Articles Tagged with securities arbitration lawyer

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Oil Drilling RigsInvestors in FS Energy and Power Fund (“FSEP” or the “Company”) will likely encounter difficulty in selling out of all or a substantial portion of their FSEP position, in the event they seek to redeem their shares directly with FSEP’s sponsor, Franklin Square.  Headquartered in Philadelphia, PA, FSEP was formed as a Delaware Statutory Trust in September 2010, and subsequently commenced its investment operations on July 18, 2011.  Structured as a regulated investment company, or RIC, for federal tax purposes, FSEP qualifies as a business development company (“BDC”) under the Investment Company Act of 1940.

Upon information and belief, as a publicly registered, non-traded BDC, FSEP was marketed and recommended to numerous retail investors nationwide.  As set forth in its most recent quarterly 10-Q as filed with the SEC, “The Company’s investment objective is to generate current income and long-term capital appreciation by investing primarily in privately-held U.S. companies in the energy and power industry.”

As we have highlighted in recent blog posts, BDCs have been around since the early 1980’s, when Congress first enacted legislation amending federal securities laws allowing for BDCs — which are simply types of closed-end funds — to make investments in developing companies and firms that would otherwise have difficulty accessing financing.  Because they provide financing solutions for smaller, private companies, BDCs have been likened to private equity investment vehicles for retail investors in various marketing pitches by BDC sponsors and the financial advisors who recommend these financial products.

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Building DemolishedInvestors in Strategic Storage Growth Trust, Inc. (“Strategic Storage” or the “Company”) may have arbitration claims to be pursued before FINRA, in the event that 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 broker.  As recently reported, Strategic Storage’s board of directors has elected to suspend its distribution reinvestment plan, as well as its share redemption program, as it seeks to shore up its finances and explore potential liquidity options.  Given the fact that one of the Company’s stated primary investment objectives is to “grow net cash flow from operations in order to provide sustainable cash distributions… over the long-term” many retail investors who invested because of the Company’s income component are now faced with the prospect of holding an illiquid, non-traded investment that no longer provides valuable monthly income.

According to publicly available documents filed with the SEC, Strategic Storage was formed on March 12, 2013 as a Maryland corporation for the “[p]urpose of engaging in the business of investing in self storage facilities and related self storage real estate investments.”  The Company’s portfolio currently consists of 26 operating self storage facilities, in addition to two properties in development.  Strategic Storage launched its offering in January 2015, in the process raising approximately $193 million through issuance of Class A shares and approximately $79 million through issuance of Class T shares.

Strategic Storage is structured as an operating business, but qualifies as a REIT for federal income tax purposes.  For many investors, their primary motivation to invest in a REIT is to capture an enhanced income stream from the tax-advantaged REIT structure.  Importantly, however, Strategic Storage is a non-traded REIT, meaning that the investment is illiquid in nature and not easily sold (typically, many non-traded REIT’s offer a share redemption program, but these programs are often limited both as to when an investor may redeem and the amount of shares available for actual redemption).

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woodbridge mortgage fundsIf you invested in a Woodbridge promissory note(s) upon the recommendation of broker Peter David Holler (CRD# 838897), you may be able to recover your losses through securities arbitration before FINRA.  As disclosed by FINRA on May 21, 2018, registered representative Peter Holler has been suspended from the securities industry for a period of two years.  From 2001 through August 2017, Mr. Holler was affiliated with Securities Service Network, LLC (BD No. 13318) (“SSN”) in their Bristol, TN office.  FINRA BrokerCheck indicates that Mr. Holler was discharged from his employment with SSN on or about August 10, 2017 due to his alleged participation in “unapproved and undisclosed outside business activity…”

Pursuant to a Letter of Acceptance, Waiver, and Consent (“AWC”), through which Mr. Holler neither admitted or denied FINRA Enforcement’s findings, he accepted both the two-year suspension, as well as monetary penalties including a $10,000 fine and disgorgement of $49,790 in commissions received through the sale of unregistered Woodbridge securities to various investors.  As encapsulated in the May 2018 AWC, Mr. Holler purportedly violated FINRA Rule 3280(b), an industry rule that prohibits brokers from participating in private securities transactions, without first providing written notice to their employer firm.  Such written notice must set forth in detail the proposed transaction, as well as the financial advisor’s proposed role with regard to the contemplated transaction and whether he or she will receive any compensation in connection with the transaction.

