Private Placements

James Glover Settles Charges with FINRA Accepting a Ban From the Securities Industry

August 21, 2013 | by Staff Attorney

James R. Glover reached a settlement with the Financial Industry Regulatory Authority (FINRA) resulting in a permanent bar from the securities industry. Glover failed to appear and participate in FINRA’s investigation of his securities activities.

The FINRA complaint alleges that while Glover was employed by Signator Investors, Inc. (Signator), Glover misappropriated customer funds and sold unregistered securities products in violation of the securities laws.

From 1998 through May 2012, Glover was associated with Signtor. During this time, it has been alleged that Glover sold interests in private placements, limited liability companies, and real estate related ventures. Glover’s CRD lists that Glover is also employed by GW Financial Group, Inc. In addition to FINRA’s sanctions against Glover, at least 25 customer complaints have been filed against Signator for the firm’s failure to supervise Glover’s business activities. Nearly all of the customer complaints accuse Glover of selling fraudulent real estate related securities and of mishandling the customer’s accounts.

Berthel Fisher Sued Over Failed Thompson National Properties 2008 Participating Notes Program

August 20, 2013 | by Staff Attorney

Investors have filed a class action complaint against Berthel Fisher & Co. Financial Services Inc. (Berthel Fisher) and CEO and founder Thomas Berthel for allegedly failing to perform due diligence on the Thompson National Properties (TNP) 2008 Participating Notes Program. TNP 2008 is a non-traded Real Estate Investment Trust (REIT) created by Anthony Thompson in 2008.

Unlike traded REITs, non-traded REITs do not trade on a securities exchange, are illiquid for eight years or more, have high broker commissions and fees, and are exposed to greater risks. In recent years, increased volatility in stock markets led many brokers to recommend REITs to investors as a way to invest in a stable income producing investment. Some non-traded REITs have claimed to offer stable returns while the real estate market has undergone extreme volatility. Both the Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC) have recently noted that REITs may not be as safe and stable as sometimes claimed. In a Investor Alert, FINRA noted that a common sales tactic of brokers is to sell non-traded REITs claiming that they are able to eliminate volatility. However, since the REITs often determines the value of their own assets, investors may simply not be informed about the declining value of their investment.

The complaint against Berthel Fisher was filed on July 8, 2013 in the U.S. District Court in the Northern District of Iowa. Berthel Fisher was TNP 2008’s underwriter and managing broker-dealer. Berthel Fisher has been being accused of simply ignoring and failing to investigate red flags that pointed to misrepresentations and omissions. In addition, the complaint also alleges that Berthel Fisher’s TNP 2008 due diligence failures allowed the fund to act like a Ponzi scheme by paying old investors through funds raised by new investors. According to the complaint, Berthel Fisher managed to raise more than $26 million from 200 investors. However, the complaint alleges that Berthel Fisher provided many investors with outdated offering materials that misled investors and hid the catastrophic losses TNP had already suffered while soliciting new investor capital.

Sunset Financial Services, Inc. Fined by FINRA Regarding Private Placement Sales

July 13, 2013 | by Staff Attorney

On July 12, 2013, Sunset Financial Services, Inc. (Sunset) reached a settlement with the Financial Industry Regulatory Authority (FINRA) concerning allegations that Sunset failed to supervise the sale of certain private placement securities. FINRA accused Sunset of failing to establish and maintain appropriate supervisory systems in compliance with FINRA rules regarding the sale of private placements.

The FINRA complaint alleges that the improper activity took place between January 2008 and March 2011. Sunset began private placement investment sales in 2001 and in 2004 the fund at issue was approved for sale to customers by Sunset. The private placement provided bridge loans for short-term mortgages for properties in California and Arizona. Sunset was paid 2% of sales plus trail concessions from the fund. In 2008, Sunset made $1.14 million form the total $57 million raised for the private placement.

According to FINRA, the first red flag indicating that the private placements were not as safe as the firm was advertising to customers occurred in 2008. At that time, a third party published a report on that highlighted that the mortgages the fund invested in had experienced a 20% increase in the rate of default. Sunset failed to follow up on the report such as re-evaluating the adequacy of keeping the fund on an approved sales list. The second red flag occurred from 2008-2009 when the private placement no longer allowed fund redemptions due to financial difficulties. It was also later discovered that the CEO of the private placement was also the son of a registered representative of Sunset.