Previously financial advisor John Loofbourrow (Loofbourrow), previously employed by brokerage firm Demopolis Capital INC. has been subject to at least 2 disclosable events. These events include one customer complaint, one regulatory event. According to a BrokerCheck reports most of the recent customer complaints concern either corporate debt securities or alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $800,000.00 on October 24, 2020.
From 8/15 through 12/15 claimant made investments in a private placement of Concord Group Holdings which claimant alleges was a Ponzi scheme.
FINRA BrokerCheck shows a final customer complaint on June 11, 2020.
Without admitting or denying the findings, Loofbourrow consented to the sanctions and to the entry of findings that he failed to conduct the review of outside business activities (OBAs) required by the FINRA rule. The findings stated that two former registered representatives that Loofbourrow supervised disclosed OBAs, but Loofbourrow failed to reasonably review their OBAs. Loofbourrow was the supervisory principal responsible for reviewing and approving any OBAs the member firm’s registered representatives disclosed. The first representative disclosed that he was the founder and chief executive officer of several related entities in the investment-related business, and that as an officer of such entities, he was engaged in capital raising activities. The second representative disclosed that he was an officer of two of the same investment-related business entities that the first representative disclosed, and that as an officer of each entity, he worked to implement their strategic plans by, among other things, selling securities to accredited investors. Both representatives also disclosed that they did not receive compensation from their OBAs. Loofbourrow approved these OBAs at the time they were disclosed but failed to conduct the review that the FINRA rule requires. In particular, Loofbourrow did not consider whether the OBAs would interfere with the responsibilities of the representatives at the firm or whether customers could view the OBAs as part of the firm’s business. Loofbourrow also failed to consider whether the OBAs of the representatives were more properly characterized as outside securities transactions. Finally, Loofbourrow did not keep a record of the factors he considered in approving the OBAs.
Products under DDPs include non-traded REITs, oil and gas offerings, equipment leasing investments, and a range of other alternative financial instruments. These alternative investments virtually never profit investors and are almost always unsuitable for investors because of their high fee and cost structure. Brokers selling these products are paid additional commission in order to hype these inferior quality investments providing a perverse incentives to create an artificial market for the investments.
Several studies have confirmed that Non-traded REITs underperform publicly traded REITs with some showing that Non-Traded REITs cannot even beat safe benchmarks, like U.S. treasury bonds. Brokers selling these products must disclose to the investor that non-traded REITs provide lower investment returns than treasuries while being high risk and illiquid – but almost never do. Because additional returns do not compensate investors for increased risk and illiquidity, these alternative investment products are hardly ever suitable for investors.
Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client after conducting due diligence. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors. Appropriate due diligence would identify that an alternative investment’s high costs, illiquidity, and conflicts of interests that would make the investment not suitable for investors. Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
Unfortunately, these types of alternative investment products continue to popular among brokers due to their high commissions. In order to counter the perverse incentives to sell these flawed product many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs and BDCs. Many states impose these limitations because these investments do not benefit investors.
Loofbourrow has been in the securities industry for more than 41 years. Loofbourrow has been registered as a Broker with Demopolis Capital INC. since 1983.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.