Investors in certain oil and gas limited partnerships offered and underwritten by David Lerner Associates, Inc. (“David Lerner”) — including Energy 11, L.P. (“Energy 11”) and Energy Resources 12, L.P. (“ER12”) — may be able to recover investment losses through FINRA arbitration, in the event that the investor’s broker lacked a reasonable basis for the recommendation, or if the nature of the investment including its many risk components was misrepresented by the financial advisor. Energy 11 is a Delaware limited partnership formed in 2013 “to acquire producing and non-producing oil and natural gas properties onshore in the United States and to develop those properties.” Specifically, as of March 31, 2017, Energy 11 had made key acquisitions in certain Sanish Field Assets (for approx. $340.5 million) located in North Dakota in proximity to the Bakken Shale.

ER12 was formed in 2016 as a Delaware limited partnership, with essentially the same objective as Energy 11, namely to “acquire producing and non-producing oil and gas properties with development potential by third-party operators on-shore in the United States.” On February 1, 2018, ER12 closed on the purchase of certain Bakken Assets, including a minority working interest in approximately 204 existing producing wells and approximately 547 future development locations, primarily in McKenzie, Dunn, McLean and Mountrail counties in North Dakota.

Structured as limited partnerships, both Energy 11 and ER12 carry significant risks that may not be adequately explained to retail investors in marketing pitches by financial advisors who may recommend these complex financial products. To begin, both Energy 11 and ER12 were only recently formed (2013 and 2016, respectively) and have very little operating history. Moreover, each limited partnership is helmed by a CEO and CFO, Glade Knight and David McKenney, whose primary experience is in the real estate industry, not the oil and gas arena. Oil and gas investments by their very nature are extremely volatile as they are subject to the boom and bust cycles which characterize the oil market.

Perhaps of greatest concern to investors in oil and gas limited partnerships like Energy 11 and ER 12 is their illiquid nature. Investors in the common units of either Energy 11 or ER12 cannot readily or easily sell their units, as there is no public market on which these units trade. Rather, investors must be able to hold their investment position indefinitely, until such time as a Liquidity Event may occur, which will likely only occur “within five to seven years from the termination” of the investment’s offering, at the earliest.

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. 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, or if 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 held liable for losses on the investment.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes concerning oil and gas investments, including MLPs and limited partnerships, drilling programs, and private placements. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

As recently reported, both the SEC and FINRA have commenced their own investigations into GPB Capital Holdings, LLC (“GPB”). GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending. These investigations by federal regulators come on the heels of Massachusetts securities regulators announcing in September 2018 their own investigation into GPB, as well as the sales practices of more than 60 independent broker-dealers who reportedly offered private placement investments in various GPB funds to their clientele.

GPB has raised approximately $1.8 billion in investor funds across its various private placement offerings, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP. Private placement investments are complex and fraught with risk. To begin, private placements are often sold under a high fee and commission structure. Reportedly, one brokerage executive has indicated that the sales loads for GPB private placements were 12%, including a 10% commission to the broker and his or her broker-dealer, as well as a 2% fee for offering and organization costs. Such high fees and expenses act as an immediate drag on investment performance.

Further, private placement investments carry a high degree of risk due to their nature as unregistered securities offerings. Unlike stocks that are publicly registered, and therefore, must meet stringent registration and reporting requirement as set forth by the SEC, private placements do not have the same regulatory oversight. Accordingly, private placements are typically sold through what is known as a “Reg D” offering. Unfortunately, investing through a Reg D offering is risky because investors are usually provided with very little in the way of information. For example, private placement investors may be presented with unaudited financials or overly optimistic growth forecasts, or in some instances, with a due diligence report that was prepared by a third-party firm hired by the sponsor of the investment itself.

Broker-dealers are required by law to conduct due diligence on an investment before it is recommended to a client. Furthermore, financial advisors have a duty to disclose the risks associated with a financial product, as well as to conduct a suitability analysis to determine if such an investment meets an investor’s stated investment objectives and risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex investment products, including illiquid private placements and unregistered securities offerings. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

Recent pricing on shares of Cole Credit Property Trust V, Inc. (“CCPT V” or, the “Company”) – at reported prices of $17.25-$17.75 – suggests that investors who chose to sell their shares on a limited secondary market may have sustained considerable losses of up to 30% (excluding any distributions received to date). Formed in December 2012, CCPT V is structured as a Maryland corporation. As a publicly registered, non-traded real estate investment trust (“REIT”), CCPT V is focused on the business of acquiring and operating “a diversified portfolio of retail and other income-producing commercial properties.” As of October 31, 2018, the Company’s real estate portfolio consisted of 141 properties across 33 states, with portfolio tenants spanning some 26 industry sectors.

