Articles Posted in Uncategorized

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Investors in Sierra Income Corporation (“Sierra”), or a similar non-traded investment product may be able to recover losses on their investments through FINRA arbitration.  The attorneys at Law Office of Christopher J. Gray, P.C. have considerable experience in representing aggrieved investors who have lost money due to unsuitable recommendations to purchase securities, including illiquid non-traded investment products.

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According to publicly-available SEC filings (from May 2016), Sierra made a tender offer to purchase up to 1,005,447 shares of its issued and outstanding common stock.  In connection with this tender offer, 855,215 shares were validly tendered at a price equal to $8.04 per share.  Unfortunately, for many investors in Sierra, it would appear that the tender offer price represents a significant loss on the initial capital investment.

In January 2017, the Financial Industry Regulatory Authority (“FINRA”), as part of its ongoing efforts to ensure the integrity of financial markets and offer protection to investors, issued certain guidance through its ‘2017 Regulatory and Examination Priorities Letter.’  Among those concerns highlighted by FINRA were issues related to so-called ‘alternative’ investments such as non-traded real estate investment trusts (“REITs”) and non-traded business development companies (“BDCs”):

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On May 3, 2017, Puerto Rico filed for a form of bankruptcy protection pursuant to a federal law passed in 2016 known as Promesa. This law allows for Puerto Rico to facilitate a debt restructuring process in court that is akin to U.S. bankruptcy protection. This marks the first time in our nation’s history that a U.S. state or territory has taken such extreme fiscal measures. As it stands, Puerto Rico owes approximately $123 billion in debt and pension obligations, a huge figure that dwarfs the $18 billion bankruptcy filed by the city of Detroit in late 2013.

While some of the investors in Puerto Rico debt include sophisticated banks and hedge funds (many sophisticated investors did not start aggressively snapping up Puerto Rico debt until 2014, when many bonds were already trading at a deep discount), numerous retail investors were solicited by their broker or investment advisor to purchase Puerto Rico bonds due to their tax free nature and hefty yields. While the lure of triple tax exempt income (income on Puerto Rico bonds is exempt from federal, state, and local taxes) helped firms like UBS, Merrill Lynch, Morgan Stanley and Santander in their sales pitch to prospective retail investors, often Mom and Pop investors were left unaware and uninformed as to the significant risks associated with investing in Puerto Rico bonds.

Puerto Rico map with shadow effect presentation

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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.

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”).

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The Financial Industry Regulatory Authority (FINRA) fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $5 million for alleged negligent disclosure failures in connection with the sale of five-year senior debt notes to retail customers. In particular, Merrill Lynch allegedly failed to adequately disclose certain costs, making it appear that the fixed costs were lower than they actually were.

Abstract Businessman enters a Dollar Maze.FINRA charges that the notes, known as strategic return notes or “SRNs”, were linked to a Merrill Lynch proprietary volatility index. During 2010 and 2011, the firm allegedly sold approximately $168 million worth of the SRN notes to its retail customers, promoting them as a hedge against potential downturns in the equities markets.

FINRA charges that included in the costs associated with the notes was the “execution factor,” a feature of the Index intended to replicate transaction costs incurred in the simulated buying and selling of S&P 500 Index options.  According to FINRA, these transaction costs allegedly accrued on a daily basis and totaled 1.5 percent per quarter, but were not disclosed in the offering materials for the SRNs.  FINRA charges that in buying the notes, a reasonable retail customer would have considered it important that the execution factor imposed these costs.

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The U.S. Securities and Exchange Comission (SEC) has reached an agreement with UBS under which UBS will pay more than $15 million to settle claims arising out of its sale of hundreds of millions of dollars of reverse converible notes to customers.

Wastebasket Filled with Crumpled 00 Dollar BillsAccording to the SEC, UBS sold about $548 million dollars of “reverse convertible notes” between 2011 and 2014 to more than 8,700 unsophisticated and relatively inexperienced customers. The SEC charges that the reverse convertible notes were sold to many customers for whom there were unsutiable, including retirees.

To settle the SEC’s claims, UBS has reportedly agreed to pay a $6 million civil fine, $8.23 million in disgorvement of its gains, and nearly $800,000 in interest, bringing the total payment to $15 million.