According to FINRA Enforcement’s findings, from September 2016 – August 2017, Mr. Holler solicited various investors to purchase unregistered securities in certain Woodbridge Mortgage Investment Funds as offered through the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA.  Further, FINRA Enforcement determined that Mr. Holler sold approximately $1.4 million in Woodbridge promissory notes to some 19 individuals, 9 of whom were SSN customers.  In derogation of FINRA Rule 3280, Mr. Holler purportedly did not provide SSN with prior written notification of these private securities transactions.

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Money in WastebasketInvestors in Cole Credit Property Trust IV, Inc. (“Cole Credit IV”) appear to have incurred substantial principal losses, based on the pricing of a recent tender offer.  Recently, third party real estate investment firm MacKenzie Realty Capital, LP (“MacKenzie”) initiated a tender offer to purchase shares of Cole Credit IV at a price of $6.01/share.  Therefore, investors who invested in Cole Credit IV through the offering at $10/share will incur substantial losses on their initial investment of approximately 40% (exclusive of commissions paid and distributions received to date).

Cole Credit IV’s real estate portfolio is geographically diverse, and is focused on investments in “income-producing, necessity single-tenant retail properties and anchored shopping centers subject to long-term net lease,” as stated on the company’s website.  As a publicly registered non-traded REIT, Cole Credit IV was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager.  Cole Credit terminated its offering on April 4, 2014.

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

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financial charts and stockbrokerOn March 27, 2018, the Securities and Exchange Commission (“SEC”) announced formal charges against Wedbush Securities Inc. (“Wedbush”, CRD# 877) with respect to allegations that the broker-dealer failed to supervise its employee, Ms. Timary Delorme (f/k/a Timary Koller) (“Delorme”).  Based on its investigation, the SEC alleged Wedbush ignored numerous red flags indicating that Ms. Delorme — who has been affiliated with Wedbush as a registered representative since 1981 — was purportedly involved in a manipulative penny stock trading scheme with Izak Zirk Englebrecht, a/k/a Zirk De Maison “(“Englebrecht”).

As alleged by the SEC, Mr. Englebrecht engaged in manipulative trading, commonly referred to as “pump and dumps”, through the use of various thinly traded microcap penny stocks.  According to the SEC’s allegations, Ms. Delorme purchased stocks at Englebrecht’s behest in certain customer accounts, and in turn received undisclosed material benefits.  Moreover, the SEC’s findings suggest that Wedbush ignored numerous red flags associated with Ms. Delorme’s alleged involvement in the scheme, including a customer email outlining her involvement, as well as several FINRA arbitrations regarding her penny stock trading activity.

In response to the red flags, Wedbush purportedly conducted two investigations into Ms. Delorme’s conduct.  The SEC has characterized Wedbush’s investigation as “flawed and insufficient”, and that ultimately the brokerage firm failed to take appropriate action to address the alleged misconduct.  The SEC’s order instituting administrative proceedings against Wedbush charges that the broker-dealer failed to reasonably supervise its broker, Ms. Delorme.  The matter will come before an administrative law judge, who will hear the case and prepare an initial decision — there have not yet been any findings of misconduct.

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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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Investment fraud lawyers are currently investigating claims on behalf of the victims of securities fraud perpetuated through schemes such as advanced fee scams. Reportedly, the Securities and Exchange Commission (SEC) has filed charges against Frederick D. Scott, a New York money manager. Scott owns ACI Capital Group, an investment advisory firm. According to the SEC, Scott made false claims regarding the company’s assets under management. He allegedly claimed the assets to be $3.7 million so that he would appear more credible when promoting “too good to be true” investment opportunities.

Allegedly, Scott targeted individual investors and small businesses with multiple financial scams. The SEC claims that he promised high rates of return in order to get money from investors and then stole their money. Reportedly, Scott used investor funds to pay his personal expenses, such as private school tuition for his children, department store purchases, air travel, dental bills and hotels, and his clients never received the promised returns.

According to securities arbitration lawyers, one of Scott’s alleged scams was an advanced fee scheme in which investors were told that the firm would give multi-million-dollar loans after a percentage of the loan amount was advanced to the firm. Reportedly, investors were told they would receive the remaining balance after the loan was made but they never received this sum.