The shares of CCPT V, a publicly registered, non-traded REIT, were offered to retail investors in connection with CCPT V’s initial offering, which was priced at $25 per share. The Company launched its initial offer in March 2014, and as of the second quarter of 2018, had raised $434 million in investor equity through the issuance of common stock.

Some retail investors may have been steered into an investment in CCPT V by a financial advisor, without first being fully informed of the risks associated with investing in non-traded REITs. For example, one initial risk that is often overlooked concerns a non-traded REIT’s characteristic structure as a blind pool. In the case of CCPT V, its blind pool offering means that not only were shares issued to public investors for a REIT lacking any previous operating history, but moreover, CCPT V did not immediately identify any of the properties that it intended to purchase.

Aside from their typical blind pool structure, non-traded REITs also tend to charge investors high upfront fees and commissions (up to 15% in some instances). With regard to CCPT V, investors were charged selling commissions and a dealer manager fee of 9%, 2% for organization and offering expenses, as well as certain acquisition and development fees. In total, investors in the Company were charged 13.7% of their initial investment in commissions and fees. Unsurprisingly, such high fees act as an immediate drag on future investment performance.

Likely the greatest risk associated with non-traded REITs is their illiquid nature. Unlike publicly traded REITs, which trade on national securities exchanges at publicly quoted prices, investors in non-traded REITs such as CCPT V have limited options at their disposal when it comes to selling shares. While many non-traded REITs do have redemption programs, these share repurchase programs are typically restricted in nature, both as to timing (often, investors can only redeem their shares on a quarterly basis), as well as to amount (sponsors often curtail the number of shares available for redemption at a given time).

Non-traded REIT investors seeking immediate liquidity may elect to sell on a limited secondary market platform. In the case of CCPT V, shares have recently traded on such a secondary market at a considerable discount of approximately 30% less than the Company’s $25 per share offering price, or around $17.50 per share. Thus, investors who require immediate liquidity through a secondary platform may incur substantial losses in order to sell their shares.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

On July 18, 2018, the SEC filed a lawsuit in the District of Connecticut naming Temenos Advisory, Inc. (“Temenos”) and George L. Taylor (“Taylor”) as Defendants and essentially alleging that Defendants made improper recommendations of certain private placement investments to their investment advisory clients. A copy of the SEC Complaint is accessible here: SEC v Temenos & Taylor

Temenos, founded by Taylor, is a Connecticut corporation headquartered in Litchfield, CT, with additional offices located in St. Simons Island, GA and Scottsdale, AZ. Temenos has been registered with the SEC as a registered investment advisor (RIA) since 1999, and is owned by Mr. Taylor and a trust that was purportedly established for purposes of benefiting Taylor’s former business partner.

As alleged by the SEC, prior to 2014, Temenos’ business was largely focused on the sale of traditional financial products to its clientele, including “[m]utual funds, exchange traded funds, variable annuities, and publicly traded stocks.” Like many RIAs, Temenos charged an advisory fee to its customers based upon a percentage of assets under management. However, as alleged in the Complaint, beginning in 2014 Temenos began recommending private placement investments to its clients: “Between 2014 and 2017, Defendants placed more than $19 million in investments by their clients and others in [the securities of] four private issuers … And they did so without ever sufficiently examining the marketing claims, financial statements, or business activities of those companies.”

As discussed in several recent blog posts, with increasing frequency retail investors have been solicited to invest in so-called private placements. According to a recent Wall Street Journal article, “In 2017 alone, private placements using brokers totaled at least $710 billion….” A private placement, sometimes called a non-public offering, is simply an offering of a company’s securities that are not registered with the Securities & Exchange Commission (“SEC”). Pursuant to 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.

Perhaps the greatest risk associated with private placement investments concerns the lack of transparency and information available to the retail investor. On the one hand, when an investor decides to purchase publicly traded common stock or shares in a mutual fund or ETF, he or she will have the opportunity to first review a prospectus, as required by the SEC. However, with respect to private placements, no such prospectus is filed with the SEC — rather, private placement securities are typically offered through a Private Placement Memorandum (“PPM”). Ultimately, it is incumbent on the brokerage firm or RIA offering a private placement investment to its customers to conduct adequate due diligence on the investment in order to determine its suitability.

As alleged by the SEC, Temenos recommended unsuitable and risky securities in four private placements, as follows:

• “Company A marketed an emergency response communications product. Between February 2014 and February 2017, Temenos solicited approximately $11.2 million of investments in Company A from their advisory clients and other individuals.”
• “Company B purported to be building a fiber optic connection between locations along the east coast of the United States. Between September 2014 and March 2017, Temenos solicited approximately $7 million of client investments in Company B.”
• “Company C marketed itself during the relevant time period as a crowdfunding investment portal. Between March 2016 and January 2017, Defendants solicited $805,000 of client investment in Company C.”
• “Company D purported to have developed a new water purification technology. From in or about December 2014 to in or about July 2015, Temenos, through Taylor, solicited investments in Company D.”

