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A UBS Financial Services options trading program marketed as a “Yield Enhancement” strategy to brokerage customers of UBS, reportedly including risk averse investors with substantial bond portfolios, suffered substantial losses approaching 20% of the capital committed in 2018 and early 2019, although customers to whom the strategy was sold had reportedly been under the impression that the maximum loss they faced in a given month was  1-2%.

money blowing in wind
UBS financial advisor Jose Cornide (CRD# 2785918) of the Edinroc Financial Group in Coral Gables, Florida reportedly faces seven customer disputes, according to his publicly available FINRA BrokerCheck report, including some customer disputes regarding the UBS Yield Enhancement Strategy (YES).  Cornide has reportedly been employed by UBS Financial Services since 2005, and works out of the firm’s Coral Gables, Florida office. Before that, Cornide reportedly worked for Goldman Sachs from 1996-2004.

Our firm currently represent other investors in claims against UBS for the sale of the Yield Enhancement Strategy, which was reportedly marketed to high net worth investors around the country as producing steady returns, with modest or minimal risk of substantial losses.  This impression of minimal risk was borne out by UBS’s marketing materials for YES, which at least strongly suggested that the central trading strategy of YES- the Iron Condor- exposed the client to finite or limited risk.  For example, one UBS marketing presentation touted historic returns that featured very few months with losses, and many months with gains.  UBS marketing materials also characterized YES’s central strategy as follows: “selling short term out-of-the-money European style puts and calls on the S&P 500 Index.  To help mitigate downside and upside market exposure, short term below-market and above-market call options are purchased with the same duration as the puts and calls sold.”

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The Securities and Exchange Commission (SEC) has charged Suneet Singal (“Singal”) with fraud relating to First Capital Real Estate Trust Inc. (“First Capital”), a non-traded real estate investment trust formerly known as United Realty Trust.  Singal is the CEO and Chairman of  First Capital.

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Prior to Singal’s involvement, First Capital, then known as United Realty Trust, was reportedly sold to public investors by broker dealers, and held out as  a safe income investment that would provide distributions and also return investors’ principal after a period of years.  But First Capital was in fact a risky and illiquid non-traded REIT.   First Capital paid upfront sales commissions and dealer-manager fees totaling 10% of the REIT’s $11.00 a share offering price.  These enormous commissions and fees dwarf the commissions available to brokerages and brokers on the sale of conventional investment products.

While it has publicized a net asset value (NAV) in excess of its offering price, First Capital has not filed public financial reports with the SEC on Forms 10-Q and 10-K since August of 2015, leaving investors to guess as to the true value of their shares.

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NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”) a public, non-traded REIT, has lowered its estimates net asset value or “NAV” to $6.25 a share.  Shares were originally sold for $10.00 a share.   NorthStar Healthcare had last reported a $7.10 NAV per share, as of June 30, 2018.  More recently, Robert A. Stanger & Co. Inc., developed the $6.25 a share valuation, which is based on the estimated value of NorthStar Healthcare’s assets, less the estimated value of its liabilities, divided by the number of shares outstanding as of June 30, 2019.  Stanger reportedly relied upon appraisals for 75 properties with an estimated value of $1.99 billion in estimating the new NAV.

investing in real estate through a limited partnership
Although investors may be disappointed at the low $6.25 a share NAV, this net asset value or NAV may not even reflect the actual value that shareholders would realize if NorthStar Healthcare were liquidated, listed on an exchange or merged with a public company.  Financial analysts frequently assume that non-traded investments such as NorthStar Healthcare will trade at a discount to NAV if listed on a securities exchange.  In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market.  AFIN shares now trade at $14.56 a share as of the close of the market on December 4, 2019.

Recently, shares of NorthStar Healthcare were reportedly trading on a secondary platform at  prices as low as $2.45 a share- down from over $5.00 a share a year ago and a far cry from even the new, lowered $6.25 NAV.

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Customers of Burroughs Investment Group, Inc. (“Burroughs Investment”) may have arbitration claims if they worked with Lester W. Burroughs (“Burroughs”) between November 2012 until at least January 2019. The Securities and Exchange Commission (“SEC”) and the Department of Justice have recently announced civil and criminal charges against Burroughs for misappropriating $560,000 from investors.

broker misappropriating client money
Burroughs (CRD#: 1413972), operates Burroughs Investment Group in Torrington, Connecticut, and at relevant times was affiliated with Lincoln Investment Planning, LLC (CRD# 519) and was at relevant times an investment adviser representative with Capital Analysts located in Fort Washington, Pennsylvania.  Burroughs has been a registered broker since 1969 and an investment adviser since 1978.  According to records from the Financial Industry Regulatory Authority (“FINRA”), Burroughs has made (16) sixteen disclosures, including the instant accusation, fourteen (14) Customer Disputes, and one (1) regulatory allegation by the Insurance Commissioner of the State of Connecticut.

