Private Placements

Broker Investigation: Robert Horning’s Sale of Tenants-in-Common (TIC) Real Estate Investments

October 20, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Horning (Horning) has been the subject of at least 8 customer complaints. Customers have filed complaints against Horning alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, fraud, breach of fiduciary duty, and false statements in connection with recommendations to invest in private placements such as tenants-in-common (TICs) interests, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), and equipment leasing programs.

Horning entered the securities industry in 1993. From November 2004, until July 2009, Horning was a registered representative with Direct Capital Securities, Inc. Thereafter, since July 2009, Horning has been associated with Centaurus Financial, Inc. (Centaurus) out of the firm’s Los Angeles, California office location.

TIC investments have come under fire by many investors. Indeed, due to the failure of the TIC investment strategy as a whole across the securities industry, TIC investments have virtually disappeared as offered investments. According to InvestmentNews “At the height of the TIC market in 2006, 71 sponsors raised $3.65 billion in equity from TICs and DSTs…TICs now are all but extinct because of the fallout from the credit crisis.” In fact, TICs recommendations have been a major contributor to bankrupting brokerage firms. For example, 43 of the 92 broker-dealers that sold TICs sponsored by DBSI Inc., a company whose executives were later charged with running a Ponzi scheme, a staggering 47% of firms that sold DBSI are no longer in business.

Former National Securities Corporation Broker Brian Folland Subject to Numerous Customers Complaints

October 8, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Brian Folland (Folland) has been hit with at least 30 customer complaints over his career and two tax liens. Customers have filed complaints against Folland alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Folland involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs. In addition, in July 2012, Folland disclosed a tax lien of $334,995 owed. Tax liens of that size provide an incentive and conflict of interest in the recommendation of high commission based products such as private placements and direct participation programs that often pay commission between 7-10%.

Folland entered the securities industry in 1995. From July 2007 until May 2013, Folland was associated with brokerage firm National Securities Corporation (National Securities) out of the firm’s Fresno, California office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

FINRA Sanctions Rainmaker Securities Over Numerous Violations Involving Private Placements

September 14, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned Rainmaker Securities, LLC (Rainmaker Securities) and its President Glen Anderson (Anderson) (Case No. 2013035059001) alleging that From June 2011 through September 2014, Rainmaker Securities, acting through Anderson, failed to devote adequate time, attention, and resources toward supervision. FINRA found that the firm’s lack of a culture of compliance, Rainmaker and Anderson repeatedly violated FINRA rules that required to: (i) establish and maintain a supervisory system reasonably designed to achieve compliance with securities laws and regulations; and (ii) establish, maintain and enforce written supervisory procedures to supervise its brokers.

Anderson began in the securities industry in 2005. In January 2010, Anderson joined Rainmaker Securities to become its President. Rainmaker became a FINRA registered firm on March 18, 2005, and is approved to conduct business in the origination and sale of private placements. Rainmaker Securities has six branches and 34 registered persons.

FINRA’s investigation related to many aspects of the sale of private placements including solicitation, due diligence, false advertising, suitability documents, and more. The various allegations largely regard Rainmaker Securities’ marketing and sales of the following private placement securities offerings: (a) Buttonwood Social Network Fund LLC (Facebook Fund); (b) Eudora Global LLC (Eudora Global); (c) The Incubation Factory Technology Fund, LLC (TIF Fund); and (d) The Idea Fund LLC (IDEA Fund).

Broker Spotlight: TIC Customer Complaints Against Mark Kosanke

August 26, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Mark Kosanke (Kosanke) has been the subject of at least two customer complaints. The customer complaints against Kosanke allege a number of securities law violations including that the broker made unsuitable investments and misrepresentations and false statements among other claims. The securities involved in the customer disputes are tenants-in-common (TICs).

Kosanke entered the securities industry in 1994. From 2000, until July 2006, Kosanke was registered with Questar Capital Corporation. From July 2006, until August 2010, Kosanke was associated with Professional Asset Management, Inc. Thereafter, from August 2010, Kosanke was registered with brokerage firm Concorde Investment Services, LLC.

