In mid-2017, Cardinal reportedly lost control of its interest in two oil-and-gas leases that accounted for nearly all (approximately 90%) of the company’s revenue, according to the SEC’s complaint. However, according to the SEC complaint, instead of revealing these issues, Cardinal and Crawford filed quarterly reports with the SEC that misrepresented to investors that the leases were still expected to be part of the company’s future business plans.

During this period, while allegedly concealing the setback to the business, Cardinal also allegedly raised additional money from investors, misreported stock ownership, and failed to make the required disclosures that its Crawford had sold millions of shares of Cardinal stock.

Cardinal is what is sometimes referred to as a penny stock- a publicly traded company with a low stock price per share and low market capitalization. Penny stocks, also known as microcap stocks, in general have a history of involvement with fraud and market manipulation. Penny stocks are securities issued by a small company that trade for less than $5/share. Penny stocks are always a risky investment, as there may not be enough publicly available information concerning the companies for investors to make a proper investment (due to their relatively small nature and most likely new status), and the stocks often trade in a relatively illiquid market. Penny stocks in general have historically been subject of manipulation scheme such as so-called “pump and dumps.”

Cardinal was formed in 2014 for the purpose of purchasing, developing, and operating oil and gas leases. Cardinal touts itself as an environmentally responsible oil and gas company focused on “reclaiming the vast, remaining reserves from our Nation’s producing oil fields.” The company trades over-the-counter under the ticker “CEGX” and had a last reported price of $0.0009 a share.

Brokerage firms 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.

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.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved many cases on behalf of investors who have sustained investment losses, including losses associated with fraud and manipulation, microcap stocks and unsuitable investment recommendations. Investors who wish to discuss a possible claim may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. 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.

UBS’s Yield Enhancement Strategy (“YES”) reportedly has over $5 billion under management and over 1,200 investors. Investors in YES must agree to commit capital to the program, a so-called “mandate,” which may take the form of securities or cash. The committed capital provides collateral for options spread trading in each investor’s account. Although marketed to bond investors, the bonds held by each investor have nothing to do with the YES strategy other than serving as collateral for the options trades. Some investors pledge other securities or cash as collateral for the YES program.

The YES strategy entails generating option premium income through the strategic sale and purchase of SPX (S&P 500) index option spreads. This strategy, which is also sometimes referred to as an “Iron Condor” spread, involves writing two vertical options spreads – a bear call spread and a bull put spread. Thus, this strategy entails four different options contracts, each with the same expiration date and differing exercise prices. The “Iron Condor” strategy involves writing both a short put and a short call against the SPX, with these naked, or uncovered, options are designed to generate income for the investor via the receipt of premium. Further, the “Iron Condor” strategy involves writing both a long put and long call against the SPX, with these trades, or options legs, designed to mitigate the risk associated with the uncovered options positions.

While the YES strategy may deliver solid returns in a market that neither rises nor falls substantially over relatively short time frames, the strategy’s inherent substantial risks become apparent in times of heightened stock market volatility. For example, earlier this year in February 2018, when markets turned volatile, a volatility index known as VIX spiked to extreme levels in excess of 20. During that same time frame, YES incurred its first substantial losses of 2018. Unfortunately, the February 2018 losses appear to represent only the beginning. YES investors have reportedly suffered losses in excess of 20% of their committed capital during November and December 2018 as markets once again turned volatile. Many investors found to their chagrin that their options positions incurred steep losses- far beyond what they had thought was possible- over very short periods of time.

Ultimately, options strategies like the iron condor amount to bets in favor of the time decay embedded in options (which have fixed expiration dates) versus volatility. On the one hand, an investor can pocket options premium income in those instances where the option — which has a finite lifespan and fixed expiration and is therefore properly viewed as a decaying asset — goes to zero and expires worthless. However, on the other hand, periods of pronounced market volatility can quickly lead to scenarios where the option premium is dwarfed by losses due to market volatility.

UBS reportedly marketed the “Yield Enhancement” strategy to high net worth investors as presenting limited risk while providing single-digit annual enhancement of returns on bond portfolios. This marketing angle may have appealed to risk-averse investors due to the lower bond yields available during the recent multi-year period of low interest rates.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors who have sustained losses due to the negligence or misconduct of their broker and/or brokerage firm. In particular, the firm has substantial experience in cases involving non-conventional investments and structured products, including commodity futures, options, and leveraged ETFs and ETNs. 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).