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InvestorLawyers.net’s founder Christopher J. Gray is presently handling or has handeld cases against various brokerage firms on behalf of investors who sustained losses various preferred stocks of brokerage firms.

In one such case involving a retiree, UBS accumulated large positions in preferred stocks and similar Instruments. Of note, UBS substantially concentrated these investments in preferred stocks in the financial sector. The Statement of Claim filed with FINRA alleged that a reasonable investor would not have realized that the Account was heavily invested in preferred stocks and similar securities exposed to massive losses in the event of dislocation in the U.S. financial sector. The monthly statements for the Account at relevant times did not call attention to this fact, and instead reflected that a significant portion of the Accounts assets were invested in Afixed income@ (which an ordinary customer justifiably understands to mean investments that were significantly safer than stocks).

As of early 2008 the preferred securities in the Account were worth a total of

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According to the Financial Industry Regulatory Authority (FINRA), former InterSecurities, Inc (InterSecurities), now known as Transamerica Financial Advisors, Inc. (Transamerica), broker Harry Hammond (Hammond) was suspended from the securities industry for 12 months for allegedly referring 24 clients to invest with Nutmeg Group, LLC (Nutmeg) a firm specializing in Private Investment in Public Equity (PIPE) transactions.

Financial crisis

Financial crisis

Hammond has been registered with the securities industry since 1997. He has previously been registered with FFP Securities, Inc. from 2000-2006, InterSecurities from 2006-2007, and Allegiant Securities, LLC from 2007-2011. Most recently, Hammond reportedly began his own firm, Hammond Asset Management, LLC, in Sarasota, Florida.

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Law Office of Christopher J. Gray wishes to alert investors to the possibility that recommendations of oil and gas investments by broker-dealers may be unsuitable, depending on the individual characteristics of investors and whether the broker had a reasonable basis for the recommendation.

Oil pumps

Oil pumps

According to a Wall Street Journal article, there have been a total of 36 reported oil and gas company bankruptcies in 2015. The price of oil has dropped to $30-$35 per barrel or lower (a ten year low), which is leaving many oil and gas companies vulnerable. The bankruptcy cases so far involve $13 billion in secured and unsecured debt. Sixteen of the bankruptcies were reportedly filed in Texas, four each in Delaware and Colorado and the rest in Louisiana, Alaska, Massachusetts and New York and six in Canada.

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According to the Financial Industry Regulatory Authority (FINRA), former Independent Financial Group (Independent), broker Robyn H. Lee (Lee) has had at least thirteen (13) customer complaints made against him, mostly involving sales of tenants in common (TICs). Customer complaintsreportedly included unsuitable investment recommendations, breach of fiduciary duty, misrepresentations and fraud.

Many hidden money bagsLee has been registered with the securities industry for eighteen (18) years. He has previously been registered with Securities America from 2000-2002; ePlanning Securities from 2002-2004; Berthel, Fisher & Company from 2004-2007; and most recently Lee was registered with Independent in San Mateo California from 2007-2015.

According to FINRA, in 2012 a customer claimed that Lee allegedly made misrepresentations regarding the suitability of investing in TICs in 2007, resulting in a loss on the customer’s investment. The parties later settled the matter in 2014 for $132,500. In 2013, another customer made similar allegations against Lee resulting in another settlement for $186,000. In the most recent complaint made against Lee, a customer again made allegations of unsuitable investment recommendations and misrepresentations regarding TICs. The matter is still pending with FINRA, the customer is seeking $400,000 in damages.

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According to Investment News, William Galvin, The Massachusetts Secretary of the Commonwealth, has charged Boston-based Realty Capital Securities (RCS) with proxy vote fraud. The investigation also included independent broker dealers who sold RCS alternative investments to customers. Proxy voting is a form of voting where members of the decision making body delegate their voting power to other members of the same body to vote in their absence, and/or to select additional representatives. RCS allegedly used agents to impersonate stockholders to vote on matters of corporate governance.

Building demolition

Building demolition

RCS is part of a network of real estate companies owned by Nicholas Schorsch (Schorsch) and William Kahane (Kahane). According to the complaint, filed November 12, 2015, RCS employees contacted other broker-dealer agents and discussed solicitation of shareholder proxy votes in Business Development Corp. of America, a New York Company. RCS employees allegedly sent broker-dealer authority letters to broker-dealer agents without verifying if the broker-dealer agents had authority to vote client shares.

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