Wisconsin based B.C. Ziegler & Co. (Ziegler) was recently hit with a $311,000 judgment in a decision made by a FINRA arbitration panel. The claimant alleged negligent misrepresentation, suitability, negligence, failure to supervise, and violation of Wisconsin Uniform Securities Act. The claim related to the recommendation to purchase private placement securities in the Subordinated Taxable Adjustable Mezzanine Put Securities (STAMPS) offered by Erickson Retirement Communities, LLC (Erickson).
The claimant alleged that less than two years after its investment, Erickson filed for bankruptcy and the STAMPS investment became worthless. The claimant alleged that Ziegler failed to disclose material facts regarding the STAMPS investment and that the STAMPS recommendation was at odds with the claimant’s investment objectives. The claimant alleged that STAMPS was an illiquid subordinated debt products, not secured by any collateral, and was recommended to the claimant at a time when private and commercial loan environments were experiencing extreme stresses. Further, the claimant alleged that they were recommended the investment even though Erickson’s financial situation was steadily worsening.
Other complaints filed against Ziegler in connection with the Erickson private placement have made similar allegations against the firm. According to a Chicago Tribune article, claimants have alleged that their broker promised returns of 11 percent to 12 percent but minimized or failed to disclose the risks, including how their cash would be tied up for years. Due to stock market volatility, broker promises of fixed returns from a stable investment often entice clients to follow their broker’s recommendation to invest in private placements. In addition, private placements are supposed to be sold to only accredited investors who meet certain net worth or income requirements. Some of the investors have claimed that they were instructed to provide incorrect financial information in order to meet the accredited investor standard, a claim that has become more and more common as brokerage firms seek to sell private placements to a wider field of investors.
Ziegler has stated that the claims made by investors against the firm are meritless and have asserted the classic broker defenses that usually seek to hold the investor responsible for following their agent’s recommendation. Ziegler argues that clients are given documents containing disclosures and that all clients must sign forms stating that the investments are suitable for them. In addition, brokerage firms typically argue that the customer is “sophisticated” and understands the risk.
However, the FINRA panel found these arguments unpersuasive and awarded one claimant damages stemming from their investment. The attorneys at Gana LLP are experienced in handling claims involving the inappropriate recommendation of private placement securities. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.