If your financial advisor recommended an investment in All American Oil & Gas (“AAOG”) stock, limited partnership units, or high yield (“junk”) bonds, you may be able to recover losses sustained through FINRA arbitration, in the event your broker lacked a reasonable basis for the recommendation, or if your financial advisor failed to disclose the many risks associated with an investment in AAOG. Headquartered in San Antonio, TX, AAOG is a privately held oil and gas producer that is the parent company of subsidiaries Western Power & Steam, Inc. (“WPS”) and Kern River Holding Inc. (“KRH”), an upstream exploration and production outfit with approximately 124 producing wells in the Kern River Oil Field. Together, AAOG, WPS and KRH are referred to as the Company.

On November 12, 2018, the Company filed for Chapter 11 bankruptcy in U.S. District Court in the Western District of Texas, citing “an ongoing dispute with its lenders.” As of the date of filing its petition, the Company has a total of $141,942,197 in debt obligations. According to the bankruptcy petition, in a number of instances KRH is the borrower on the Company’s loan facilities, as it requires regular ongoing cash flows to maintain its exploration and production activities.

With U.S. crude oil now trading below $50 per barrel (in 2014 oil was trading around $100, and as recently as September 2018 was hovering around $80 per barrel), many oil and gas companies may now be encountering financial distress after leveraging their balance sheets in order to fund costly exploration, drilling and related operations. Predictably, this overleveraging has placed some oil and gas companies in a precarious financial position, particularly those operating in the capital-intensive and risky upstream sector of the oil and gas market.

When a broker and/or brokerage firm recommends an oil and gas investment to a client, the financial advisor should first ensure that the investor is aware from the outset of the volatile nature of an oil and gas investment; essentially, such an investment amounts to a commodity play attached to the price movement of oil. Further, the financial advisor has a duty to determine if the investment is suitable in light of the investor’s profile and stated investment objectives. In addition, in instances where an investor’s account becomes over-concentrated in oil and gas investments, or if 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 held liable for losses on the investment.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes concerning oil and gas investments, including MLPs, drilling programs, and private placements. 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).

NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”) is a public, non-traded REIT formed in October 2010 as a Maryland corporation. NorthStar Healthcare is in the business of acquiring a geographically diverse portfolio of various healthcare real estate assets, including equity and debt investments (including various joint ventures with other non-traded REITs) in the mid-acuity senior housing sector, as well as in memory care, skilled nursing, and independent living facilities. Pursuant to its initial offering, which closed on February 2, 2015, the non-traded REIT raised gross proceeds of $1.1 billion (subsequently, NorthStar Healthcare conducted a Follow-on Primary offering, raising total gross proceeds of $1.9 billion through March 22, 2017).

As a publicly registered, non-traded REIT, numerous retail investors were solicited by a financial advisor to invest in NorthStar Healthcare. Unfortunately, customers who purchased shares through the IPO upon the recommendation of a broker may, in some instances, have been uninformed of the complex nature of the investment, including its high upfront commissions and fees (as set forth in its prospectus, NorthStar Healthcare charged investors a selling commission of up to 7% of gross offering proceeds, a dealer-manager fee of up to 3%, and an acquisition fee of 2.25% for properties acquired by the REIT).

Furthermore, as a non-traded REIT, NorthStar Healthcare is illiquid in nature. Investors seeking liquidity have limited options at their disposal in the event that they wish to exit their investment position in the near term. Briefly, investors seeking liquidity may: (i) seek to redeem their shares directly with the sponsor (it is worth noting that NorthStar is “not obligated to repurchase shares” under its Share Repurchase Program), or (ii) be presented with limited, market-driven opportunities to tender their shares to a third party professional investment firm (typically at a disadvantageous price), or finally, (iii) seek to sell their shares on a limited secondary market specializing in creating a market for illiquid securities.

