The law offices of Gana LLP are investigating a series of claims before The Financial Industry Regulatory Authority (FINRA) in relation to the conduct of financial advisor Robert Smith (Smith). Smith has been accused by at least 10 customers over his career concerning allegations that Smith overconcentrated the customer’s accounts in private placement securities including equipment leasing programs, oil & gas investments, and non-traded real estate investment trusts (Non-traded REITs).
Smith has been registered with several broker dealers over the years. Starting in 2000 Smith was registered with American General Securities (n/k/a SagePoint Financial, Inc.) until May 2006. Thereafter, Smith was associated with ProEquities, Inc. until June 2010. Finally, from June 2010, until June 2014, Smith was registered with Berthel, Fisher & Company Financial Services, Inc. (Berthel Fisher). Currently, Smith is not registered with any FINRA firm. Upon information and belief, from 2006 on Smith operated his securities business under a DBA called Proactive Retirement Investing.
The large number of complaints against Smith concerning the same or similar charges of misconduct is unusual in the brokerage industry. Most brokers go their entire careers without a single complaint. A small number have one or two complaints. But only a tiny percentage have more than two customer complaints. Here, at least 10 customers have made allegations against Smith all concerning difficult to value private placement securities.
The types of products Smith recommended do immediately appear to be inappropriate to the investor. In oil & gas, Non-Traded REIT, and equipment leasing programs the investor often receives a stream of income for a number of years, maybe as much as 5 to 7 years before something goes wrong. All of sudden the income stops or the interest payments are lowered substantially. Only then does the investor learn that product is not expected to return the investor’s principal for a variety of reasons depending upon the product. These income paying securities lull investors into a false sense of security because they initially receive a stream of income and belief the investments are viable.
However, in the case of Non-Traded REITs, much of the income in the early years is merely a return of investment principal rather than income generated from the investment. If the REIT proves unprofitable, eventually the income stops or is lowered. Similarly, oil & gas private placements may only pay income for a couple of years while the well or oil venture generates income. Oil & gas ventures are often doomed to failure and only pay investors a small fraction of the amount invested. Yet these investments are often touted by unscrupulous brokers as can’t miss investments that will generate income and eventually pay principal with no discussion concerning relevant risks.
According to FINRA, there is a history of failing to supervise the concentration amounts in these types of investments at Berthel Fisher. FINRA fined Berthel Fisher $775,000 concerning allegations that the firm failed to supervise the sale of alternative investments from January 2008 to February 2012. During that time FINRA alleged that Berthel Fisher had inadequate supervisory systems and lacked proper written supervisory procedures with regards to the sales of these alternative investments, namely Non-traded REITs, managed futures, oil and gas programs, equipment leasing programs, and business development companies. FINRA also alleged that some investors were sold these products at a level of concentration that exceeded their respective investment objectives, making the sales and recommendations unsuitable. FINRA also claims that Berthel Fisher failed to train its employees on individual state suitability standards.
Investors who have suffered losses from recommended private placements may be able recover their losses through arbitration. The attorneys at Gana LLP are experienced in representing investors in cases where brokerage firms fail to supervise their representatives trading in client accounts. Our consultations are free of charge and the firm is only compensated if you recover.