As recently reported by the Wall Street Journal (WSJ), investments in so-called private placements have experienced a substantial upswing in the wake of the 2008 financial crisis. In fact, according to a May 7, 2018 WSJ article entitled, A Private-Market Deal Gone Bad: Sketchy Brokers, Bilked Seniors and a Cosmetologist, “In 2017 alone, private placements using brokers totaled at least $710 billion … a nearly threefold increase rise from 2009.” Of considerable concern, the article indicates that that financial advisors recommending private placements are “six times as likely as the average broker to report at least one regulatory action against them…” and, moreover, that 1 in 8 brokers recommending private placement investments have “three or more red flags on their records, such as investor complaint, regulatory action, criminal charge or firing… .”

In response to growing concerns about the many risks and pitfalls associated with private placements, some securities regulators have stepped up their efforts to combat the problem. For example, on July 2, 2018, the Massachusetts Securities Division (the “Division”) announced its investigation into sales practices linked to private placement investments. Pursuant to the Division’s investigation – which will be spearheaded by Mr. William Galvin, the Secretary of the Commonwealth of Massachusetts – a total of 10 broker-dealers will be subjected to regulatory inquiry. These brokerage firms, which have a demonstrated history of sales practice abuse surrounding private placement investments, include: LPL Financial, Arthur W. Wood Company, Santander Securities, U.S. Boston Capital, Bolton Global Capital, Advisory Group Equity Services, Moors & Cabot, Inc., Detwiler Fenton & Co., BTS Securities, and Winslow, Evans & Crocker.

In connection with its investigation, the Division is seeking to examine firms and advisors with disciplinary reports on file from 2 years ago, when the Division surveyed over 200 brokerage firms regarding their hiring and disciplinary practices. According to Mr. Galvin: “Private placements are risky investments that reward the salesperson handsomely with high commissions. Firms offering these to the public, especially seniors, have an obligation to see that they are sold to benefit the investor, not the broker. Individuals with a history of disciplinary actions magnify the risk of unsuitable sales in connection with private placements.”

As a general rule, investing in a private placement carries with it complexity and considerable risk — including high commissions, lack of transparency, and the illiquid nature of the unregistered offering — and, therefore, is most typically only available to accredited and/or sophisticated investors. An investor is considered “accredited” if he or she has an annual income of over $200,000 or has a net worth of more than $1 million of assets (excluding one’s primary residence). It is a financial advisor’s responsibility to ensure that an investor meets this test.

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D, as promulgated by the SEC. Furthermore, financial advisors have a duty to disclose the risks associated with such an investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with private placement offerings, including investments in oil and gas drilling funds, hedge funds, and other exempt offerings. Investors may contact a securities arbitration attorney at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

On December 18, 2017, LPL Financial LLC (“LPL”) lost a FINRA arbitration concerning customer claims related to former LPL broker Charles Fackrell. The three-member FINRA panel issued a $462,000 aggregate award to six of Mr. Fackrell’s former clients, an amount which must be satisfied by LPL within 30 days. As we discussed in a previous blog post, Mr. Fackrell (CRD# 5369665) pled guilty last year to one count of securities fraud for operating a $1.4 million Ponzi scheme. According to prosecutors handling the investigation, beginning around May 2012, Mr. Fackrell first engaged in the fraudulent scheme by misappropriating investor funds solicited from at least 20 victims, many from Wilkes County, North Carolina.

In addition to asserting claims of negligence and violations of the North Carolina Securities Act, Mr. Fackrell’s former clients brought claims against LPL for breach of contract, failure to supervise, principal/agent liability, and negligent retention of an agent.

As detailed in publicly available court documents, Mr. Fackrell abused his position of trust with his clients, steering them away from legitimate investments to purported investments with “Robin Hood, LLC,” “Robinhood LLC,” Robin Hood Holdings, LLC,” and “Robinhood Holdings, LLC,” as well as related entities (collectively, “Robin Hood”). These entities were controlled by Mr. Fackrell and provided him with a conduit through which to cover his own personal expenses, including hotel expenses, groceries, purchases at various retail shops, and to make large cash withdrawals.

Court records further indicate that Mr. Fackrell successfully solicited victimized investors by making false and fraudulent representations, including that the investors’ money would be invested in, or secured by, gold and other precious metals. In addition, Mr. Fackrell allegedly falsely told investors that Robin Hood was a safe investment, paying annualized guaranteed returns of 5-7%. In actuality, however, Mr. Fackrell allegedly spent only a fraction of the investor money on such assets, instead diverting approximately $700,000 of his victims’ money back to other investors in classic Ponzi-style payments designed to further the fraudulent scheme.

In October 2017, the State of North Carolina fined LPL $25,000 and ordered the Boston-based brokerage firm to reimburse the state $270,000 in connection with costs incurred investigating Mr. Fackrell.

