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Investors in First Capital Real Estate Trust (“First Capital”), a publicly registered, non-traded real estate investment trust (formerly known as United Realty Trust) 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.

First Capital REIT’s public offering was active between August 2012 and April 2016, although it has not file a quarterly financial report since the second quarter of 2015, nor has it filed an annual report since 2014.

As the foregoing delinquencies suggest, First Capital has been a slow motion train wreck for over five years.   In a January 2016 Securities and Exchange Commission (“SEC”) filing, the REIT stated that it was not moving forward with a 12-hotel acquisition because the hotel principals could not procure the necessary approvals for the transaction.  In a complaint, the SEC claims that the filing was materially misleading  because the potential transaction was not one that the REIT merely decided “not to move forward with” but instead the transaction allegedly foundered because First Capital’s then-CEO, Suneet Singal (“Singal”), did not actually own certain hotel properties that he had pledge to contribute.

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According to reporting by the New York Times, troubled bank Wells Fargo may have charged customers overdraft fees for certain closed bank accounts, despite notifying the customers that the accounts were closed and that no transactions would be processed after a given date.
Despite rules meant to rein in excessive overdraft fees charged by banks, according to information from the Federal Deposit Insurance Corporation (FDIC), overdraft fees are big business.  According to a 2016 FDIC survey, approximately 600 banks included in the data collected $2.7 billion in overdraft fees in the first quarter of 2016 alone.

In 2010, financial institutions were ordered to obtain consent before customers could be charged overdraft fees for ATM and debit card transactions.  Prior to that, customers who attempted to make a debit purchase or a withdrawal that exceeded the amount in their account could potentially have the transaction approved, but be charged an overdraft fee of up to $35 even if they had not authorized an overdraft on the account.

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The expensive insurance that consumers are prompted to opt in or out of when they book online travel on popular websites is big business- and, according to lawsuits and a U.S Senator, airlines and others may be illegally profiting from travel insurance by receiving a portion of the premiums paid by consumers for the insurance.  The practice of sharing insurance premiums may violate some state laws, and customers of airlines and online travel booking websites may have viable legal claims as a result.

Two major airlines, Delta and JetBlue – are named as defendants in class action lawsuits alleging that that the companies are not disclosing to their customers that they profit by receiving a portion of the premiums from the sales of travel cancellation insurance policies endorsed on their websites.  In addition, according to court records, American Airlines appears to have entered into a settlement in a case involving the receipt of a portion of travel insurance premiums paid by customers. .

These lawsuits follow allegations by U.S. Senator Edward J. Markey of Massachusetts that online website and travel agencies induce consumers to buy travel insurance with minimal coverage and numerous exclusions by requiring them to affirmatively accept or reject travel insurance before completing a purchase of a plane ticket.  In addition to JetBlue and Delta, the following airlines reportedly sell travel insurance:

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woodbridge mortgage fundsInvestors who have lost money in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds may be able to pursue recovery of their losses through securities litigation or FINRA arbitration. Since the news of Woodbridge’s bankruptcy and a lawsuit filed by the Securities and Exchange Commission broke in late 2017, facts have emerged suggesting that Woodbridge investors have likely lost a substantial portion of their principal.  Further, although so-called First Position Commercial Mortgages (“FPCMs”) and Woodbridge units are securities according to state and federal regulators, Woodbridge FPCMs were not registered as securities with government regulators as required by law, and in many instances were sold by unregistered, unlicensed persons.

In other instances, stockbrokers and financial advisors who were licensed and associated with Financial Industry Regulatory Authority (FINRA)-registered firms sold Woodbridge securities to investors, notwithstanding the fact that the Woodbridge securities were not registered.

FINRA arbitration claims have reportedly been filed against the following stockbrokers and investment advisors concerning alleged sales of Woodbridge securities:

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Money BagsInvestors with losses in Summit Healthcare REIT (“Summit”), a non-traded real estate investment trust (Non-Traded REIT), may have arbitration claims if a broker or advisor made a recommendation to purchase the shares without a reasonable basis or misled the customer as to the nature of the investment.  Summit, headquartered in Lake Forest, California, invests in a diversified, income-producing portfolio of assets in the healthcare sector, focusing its investments on operators of senior housing facilities in the United States.  Summit acquires, leases, and manages healthcare real estate and invests in the healthcare sector and diversifies by property type, location, and tenant.  Publicly-available information suggests that shares of Summit have significantly decreased in value and are now worth less than $2 a share.