As alleged in the Complaint, Temenos failed to conduct even basic due diligence on the four private placement investments marketed to its customers: “Throughout the relevant period, Taylor made statements to clients that misleadingly suggested that the private placement investments… had been carefully vetted and selected from a large group of potential offerings based on their favorable risk/return potential, and were suitable for any wealthy investor.” The SEC has further alleged that Temenos failed to inform clients that the RIA was receiving compensation from the recommended private placement companies.

Investors who have purchased unregistered securities through a private placement may have legal claims if the investment was solicited through a misleading sales presentation or if the recommendation to purchase the investment was unsuitable. Investors may contact Law Office of Christopher J. Gray, P.C. by telephone or email newcases@investorlawyers.net to schedule a no-cost, confidential consultation.

Based upon recent secondary market pricing, investors in certain publicly registered, non-traded business development companies (“BDCs”), may have suffered losses on their illiquid investments. In the wake of the 2008 financial crisis, many retail investors have been steered into so-called non-conventional investments (“NCIs”), including non-traded REITs and BDCs, often premised upon a sales pitch or marketing presentation from a financial advisor touting the investment’s lack of correlation to stock market volatility and enhanced income via hefty distributions. Unfortunately, in some instances, investors were solicited to invest in such NCIs without first being fully informed of the risk components embedded in these products.

In January 2017, FINRA issued the following guidance with respect to investments in non-traded NCIs:

“While these products can be appropriate for some customers, certain non-traded REITs and unlisted BDCs, for example, may have high commissions and fees, be illiquid, have distributions that may include return of principal, have limited operating history, or present material credit risk arising from unrated or below investment grade products. Given these concerns, firms should make sure that they perform and supervise customer specific suitability determinations. More generally, firms should carefully evaluate their supervisory programs in light of the products they offer, the specific features of those products and the investors they serve.”

Because of the illiquid nature of non-traded NCIs, investors seeking to exit their investment position are constrained by limited options, including redemption of some or all of their shares directly with the sponsor (often at a disadvantageous price and only in an amount approved by the sponsor), as well as selling their investment in a fragmented and inefficient secondary market, typically at a disadvantageous price.

According to recent secondary market pricing, shares of FS Energy & Power Fund (FSEP), a non-traded BDC sponsored by Franklin Square, were recently listed for sale at $5.70 per share. This recent pricing in FSEP suggests that investors in this non-traded BDC may well have suffered considerable investment losses of approximately 40% on their initial investment (which does not include distributions paid to date). With respect to another non-traded BDC, Business Development Corporation of America (“BDCA”), recent secondary market pricing indicates BDCA shares were recently sold at $6.50 per share. BDCA’s shares were offered through its IPO at $11.15 per share; thus, it appears investors seeking liquidity through recent secondary market transactions have sustained losses on their BDCA investment of approximately 40% (excluding distributions and commissions paid to date).

Investors in FSEP or BDCA (or other non-traded BDCs) may be able to recover investment losses in FINRA arbitration if their investment was the subject of an unsuitable recommendation by a stockbroker or investment advisor. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

On January 8, 2018, the Financial Industry Regulatory Authority (“FINRA”) published its Annual Regulatory and Examination Priorities Letter (“2018 Letter”). The purpose of this letter is to highlight certain issues of importance to FINRA in the upcoming year, and serves as a useful guidepost for industry professionals and investors, alike. Included among the areas of concern addressed in the 2018 Letter is the increased prevalence of so-called securities backed lines of credit, or SBLOCs.

Given the current bull market that is currently approaching nine (9) years in age, it should come as no surprise that many brokerage firms and their registered representatives have heavily marketed SBLOCs to their clientele. The sales pitch in a rising market such as this is relatively simple: you may tap into the value of your investment portfolio in order to readily access cash in the form of an SBLOC, without the need to sell out of any investment holdings, thereby ensuring continued upside appreciation in the value of your investment portfolio. Such a marketing pitch, while logical, often downplays the risks associated with a SBLOC and its use of leverage against collateral that can rapidly deteriorate in value.

Put simply, SBLOCs are non-purpose in nature, meaning that such loans are not used to purchase more securities, and are thus distinguishable from traditional margin loans. Despite the fact that SBLOCs are non-purpose — and may be utilized for any number of ends, including for example creating liquidity for the purchase of a home, paying tuition, or financing the purchase of a car — FINRA has recently expressed concern over the risks associated with SBLOCs.

