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Articles Posted in FINRA Arbitration

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James T. Booth, a former LPL Financial broker, has been arrested and charged by U.S. authorities with securities and wire fraud in connection with his alleged operation of a Ponzi scheme.  The scheme allegedly defrauded more than three dozen retail investors, including senior citizens saving for retirement, of nearly $4 million in assets.

broker misappropriating client money
According to the indictment, accessible here u.s._v._james_booth_indictment,  Booth, 74,  solicited money from over 40 clients of his wealth management business known as Booth Financial and falsely promised to invest their money in securities offered outside of their ordinary advisory and brokerage accounts.  The indictment alleges that, rather than investing the funds as represented,  Booth instead misappropriated nearly $5 million to pay his own personal and business expenses.  According to the indictment, from 2013 through 2019, Booth purportedly directed some of his clients to write checks or wire money to an entity named “Insurance Trends, Inc.”   Booth then allegedly used the funds to pay personal and business expenses.

Under the federal indictment, Booth, of Norwalk, Connecticut, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison, one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of investment adviser fraud, which carries a maximum sentence of five years in prison, according to the Department of Justice press announcement.

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Customers of Voya Financial Advisors, Inc. (“Voya Financial”) may have arbitration claims if they worked with Broker James T. Flynn between 2013 and 2017 or with IFS Securities, Inc. (“IFS Securities”) if they worked with Flynn between 2017 and 2018, and if Mr. Flynn recommended unsuitable securities transactions or made a misleading sales presentation to them.  Voya Financial has reportedly paid over $900,000 to date to settle claims brought by Mr. Flynn’s customers.

Piggy Bank in a Cage
Flynn (CRD#: 3082615), formerly of Voya Financial and most recently with IFS Securities, has been barred by FINRA and has faced dozens of complaints related to his placement of their funds in variable annuities and non-traded real estate investments (REITs).

Non-traded REITs pose many risks that are often not readily apparent to retail investors, and may not be adequately explained by the financial advisors and stockbrokers who recommend these complex investments.  One significant risk associated with non-traded REITs concerns their high up-front commissions, typically between 7-10%.  In addition to high commissions, non-traded REITs generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

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Broker dealers that sold funds offered by GPB Capital Holdings LLC (“GPB”) have collectively been paid $167 million in commissions, according to a report from the publication Investment News.  This sum represents 9.3% of the $1.8 billion that investors paid for these risky private placements, which are offered under SEC regulations allowing the sale of private placements to certain so-called accredited investors that meet certain minimum thresholds for income and/or net worth.

money whirlpool
While brokers and broker-dealers theoretically are allowed to collect as much as 10% in commissions for selling private placements and other non-traded securities to clients, very few investments pay such a high rate.  Some sponsors of private placements like GPB Capital induce brokers and their firms to sell such risky investments by offering much higher commissions and fees that are commonly available elsewhere.

It is not uncommon for individual financial advisors and stockbrokers to earn around 7% in commissions for selling private placements and other illiquid investments- with another 2% going to the brokerage firm.   However, what is common in the private placement world as far as commissions, is extremely high compared with commissions payable to brokers for selling conventional investments.   Mutual funds and other similar investments typically pay less than half as much in commissions as private placements.

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Customers of former LPL Financial LLC (“LPL”) broker Kerry Hoffman (“Hoffman”) of Chicago, Illinois may have arbitration claims if they purchased unregistered GT Media Inc. on behalf of their clients between July 2015 and July 2018.

Money Bags
Hoffman was a registered representative and an investment advisory representative associated with LPL.  GT Media hired Hoffman as an adviser in March 2015.  Hoffman then recommended that GT Media hire his friend Thomas Conwell (“Conwell”), who had been previously enjoined and criminally convicted for stealing money from investors, to sell its stock.

As alleged in a complaint filed by the Securities and Exchange Commission (“SEC”), from July 2015 through July 2018, Conwell offered and sold approximately $2.5 million of GT Media stock to approximately 41 investors.  The SEC further alleged that exchange for selling GT Media stock to investors, Conwell received $221,900 in commissions from the company.  The SEC complaint is accessible below.

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Funds offered by GPB Capital Holdings LLC (“GPB”) have shown signs of distress for some time now.  First, it was reported that the U.S. Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (known as “FINRA”), the FBI, the State of Massachusetts, and the New York Business Integrity Commission are investigating GPB Capital Holdings LLC (“GPB”) for financial misconduct. Then one of GPB’s business partners, Prime Automotive Group in Massachusetts, accused GPB of serious financial misconduct and running a “Ponzi-like scheme”.