Mr. Fackrell was discharged by LPL in December 2014. Thereafter, in February 2015, without admitting or denying the findings, Mr. Fackrell consented to sanctions by FINRA, including his being barred from the securities industry based on “findings that… Fackrell converted customer’s funds and sold private securities offerings away from his member firm without the firm’s knowledge or approval.”

Broker-dealers such as LPL are charged with the responsibility to adequately supervise all representatives who are registered through their firm. This supervision includes monitoring the investments sold by their registered representatives. Further, broker-dealers must take steps in order to ensure that their financial advisors follow all applicable securities rules and regulations, as well as internal firm policies. When broker-dealers fail to adequately supervise their registered representatives, this may give rise to liability for investment losses sustained by customers.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors nationwide who have fallen victim to perpetrators of financial frauds, including Ponzi schemes. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On April 12, 2016, former LPL Financial LLC (“LPL”) broker Charles C. Fackrell (CRD# 5369665) appeared before U.S. Magistrate Judge David Cayer in order to plead guilty to one count of securities fraud for operating a $1.4 million Ponzi scheme. Based on documents filed with the federal court for the Western District of North Carolina, beginning around May 2012, Mr. Fackrell perpetrated a Ponzi scheme by misappropriating investor funds solicited from at least 20 victims in Wilke County, NC, and elsewhere. According to court documents, Mr. Fackrell abused his position of trust with his clients, steering them away from legitimate investments to purported investments with “Robin Hood, LLC,” “Robinhood LLC,” Robin Hood Holdings, LLC,” and “Robinhood Holdings, LLC,” as well as related entities (collectively, “Robin Hood”). These entities allegedly were controlled by Mr. Fackrell and provided him with a conduit through which to cover his own personal expenses, including hotel expenses, groceries, purchases at various retail shops, and to make large cash withdrawals.

Court records indicate that Mr. Fackrell successfully solicited victimized investors by making false and fraudulent representations, including that the investors’ money would be invested in, or secured by, gold and other precious metals. Further, Mr. Fackrell allegedly told investors that Robin Hood was a safe investment, paying annualized guaranteed returns of 5-7%. In actuality, however, Mr. Fackrell allegedly spent only a fraction of the investor money on such assets. Contrary to the representations made to investors, Mr. Fackrell allegedly used a great deal of the money to cover personal expenses, in addition to diverting approximately $700,000 of his victims’ money, back to other investors in classic Ponzi-style payments designed to continue the fraudulent scheme.

Mr. Fackrell entered the securities industry in 2007, when he was under the employ of Morgan Stanley. From 2010-2014, Mr. Fackrell was employed by LPL in Yadkinville, NC. Currently, FINRA BrokerCheck indicates that Mr. Fackrell has been the subject of several customer complaints, including the following four pending complaints:

• Customer Dispute – 8/21/2015 – the Claimants have alleged unsuitable investments and misrepresentations, as well as alleging that the financial advisor placed them in investments unapproved by LPL;
• Customer Dispute – 2/16/2016 – the Claimants have alleged selling away, forgery, unsuitability, and misrepresentation;
• Customer Dispute – 3/24/2016 – the Claimants have alleged selling away, unsuitability, and misrepresentation;
• Customer Dispute – 11/21/2016 – the Claimants have alleged selling away, forgery, unsuitability, and misrepresentation.

Mr. Fackrell was discharged from his employment with LPL in December 2014. Thereafter, in February 2015, Mr. Fackrell, without admitting or denying the findings, consented to sanctions by FINRA, including his being barred from the securities industry based on “findings that… Fackrell converted customer’s funds and sold private securities offerings away from his member firm without the firm’s knowledge or approval.”

Broker-dealers such as LPL are charged with the responsibility to adequately supervise all representatives who are registered through their firm. This supervision includes monitoring the investments sold by their registered representatives. Further, broker-dealers must take steps in order to ensure that their financial advisors follow all applicable securities rules and regulations, as well as internal firm policies. When broker-dealers fail to adequately supervise their registered representatives, this may give rise to liability for investment losses sustained by customers.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have lost money due to financial frauds, including Ponzi schemes. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

The alleged misconduct relates to the time period from 2009 to 2012, but Chackman was registered with LPL between 2001 and 2012. In 2012, his registration was terminated by the firm for violating the firm’s policies and procedures regarding alternative investment sales.

According to the letter of acceptance waiver and consent, Chackman “recommended and effected unsuitable transactions in the accounts of at least eight LPL customers, by overconcentrating his customers’ assets in [REITs] and other illiquid securities.” The letter, dated December 12, 2012, also states that by submitting falsified documents, Chackman “was able to increase his customers’ accounts’ concentration in REITs and other alternative investments beyond the allocation limits established by [LPL].”