Specifically, through its 2018 Letter, FINRA has cautioned that “The use of SBLOCs has increased significantly in the past years, and FINRA will review firms’ compliance with sales practice and operational obligations that apply to SBLOCs.” In addition, “FINRA will assess the adequacy of disclosures firms provide customers regarding the potential risks associated with SBLOCs, including the potential impact of a market downturn….”

When recommending a SBLOC, a financial advisor is under a duty pursuant to FINRA Rule 2111 to ensure that the investment strategy is in keeping with the investor’s profile, including among other factors, his or her age, financial situation and needs, and stated investment objectives. Moreover, a financial advisor, and by extension his or her firm, must seek to ensure when marketing a SBLOC that there exists a “… reasonable basis to believe that the customer has the financial ability to meet such a commitment.”

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have suffered losses due to a range of misconduct, including the unsuitable recommendation by a broker to engage in certain investment strategies. Investors may be able to recover their losses in FINRA arbitration. Investors may contact a securities arbitration attorney at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in Business Development Corporation of America (“BDCA”) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if a broker or financial advisor made the recommendation to invest in BDCA without a reasonable basis, or misled the investor as to the nature of the investment. BDCA is a non-traded business development company headquartered in New York, New York. As a business development company (“BDC”), BDCA focuses on providing flexible financing solutions to various middle market companies, including first and second lien secured loans and debt issued by mid-sized companies.

As an investment vehicle, BDCs first emerged in the early 1980’s following legislation passed by Congress making certain amendments to federal securities laws. These legislative changes allowed for BDC’s — types of closed end funds — to make investments in developing companies and firms. Many brokers and financial advisors have recommended BDCs as investment vehicles to their clientele, touting the opportunity for retail investors to earn enhanced dividend income while participating in private-equity-type investing previously unavailable to the average retail investor.

While BDCs may arguably offer an attractive investment opportunity, non-traded BDCs, such as BDCA, are very complex and risky investment products. Non-traded BDCs, as their name implies, do not trade on a national securities exchange, and are therefore illiquid products that are hard to sell (investors can typically only sell their shares through redemption with the issuer, or through a fragmented and illiquid secondary market). Further, non-traded BDCs such as BDCA have high up-front commissions and fees (typically as high as 10%), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.

As of September 30, 2016, BDCA reported a net asset value (“NAV”) of $8.58 per share, which is $0.39 lower than the NAV as of December 31, 2015. Moreover, the share repurchase program for BDCA is oversubscribed and repurchases of shares are only made semi-annually (or twice per year). Therefore, it is unlikely that an investor in BDCA will be able to redeem their entire investment through BDCA’s repurchase program. For example, as of December 2016, 17 million shares were submitted for tender. However, BDCA purchased only 6.7 million of these shares.

With respect to secondary market liquidity, one secondary trading platform recently listed shares of BDCA for only $6.49 per share. For investors who wish to sell out of BDCA through the secondary market, it appears they will sustain considerable losses on their initial capital investment in order to exit their illiquid investment position.

Before recommending a nonconventional investment product to a customer, such as a non-traded BDC, broker dealers are first required to perform adequate due diligence on that investment. In addition, brokers and broker dealers are required to perform a suitability analysis, in order to determine if the investment product is suitable for that investor based on his or her age, risk tolerance, net worth and income, investment experience, etc.

If you have invested in BDCA, or another similar illiquid ‘alternative investment product’ and you have suffered losses in connection with your investment (or are currently unable to exit your investment position without incurring losses), you may be able to recover your losses in FINRA arbitration. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

As we discussed in a recent blog post, investors in American Realty Capital Healthcare Trust III Inc. (“ARC HT III”) may be able to recover losses on their investment in FINRA arbitration. Sponsored by AR Global, ARC HT III is a publicly registered non-traded real estate investment trust (“REIT”) based in New York, NY. As its name implies, this non-traded REIT is primarily focused on investing in healthcare-related assets including medical office buildings, seniors housing and other healthcare-related facilities.

ARC HT III raised approximately $168 million in investor equity prior to cancellation of its offering, due in large part to a series of scandals concerning AR Global. As recently as July 2017, ARC HT III announced an estimated net asset value (“NAV”) per share of $17.64. Investors who participated in the offering bought in at $25 per share. Additionally, on July 18, 2017, the ARC HT III Board determined that it would cease paying distributions beginning in August 2017.