In the SEC complaint, accessible here SEC Complaint Burroughs, Burroughs has been accused of operating a “Ponzi-like” scheme whereby he promised certain retail clients “guaranteed interest contracts” with annual returns between 4% and 7%, though never actually invested the money.  The SEC Complaint alleges that to his first investor/client, an elderly individual, Burroughs sold four separate “guaranteed interest contracts,” complete with fake account statements from a well-known insurance company, totaling approximately $370,000.00.  According to the SEC Complaint, Burroughs instead used the money for personal reasons, to pay different clients, including multiple insurance policy payments, and to make interest payments back to the client.

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Investors in New York City REIT Inc., formerly known as 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.

Piggybank in a Cage
In October 2019, the independent directors of  ARC NYC REIT approved an estimated net asset value of $20.26 per share, as of June 30, 2019. Last year’s NAV per share was also $20.26, and shares were originally sold for $25.00 each.

However, net asset value or NAV may not reflect the actual value that shareholders would realize if ARC NYC REIT were liquidated, listed on an exchange or merged with a public company.  Financial analysts frequently assume that non-traded investments such as ARC NYC REIT will trade at a discount to NAV if listed on a securities exchange.  In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market.  AFIN shares now trade at $14.56 a share as of the close of the market on December 4, 2019.

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Customers of Ronald J. Roach (“Roach”), formerly of Securities America, may be able to recover investment losses if Roach solicited their investments in a company known as DC Solar or otherwise provided unsuitable investment advice.

money whirlpool
The Securities and Exchange Commission (SEC) has barred Roach for his role in promoting DC Solar, which this SEC alleges operated as a Ponzi scheme that defrauded investors of about $1 billion.  The SEC bar order is accessible here. roach barred

In October, Mr. Roach also reportedly pleaded guilty to fraud and securities violations stemming from the sale and leaseback of mobile solar electrical generators.  Roach awaits sentencing and reportedly facts as much as 10 years in prison.

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As we previously reported, investors in the LJM Preservation and Growth Fund (the “LJM Fund”) (LJMAX, LJMCX, LJMIX) sustained considerable losses in early February 2018, due to the LJM Fund’s risky underlying strategy premised on capturing income from options in a low-volatility market. Following the LJM Fund’s two-day decline of approximately 80% in trading on February 5th and 6th, one Morningstar analyst stated: “It may be the biggest two-day drop for a mutual fund ever.”

money whirlpool
According to public documents, a class action case brought in the U.S. District Court for the Northern District of Illinois and a related case brought in Illinois state court in Cook County have settled, with investors required to submit a proof of claim by December 11, 2019 in the federal action and by April 30, 2020 in the state action. However, the class action case settlement reportedly resolves claims against only certain parties defined as the “Settling Defendants”, including Two Roads Shared Trust, Northern Lights Distributors, LLC, NorthStar Financial Services Group, LLC, and Mark D. Gersten, Mark Garbin, Neil M. Kaufman, Anita K. Krug, Andrew B. Rogers, and James Colantino. The class notice in the federal class action is accessible here. LJM Class Notice Federal

Please note that Law Office of Christopher J. Gray, P.C. is NOT representing the Plaintiffs in the class action cases referenced above and is referring to the class action cases only to inform investors that they may potentially have rights of recovery against non-parties to the class actions. This article is not an official notice and is intended as attorney advertising.

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As we previously reported, the SEC, FINRA, the FBI, and the State of Massachusetts are investigating GPB Capital Holdings LLC (“GPB”) related to the accuracy of GPB’s disclosures of financial information to its investors.  GPB, a New York asset management firm, focused on private placement investments, has been under investigation since September 2018. On October 23, 2019, GPB’s legal problems continued as the U.S. Department of Justice charged Michael Cohn, Chief Compliance Officer of GPB, with Obstruction of Justice related to the SEC investigation.  Mr. Cohn, who up until October 2018 worked at the SEC as an examiner, allegedly reviewed and took with him unauthorized significant and comprising information related to the SEC’s GPB investigation when he left the SEC to work for GPB. Additionally, throughout his tenure at GPB, Mr. Cohn allegedly would brag about his inside knowledge of the SEC GPB investigation to senior members of GPB.

Wastebasket Filled with Crumpled Dollar Bills
GPB and the broker-dealers that sold it to their clients have weathered a storm of bad news over the past year.  Public records show there are at least 80 broker-dealers that sold, or were authorized to sell investments for GPB.  As registered broker-dealers selling private placements, these companies were required to conduct their due diligence in investigating potential investments and making sure their clients understand the risks associated with each potential investment before investing their clients’ money in the investment.

The list of broker-dealers who sold or were authorized to sell GPB securities includes:

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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%.