Articles Tagged with Non-Traded Reits

shutterstock_54385804Our investment attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against David White (White) currently associated with Centaurus Financial, Inc. (Centaurus) alleging unsuitable investments and breach of fiduciary duty among other claims.  According to brokercheck records White has been subject to eleven customer complaints.  Many of the complaints involve direct participation products (DPPs) such as non-traded real estate investment trusts (REITs) and other alternative investments.

Our firm has experience representing investment fraud victims with these investments against Centaurus.  See Gana LLP Wins Arbitration Award On Behalf of Client Against Centaurus Financial.  In that case, the Claimant alleged that the broker involved invested over $2,000,000 in exclusively high cost products and 50% of those investments were in alternative investments such as private placements, oil and gas partnerships, and REITs.  The other 50% was invested in variable and equity-indexed annuities.  The panel found that “the investments Hashemian recommended while at Centaurus were not suitable and in [Claimant’s] best interests. [Claimant] also provided sufficient evidence to meet her burden of proof to support her allegations in her Statement of Claim that the actions by Hashemian, for which Centaurus is responsible, constitute fraudulent and negligently made material misrepresentations and omitted material information in the sale of the investments to [Claimant].”  Award Can Be Found Here.

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shutterstock_128655458The securities fraud lawyers of Gana LLP are investigating customer complaints and regulatory actions filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Richard Poston (Poston). According to BrokerCheck records, Poston has spent 20 years in the securities industry and was most recently registered with H. Beck, Inc. (H. Beck) in Plano, Texas.  Poston is currently not licensed to act as a broker or an investment adviser.  Over his career, Poston has been the subject of at least four customer complaints, one regulatory investigation, one employment separation for cause, and one bankruptcy.

The most recent regulatory investigation was filed in December 2015 by FINRA alleging potential violations of FINRA Rules 2010, 2150, 3240, and 8210. These rules revolve around standards of commercial honor and equitable principles of trade, improper use of customers’ securities or funds, the borrowing or lending money from or to any customer without written approval.

The most recent complaint was filed in March 2016 while employed at H. Beck alleging that Poston, from October 2007, until September 2015 made unsuitable concentrated and illiquid investments in non-traded REIT’s.  The claim is currently pending.

Our firm often handles cases involving direct participation products (DPPs) and private placements including oil and gas partnerships, non-traded real estate investment trusts (REITs), and other alternative investments.

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shutterstock_189496604The securities lawyers of Gana LLP are investigating a complaint filed by The Financial Industry Regulatory Authority (FINRA) against brokerage firm VFG Securities, Inc. (VFG) and its CEO Jason Vanclef (Vanclef) (FINRA No. 2013038283001).  The complaint alleges that approximately 95 percent of VFG’s revenue was obtained from the sale of non-traded direct participation products (DPPs) and non-traded REITs and other alternative investments such as equipment leasing programs and oil & gas private placements between approximately November 2010 and June 2012.  Even though alternative investments are highly speculative and illiquid investments that have little to no place in the average investor’s portfolio, FINRA alleged that VFG failed to reasonably supervise the sale of illiquid alternative investments, including non-traded DPPs and non-traded REITs, to ensure that customers did not become overly concentrated in these products.

According to FINRA, VFG’s alternative investment strategy comes from a book distributed by the firm to customers and authored by Vanclef entitled Wealth Code: How the Rich Stay Rich in Good Times and Bad (The Wealth Code).  FINRA found that Vanclef used The Wealth Code as sales literature to promote investments in non-traded DPPs and non-traded REITs, and to lure potential investors to VFG.  FINRA claims that Vanclef repeatedly claimed in The Wealth Code that non-traded DPPs and non-traded REITs offer both high return and capital preservation among other claims.  However, FINRA has found that the these claims are false, inaccurate, misleading, and contradicted information provided in the prospectuses of the products that Vanclef and VFG sold.

FINRA stated that non-traded DPPs and non-traded REITs are speculative investments that contain a high degree of risk, including the risk that an investor may lose a substantial portion or all of his or her initial investment.  Yet, Vanclef claimed in The Wealth Code that by investing in “real” or “tangible” assets and other instruments that he recommended, investors could “reasonably achieve 8-12% results,” on their investments and “get consistent returns” that provided “piece [sic] of mind.”