One of the risks associated with investing in non-traded REITs concerns the viability of the distribution payment. At its discretion, the board of a non-traded REIT may well decide to substantially reduce, or altogether suspend, payments of distributions to investors. This is troubling, particularly because many investors are advised to purchase non-traded REITs as a means of earning enhanced income. Another risk associated with investing in non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition, non-traded REITs like ARC HT III generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. These fees act as an immediate ‘drag’ on any investment and can serve to compound losses.

According to publicly available SEC filings, on December 21, 2017, ARC HT III shareholders voted their approval at the annual meeting to liquidate and dissolve the non-traded REIT. As part of this plan of liquidation, shareholders also approved the sale of substantially all of its assets to an affiliated non-traded REIT, Healthcare Trust Inc., for $120 million. In connection with ARC HT III’s plan of liquidation, the board approved an initial liquidating distribution to shareholders of $15.75 a share of common stock, to be paid on January 5, 2018, to stockholders of record as of December 22, 2017. ARC HT III estimates that shareholders will receive approximately $17.67 – $17.81 a share of common stock.

Given the initial purchase price of $25, ARC HT III shareholders who receive $17.81 will take a nearly 30% haircut on their investment. Even when factoring in distributions previously paid to shareholders, it would appear that ARC HT III shareholders will incur losses on their investment.

If you have invested in ARC HT III, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. Investors may contact contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

American Finance Trust (“AFIN”), formerly known as American Realty Capital Trust V, Inc., is a publicly registered non-traded real estate investment trust (“REIT”) that is based in New York, NY. Incorporated on January 22, 2013 as a Maryland REIT, AFIN is a diversified REIT with a focus on retail properties. As of September 30, 2017, AFIN owned a total of 517 properties. Because AFIN is registered with the SEC, the non-traded REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.

AFIN commenced its initial public offering in April 2013, which closed approximately six months later, raising $1.6 billion in investor equity. Investors who participated in the IPO paid $25 per share. In February 2017, AFIN completed a merger with another affiliated non-traded REIT: American Realty Capital – Retail Centers of America.

Non-traded REITs pose many risks that may not be readily apparent to 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 AFIN generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high fees (perhaps as high as 13-15%) act as an immediate ‘drag’ on any investment and can serve to compound losses.

Another significant risk associated with non-traded REITs concerns their illiquid nature. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, many investors in non-traded REITs like AFIN, who may well have been uninformed of their liquidity issues, have come to learn too late that they can only redeem shares directly with the sponsor (and only then on a limited basis, and often at a disadvantageous price), or alternatively, sell the shares through a limited and fragmented secondary market.

On July 14, 2017, AFIN’s Board of Directors (“Board”) unanimously authorized a decrease on the dividend from $1.65 to $1.30 on an annualized basis. Furthermore, the Board also amended the share repurchase program, to be effective July 14, 2017. Under the new plan, investors in AFIN seeking to exit their investment position and sell shares back to the company may only do so following the death or qualifying disability of a stockholder.

Investors seeking to sell their AFIN shares through the secondary market are also encountering liquidity issues and the pricing inefficiency which tends to negatively impact illiquid investments. For example, shares of AFIN were recently listed on Central Trade & Transfer – a secondary market for private placements – at approximately $15.60 per share. Based on this price, and even when accounting for AFIN distributions, it appears that shareholders who purchased at $25 per share through the IPO will likely sustain considerable losses on their initial capital investment.

Brokers, and by extension their firm, are required to perform adequate due diligence on any investment that they recommend. Further, brokers are required to conduct a suitability analysis in order to determine if the recommended investment is in keeping with the investor’s stated objectives and risk profile.

If you have invested in AFIN, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

As part of its ongoing regulatory focus on variable annuity (“VA”) sales misconduct, the Financial Industry Regulatory Authority (“FINRA”) has recently barred a former Next Financial Group (“Next Financial”) (CRD# 46214) broker. Registered representative JoeAnn Walker (CRD# 2210194) was previously affiliated with Commonwealth Financial Network (1998-2006), LPL Financial LLC (2006-2015), and most recently, NEXT Financial – until her termination by her former employer in October. According to FINRA, it was conducting an inquiry into whether Ms. Walker was engaging in possible unsuitable VA sales practices.

As we have discussed in several recent blog posts, FINRA has ramped up its efforts in recent months to target VA sales practice misconduct. Since handing down a $20 million fine against MetLife Securities, Inc. (“MSI”) in May, 2016 (in addition, FINRA ordered MSI to pay $5 million to customers in connection with allegations of making negligent material misrepresentations and omissions on VA replacement applications), FINRA enforcement has continued to fine numerous member firms and investigate certain financial advisors concerning variable annuity sales practice issues.