Any investment program recommended by a broker which includes any significant concentration of illiquid investments, including non-traded REITs, business development companies (BDCs), or private placement offerings, is likely unsuitable for the average, retail investor. Recently, shares of NorthStar Healthcare were trading on a secondary platform at a bid-ask spread of $5.30 – $5.50 per share. For investors who acquired their shares though the IPO at $10 per share, such disadvantageous pricing suggests investors who sell on such a secondary market will sustain considerable losses of approximately 45% on their investment, excluding distributions.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and BDCs. 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).

Headquartered in Newport Beach, CA, KBS Real Estate Investment Trust II, Inc. (“KBS II”) was formed as a Maryland REIT in July 2007. Pursuant to its public offering, KBS II offered 280 million shares of common stock, of which 200 million shares were registered in its primary offering, and an additional 80 million common shares were registered under the non-traded REIT’s dividend reinvestment plan. KBS II’s initial offering closed on December 31, 2010, with 182,681,633 shares sold, thus raising gross offering proceeds of $1.8 billion.

Many KBS II investors may have been steered into this complex investment by a financial advisor or stockbroker. Unfortunately, KBS II investors may have been uninformed as to the illiquid nature of their investment (as a non-traded REIT, KBS II shares do not trade on a national securities exchange), and now have limited options if they seek liquidity on their investment.

In January 2016, KBS II’s board of directors formed a Special Committee for the purpose of exploring “the availability of strategic alternatives.” Subsequently, the Special Committee determined that it was in the best interest of KBS II stockholders to market some of the non-traded REIT’s assets, and depending on the scope of the asset sales, “thereafter adopt a plan of liquidation that would involve the sale” of remaining KBS II assets.

While KBS II has partially pared down its portfolio of real estate assets in the past 12 months, the non-traded REIT has yet to realize any liquidity event. Indeed, pursuant to its charter, KBS II was required to seek stockholder approval for liquidation in the event that its common shares had not listed on a national securities exchange by March 31, 2018. However, on March 7, 2018, KBS II’s conflicts committee unanimously determined to postpone the approval on any liquidation while the Special Committee continues to explore strategic alternatives.

Unfortunately, for shareholders seeking to exit their KBS II investment position, liquidity options are very limited and disadvantageous. To begin, KBS II has suspended its share redemption program, only allowing for redemption of shares in certain instances, including “upon a stockholder’s death, ‘disqualifying disability’ or ‘determination of incompetence’” (as defined in the share redemption program document).

Furthermore, shareholders may seek immediate liquidity on a limited and fragmented secondary market. Recent secondary market pricing for KBS II shares suggests that investors seeking to sell now may only receive $4.00 – $4.08 per share, thus incurring substantial losses in excess of 50% on their initial investment at $10 per share through the offering, excluding any distributions.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and business development companies (BDCs). 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).

A UIT is a type of security that shares some similarities to mutual funds and closed-end funds (CEFs), insofar as a UIT consists of a basket of different investments. Historically, most UITs were structured as vehicles in which to purchase a basket of municipal bonds. Over time, UITs have evolved to the point where today, retail investors might invest in a variety of UITs offering exposure to various asset classes and economic sectors. However, unlike traditional mutual funds or CEFs, UITs are structured with a finite lifespan, and thus cease upon a given predetermined date. Additionally, UITs generally charge investors high fees, as high as 3-5% of the initial investment. Unfortunately, as a result of their fee structure, some brokers and investment advisers will encourage their clients to actively trade in and out of UITs, a practice commonly referred to as “switching” and akin to churning an investment portfolio, in an effort to generate excessive commissions for the benefit of the broker, and to the detriment of the uninformed investor. Switching transactions that appear to be fee-motivated may give rise to investor claims against advisors.

As alleged by the Division, since as early as 2012, “[C]unningham has engaged in short-term UIT trading in the accounts of his Massachusetts clients. Of [his] approximate 180 clients, nearly 60, or approximately 30%, are Massachusetts residents. Statements from [his] Massachusetts client accounts reflect sales of UITs as soon as 26 days after purchase and sometimes years before the UIT is predetermined to reach its maturity date. Cunningham often used proceeds of the sales to buy other UITs.”

