Broker Investigation: Robert Blake’s Sale of Tenants-in-Common (TIC) Real Estate Investments

shutterstock_73854277According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Blake (Blake) has been the subject of at least six customer complaints, one criminal activity, and three regulatory actions. Customers have filed complaints against Blake alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations and false statements in connection with recommendations to invest in several different types of investments including private placements such as tenants-in-common (TICs) interests, variable annuities, and equity-indexed annuities.

Blake first became registered with a FINRA firm in 1974. From 2001 until November 2011, Blake was registered with Presidential Brokerage, Inc. Thereafter, Blake has been registered with Cambridge Investment Research, Inc. in the firm’s Greenwood Village, Colorado office. Blake operates out of business entity called Speer Wealth Management.

Both TICs and investment annuities have caused significant investment losses. 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.

TIC investments entail significant risks. A TIC investor runs the risk of holding the property for a significant amount of time and that subsequent sales of the property may occur at a discount to the value of the real property interest. FINRA has also warned that the fees and expenses associated with TICs, including sponsor costs, can outweigh the any potential tax benefits associated with a Section 1031 Exchange. That is, the TIC product itself may be a defective product because its costs outweigh any potential investment value or tax benefit offered to the customer.

Due to the declining sales of these products and securities industry’s increasing refusal to sell them to investors, the securities industry has implicitly acknowledged that the costs, fees, and risks associated with TIC investments outweigh any potential tax deferral benefit, a benefit that disappears at some point because eventually taxes have to be paid upon the sale of the TIC.

In the case variable annuities, these products are complex financial and insurance products. In fact, recently the Securities and Exchange Commission (SEC) released a publication entitled: Variable Annuities: What You Should Know encouraging investors to ask questions about the variable annuity before investing. Essentially, a variable annuity is a contract with an insurance company under which the insurer agrees to make periodic payments to you. The investor chooses the investments made in the annuity and value of your variable annuity will vary depending on the performance of the investment options chosen. The primary benefits of variable annuities are the death benefit and tax deferment of investment gains.

However, the benefits of variable annuities are often outweighed by the terms of the contract that include exorbitant expenses such as surrender charges, mortality and expense charges, management fees, market-related risks, and rider costs.

The number of complaints made by investors against Blake is relatively large by industry standards. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must disclose different types of events, not necessarily all of which are customer complaints. These disclosures can include IRS tax liens, judgments, and even criminal matters.

Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana LLP are experienced in representing investors in cases of unsuitable investments and brokerage firm’s failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.