In particular, FINRA has targeted brokers recommending unsuitable VAs, in the first instance, as well as recommending the sale of one VA for another in order to generate commissions (a practice akin to churning, and commonly referred to as “switching”). According to publicly available information through FINRA, Ms. Walker has three prior customer complaints, each of which resulted in a settlement. Most recently, in March 2016, a customer initiated a dispute against Ms. Walker, alleging “… unauthorized sales of various stocks, unauthorized and unsuitable purchases of variable annuities and unauthorized mutual fund switches between June 2014 and June 2015.” That FINRA proceeding alleged damages of $208,764 and ultimately settled for $175,000.

VAs are very complex financial products that typically charge significant commissions and fees. When a financial advisor sells a VA, they will usually receive a sizeable commission, ranging anywhere from 3-7%. Additionally, the VA contract carries various fees, such as a mortality expense (in connection with the contract’s death benefit), investment expenses associated with the sub-accounts holding securities, and administrative expenses on the hybrid security / insurance product.

Before recommending an investment product, applicable rules and regulations mandate that a financial advisor must first conduct a suitability analysis in order to determine whether the product best meets the investor’s stated objectives and profile. Moreover, under applicable industry rules and regulations, brokerage firms like NEXT Financial and Commonwealth Financial are charged with supervising their registered representatives.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have suffered losses due to a range of misconduct, including cases involving variable annuities. Investors may be able to recover their losses in FINRA arbitration. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

If you have invested in HMS Income Fund (“HMS”) upon the recommendation of your financial advisor, you may be able to recover your losses through arbitration before the Financial Industry Regulatory Authority (“FINRA”). A Maryland corporation formed in 2011, HMS is sponsored by Hines Interests Limited Partnership (“Hines”). HMS is structured as a closed-end management investment company, and pursuant to the Investment Company Act of 1940 operates as a public, non-traded business development company (“BDC”). HMS’s business focuses on providing mezzanine debt and equity financing to various private middle market companies. As of June 30, 2017, HMS has provided debt financing to 119 companies across a spectrum of industries. As an investment vehicle, BDCs have been available since the early 1980’s (when Congress enacted legislation making certain amendments to federal securities laws allowing for BDC’s to make investments in developing companies and firms). Frequently, financial advisors have recommended BDCs, allowing for Mom and Pop retail investors to participate in private-equity-type investing. Many income-oriented investors are attracted to BDCs because of their characteristic enhanced dividend yield. Traded BDCs that are listed (and thus sold and resold) on national securities exchanges may offer an attractive investment opportunity (although with enhanced dividend yield comes additional risk). However, non-traded BDCs are altogether different, and should be regarded as risky, complex and illiquid investment products. As their name implies, non-traded BDCs do not trade on a national securities exchange, and are therefore illiquid products that are difficult to sell. Typically, investors can only sell their shares through redemption with the issuer, or through a fragmented and inefficient secondary market. Moreover, non-traded BDCs such as HMS usually have high up-front fees (typically as high as 10%), which are paid to the financial advisor selling the product, his or her broker-dealer, and the wholesale broker or manager. The publicly available HMS prospectus filed with the Securities and Exchange Commission (“SEC”) indicates that shares of HMS were offered to investors at $10 per share “[l]ess the 10% sales load….” Additionally, the prospectus references offering expenses to investors of 1.50%. Therefore, investors who bought into HMS at the offering price of $10 per share were immediately charged 11.5% of their initial capital outlay in expenses. Such high up-front expenses create significant risk, particularly for the uninformed investor. As of November 1, 2017, HMS’ board of directors has disclosed that the net asset value (“NAV”) of HMS shares is $8.22 per share. For investors who purchased shares of HMS through the offering, it appears they have sustained losses approaching 20% (excluding fees). Furthermore, because HMS is a non-traded investment product, HMS investors will encounter difficulty in exiting their investment position, and will only be able to do so through direct redemption with the sponsor (and likely at a discount, or alternatively, through selling their shares on a limited and fragmented secondary market (likely at a discount to NAV). Before recommending a nonconventional investment product such as HMS to a customer, financial advisors and their employers are first required to perform adequate due diligence on that investment. In addition, brokers, and by extension their employer, are required to perform a suitability analysis, in order to determine if the investment product is suitable for that investor based on factors including the investor’s age, risk tolerance and stated objectives, net worth and income, and prior investment experience. If you have invested in HMS, or another non-traded BDC or similar ‘alternative investment product’ and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring losses), you may have legal claims to be pursued through FINRA arbitration. To find out more about your rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

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”).

