Articles Posted in Arbitration

Published on:

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

7-ways1

Many retail investors may buy into non-conventional investments such as the subject notes without first being fully informed of the risks.  As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors.  Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile.  Either an unsuitable recommedation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.

 

 

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

 

Published on:

CNL Growth Properties, Inc. (“CNL Growth”) is a publicly registered non-traded real estate investment trust (“REIT”) based in Orlando, FL.  Because CNL Growth is registered with the SEC, the non-traded 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 financial advisor.  Unfortunately for many CNL Growth investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

https://i2.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.10.14-apartment-buildings-1.jpg?resize=300%2C210&ssl=1
One of the more readily apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%).  These fees act as an immediate ‘drag’ on any investment and can compound losses.  Further, another significant and less readily apparent risk associated with non-traded REITs has to do with liquidity.  Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange.  As a result, many investors in non-traded REITs who were uninformed of their liquidity issues, have come to learn that they can only redeem shares of the investment directly with the sponsor (and only then on a limited basis, and often at a disadvantageous price), sell the shares through a limited and fragmented secondary market, or alternatively, sit and wait for the occurrence of a future “liquidity event” such as listing on a national exchange, a merger, or liquidation.

CNL Growth, formerly known as Global Growth Trust, commenced its $1.5 billion IPO in October 2009.  By April 2013, CNL Growth had concluded its offering, priced at $10 per share, after a capital raise of approximately $94.2 million.  Shortly thereafter, in August 2013, CNL Growth initiated a follow-on offering and refined its investment strategy to focus on multifamily development projects in the Southeast and Sun Belt regions of the U.S.  These combined offerings raised approximately $208 million in investor capital.

Published on:

Strategic Realty Trust (“SRT,” formerly known as TNP Strategic Retail) is a San Mateo, CA based non-traded real estate investment trust (“REIT”) that invests in and manages a portfolio of income-producing real properties including various shopping centers located primarily in the Western United States.

https://i2.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.6.2-stock-chart.jpg?resize=300%2C200&ssl=1

Market Analyze.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by their broker or money manager based on the investment’s income-producing potential.  Unfortunately, many investors were not informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees and illiquid nature.  Currently, investors who wish to sell their shares of SRT may only do so through direct redemption with the issuer or by selling shares on an illiquid secondary market, such as Central Trade & Transfer.

Published on:

On May 3, 2017, Puerto Rico filed for a form of bankruptcy protection pursuant to a federal law passed in 2016 known as Promesa, thereby allowing Puerto Rico to facilitate a debt restructuring process in court akin to U.S. bankruptcy protection.

As recently reported in Barron’s, Puerto Rico’s bonds backed by sales tax revenue, known as COFINAS, witnessed significant price depreciation since initiation of the bankruptcy-like proceeding in early May 2017. And on May 30, 2017, U.S. District Judge Laura Taylor Swain ordered that interest payments on COFINAS be suspended, pending anticipated litigation concerning whether holders of Puerto Rico’s General Obligation Bonds (“GOs”) or COFINAS should receive first claim to any payments ordered through a debt restructuring. Amey Stone, Puerto Rico’s Cofina Bond Payments Suspended by Judge, May 31, 2017.

San Juan, Puerto Rico Coast

Published on:

With increasing frequency retail investors are encountering scenarios in which they are offered an opportunity to invest in a private placement. A private placement – often referred to as a non-public offering – is an offering of a company’s securities that are not registered with the Securities & Exchange Commission (“SEC”). Under the 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.

DISTINGUISHING A PRIVATE PLACEMENT FROM OTHER INVESTMENTS

When an investor decides to purchase shares in a publicly traded company, or for that matter purchase shares in a mutual fund or exchange traded fund (“ETF”), he or she will have the opportunity to first review a comprehensive and detailed prospectus required to be filed with the SEC. When it comes to a private placement, however, no such prospectus need be filed with the SEC – rather, these securities are typically offered through a Private Placement Memorandum (“PPM”).

Published on:

For some time we have been blogging about non-traded REITS (and the real risks associated with investing in these complex investment vehicles.  Many investors are familiar with exchange traded Real Estate Investment Trusts (“REITs”).  Pursuant to federal law, these companies which own and typically operate income-producing real estate, are required to distribute at least 90% of their taxable income to investors in the form of dividends.  Because REITs pay out such a high percentage of their taxable income as dividends, these companies have attracted numerous retail investors (including pensioners and other retirees) seeking to augment their income stream.

