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Articles Posted in Brokerage Firms

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Lawyers at Law Office of Christopher J. Gray, P.C. have handled many cases against stockbrokers and other investment professionals involving non-traded invesments such as REITs, hedge funds and private placements.
FS Energy and Power Fund (“FSEP” or the “Fund”) is a non-traded business development company that invests primarily in the debt of a portfolio of private U.S. energy and power companies.  BDC’s have been around since 1980 when the U.S. Congress enacted legislation which ushered in certain amendments to federal securities laws allowing for BDC’s — which are simply types of closed-end funds — to make investments in developing companies and firms.

BDC’s are in the business of providing various debt and mezzanine financing solutions for typically small and medium-sized businesses that cannot access credit in the same way as larger, more established companies.  By providing credit solutions to less established companies, BDC’s will frequently collect much higher than average interest income and seek to pass along such income to investors in the form of dividends.

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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.


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”).

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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.

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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):

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The Financial Industry Regulatory Authority (FINRA) recently fined LPL Financial $10 million fine and ordered it to pay $1.7 million in restitution to investors who lost money with LPL brokers.  The charges levied by FINRA alleged widespread supervisory failures involving securities such as nontraditional exchange-traded funds, variable annuities and non-traded real estate investment trusts (or REITs).

15.6.10 moneyand house in handsLPL’s failure to supervise sales of nontraditional ETFs continued into 2015, according to FINRA.   FINRA also alleged that LPL failed to have adequate supervisory systems and guidelines for sales of nontraded REITs from January 2007 to August 2014. LPL consented to the fine without admitting or denying the charges.

This was not LPL’s first regulatory issue concerning lack of supervision concerning high-commission investments such as non-traded REITs.  In March 2014, FINRA fined LPL $950,000 for supervisory deficiencies related to sales of a wide range of alternative investment products. These include nontraded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid investments.

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South Florida financial advisor Ariel Hernandez, was reportedly arrested and accused of stealing hundreds of thousands of dollars from customers. Hernandez allegedly transferred funds out of customer accounts and into accounts in his name, in the process allegedly forging a customer’s signature. Authorities in the South Florida community of Pembroke Pines have charged Hernandez with two counts of theft.

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FINRA BrokerCheck, an online resource for researching the background of stockbrokers and financial advisors, indicated that Hernandez has worked in Florida since 2007 and has been associated with various brokerage firms, including MetLife Securities (2007), Wachovia Securities (2007-08), J.B. Hanauer & Co. (2008), Summit Brokerage Services (2009 -10) and Liberty Partners Financial Services (2010-13).

Brokerage firms have an obligation to supervise all associated persons to prevent actions such as misappropriation and forgery. If you suffered significant losses are a result of misappropriation, forgery, or other misconduct by a stockbroker or financial advisor, you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or for a no-cost, confidential consultation.

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While former stock promoter Robert J. Vitale sits in prison for two years for lying to investigators in a previous investigation about another matter, the U.S. Securities & Exchange Commission (SEC) has decided to file fraud charges against him. The complaint, filed in the U.S. District Court for the Southern District of Florida, accuses Vitale of defrauding investors in a real estate venture in Florida. While this investigation continues, victims of Vitale’s fraud are encouraged to begin talking with investment fraud lawyers, who may be able to help them recover their losses.

Investors May Recoup Losses as SEC Charges Robert J. Vitale with Fraud

Vitale is being charged with selling unregistered securities and acting as an unregistered broker. According to the charges, Vitale and his firm (Realty Acquisitions & Trust Inc.) were able to raise $8.7 million from their investors, many of whom were seniors who may now be looking to hire securities fraud lawyers to represent them in filing their claims. In a news release, the SEC stated that Vitale allegedly led the investors to believe that their money was “100% protected” even though that was untrue. That charge (if found guilty) could give the defrauded victims and their investment fraud lawyers great leverage during arbitration.

To get investors, Vitale also allegedly claimed to hold a business degree from the University of Notre Dame, and that he was a financial expert. While Vitale did go to Notre Dame high school in West Haven, Connecticut, he did not go to the South Bend, Indiana college. Also named in the complaint was the Coral Springs Investment Group (also known as Lauderdale-by-the-Sea Company), which stands accused of holding onto assets of the investors that should have been returned.

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Non-traded REITs are illiquid investments, not listed on public exchanges and with a very limited market for sale of shares if the investor wishes to sell subsequent to his or her initial purchase.. Their offering documents typically claim that after some period of time, perhaps 5-10 years, the REIT intends to list on an exchange, merge with another company, or in some other way allow investors to sell their shares- a so called “liquidity event.”  However, for many non-traded REITs that began to be sold to investors eight to ten years ago, such a “liquidity event” has failed to take place.  Further, non-traded REIT investments have greatly underperformed other asset classes and in many instances have made distributions to investors that are derived not from income derived from their underlying assets, but rather from the proceeds of the sale of additional shares in the REITs to subsequent investor.

Even if a non-traded REIT lists on a major exchange, that does not mean that its original investors have benefited from being sold such an illiquid investment.  An example of a non-traded REIT that has consistently underperformed similar liquid and publicly-traded investments is Columbia Property Trust (CXP, formerly known as Wells Real Estate Investment Trust II).  Columbia/Wells II was first sold as a non-traded REIT in 2004 and subsequently listed on the New York Stock Exchange in October 2013. Before it was listed, it sold shares to new investors at $10 per share. After its first day trading on the NYSE, its per share value was $22.52. 

However, this $22.52 a share valuation resulted from a four-for-one stock split, meaning that the shares sold for $10.00 a share prior to the IPO were effectively worth only $5.63 a share.   

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Law Office of Christopher J. Gray, P.C. won an appeal to Florida’s Fourth District Court of Appeals in West Palm Beach concerning a client’s entitlement to attorneys’ fees under Florida’s Blue Sky law, Fla. Stat. § 517.301.  The attorneys’ fees sought arise from a $765,000 arbitration award that the Gray firm won in Raubvogel v. Credit Suisse, FINRA Case No. 09-02906.  In the underlying award the arbitration panel found that claimants were the prevailing party on their claim for violation of Fla. Stat. § 517.301 but further stated that it “chose not to award attorneys’ fees.”

Due to an unusual wrinkle of Florida law, however,  a prevailing party under Fla. Stat. § 517.301 is entitled to seek an award of attorney’s fees in court after winning an arbitration award unless he expressly waives this right.  The court below ruled that the Raubvogels waived their right to seek attorney’s fees in court by asking for an award of attorney’s fees in their arbitration papers.  The Court of Appeals disagreed, stating that under its precedents an “express waiver” such as an on-the-record stipulation was required in order for a party to give up its right to seek attorney’s fees in court.

The Fourth District Court of Appeals decision is accessible below.  The initial arbitration award is accessible at order on appeal

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InvestigatingWe are investigating former Morgan Stanley Smith Barney financial adviser Roger Haigney for possibly misappropriating funds from clients.  Mr. Haigney operated out of a branch office in Ft. Lauderdale, Florida but worked with customers in New York and possibly other places.

If you’ve lost money because of Mr. Haigney, you can contact us at for a free, confidential consultation.  We may be able to help.

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