The majority of private placements are offered under an exemption from registration requirements known as SEC Regulation D (“Reg D”). Among other things, Reg D provides certain safe-harbor exemptions to securities registration, and furthermore specifies the amount of money that can be raised in an offering, as well as the type of investor who may be solicited to invest in such a non-public offering. With certain exceptions, only retail investors who meet the “accredited investor” standard are permitted to invest in a private placement. Rule 501 defines an accredited investor as any person whose net worth exceeds $1,000,000 (excluding their residence), or alternatively who has income in excess of $200,000 per year ($300,000 jointly with a spouse) for the two most recent years.

Private placements might involve investing in a company’s stock in the form of shares, preferred stock, or even a debt instrument such as a bond, promissory note or debenture offering. When making an investment in a private placement, you should first receive and carefully review the PPM. The PPM is required to disclose all material facts about the investment. Any misrepresentation or any omission of a material fact necessary to make the statements in the PPM not misleading could give rise to liability where an investor suffers losses and the PPM is misleading or omits certain critical information.

SOME RISKS AND RED FLAGS ASSOCIATED WITH PRIVATE PLACEMENTS

An investor considering a private placement should be aware of their risks and be on the lookout for any potential red flags. In fact, the Financial Industry Regulatory Authority (“FINRA”) has previously issued an investor alert to inform the public about the risks and the potential for fraud and sales abuse concerning private placements.

To begin, FINRA has cautioned that by virtue of their limited offering documents (PPM versus more detailed prospectus), private placements will likely only provide prospective investors with limited information concerning a company and its financials. In addition, FINRA has warned investors about the illiquid nature of most private placement investments — before investing, an informed investor should first determine if he or she can allow their money to remain tied up for an extended period of time (usually several years) because private placement securities cannot be easily resold due to restrictions on their resale and the lack of a public market such as a stock exchange on which to sell them.

FINRA has also alerted investors to be very cautious of any private placements that you hear about through spam email or cold calling. Often, this is a red flag and a sign of fraud, and an investor should proceed with the utmost caution.

HAVE YOU INVESTED IN SECURITIES THROUGH A PRIVATE PLACEMENT?

If you have purchased unregistered securities through a private placement – and you have suffered considerable losses due to what you believe involved fraud, sales abuse or an unsuitable recommendation by a broker – you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

The Fund describes itself as a non-diversified, closed-end management investment company, with an investment objective of seeking a high total return with an emphasis on current income, that seeks to provide shareholders with a tax-efficient vehicle to invest in a portfolio of energy-related U.S. royalty trusts, exploration and production master limited partnerships.

Cushing & Royalty Income Fund was underwritten by these broker-dealers

• Stifel, Nicolaus & Company

• RBC Capital Markets

• Oppenheimer & Co.

• Robert W. Baird & Co.

• BB&T Capital Markets, a division of Scott & Stringfellow

• Ladenburg Thalmann & Co.

• Wunderlich Securities

• Maxim Group

Customers of these firms may have had the Cushing Royalty & Income Fund recommended to them as part of the initial distribution of shares.

Brokers and financial advisors are required to make investment recommendations that are consistent with their clients’ risk tolerance, net worth, investment objectives and experience in the market. However, high sales commissions can lead brokers and financial advisors to disregard these responsibilities and recommend higher-risk products that also carry high commissions.

If you have suffered significant losses as a result of unsuitable recommendations of Cushing Royalty & Income Fund or another oil and gas-linked investment by a stockbroker or financial advisor, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investor rights attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Non-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):

American Realty Capital – Retail Centers of America, Inc.

American Realty Capital Daily Net Asset Value Trust, Inc.

American Realty Capital Healthcare Trust II, Inc.

American Realty Capital Hospitality Trust, Inc.

American Realty Capital New York City REIT, Inc.

American Realty Capital Trust V, Inc.

Behringer Harvard Opportunity REIT I

Behringer Harvard Opportunity REIT II

Carey Watermark Investors Incorporated

Carter Validus Mission Critical REIT

CNL Growth Properties

CNL Healthcare Properties Inc.

CNL Lifestyle Properties, Inc.

Cole Credit Property Trust IV, Inc.

Cole Credit Property Trust V, Inc.

Cole Office & Industrial REIT

Cole Real Estate Income Strategy (Daily NAV), Inc.

Corporate Property Associates 17 – Global, Inc.

Corporate Property Associates 18 – Global

Dividend Capital Diversified Property Fund Inc.

Global Income Trust, Inc.

Griffin Capital Essential Asset REIT, Inc.

Griffin-American Healthcare REIT III

GTJ REIT, Inc.

Hines Global REIT, Inc.

Hines Real Estate Investment Trust, Inc.

Industrial Income Trust, Inc.

Inland Real Estate Income Trust, Inc.

InvenTrust Properties Corp.

Jones Lang LaSalle Income Property Trust, Inc.

KBS Legacy Partners Apartment REIT, Inc.