As a background, TICs largely been sold unfairly as tax advantaged products that allow customers to defer capital gains taxes on appreciated real estate. TICs are private placements that have no secondary trading market and are therefore illiquid investments. In a typical TIC, the investor receives a fractional interest in the property along with other stakeholders and the profits are generated mostly through the efforts of the sponsor and the management company that manages and leases the property. The sponsor typically structures the TIC investment with up-front fees and expenses charged to the TIC and negotiates the sale price and loan for the acquired property. Because these fees are often higher than 15%, there is often no way for the investment to be profitable for the investor.

Michael Bell Suspended Over Misleading Private Placement Emails

June 25, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Michael Bell (Bell) has been the subject of at least 8 customer complaints, two financial disclosures, two firm terminations, and two regulatory actions. Customers have filed complaints against Bell alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, breach of fiduciary duty, misrepresentations and false statements, churning, and fraud, among other claims. Some of these claims involve recommendations in penny stocks, private placements, and other speculative securities.

An examination of Bell’s employment history reveals that Bell moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Bell’s 25 year career he has worked at 18 different firms.

Since 2008 Bell has been registered with Brewer Financial Services, LLC, Herbert J. Sims & Co. Inc., and most recently Westpark Capital, Inc. (Westpark) until July 2014.

BlackGold Opportunity Fund Investors Suffer Losses

May 4, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP continue to report on investment losses suffered by investors in oil and gas investments that brokerage firms have increasingly recommended to retail investors in recent years. These investments include private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks. See Overconcentrated in Oil and Gas Investments?, MLP Fund MainStay Cushing Royalty Energy Hurt by Failing Oil & Gas Prices; Oil and Gas Investments – Issuers Profit While Investors Take All the Risk

Recently, the according to Bloomberg, BlackGold Capital Management, the energy-focused hedge fund that manages the BlackGold Opportunity Fund LLC and BlackGold Opportunity Offshore Fund LLC (BlackGold Funds) announced that losses in December 2014 were almost triple its initial report after an auditor examined how it valued debt holdings and certain changes were made to the valuation.

According to SEC records, the BlackGold Opportunity Fund was launched in 2009. Since that time the Fund has touted an annualized rate of return of 20% since inception. In 2014, the Fund suffered 12 percent decline compared with a 13 percent loss for oil and gas companies in the Bloomberg high-yield bond index. KKR & Co., which acquired nearly a 25% stake in BlackGold Capital Management reported that BlackGold lost only 6 percent in December originally which was recently revised to 17%. Given the enormous decline already experienced, it is possible that the BlackGold Funds will continue to suffer substantial declines unless the price of oil experiences a tremendous rebound in the near future.

Gana LLP Broker Spotlight: LPL Financial Advisor Karl Romero’s Private Placement Sales

April 27, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Karl Romero (Romero) has been the subject of at least 9 customer complaints over the course of his career. Customers have filed complaints against Romero alleging that the broker made unsuitable investments primarily in private placements and alternative investment related products. Some of the claims appear to involve Romero’s handling of customer accounts and recommendations in the LaeRoc Income Fund, a troubled real estate private placement.

The LaeRoc Funds manage over $650 million in assets and focuses on income producing properties in the western US. The LaeRoc 2005-2006 Income Fund LP in 2011 attempted to raise $11 million to $14.5 million to pay off at least $49 million of debt. The claims against Romero claim breach of fiduciary duty and unsuitable investments.

Romero has been registered with FINRA since 1971. From 1989 to present Romero has been registered with LPL Financial, LLC (LPL). According to public records Romero operates out of a DBA business called Karl H Romero & Assoc Inc.