Massachusetts regulators have further alleged that StockCross purportedly failed to effectively supervise Mr. Cunningham, citing “[f]ew substantive reviews of any of [his] trading activity” and, further, the lack of “[e]xception reports generated in connection with Cunningham’s short-term UIT trading activity.” Because UITs typically carry higher commissions and fees than many other retail financial products, there is a very real concern with some financial advisors switching, or rolling-over, from one UIT to another in order to earn enhanced commissions and fees.

Before recommending an investment product, applicable rules and regulations mandate that a financial advisor must first conduct a suitability analysis in order to determine whether the product best meets the investor’s stated objectives and profile. Moreover, under applicable industry rules and regulations, brokerage firms like StockCross are required to adequately supervise their registered representatives. In instances where brokerage firms fail to supervise their registered representatives, they may be held liable for losses sustained by investors.

Investors who wish to discuss a possible claim 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.

As recently announced, the board of directors of Hines Real Estate Investment Trust, Inc. (“Hines REIT” or the “Company”) — one of three publicly registered non-traded REITs sponsored by Hines — has unanimously voted for approval of a plan of liquidation and dissolution of the Company (“Liquidation Plan”). Under the Liquidation Plan, which calls for shareholder approval, the Company will sell seven of its West Coast office building assets in a cash transaction valued at $1.162 billion to an affiliate of Blackstone Real Estate Partners VIII. In addition, Hines REIT also seeks to liquidate the remainder of its portfolio, including Chase Tower in Dallas, TX, 321 North Clark in Chicago, and a grocery-anchored retail portfolio located in the Southeastern U.S.

Pursuant to the Liquidation Plan, Hines REIT shareholders will receive $0.08 per share, to be paid on or about July 31, 2018. Specifically, the Liquidation Plan entails a final distribution of $0.07 per share, as well as an additional $0.01 per share stemming from a recent class action settlement. The class action settlement involves a lawsuit filed by Baltimore City in the Circuit Court of Maryland, alleging breach of fiduciary duty, waste of corporate assets, and misappropriation of assets surrounding certain payments made in connection with the Liquidation Plan.

Hines REIT shareholders previously approved the Liquidation Plan in November 2016; subsequent to shareholder approval, the Company declared an initial liquidating distribution of $6.20 per share in December 2016, as well as a $0.30 per share liquidating distribution in April 2017. Following the final distribution of $0.08 per share, Hines REIT investors will have received total special and liquidating distributions of approximately $7.59 per share, in addition to regular annual distributions. Shares were originally sold for $10 each.

As a non-traded REIT registered with the SEC, Hines REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager. Among the many risks associated with non-traded REITs are their characteristic high up-front fees and commissions (as high as 15% in some instances), as well as their illiquid nature. Most non-traded REITs are structured to experience a future ‘liquidity event’ — which might entail listing the shares on an exchange or liquidating the entire portfolio — although such an event will typically only occur after a number of years (e.g., 7 or more years) from initial investment.

If you have invested in Hines REIT, 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. 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.

As recently reported, third party real estate investment firms Everest REIT Investors I LLC and Everest REIT Investors III LLC, two private affiliated entities, commenced an unsolicited tender offer to purchase approximately 8.8 million shares of CNL Healthcare Properties, Inc. (“CNL Healthcare”) common stock for $7.50 each. Unless amended, this unsolicited tender offer will expire on August 31, 2018. As of December 31, 2017, CNL Healthcare reported a net asset value (NAV) of $10.32 per share. Thus, the recent tender offer pricing represents an approximate 27% discount on CNL’s recent NAV pricing and suggests that investors may have incurred principal losses on their investments.

Headquartered in Orlando, FL, CNL Healthcare is a Maryland REIT incorporated in June 2010 for the purpose of acquiring a portfolio of geographically diverse healthcare real estate real estate-related assets, including certain senior housing communities, medical office buildings, and acute care hospitals.

Investors in CNL Healthcare may have claims to bring in FINRA arbitration, if the investment was recommended by a broker or financial advisor who lacked a reasonable basis for the recommendation, or if the financial advisor misrepresented the nature of the investment, including its risk components.

Non-traded REITs like CNL Healthcare pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors who recommend these complex investments. To begin, one significant risk associated with non-traded REITs has to do with their high up-front commissions and fees, as high as 7-10% in some instances. In addition to high commissions, non-traded REITs generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high commissions and fees act as an immediate “drag” on investment performance.

