Securities Lawyers Blog
Previously financial advisor Elba Nogueras (Nogueras), previously employed by brokerage firm First Southern, 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 September 18, 2023.
Without admitting or denying the findings, Nogueras consented to the sanctions and to the entry of findings that she willfully violated the Care Obligation of Rule 15l-1 under the Securities Exchange Act of 1934 (Reg BI) by recommending that her customer, a 52-year-old, invest in an illiquid, non-traded real estate investment trust (REIT) without having a reasonable basis to believe the investment was in the customer’s best interest. The findings stated that the prospectus cautioned that investments in the non-traded REIT involved a high degree of risk and could have resulted in a complete loss of principal. Based upon Nogueras’ recommendation, her customer invested $81,000, which represented 81 percent of the customer’s liquid net worth, in the non-traded REIT, resulting in Nogueras earning a commission of $5,670. Given the risk and illiquidity of investments in the non-traded REIT, Nogueras lacked a reasonable basis to believe her recommendation was in the best interest of the customer, who had a moderate risk tolerance and limited investment experience.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $20,000.00 on April 10, 2020.
Time frame: unspecified Allegations: Claimant alleges the recommendation to invest in and hold unsuitable concentration in Puerto Rico Closed-End Funds was misrepresented as safe and suitable.
DDPs include products such as non-traded REITs, oil and gas offerings, equipment leasing products, and other alternative investments. Investors almost never benefit from these alternative investments, which are typically inappropriate because of their high fees and expense structure. Brokers earn additional commissions for promoting these low-quality investments, fostering a system of skewed incentives that result in an artificially sustained market.
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. Although brokers are required to disclose that non-traded REITs underperform treasuries and come with high risk and illiquidity, they seldom fulfill this obligation. 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.
Nogueras has been in the securities industry for more than 19 years. Nogueras has been registered as a Broker with First Southern, LLC since 2019.
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.