15.6.15 money whirlpool
While an appropriate allocation of REITs in a retail investment portfolio may well be suitable and warranted in order to achieve diversification and earn decent income, non-traded REITs are an altogether different and often risky investment vehicle.  The primary risks associated with non-traded REITs include: (1) a lack of liquidity – non-traded REITs do not trade on an exchange, and therefore, any secondary market for resale will be restricted; (2) pricing inefficiency – in lockstep with their lack of liquidity, investors in non-traded REITs may find that the price offered for share redemption is substantially lower than the price at which shares were initially purchased;  (3) high up-front fees – compounding the risk with non-traded REITs are the often steep up-front fees charged investors (as high as 10% for selling compensation) simply to buy in and purchase shares; and (4) confusion over source of income – often, investors in non-traded REITs are unaware that dividend income may actually include return of capital (including possible the proceeds from sale of shares to other, later investors).

THE NEW HAMPSHIRE BUREAU OF SECURITIES REGULATION PROCEEDING AGAINST LPL FINANCIAL

Published on:

The Financial Industry Regulatory Authority (FINRA) recently fined Investors Capital Corporation $250,000 over the sale of unit investment trusts (UITs).  Investors Capital did not admit or deny the allegations leading to the fine, but also agreed to pay $841,500 in restitution to customers, bringing its total payment to over $1 million.

Abstract Businessman enters a Dollar Maze.FINRA alleged that certain Investors Capital brokers recommended that customers engage in unsuitable short-term transactions in UITs, and also alleged that the firm failed to apply sales charge discounts that should have been available to some customers. FINRA further alleged that Investors Capital Corporation lacked adequate systems and procedures to supervise the sales of UITs, leading to the violations.  Short-term trading in UITs may be uneconomical in many cases due to relatively high up-front sales charges, and UITs are typically recommended only as long-term investments.

Investors Capital’s alleged violations occurred between 2010 and 2015.

Published on:

Investors Capital will pay $1.1 million in fines and restitution over the sale of unit investment trusts (UITs) to resolve an investigation by the Financial Industry Regulatory Authority Inc. (FINRA).  FINRA alleges that certain Investors Capital brokers recommended unsuitable short-term trading of UITs and other complex financial products known as steepener notes in accounts of 74 clients, according to the settlement.

old bird cage

old bird cage

Investors Capital also allegedly failed to apply sales charge discounts to certain customers’ purchases of UITs, and inadequately supervised its representatives, according to FINRA’s allegations. To resolve the FINRA case, Investors Capital agreed to pay $250,000 in fines and $842,000 in restitution. The firm has already reportedly paid close to $224,500 in restitution to clients.

Published on:

Securities Litigation Consulting Group of Fairfax, Virginia has estimated that shareholders of non-traded REITs are about $50 billion worse off for having put money into non-traded REITs rather than exchange-traded REITs. The estimate is based on the difference between the performance of more than 80 non-traded REITs and the performance of a diversified portfolio of publicly-traded REITs over a period of twenty years. According to research by the consultancy, the difference in performance between the two asset groups is largely due to the relatively high up-front expenses associated with non-traded REITs.

15.6.15 money whirlpoolNon-traded real estate investment trusts (REITs) are investments that pose a significant risk that the investor will lose some or all of his initial investment. Non-traded REITs are not listed on a national securities exchange, limiting investors’ ability to sell them after the initial purchase. Such illiquid and risky investments are often better suited for sophisticated and institutional investors, rather than retail investors such as retirees who do not wish to have their money tied up for years, or risk losing a significant portion of their investment. Non-traded REITs usually have higher fees for investors than publicly-traded REITs and can be harder to sell.

A partial list of non-traded REITs is as follows (not all of the REITs listed have performed poorly):

Published on:

Douglas William Finlay, Jr., a stockbroker formerly associated with Cadaret, Grant & Co., has entered into a  Letter of Acceptance Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA) to settle a case in which FINRA alleged that Finlay over-concentrated a customer’s assets in an unsuitable illiquid real estate investment trust (REIT).

15.6.10 money in a cageIn the AWC, in which Finlay neither admitted nor denied the FINRA charges, FINRA found that Finlay failed to adequately disclose information to the customer about the REIT and also allegedly falsified a firm document that misrepresented the customer’s net worth and income.

As a result of the charges, Finlay’s license was suspended for 18 months.  FINRA also fined Finlay $15,000 and ordered him to pay disgorgement of $6,639.  The case is FINRA Disciplinary Proceeding No. 2013035576601

Contact Information