Furthermore, non-traded REITs are generally illiquid investments. Unlike stocks and mutual funds, non-traded REITs do not trade on a deep and liquid national securities exchange. Therefore, many investors come to find out too late that their ability to exit their investment position is severely limited. Typically, investors in non-traded REITs can only exit their investment through redemption directly with the sponsor, and then on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares.

Investors with losses in CNL Healthcare or other non-traded REITs may contact 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.

As recently reported, former broker Kyusun Kim (a/k/a Kyu Sun Kim, a/k/a Kenny Kim) (CRD# 2864085) has consented to a “sanction and to the entry of findings [by FINRA] that he made unsuitable recommendations to numerous senior customers, who were retiring or had retired that they concentrate their retirement assets and liquid net worth in speculative and illiquid securities.” Pursuant to a Letter of Acceptance, Waiver & Consent (AWC) accepted by FINRA on June 26, 2018 — and under which Mr. Kim neither admitted nor denied FINRA’s findings — the former financial advisor voluntarily consented to a “bar from association with any FINRA member in any and all capacities.”

Publicly available information via FINRA BrokerCheck indicates that Mr. Kim first entered the securities industry in 1997, and most recently was affiliated with Independent Financial Group, LLC (CRD# 7717) from 2006 – 2016 and, thereafter, Sandlapper Securities, LLC (CRD# 137906) from March 2016 – April 2017. Furthermore, BrokerCheck indicates that Mr. Kim has been the subject of or otherwise involved in 23 customer disputes. With regard to these customer disputes, 13 of these complaints resulted in settlements, while 9 complaints remain pending (1 complaint was denied in October 2010). As to the pending customer complaints, the allegations raised center on Mr. Kim’s purported “… breach of fiduciary duty, breach of oral and written contract, violation of state and federal securities laws, violation of FINRA rules of fair practice … [and] unsuitable investments.”

As encapsulated within the June 26, 2018 AWC, it has been alleged that Mr. Kim “falsely inflated the net worth figures of several customers on their new account forms and other documents so that they appeared eligible to purchase certain speculative investments, in violation of NASD Rules 3110 and 2110 and FINRA Rules 4511 and 2010.” Moreover, as set forth in the AWC, Mr. Kim allegedly made unsuitable investment recommendations to senior customers in violation of NASD Rules 2310 and 2110, as well as FINRA Rules 2111 and 2010.

When recommending an investment, a financial advisor is required to have a reasonable basis to believe that a recommended transaction, or investment strategy, involving a security or securities, is suitable for the customer. Accordingly, under FINRA Rule 2111, the suitability standard is premised on the brokerage firm and/or broker obtaining information about the customer in order to ascertain that customer’s investment profile. A customer’s “investment profile” is based upon numerous criteria, including but not limited to the investor’s age, other investments, financial situation and needs, tax status, investment experience and risk tolerance.

In addition, brokerage firms including Independent Financial Group and Sandlapper Securities have a duty to ensure that their registered representatives are adequately supervised. As such, 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.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct and negligence. Investors who wish to discuss a possible case may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

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

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

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

The greatest risk associated with investing in non-traded REITs like Carter Validus has to do with their illiquidity, a risk that is not readily apparent to many average retail investors. Financial advisors who recommend such complex investments have an affirmative duty to fully disclose and explain the illiquid nature of non-traded REITs. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, investors in non-traded REITs like Carter Validus have limited options for sale of shares such as redeeming shares directly with the sponsor on a limited basis or sale via a tender offer at what may be a disadvantageous price. However, as noted above, the Carter Validus share repurchase program for 2018 is already fully subscribed., and sales via the tender offer at $3.36 a share would leave Carter Validus investors with substantial principal losses.

Investors who elect to participate in the MacKenzie tender offer will be cashed out of their Carter Validus investment position at $3.36 per share, sustaining considerable losses on their investment (even when factoring in distributions received to date).

Investors who wish to discuss their legal rights may contact 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.