EDI Financial Sanctioned Over Private Placement Supervisory Failures

April 1, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm EDI Financial, Inc. (EDI Financial) alleging that the firm’s business involved the sales of private placement offerings. From approximately January 2008 through November 2014, FINRA alleged that a substantial portion of EDI Financial’s revenue came from sales of private placements. But despite the importance of private placement sales to EDI Financial’s bottom line FINRA alleged that the firm failed to have adequate policies and procedures to supervise the sales of its private placement activities.

EDI Financial has been a registered broker-dealer since 1986. The firm conducts a general securities business which includes the sales of private placements and mutual funds. The firm has 70 brokers that operate out of its 22 branch offices, with headquarters in Irving, Texas.

FINRA found that EDI Financial failed to adopt and implement a supervisory systems reasonably designed to achieve compliance with the firm’s suitability obligations for the solicitation and sale of private placements. For example, FINRA determined that the firm lacked adequate written procedures concerning the what concentration of a customer’s assets could be allocated to private placements. Additionally, FINRA alleged that the firm did not effectively monitor customers’ exposure to private placements.

World Equity Group Alleged to Have Sold Private Placements Without Proper Due Diligence Part III

March 20, 2015 | by Staff Attorney

This post continues our firm’s investigation concerning the recent allegations brought by The Financial Industry Regulatory Authority (FINRA) sanctioning brokerage firm World Equity Group, Inc. (World Equity) concerning at least seven different allegations of supervisory failures that occurred between 2009 through 2012. FINRA’s allegations include failures to implement an adequate supervisory system and concerned both internal processes at the firm and procedures and in the handling of customer accounts in the areas of suitability of transactions in non-traditional ETFs, private placements, and non-traded REITs.

FINRA requires firms preserve for at least 6 years all communications relating to its business and to provide for ways to store electronic media. FINRA found that in May 2011, the World Equity opened a new branch office at 311 W. Monroe Street, Chicago, Illinois. FINRA alleged that errors in the process of transferring several representatives at that branch to World Equity emails of the representatives were not maintained and preserved before April 13, 2012. In addition, FINRA found that the firm failed to maintain business related emails for ten representatives who used their personal emails for business purposes.

FINRA also alleged that World Equity failed to conduct due diligence in connection with private placements offering from July 2009, through January 2012. During that time FINRA alleged that the firm conducted at least eight private placements including a product called Newport Digital Technologies, Inc. (NDT) and sold more than $6 million in these offerings. In addition, FINRA found that from August 23, 2010 to July 17, 2012 the firm conducted at least five Non-Traded REIT offerings and sold more than $3 million in these offerings.

Gana LLP Investigates WFG Investments Sale of Servergy, Inc.

March 19, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP have been investigating the sales of Servergy, Inc. (Servergy) stock through a private placement by WFG Investments, Inc (WFG) to its clients. The Securities and Exchange Commission (SEC) recently filed an action in the Northern District of Texas against Servergy concerning possible violations of the anti-fraud provisions of federal and state securities laws. Between August 2009 and February 2013, Servergy raised approximately $26 million by selling shares of its common stock to private investors

Servergy is a Nevada company headquartered in Texas formed in August 2009. The company’s main product is the developing and manufacturing the Cleantech 1000 Server (CTS-1000), technology that can be used in network function virtualization, distributed storage, and cloud computing. The SEC’s Servergy lawsuit concerns misstatements made by Servergy’s CEO, William Mapp III, to investment advisors and investors regarding Servergy’s prospects. Specifically, it was alleged that the company made statements indicating that Freescale Semiconductor had previously ordered CTS-1000 servers, that Amazon.com, Inc. had pre-ordered the server, and that the CTS-1000 consumes 80% less power, cooling, and space than its competitors.

However, according to the SEC, there was no evidence to back up that Mapp’s statements that Freescale’s ever placed such orders of the CTS-1000. The SEC also alleged that the claims concerning pre-orders from Amazon for the CTS-1000 did not exist. Finally, the SEC alleged that there were errors in a chart titled “Comparing Servergy to the Blade Server Competition” that was included in one of the Company’s private placement memoranda.