Previously financial advisor Michael Lancaster (Lancaster), previously employed by brokerage firm Ifp Securities, LLC 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 final customer complaint on November 11, 2022.
Without admitting or denying the findings, Lancaster consented to the sanctions and to the entry of findings that he recommended that a customer, who was 72 years old at the time, invest $70,000 in shares of a commercial equipment leasing and finance fund, which was an alternative investment, even though the investment was inconsistent with the customer’s investment profile and financial situation. The findings stated that the liquid net worth required for the customer’s investment amount, as stated in the investment prospectus, exceeded the customer’s liquid net worth. In addition, the high-risk and illiquid nature of the investment was not consistent with the customer’s moderate risk tolerance. Yet, the customer used funds from his retirement account to make the investment. Even though the investment subsequently declined in value, the customer continued to hold the investment based on Lancaster’s recommendation that he do so. The investment continued to decline in value until the customer liquidated the investment nearly 10 years later. The customer sustained losses and was compensated by Lancaster’s member firm. The findings also stated that after the customer complained to Lancaster about the performance of the investment, Lancaster made payments to the customer totaling $14,460.40 to attempt to settle the complaint without the knowledge or approval of his firm. The findings also included that Lancaster submitted compliance questionnaires to his firm falsely stating that he had not made any private settlement of claims or reimbursed customers for losses. Subsequently, the customer, through his attorney, sent a written complaint to the firm regarding Lancaster, including Lancaster’s attempt to settle his complaint.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $91,336.03 on January 25, 2021.
THE CUSTOMER ALLEGES (1)RECOMMENDATION OF AN UNSUITABLE INVESTMENT; (2)MISREPRESENTATION REGARDING PERFORMANCE OF SAID INVESTMENT; (3) AND THAT ADVISOR GUARENTEED INVESTMENT AGAINST FURTHER LOSSES. ACTIVITY PERIOD: 2/2011 TO PRESENT. ACTIVITY PERIOD: FEBRUARY 2011 TO JANUARY 27, 2021.
Alternative investments like nontraded REITs, oil and gas offerings, and equipment leasing products are part of DDPs. Due to their steep costs and fee structures, these alternative investments are nearly always unsuitable and seldom yield profits for investors. 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 offering these products are required to inform investors that non-traded REITs come with lower returns than treasuries, along with high risk and illiquidity—but they rarely do. Because investors are not compensated with additional return in exchange for higher risk and illiquidity, these kinds of alternative investment products are rarely, if ever, appropriate 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.
Lancaster has been in the securities industry for more than 34 years. Lancaster has been registered as a Broker with Ifp Securities, LLC since 2023.
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.