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

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

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

An iron condor is an options strategy that entails writing a series of options, typically all at once or around the same time. The iron condor structure entails writing two near money options that are short, in addition to purchasing two deeper out-of-the money options that are long. The first component of an iron condor involves selling an out-of-the money put (short put), while simultaneously selling an out-of-the money call (short call). When implementing this first component of an iron condor — the options trader is essentially hoping that between now and expiration, SPX’s trading will remain range-bound between the two strike prices — thereby ensuring that the naked options will expire worthless and the investor will profit from the option premium earned.

In recognition of the extreme risk associated with short naked options, the iron condor has a second component for purposes of risk mitigation. Specifically, the second part of an iron condor involves buying a further out-of-the money put, as well as buying a further out-of-the money call. Thus, while the first two legs of the iron condor involve two extremely risky short naked options, the third and fourth legs of the iron condor seek to mitigate that risk with less risky long SPX options. Collectively, these four options trades, or legs, make up an iron condor.

Ultimately, options strategies like the iron condor amount to bets in favor of time decay versus volatility. On the one hand, an investor can pocket options premium income in those instances where the option — which has a finite lifespan and fixed expiration and, therefore, is properly viewed as a decaying asset — goes to zero and expires worthless. However, on the other hand, periods of pronounced market volatility can quickly lead to scenarios where the option premium is dwarfed by losses due to market volatility. Recently, a volatility spike in the stock markets in early February 2018 reportedly caused substantial losses to some investors placed in so-called “yield enhancement” and other strategies premised on low market volatility.

Unfortunately, some investors have been steered into unsuitable and risky options strategies without receiving full disclosure from their financial advisor concerning the significant risks embedded in options investing and/or hedging. Investors who have sustained losses in connection with options investing may be able to recover their losses in FINRA arbitration, if the recommendation by a broker lacked a reasonable basis in the first instance, or if the nature of the investment — including its risk components — was misrepresented.

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 their broker and/or brokerage firm, including cases involving managed futures, options, and leveraged and/or inverse ETFs. 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.

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

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

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

As a commodity, the price movement of oil has historically been very volatile (boom and bust cycles are typical), and accordingly, many illiquid oil and gas investments such as the Vista Programs are not suitable for ordinary investors. Ultimately, the financial advisor and his or her firm have an affirmative duty to determine if the investment is suitable for the investor, pursuant to FINRA Rule 2111, 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 be liable for losses sustained.

Investors with questions about a possible claim concerning investments in any of the Vista Programs, or other oil and gas related 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.

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

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

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

Pursuant to the AWC, FINRA Enforcement alleged it was carrying out an investigation surrounding potential suitability violations concerning Mr. Palmer. Moreover, FINRA sent a request on February 2, 2018 to Mr. Palmer, for his appearance for on-the-record testimony pursuant to FINRA Rule 8210. While Mr. Palmer purportedly acknowledged the request for testimony, according to FINRA he failed to appear.

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 pursuant to Rule 2111 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.

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

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

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

The Barron’s article goes on to note that Galvin is looking into the use of managed accounts related to the US Department of Labor’s Fiduciary Rule, which includes best practices standards for the protection of consumers. However, that rule was recently overturned by a federal appeals court, calling into question its continued vitality.

Galvin is reportedly not the only regulator scrutinizing Wells Fargo over possible inappropriate sales recommendations. Bloomberg reports that according to a source, the SEC is also investigating the firm’s Wealth Management unit although. the investigation has not been made public.

Suitability of investment recommendations is governed by FINRA Rule 2111. See 75 Fed. Reg. 71479 (Nov. 23, 2010) (Order Approving Proposed Rule Change, File No. SR-FINRA-2010-039). Rule 2111 went into effect as of July 9, 2012, and represents a codification of former National Association of Securities Dealers (“NASD”) Rule 2310 and former New York Stock Exchange (“NYSE”) Rule 405, as well as regulatory guidance interpreting both rules. Rule 2111 mandates that a broker-dealer or associated person “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [firm] or associated person… .” This rule would prohibit a recommendation for a customer to move to a management-fee based account if that recommendation lacked a reasonable basis.