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Securities lawyers are currently investigating claims on behalf of investors whose portfolios held by VSR Financial Services or other brokerage firms contained an unsuitable concentration of alternative investments. Reportedly, VSR Financial Services Inc. is being fined $550,000 by the Financial Industry Regulatory Authority (FINRA) over claims that a reasonable supervisory system was not set up, maintained or enforced regarding non-conventional investment sales.

Firm Fined for Allegations of Inadequate Supervision of Concentrated Client Positions in Alternative Investments

Reportedly, stipulations in VSR’s written supervisory procedures allowed only up to 50 percent of the exclusive net worth of their clients could be invested in alternative investments, unless there was a justifiable reason for exceeding these guidelines. In addition, VSR’s owner allegedly set up procedures that provided a discount through certain non-conventional instruments that artificially lowered the amount of the customer’s liquid net worth that was invested in non-conventional instruments.

However, the Securities and Exchange Commission stated in a letter to VSR that it had found that adequate written procedures had not been established for the program and this deficiency had not been corrected two years after VSR was notified by the regulator of the problem. The SEC also stated that reasonable actions were not taken to ensure the written supervisory procedures were implemented or, if they were not implemented, to eliminate the discount program.

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Investment fraud lawyers are currently investigating claims regarding UBS Securities. UBS Securities has agreed to pay almost $50 million to settle charges that it violated securities laws regarding certain collateralized debt obligation, or “CDO”, investments. The charges apply to the firm’s structuring and marketing of ACA ABS 2007-2 — a CDO, or collateralized debt obligation. Allegedly, UBS failed to disclose the fact that it retained millions in upfront cash while acquiring collateral. The SEC officially charged UBS on August 6, 2013.

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The collateral for the CDO was managed by ACA Management and reportedly was primarily consisted of CDS on subprime RMBS, or residential mortgage-backed securities. According to securities arbitration lawyers, the CDO — as the “insurer” — received premiums from the CDS collateral on a monthly basis. Then the premiums were used for CDO bondholder payments. According to the SEC, ACA and UBS agreed that the collateral manager would seek bids for yield that contained both a fixed running spread and upfront cash in the form of “points.”

According to the SEC’s findings, UBS collected upfront payments totaling $23.6 million while acquiring collateral and, instead of transferring the upfront fees at the same time as the collateral, UBS kept the upfront payments and chose not to disclose this information. In addition to retaining the undisclosed $23.6 million, it also retained a disclosed fee of $10.8 million. Investment fraud lawyers say the decision not to disclose the retention of the upfront points was inconsistent with prior UBS deals and the industry standard. Allegedly, UBS’ head of the U.S. CDO group stated, “Let’s see how much money we can draw out of the deal.”

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Investment fraud lawyers are currently investigating claims on behalf of investors who mya have been defrauded through microcap shell company pump-and-dump schemes in light of one of the largest trading suspensions in Securities and Exchange Commission history. In June, the SEC announced that it would suspend trading in 61 companies in the over-the-counter market on the basis that they are ripe for fraud .135963527SEC_Suspends_61_Companies_as_Possible_Too_ls_for_Fraud “The SEC suspended trading in the securities of 61 empty shell companies that are delinquent in their public filings and seemingly no longer in business based on an analysis by the SEC’s Microcap Fraud Working Group,” SEC officials stated in a statement. “Since microcap companies are thinly traded, once they become dormant they have a great potential to be hijacked by fraudsters who falsely hype the stock to portray it as a thriving company and coerce investors into ‘pump-and-dump’ schemes.” Reportedly, these companies were identified in 17 states and one foreign country. Following this suspension, these companies are required to prove they are still operational with updated financial information. However, securities arbitration lawyers say that while these companies became useless to fraudsters once they were suspended, it is difficult for them to identify every shell company that is a possible tool for fraud in time to prevent fraud from occurring. According to investment fraud lawyers, in a pump-and-dump scheme, fraudsters will use false and misleading statements to sell investments in the company, purchasing the stock at a low price, “pumping” the price of the stock higher and then selling the stock at a profit. Previously, the SEC suspended 379 such companies in one day, making this the second-largest suspension in history. A complete list of the 61 companies can be found on the SEC’s website. If you were persuaded to invest in any of these companies by your broker or financial adviser, you may be able to recover your losses through securities 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 for a no-cost, confidential consultation.