Typically, non-traded REITs carry a high commission, often as high as 15 percent, which motivates some brokers to make unsuitable recommendations to their clients. Non-traded REITs are attractive to investors because they carry a relatively high distributions of cash representing income and/or return of capital. According to stock fraud lawyers, however, these investments are inherently risky and illiquid because there is a limited market for reselling shares. This illiquidity and volatility makes non-traded REIT shares unsuitable for many individuals with conservative risk tolerances and those who need easy access to funds, especially when their portfolios are over-concentrated in illiquid investments.

Reportedly, one of Chackman’s clients made seven $75,000 purchases of one non-traded REIT over a six month period. After a year, 25 percent of the client’s liquid net worth and 35 percent of her assets were invested in REITs and other alternative investments. Another client, who purchased the same REIT, made seven purchases over seven months totaling $135,000 and had over one-third of his liquid net worth invested in REITs and other alternative investments after about two years.

According to securities fraud attorneys, brokers firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. If a broker or firm fails to make suitable recommendations, investors may be able to recover losses through FINRA arbitration.

If you suffered significant losses as a result of doing business with Gary Chackman or received an unsuitable recommendation of non-traded REITs from another stockbroker or financial advisor, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

These charges are in connection with the sales of $28 million in non-traded REITs between 2006 and 2009, which were sold to nearly 600 clients in Massachusetts. According to the Massachusetts Securities Division, 569 of those transactions had regulatory violations, including violations of prospectus requirements, violations of Massachusetts concentration limits and violations of LPL’s compliance practices.

Inland American Real Estate Trust Inc. accounted for the largest amount of sales of all the REITs listed in the complaint. With real estate assets amounting to $11.2 billion, this REIT was the largest non-traded REIT in the industry.

According to the complaint, the investigation has “revealed significant and widespread problems with LPL’s adherence with the product prospectus and (state) requirements.” However, securities fraud attorneys say that Massachusetts may not be the only state that had its regulatory requirements violated by LPL, though it is the only state listed in this particular complaint. The complaint went on to state that “on paper, LPL set forth stringent requirements for the sale of non-traded REITs. In practice, LPL failed to review properly sales of non-traded REITs. While purporting to conduct a thorough review of offering documents, LPL allegedly overlooked prospectus delivery requirements in numerous sales of non-traded REITs.”

Investors who believe that a financial advisor or stockbroker may have violated their rights in connection with sales of non-traded REITs or other securities may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a confidential, no-obligation consultation.

According to FINRA’s findings, Cashmore distributed “Power Optimizer” packages during the relevant period, which is at least from January 2006 through December 2010. These packages consisted of documents that contained investment information and portfolio recommendations and typically included a Cash Flow Report, a Power Optimizer Report, a Portfolio Recommendations/Asset Allocation page, a Fee and Asset Summary Report and Morningstar Reports for each recommended mutual fund. These packages were distributed to at least 100 clients and potential clients. However, according to stock fraud lawyers and FINRA, these packages contained misleading information. Specifically, FINRA says the documents provided incomplete and oversimplified information which did not provide a sound basis for investors to be able to evaluate facts about the information provided by the package.

Reportedly, the Cash Flow Report’s cash flow summary was based on only one projected rated of return, rather than including alternate cash flow scenarios, and did not include any possible cash flows that would illustrate a negative rate of return. Furthermore, the Morningstar Reports allegedly included in the package all addressed Class A investments while Cashmore recommended and sold Class C investments almost exclusively. Securities fraud attorneys say that Class A and C investments have differing rates of return, surrender charges and fees, despite being similar investments when in the same mutual fund.

According to FINRA, Cashmore has entered into a Letter of Acceptance, Waiver and Consent. According to the terms of the letter, Cashmore has been fined $5,000 and suspended for one month.

If you suffered significant losses as a result of your investment with Jeffrey A. Cashmore and LPL, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Typically, REITs carry a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. In addition, frequent updates of the investment’s current price are not required of broker-dealers, causing misunderstandings about the financial condition of the investment. Because frequent updates are not required, investors may believe the REIT is doing much better than it actually is.

Reportedly, LPL Financial and its advisor, used an over-concentration of illiquid investments in the client’s portfolio. Furthermore, these investments carried a high level of risk because the securities recommended to the claimant didn’t trade freely. In addition to the Inland Western REIT, the portfolio also consisted of KBS REIT, Inland American REIT, LEAF Fund, Hines REIT, Atlas, ATEL Fund X, PDC 2005A, and ATEL Fund XI

As retirees, the claimants had a low risk tolerance and wanted a conservative, income-producing portfolio. Their goal of principal protection during retirement years allegedly made the recommendations they received unsuitable. Furthermore, the risk associated with these investments was misrepresented by the LPL advisor, who benefitted financially as a result of the high commission received on these investments. The claimants have stopped receiving dividends in many of the investments. In addition, investors have suffered significant REIT losses as a result of the substantial declines in the value of many of these investments.

If you suffered significant losses as a result of your investment in Inland Western, or another risky REIT investment, you may have a valid securities arbitration claim to recover your REIT losses. To find out more about your legal rights and options, contact a securities fraud attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.