Attorneys at Law Office of Christopher J. Gray, P.C. have represented investors in a number of cases involving unsuitable investments and investment strategies and alleged broker and financial advisor misconduct. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

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

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

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

NASD Rule 2510(b) states that a registered representative may not exercise discretion in a customer’s account “unless such customer has given prior written authorization,” and moreover, such discretionary authority has been approved in writing by the advisor’s employer firm. Publicly available information through FINRA BrokerCheck indicates that Mr. Meier has been subject to fourteen customer complaints, all of which have resulted in settlement.

Brokerage firms like Morgan Stanley have a duty to ensure that their registered representatives are adequately supervised. 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 represented investors in a number of cases involving unsuitable investments and investment strategies, excessive trading or churning, and alleged broker misconduct. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

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

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

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

SRT investors seeking liquidity may opt to sell their shares under a tender offer such as the one discussed above, or on a secondary market. However, the secondary market may be thinly traded. SRT has recently been the subject of bids or offers listed on Central Trade & Transfer at $4.60 per share. This recent pricing also suggests that investors in SRT who wish to sell out of this non-traded REIT in the near term will incur losses.

Some investors in SRT may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their SRT 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 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.

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

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

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

InvenTrust investors who elected to participate in either of these tender offers would have been cashed out of their shares at roughly $1.50 per share, thus sustaining significant losses (net of distributions and commissions) on their initial investment at $10 per share.

Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments. As highlighted by the recent InvenTrust tender offers, one significant risk associated with non-traded REITs has to do with their illiquid nature. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, many investors in non-traded REITs, who may have been uninformed of their liquidity issues, have come to learn too late that their ability to exit their investment position is limited. For example, non-traded REIT investors typically can only redeem shares directly with the sponsor on a limited basis, and often at a disadvantageous price. Or, in some cases, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares, often at a disadvantageous price.

In addition to their liquidity issues, many non-traded REITs have high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like InvenTrust generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high fees (perhaps as high as 13-15%) act as an immediate ‘drag’ on any investment and can serve to compound losses.

Investors with concerns about a non-traded REIT investment 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.

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

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

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

Redemption programs for the following REITs and LPs have been suspended , restricted or do not exist:

* American Finance Trust

* ARC Healthcare Trust III

* ARC New York City REIT

* ATEL Leasing Programs

* Behringer Harvard Opportunity REIT I

* Highlands REIT

* Hospitality Investors Trust (was ARC Hospitality Trust)

* InvenTrust Properties (was Inland American Real Estate Trust)

* KBS Legacy Partners Apartment REIT

* KBS REIT II

* Rancon Realty Fund IV

* Strategic Realty Trust

* Summit Healthcare REIT (was Cornerstone Core Property REIT)

* Uniprop MHC Income Trust II

* United Development Funding III

Investors in these non-conventional investments may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the broker or financial advisor.

Non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Therefore, many investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment position through redemption directly with the sponsor, and then on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. As discussed above, investors may be left without viable options to exit their investments if redemption plans are suspended.

Investors with concerns about a non-traded investment 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.

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

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

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

As we discussed in several recent blog posts, investing in volatility-linked products is extremely complex and risky, and therefore, not likely a suitable strategy for the average, retail investor. In the same vein, writing put options – particularly naked put options – against an index such as the S&P 500 may prove to be a recipe for disaster. In part, S&P 500 option prices are determined by market volatility.

In the case of LJM P&G Fund, disaster struck on February 5, 2018, when the Fund cratered in value, its share price dropping from $9.67 to $4.27 (a 55.8% decline). The following day, February 6, saw more hemorrhaging as the Fund suffered another sharp decline of 54.6% to close at $1.94 per share. Following the Fund’s two-day decline of 80%, Gretchen Rupp of Morningstar indicated that “It may be the biggest two-day drop for a mutual fund ever.”

An 80% decline over two trading days for LJM P&G Fund is of grave concern, particularly when the Fund is marketed as a vehicle seeking capital appreciation and preservation. It is likely that many investors who bought into the Fund may well not have understood, or been informed by their financial advisor, of the extreme risk associated with investing in such a complex and risky investment product that utilized an extremely risk naked put option strategy to generate returns.

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 their broker and/ brokerage firm. In particular, the firm has handled cases concerning certain non-traditional, or exotic investment products, including managed futures and leveraged and/or inverse ETFs and ETNs. 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.