MacKenzie Realty Capital has reportedly offered to purchase up to 330,000 shares of Summit for only $1.34 per share in a tender offer – which would leave investors who sold facing a significant loss on the original purchase price.  Secondary market providers that allow investors to bid and sell illiquid products such as Non-Traded REITs value Summit shares at between $1.50 and $1.56, and the sponsor estimates their value at $2.53 a share.

Unfortunately for many investors in Summit, it would appear that any attempt to exit their illiquid investment will incur a substantial loss.  Aside from their illiquid nature, non-traded REITs also present significant additional risks.  One of these risks has to do with their high cost.  In most instances, non-traded REITs are sold through a network of independent broker-dealers and associated financial advisors, who earn steep commissions (ranging up to 10%) on sales of non-traded REITs to investors.  In addition to the sales commission charged, non-traded REITs typically charge other expenses, including certain due diligence and administrative fees (that can range anywhere from 1-3%).

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Piggy Bank in a CageAs recently reported, the Colorado Division of Securities (“Division”) is reviewing Woodbridge Mortgage Investment Funds 1, 2, 3, and 3A (collectively, the “Woodbridge Funds”) and related entities in connection with possible sales of unregistered securities.  The Woodbridge Funds are offered by Woodbridge Wealth of Sherman Oaks, CA, through a nationwide network comprised primarily of independent broker-dealers and financial advisors.  In addition to its investigation into the Woodbridge Funds, the Division is reportedly also conducting a parallel investigation into other individual named Respondents, including James Campbell, Jr. of Woodland Park, CO, Timothy McGuire of Highlands Ranch, CO, and Ronald Caskey of Firestone, CO.

The Division is focused on possible Colorado securities violations stemming from the alleged sale of unregistered securities (that were not exempt from registration), the alleged solicitation of investments in the Woodbridge Funds by unlicensed representatives, as well as alleged fraudulent statements and omissions of material fact concerning sales of the Woodbridge Funds to Colorado investors.  The Division has alleged that the named Respondents — Messrs. Campbell, McGuire and Caskey — have raised approximately $57 million in investor capital from approximately 450 Colorado residents, and further, continue to solicit and advertise to potential investors through both online and radio advertisements.  Of note, Ronald Caskey bills himself as a “finance professional” on his website, with a focus on retirement planning.  Mr. Caskey hosts the Ron Caskey Radio Show and Bible Views Radio Show on stations in Denver, CO, Colorado Springs, CO, in addition to Evansville, IN.

The Division is reportedly reviewing marketing so-called “First Position Commercial Mortgages” (or “FPCMs”) to various investors through issuing promissory notes in exchange for investments that backed certain hard money loans secured by commercial real estate.   The Woodbridge Funds allegedly hired Messrs. Campbell, McGuire and Caskey as sales agents in Colorado, despite the fact that none of these named Respondents were/are licensed to solicit or sell securities.  Moreover, the Division has alleged that the FPCM’s, although secured by notes and thus falling within the definition of a security, are neither registered as a security, nor exempt from registration.  Other allegations concerning reported sales of unregistered securities by Woodbridge are reportedly being reviewed by state regulators in Massachusetts, Texas, and Arizona.

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Oil Drilling RIgsA private equity fund managed by firm EnerVest Ltd. focused on oil and gas investments has reportedly lost essentially all of its value.  EnerVest Energy Institutional Fund XII (which closed in 2010) and EnerVest Energy Institutional Fund XIII (which closed in 2013)- both of which raised over $1 billion equity capital- appear to be affected by the loss.

With crude oil prices declining from more than $100 in 2014 to as low as $26, and currently hovering around $50 a barrel, the value of EnerVest’s assets, which served as collateral on its substantial debts, dropped substantially.  This loss of collateral reportedly caused Enervest’s lenders to make repayment demands that could not be met, precipating its demise.