KBS Real Estate Investment Trust I, Inc.

KBS Real Estate Investment Trust II, Inc.

KBS Real Estate Investment Trust III

KBS Strategic Opportunity REIT, Inc.

Northstar Healthcare Income, Inc.

Northstar Real Estate Income II, Inc.

Northstar Real Estate Income Trust, Inc.

Phillips Edison Grocery Center REIT I, Inc.

Phillips Edison Grocery Center REIT II, Inc.

Realty Finance Trust, Inc.

RREEF Property Trust

Steadfast Income REIT

Strategic Realty Trust Inc.

TIER REIT Inc.

United Realty Trust, Inc.

Brokers and financial advisors are required to make investment recommendations that are consistent with their clients’ risk tolerance, net worth, investment objectives and experience in the market. However, due to the high sales commissions brokers typically earn for selling REITs – as high as 15%- brokers can be tempted to make “one size fits all” recommendations to investors in order to reap commissions. These high up-front fees and commissions can negatively affect performance over time, as illustrated by the estimated $50 billion that non-traded REITs have cost customers.

If you have suffered significant losses as a result of unsuitable recommendations of non-traded REITs or other non-conventional investments by a stockbroker or financial advisor, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investor rights attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On March 27, a complaint was filed with the Financial Industry Regulatory Authority Office of Hearing Officers against Birli and Chapin regarding the State University of New York retirement program. According to the complaint, Birli and Chapin recommended their customers switch MetLife variable Annuities with new ones held outside the retirement plan in MetLife IRA accounts.

Allegedly, Birli and Chapin circumvented their firm’s general prohibition of direct annuities exchange by recommending to their customers that they surrender their annuities to purchase another product available within the retirement program, wait 90 days, and then sell the second product in order to purchase the MetLife IRA annuity.

According to stock fraud lawyers, the new annuities were unsuitable because their liquidity was affected by the seven-year surrender schedules they came with. Furthermore, investors lost accrued death benefits above and beyond their contract value. Allegedly, Birli and Chapin each received commissions of 7.15 percent through the switch.

Variable annuities are a type of insurance product. With this product, the investor pays into an account now in exchange for the guarantee of a future payout. The investment is tied to a stock index return, making it variable. According to securities fraud attorneys, 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 you suffered significant losses as a result of an unsuitable recommendation regarding variable annuities, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a stockbroker claims lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

According to stock fraud lawyers, 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. Churning, on the other hand, is a form of broker misconduct in which the broker performs excessive trading to generate personal profit.

In addition, a firm has an obligation to properly supervise brokers and financial advisors while they are registered with the firm. If it fails in this duty, securities fraud attorneys say it may be held liable for customer losses. One Statement of Claim has already been filed with the Financial Industry Regulatory Authority against the firm, alleging that Douglas Guarino, Lawrence Lee and Robert E. Lee had churned a client’s account. The claim is seeking damages for excessive trading, churning, fraud and unsuitable recommendations.

Reportedly, FINRA recently barred Robert E. Lee from the securities industry for “providing inaccurate written information to a customer regarding the customer’s account and investments” and was discharged from a different employer after allegations regarding customer account handling. He has at least five judgments or liens, two internal reviews and seven customer complaints. Douglas Guarino has had ten disclosed complaints from customers.

If you have done business with Douglas Guarino, Lawrence Lee or Robert E. Lee and you believe you received unsuitable recommendations or that your account was churned, 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.

Reportedly, from January until May 2013, investors spent $10.3 billion on real estate funds. However, in May 2013, the Federal Reserve began discussing tapering its purchase of assets under the so-called “quantitative easing” policy, causing a spike in interest rates, and REITs suffered a loss of 5.9 percent in that month alone. As prices fell, investors pulled $2.5 billion out of REITs, suffering significant losses. Then, last month, the Federal Reserve tapered its bond-buying program from $85 billion per month to $75 billion per month.

According to a Wall Street Journal article last month, “You should own REITs because you want to diversify some of the risks of stocks and bonds and to combat inflation — not because you are chasing high dividend yields or because you think the hot returns of the past will persist.” The articles goes on to say, “Anyone who overpays for lower-quality, higher-yielding assets could be crushed if interest rates rise sharply.”

According to securities arbitration lawyers, firms and brokers 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. Investment fraud lawyers believe that many investors may have received unsuitable recommendations of real estate investment trusts, or that their portfolios may have been unsuitably over-concentrated in REITs.

If you suffered significant losses because of the unsuitable recommendation or over-concentration of REITs, you may have a valid Financial Industry Regulatory Authority arbitration claim. 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 or newcases@investorlawyers.net for a no-cost, confidential consultation.