Securities Lawyers Blog
Previously financial advisor Mario Divita (Divita), previously employed by brokerage firm Traderfield Securities INC. has been subject to at least 3 disclosable events. These events include one customer complaint, 2 regulatory events. 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 05, 2023.
Without admitting or denying the findings, the firm and Divita consented to the sanctions and to the entry of findings that they failed to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with rules governing registered representatives proposed OBAs. The findings stated that the firm and Divita knew that two of the firm’s representatives were engaged in outside activities that involved investment funds and private placement offerings, but neither the firm nor Divita evaluated the activities to determine whether they constituted outside securities activities. The representatives owned and received a fee for managing investment funds that raised $60 million from over 200 individual investors. The representatives presented the investment funds to the firm and Divita in discussions and emails as OBAs, so they understood that the representative’s OBAs were investment-related. However, neither Divita nor anyone else at the firm evaluated the representative’s proposed activities to determine whether they should be restricted or prohibited; whether they should have been treated as outside securities activities, with any transactions recorded on the firm’s books and records; and whether they would interfere with or otherwise compromise the representatives’ responsibilities to the firm or the firm’s customers, or be viewed as part of the firm’s business. In addition, the firm’s WSPs did not reference or otherwise require the firm to comply with the requirements of FINRA Rule 3270.01 or the factors listed there.
FINRA BrokerCheck shows a final customer complaint on November 24, 2021.
Without admitting or denying the findings, Divita consented to the sanctions and to the entry of findings that he failed to supervise a registered representative who recommended excessive trading in customer accounts. The findings stated that Divita’s member firm’s written supervisory procedures (WSPs) did not designate a supervisor for the broker, and no supervisor was reviewing the broker’s trading activity for excessive trading until Divita began directly supervising the broker. However, Divita did not take reasonable steps to monitor for excessive trading in the broker’s customer accounts. Although Divita knew that the broker’s customers were responsible for a large volume of trades at the firm, he did not review exception reports for potential excessive trading. Instead, Divita reviewed daily trade reports and simply focused on trading volume. Divita failed to monitor the losses in the broker’s customer accounts, which were significant. Although Divita reviewed certain commission information, he failed to recognize the broker’s high commissions as a red flag. Further, Divita did not consider costs when reviewing the broker’s trading activity and did not consider, or even understand, turnover rates and cost-to-equity ratios. Divita’s failure to supervise the broker permitted his excessive trading in customer accounts to continue. As a result, customers were charged a total of $451,057 in commissions and incurred a total of $538,057 in losses.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $19,510.00 on April 30, 2021.
Client states that he was charged to much commission when he had a profit of $11000. \, he confirmed trades 2 years ago and had no issue.
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. To push these subpar investments, brokers are given additional commissions, leading to perverse incentives that manipulate the 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. Since investors do not receive extra returns for taking on higher risk and illiquidity, these types of alternative investment products are seldom, if 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.
Divita has been in the securities industry for more than 26 years. Divita has been registered as a Broker with Traderfield Securities INC. since 2016.
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.