Securities exempt from registration may be offered pursuant to Regulation D (“Reg D”) as promulgated by the SEC in 1982. Essentially, Reg D sets forth a series of rules establishing certain transactional exemptions from the securities registration requirements of the ’33 Act.

One of the more commonly utilized Reg D Rules, Rule 506, is the rule that AFC III sought to use to establish its purported exemption from registration. Under Rule 506(c), a company can broadly solicit and generally advertise the securities offering, but must qualify for exemption by satisfying the following standards: (a) the investors in the offering are all accredited investors; and (b) the issuing company has taken reasonable steps to verify that its investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.

The SEC alleged that the Prestons facilitated investments in AFC III from unaccredited investors since at least 2013, and accepted approximately $3 million of investments in AFC III from unaccredited investors, who reportedly received AFC III offering materials and returns consistent with AFC III’s offering materials.

The SEC’s complaint charges violations of the anti-fraud and registration provisions of the federal securities laws. Without admitting or denying the SEC’s allegations, as part of the settlement the Prestons and McKinley agreed to repay almost $30 million to the fund and to the appointment of new management at McKinley, AFC III, and their affiliates.

Public reports do not reveal whether AFC III was sold through FINRA-registered brokers or financial advisors. However, 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- including private placements under Regulation D. 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 recommendation 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 in representing investors who have incurred losses in connection with private placement offerings, including investments in oil and gas drilling funds and hedge funds. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

As recently reported, on March 15, 2018, the Federal Energy Regulatory Commission (“FERC”) indicated that it would no longer allow oil and gas pipelines structured as Master Limited Partnerships (“MLPs”) to recover an income tax allowance for cost-of-service rates. The cost-of-service model particularly impacts those MLPs which operate interstate pipelines in the sector’s midstream. These MLPs charge customers a regulated price, a portion of which is to cover corporate tax charges. However, MLPs don’t pay corporate taxes in the first instance, because they are pass-through entities which distribute their pre-tax income to unit holders, who then pay taxes on it according to their own individual situation.

FERC has announced — in the wake of recent tax cuts and a D.C. Circuit Court decision in United Airlines vs. FERC – that for more than a decade MLPs have been able “to recover an income tax allowance in their cost of service.” In effect, this has served to boost the amount of pre-tax income to be pass through to investors.

While it is unclear as to when any rule issued by FERC will go into effect, perhaps no sooner than 2020, MLPs were adversely impacted in trading. At one point during trading on March 15, the Alerian MLP ETF (NYSE: AMLP) — which serves to track the MLP sector — was down as much as 10%. This ETF has lost approx. 18% in the past year.

Among the hardest-hit MLPs following FERC’s announcement were:

• Plains All American Pipeline, L.P. (NYSE: PAA)
• Energy Transfer Partners, L.P. (NYSE: ETP)
• Enbridge Energy Partners, L.P. (NYSE: EEP)
• TC PipeLines, LP (NYSE: TCP)
• Spectra Energy Partners, LP (NYSE: SEP)
• Williams Partners L.P. (NYSE: WPZ)
• Enable Midstream Partners, LP (NYSE: ENBL)
• CrossAmerica Partners LP (NYSE: CAPL)

If your financial advisor has recommended an investment in an MLP, you may be able to recover losses through arbitration before the Financial Industry Regulatory Authority (“FINRA”) if the recommendation lacked a reasonable basis or if there was a misleading sales presentation. When a broker recommends an investment to a customer, the financial advisor must first conduct due diligence on that investment. In addition, the broker and by extension his or her employer, must conduct a suitability analysis in order to determine if that investment is suitable in light of the customer’s stated investment objectives and associated criteria, including the investor’s age, net worth and income, risk tolerance and prior experience with investing. Further, the broker has an affirmative duty to disclose the risks associated with an investment to their customer.

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.