Articles Tagged with Triad Advisors

shutterstock_178801082The investment fraud lawyers of Gana LLP are investigating the employment termination filed with The Financial Industry Regulatory Authority (FINRA) by Royal Alliance Associates, Inc. (Royal Alliance) and the regulatory action filed by FINRA involving broker Darrin Farrow (Farrow). According to BrokerCheck records Farrow has been subject to one customer complaint, one employment separation for cause, and two regulatory actions.

According to Royal Alliance, the firm terminated Farrow after alleging Farrow received information that he was involved in an outside business activity not approved by the firm.  Thereafter, in June 2016, FINRA suspended Farrow after alleging he participated in two undisclosed outside business activities (OBAs) without disclosing his involvement to his firm. (FINRA No. 2015045751101).  FINRA found that Farrow founded an unincorporated entity that provides consulting services to the cannabis industry and also cultivates, produces, and manufactures cannabis and he also formed a Delaware limited-liability company that grows cannabis and supplies it to dispensaries throughout Oregon.  According to FINRA Farrow participated in undisclosed private securities transactions with firm customers involving the sale of $1 million of membership interests.

The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.  According to brokercheck records Farrow has disclosed OBAs listed as including MonsterShares LLC – an investment related business, Mad Farmaceuticals, DBF Properties, LLC, Adviceware, and MM Herndon LLC.  Often times, brokers sell promissory notes and other investments through side businesses as accountants, lawyers, real estate brokers, or insurance agents to clients of those side practices.

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shutterstock_143685652The investment lawyers of Gana LLP are investigating the regulatory action brought by the Financial Industry Regulatory Authority (FINRA) against Christopher Tolmacs (Tolmacs) working out of Portage, Michigan alleging that the broker borrowed client funds.  The providing of loans or selling of promissory notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.  According to the FINRA regulatory action (FINRA No. 20160489663-01) Tolmacs consented sanctions in the form of a permanent bar because he failed to provide documents and information requested by FINRA during the course their investigation into allegations that he borrowed funds from multiple customers.

At this time it unclear the nature and scope of Tolmacs’ outside business activities and private securities transactions.  However, according to Tolmacs’ public records his outside business activities includes Harbinger Financial Group, Inc – listed as an insurance agency, and Harbinger Asset Management, Inc which is listed as a registered investment advisory firm.  Often times, brokers sell promissory notes and other investments through side businesses as accountants, lawyers, or insurance agents to clients of those side practices.

In addition, Tolmacs has been subject to significant tax liens totaling over $225,000 in late 2015.  Tax liens and judgements can provide an economic incentive to brokers to violate the securities laws to garner higher commissions and income.

Tolmacs entered the securities industry in 2003.  From April 2008 until March 2016, Tolmacs was associated with  Triad Advisors, Inc.

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shutterstock_146470052This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.

In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.

In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.

In fact, of the 28 people interviewed by Reuters who invested in deals from Atlas, Reef Oil & Gas Partners, Discovery Resources & Development LLC, and Black Diamond Energy Inc. 17 were retirees who had low tax burdens when the product was recommended to them.

By now you may be asking, how do these deals even get issued? First, the private placement market is very opaque. Issuers are only required to file a statement to exempt the security from registration and a few other details about the investment. Second, investors rely upon the brokerage industry’s due diligence on each issue they sell to ensure its suitability for investors. But many brokers use outside due-diligence firms that may be paid by the issuer, a conflict of interest, when evaluating deals. Indeed, some of the largest securities frauds in the private placement space have been the result of reliance on third-party due diligence.

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shutterstock_103610648As recently reported in Reuters, Atlas Energy LP has marketed itself to investors as a way to get into the U.S. energy boom. By contributing at least $25,000 in a private placement partnership that will drill for oil and gas in states such as Texas, Ohio, Oklahoma and Pennsylvania and share in revenues generated from the wells. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal sounds good when pitched: participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of fossil fuels into potentially viable prospects and to boot Atlas will invest up to $145 million of its own capital alongside investors. Through this method and similar deals, oil and gas projects have issued nearly 4,000 private placements since 2008 seeking to raise as much as $122 billion.

But before you take the plunge a review of the Atlas’s offering memorandum reveals some red flags and given Atlas’ past failure rate investors should think twice. First, up to $45 million of the money raised will be paid to Atlas affiliate Anthem Securities that will then be turned over to as commissions to broker-dealers who pitch the deal to investors. Up to $39 million more will be used to buy drilling leases from another affiliate. Think investors will get a fair price on the leases when Atlas controls both sides of the deal? More conflicts ahead as Atlas affiliated suppliers may also get up to $53 million for buying drilling and transport equipment. Next, an additional $8 million of Atlas’s investment is a 15 percent markup on estimated equipment costs. Finally, Atlas will pay itself nearly $52 million in various other fees and markups.

In sum, at least 40% of Atlas’s $145 million investment alongside mom and pop goes right back to the company. In addition, Atlas’ profits don’t stop there, when the venture starts generating revenue Atlas is entitled to 33% before accounting for those payments and markups. In the end, not much of a risk at all for Atlas.

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shutterstock_94332400Despite the broad market’s recent volatility, 2013 brought the twenty-five largest independent broker dealers double-digit revenue growth on average, according to an Investment News report. After a weak 2012, these independent broker dealers roared to a 13.2% year over year increase in revenue, recording $18.46 billion in 2013 according to this year’s Investment News survey.

The overall strength of the S&P 500, gaining 29.6% in 2013 was one contributing factor to the 2013 success of independent broker dealers. The other factor however, was a flood of commissions generated from record sales of alternative investment products, namely non-traded real estate investment trusts (REITs). As Eric Schwartz, chief executive of Cambridge Investment Research explained, “There were two reasons for last year’s results. The stock market was up 30%, and there was an unusually high percentage of dollars in alternatives and REITs being sold. Remember, a number of REITs had public listings, and clients reinvested back into other REITs.”

According to the Investment News survey, the top ten independent broker-dealers with the most growth from alternative investments include: (1) Independent Financial Group; (2) Triad Advisors; (3) Royal Alliance Associates; (4) National Planning Corp.; (5) First Allied Securities; (6) Lincoln Financial Network; (7) Cambridge Investment Research; (8) Commonwealth Financial Network; (9) Ameriprise Financial Services; 10) LPL Financial.

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On March 12, 2014, the Financial Industry Regulatory Authority (FINRA) announced that it sanctioned and fined Triad Advisors and Securities America, $650,000 and $625,000, respectively, for failing to supervise the use of consolidated reporting systems, after brokers from the firms inaccurately represented the value of some customer holdings, often inflating their overall worth.

Triad Advisors and Securities America, both registered broker dealers, had internal systems designed to generate consolidated reports—documents intended to combine most, if not all, of a customer’s financial holdings, regardless of where those assets or accounts are held. These reports do not replace account statements, but rather supplement the more traditional document. These two broker dealers, however, maintained consolidated report systems that allowed their respective brokers and representatives to manually create, rather than automatically generate, consolidated reports. In doing so, representatives from Triad and Securities America were able to customize the reports by manually inputting the data, entering asset values for accounts held away from the firm before providing the reports to customers.

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