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shutterstock_20354398The securities lawyers of Gana LLP are investigating a complaint filed by The Financial Industry Regulatory Authority (FINRA) against broker Gopi Krishna Vungarala (Vungarala) and his brokerage firm Purshe Kaplan Sterling Investments (Purshe Kaplan). FINRA alleged that from at least June 2011 through January 2015, Vungarala regularly lied to his customer who is a Native American tribe regarding commissions paid to the broker and firm on non-traded real estate investment trusts (Non-Traded REITs) and business development companies (BDCs).

Vungarala served the tribe as both a financial advisor and was employed by the tribe as its Treasury Investment Manager and participated in decisions regarding the tribe’s investments. According to FINRA, Vungarala knew that the tribe prohibited employees such as Vungarala from engaging in business activities that could constitute a conflict of interest with the tribe. In order to induce the tribe to make purchases in Non-Traded REITs and BDCs in light of the prohibition against conflicts of interests Vungarala falsely represented to the tribe that he would not receive any commissions on the purchases. Despite the prohibition and the representations, FINRA alleged that Vungarala fraudulently induced the tribe to invest $190 million of dollars in Non-Traded REITs and BDCs without revealing that he and his firm received commissions on the sales at a typical rate of 7% generating $11.4 million in commissions for Purshe Kaplan of which $9.6 million was paid to Vungarala.

Worse still, FINRA alleged that the tribe was eligible to receive volume discounts on the products purchased but instead paid full commission. FINRA alleged that Purshe Kaplan’s supervisory failures led to the volume discounts not being applied. FINRA alleged that the tribe failed to receive more than $3.3 million in volume discounts and that these funds funds were instead paid to Purshe Kaplan and Vungarala in the form of commissions.

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shutterstock_162924044The securities lawyers of Gana LLP are investigating customer complaints against broker Howard Slater (Slater). In addition, The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2015046156301) against Slater. There are at least 18 customer complaints against Slater and 2 regulatory actions. The customer complaints against Slater allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, breach of fiduciary duty, and unauthorized trading among other claims.

The most recent customer complaint was filed in November 2013 and alleges unsuitable investments, fraud, and negligence concerning investments in alternative investments in real estate investments. The complaint seeks $90,000 in damages. In another complaint filed in July 2013, a customer complained that Slater misinformed her regarding the risks of three non-traded real estate investment trusts (Non-Traded REITs).

In a FINRA regulatory action against Slater, the agency alleged that in February 2008 and August 2008, Slater sent emails to two customers in connection with their purchases of IMH Secured Loan Fund, LLC (IMH Fund) that contained misrepresentations regarding the features of the IMH Fund. In addition, according to FINRA, in March 2008, Slater sent an email to a customer that contained exaggerated and misleading statements about the safety of the IMH Fund. Finally, FINRA found that in April 2008, Slater caused an SAI customer’s account records to reflect false annual income and net worth information that caused the business records maintained by his firm to be inaccurate.

Slater entered the securities industry in January 1994. Since July 2005 Slater has been registered with Securities America, Inc. out of the firm’s Mayfield Heights, Ohio.

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shutterstock_93851422The securities lawyers of Gana LLP are investigating customer complaints against Timothy Tremblay (Tremblay). According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Tremblay has been the subject of at least 24 customer complaints. The customer complaints against Tremblay allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, breach of fiduciary duty, and unauthorized trading among other claims.

The most recent customer complaint was filed in July 2015 and alleges unsuitable investments, fraud, negligence, and elder abuse concerning investments non-traded real estate investment trusts (Non-Traded REITs) that were purchased in February 2006. The complaint seeks $800,000 in damages.

Tremblay entered the securities industry in 1986. Since May 2003 Tremblay has been associated with brokerage firm Centaurus Financial, Inc. out of the firm’s Westlake Village, California office location.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

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shutterstock_153463763According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Horning (Horning) has been the subject of at least 8 customer complaints. Customers have filed complaints against Horning alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, fraud, breach of fiduciary duty, and false statements in connection with recommendations to invest in private placements such as tenants-in-common (TICs) interests, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), and equipment leasing programs.