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 is 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, of 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.

Published on: May 15, 2015, the Wisconsin Department of Financial Institutions, Division of Securities (the “Division”) entered an Order against Respondent insurance agents Jace McDonald, Peter Viater, and Derek Anderson, in connection with private placement sales of life settlements to Wisconsin investors.  Additionally, the Division named Conestoga Life Settlements, Conestoga International, Conestoga Trust, and Conestoga Member Services as related entities (collectively, “Conestoga”) in the enforcement action.

Messrs. McDonald, Viater, and Anderson all allegedly maintained independent contractor agreements with Conestoga pursuant to which they agreed to “market the products and services of Conestoga” and, further, to refer all suitable clients for Conestoga’s products and services.  The Division alleged that Conestoga agents, including McDonald, made certain misstatements and misrepresentations to investors by implying that the life settlements being sold through a private placement offering were safe and would mature like a CD, that the return of principal was guaranteed, and that Conestoga was “contractually obligated” to pay on the private placement investment being offered.

Life settlements (or viaticals) are generally regarded as illiquid and risky investments.  In fact, Conestoga’s own offering documents, including a private placement memorandum (PPM), reportedly stated that a life settlement is a “HIGHLY SPECULATIVE INVESTMENT.  IT IS DESIGNED FOR SOPHISTICATED INVESTORS WHO ARE ABLE TO BEAR THE ECONOMIC RISK OF THE LOSS OF THEIR INVESTMENT IN THE LIFE SETTLEMENT INTEREST AND IS NOT INTENDED AS A COMPLETE INVESTMENT PROGRAM.”

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Increasingly, hackers are breaking into retail brokerage accounts in order to steal investor assets or make illegal trades.  This rise in cyber-generated theft and fraudulent securities schemes and activities has prompted the Securities and Exchange Commission (“SEC”) to begin tracking cyber-related criminal activity more closely.  In June 2017, the SEC appointed Stephanie Avakian and Steven Peikin as new co-directors of enforcement.Ms. Avakian has indicated that the SEC has started to see an ‘uptick’ in the overall number of investigations involving allegations of cyber crime.  Accordingly, the SEC has begun to gather data and statistics about cyber crimes in order to better confront the problem and spot broader market-wide trends and issues.

On September 25, 2017, the SEC announced two cyber enforcement initiatives designed to directly address cyber threats and, by extension, protect retail investors.  Specifically, the SEC will create a ‘Cyber Unit’ to identify and target cyber-related misconduct and, furthermore, will establish a ‘Retail Strategy Task Force’ designed to enforce initiatives that will impact retail investors.

SEC Cyber Unit

Published on: your broker or financial advisor recommended an oil and gas investment(s), and you have sustained losses in connection with that energy product(s), you may be able to recover your losses through FINRA arbitration.  According to data and statistics disseminated in February 2017 by Oilfield Services counsel at Haynes and Boone, LLP, a total of 118 bankruptcies have been filed by North American oil and gas companies since early 2015.  Further, the data indicates that the total amount of aggregate debt administered in oilfield services bankruptcy cases (spanning early 2015 – early 2017) is approximately $20.7 billion, with an average debt load of $175 million in each case.

With the recent collapse in energy prices (in 2014, a barrel of crude oil was trading around $90-$100 – currently crude is hovering around $50 per barrel), many oil and gas companies are encountering severe financial distress after leveraging their balance sheets in order to fund exploration, drilling and related operations.  Predictably, this overleveraging his contributed to another ‘boom and bust’ cycle in the energy markets, leading some companies to file for bankruptcy protection.  Some of the largest reported bankruptcy cases involve total debt of approximately $2.8 billion (Vantage), $2.5 billion (Paragon Offshore), $2.1 billion (Tervita), $1.7 billion (Seventy Seven Energy), $1.7 billion (C&J), $1.3 billion (Hercules Offshore), $1.1 billion (Basic Energy Services), $1.0 billion (Key Energy Services), and $1.0 billion (Toisa Limited).

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 is 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, of 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.

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