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

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

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Hospitality Investors Trust Inc. (“HIT”), previously known as American Realty Capital Hospitality Trust, recently announced a net asset value (NAV) of $9.21/share, representing a 33.6% decrease from the last announced NAV of $13.87/share.  The Board of HIT stated that this decrease in NAV was due to lower estimates of occupancy, increase in competition, and increase in costs.

money blowing in wind
As we previously reported, back in October 2018, the company, a public, non-traded real estate investment (REIT) with a focus on hospitality properties in the United States, announced a share repurchase program at $9.00/share effective December 31, 2018.  At the time, $9.00/share was an approximate 35% discount to the REIT’s then most recent NAV of $13.87/share. When HIT’s board announced the buyback program in October, they recommended that only those investors that required immediate liquidity should sell their shares, as the $9.00/share price was a significant decrease in the current market value. The buyback program only lasted until February 2019.

HIT shares were originally offered at $25.00 a share, leaving investors at the initial offering price with principal losses of about 60% (not accounting for distributions).

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As discussed in previous posts on this blog, the U.S. Securities and Exchange Commission (SEC), the FBI, and the New York Business Integrity Commission are reportedly investigating GPB Capital Holdings LLC (“GPB”).  Now David Rosenberg, a principal of a private company and one of GPB’s business partners, Prime Automotive Group in Massachusetts, is also reportedly accusing GPB in publicly-available court papers of financial misconduct and running a “Ponzi-like scheme”.

Piggy Bank in a Cage
GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending.   An issuer of private placements, GPB has raised $1.8 billion from accredited investors in funds that in turn invest in auto dealerships and the waste management industry.  Stockbrokers and advisors from dozens of brokerage and financial advisory firms sold the high risk, high-commission private placements, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP.

David Rosenberg, the former CEO of Prime Automotive Group, is reportedly a former partner of GPB who sold his majority state in 2017 and is now publicly accusing GPB of engaging in a “Ponzi-like scheme.”  Mr. Rosenberg claims in his lawsuit that GPB used money from investors to prop up the performance of various auto dealerships and to finance payments to other investors.  Law Office of Christopher J. Gray, P.C. has not independently confirmed these allegations, and is merely reporting what Mr. Rosenberg has alleged in his publicly-available court papers.

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Investors in Lightstone Real Estate Income Trust, Inc. (“Lightstone REIT”) 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 stockbroker or advisor.

Money Maze
Lightstone REIT was incorporated on September 9, 2014 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, Lightstone REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  Lightstone REIT began offering securities in February 2015 and terminated its offering in March 2017 after raising approximately $85.6 million in investor equity.  Lightstone REIT originates, acquires, and manages a diverse set of real estate properties across the United States.

The Board of Lightstone REIT recently approved a 50% decrease in monthly distributions from an annual rate of 8.0 percent to 4.0 percent. The stated purpose of this reduction is due to liquidity and operating costs concerns as well as a belief that the original 8% was no longer sustainable based upon the funds available from operations.

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Customers of barred broker or “financial advisor” Gabriel “Gabe” Block of Red Bank, New Jersey may have arbitration claims if Block caused the customers losses by recommending over-concentration of the customer’s accounts in stocks, excessive use of margin loans and/or trading in microcap stocks.

Piggybank in a Cage
According to BrokerCheck records kept by the Financial Industry Regulatory Authority (FINRA), Block has been subject to at least 12 customer complaints and five regulatory actions during his career.  Block is currently barred from the industry but was formerly employed by First Standard Financial Company LLC, National Securities Corp., and Oppenheimer & Company, among other brokerage firms.  Several of the customer complaints against Block concern allegations of high frequency trading activity also referred to as churning.

On August 28, 2015, The State of Delaware’s Investor Protection Unit filed an administrative complaint against Block, with the following allegations: churning, excessive trading, unsuitable investment recommendations, and narcotics use.  Block denied the Delaware allegations, but consented to a cease and desist order, and relinquished his right in the future to apply to be a broker or investment advisor in the state of Delaware.

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Investors in American Realty Capital New York City REIT (“ARC NYC REIT”), may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their ARC NYC REIT 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.  According to its website, ARC NYC REIT is structured to provide its investors with a combination of current income and capital appreciation through strategic investments in high-quality commercial real estate located throughout the five boroughs of New York City.

Money Whirlpool
Recently a Tel Aviv, Israel based private real estate investment fund, Comrit Investments 1 LP (“Comrit”) — launched an unsolicited tender offer to purchase up to 1.6 million shares of ARC NYC REIT for $13.61 a share.  This is lower than a previous $14.68 per share tender offer, since expired, that Comrit made in early 2018

A publicly registered non-traded real estate investment trust (“REIT”), ARC NYC REIT was incorporated in December 2013 as a Maryland REIT and is registered with the SEC.  Accordingly, ARC NYC REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.