Horning entered the securities industry in 1993. From November 2004, until July 2009, Horning was a registered representative with Direct Capital Securities, Inc. Thereafter, since July 2009, Horning has been associated with Centaurus Financial, Inc. (Centaurus) out of the firm’s Los Angeles, California office location.

TIC investments have come under fire by many investors. Indeed, due to the failure of the TIC investment strategy as a whole across the securities industry, TIC investments have virtually disappeared as offered investments.   According to InvestmentNews “At the height of the TIC market in 2006, 71 sponsors raised $3.65 billion in equity from TICs and DSTs…TICs now are all but extinct because of the fallout from the credit crisis.” In fact, TICs recommendations have been a major contributor to bankrupting brokerage firms. For example, 43 of the 92 broker-dealers that sold TICs sponsored by DBSI Inc., a company whose executives were later charged with running a Ponzi scheme, a staggering 47% of firms that sold DBSI are no longer in business.

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shutterstock_180341738According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker John Schooler (Schooler) has been hit with at least 26 customer complaints over his career. Customers have filed complaints against Schooler alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Schooler involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs, and tenants-in-common (TICs). The majority these products are high commission based products that often pay broker commission of between 7-10%. As the research now shows these products are arguably always unsuitable for investors because they do not compensate investors for their substantial risks. See Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part II

Schooler entered the securities industry in 1993. From 1994, until July 2011, Schooler was associated with WFP Securities. From June 2011, until July 2011, Schooler became associated with JRL Capital Corporation. Finally, Since July 2011, Schooler has been associated with First Financial Equity Corporation out of the firm’s Scottdale, Arizona office location.

As a background, a Non-Traded REIT is a security that invests in different types of real estate assets such as commercial, residential, or other specialty niche real estate markets such as strip malls, hotels, storage, and other industries. There are publicly traded REITs that are bought and sold on an exchange with similar liquidity to traditional assets like stocks and bonds. However, Non-traded REITs are sold only through broker-dealers, are illiquid, have no or limited secondary market and redemption options, and can only be liquidated on terms dictated by the issuer, which may be changed at any time and without prior warning.

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shutterstock_20354398According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Brian Folland (Folland) has been hit with at least 30 customer complaints over his career and two tax liens. Customers have filed complaints against Folland alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Folland involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs. In addition, in July 2012, Folland disclosed a tax lien of $334,995 owed. Tax liens of that size provide an incentive and conflict of interest in the recommendation of high commission based products such as private placements and direct participation programs that often pay commission between 7-10%.

Folland entered the securities industry in 1995. From July 2007 until May 2013, Folland was associated with brokerage firm National Securities Corporation (National Securities) out of the firm’s Fresno, California office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

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shutterstock_24531604According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Jerry McCutchen (McCutchen) has been the subject of at least 15 customer complaints and one judgment or lien. The customer complaints against McCutchen allege a number of securities law violations including that the broker made unsuitable investments, negligence, and misrepresentations among other claims.

The claims against McCutchen involve various investments including equipment leasing, non-traded real estate investment trusts (Non-Traded REITs), and variable annuities. We have written many times about the investing dangers of these products. One quality all of these investments have in common is the fact that they come with high commissions for the broker and low probability of success for the client. Our firm has written numerous times about investor losses in these programs such as equipment leasing programs like LEAF Equipment Leasing Income Funds I-IV and ICON Leasing Funds Eleven and Twelve. The costs and fees associated with all of these investments cause the security to be so costly that significant returns are virtual impossibility. Yet, investors are in no way compensated for the additional risks of these products.

In a typical equipment leasing program upfront fees are around 20-25% of investor’s capital. As for Non-Traded REITs, it was reported in the Wall Street Journal, that a study on “Nontraded REITs are costing investors, especially elderly, retired, unsophisticated investors, billions. They’re suffering illiquidity and ignorance, and earning much less than what they ought to be earning.” In conclusion, “No brokerage should be allowed to sell these things.”

According the analysis, shareholders have lost about $50 billion for having put money into Non-Traded REITs rather than publicly exchange-traded funds. The study found that the average annual rate of return of Non-Traded REITs was 5.2%, compared with 11.9% for the Vanguard REIT Index Fund, a publicly traded REIT index.

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