Berthel Fisher

Numerous Customer Complaints Against Former Berthel Fisher Broker Jerry McCutchen

August 13, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Jerry McCutchen (McCutchen) has been the subject of at least 15 customer complaints and one judgment or lien. The customer complaints against McCutchen allege a number of securities law violations including that the broker made unsuitable investments, negligence, and misrepresentations among other claims.

The claims against McCutchen involve various investments including equipment leasing, non-traded real estate investment trusts (Non-Traded REITs), and variable annuities. We have written many times about the investing dangers of these products. One quality all of these investments have in common is the fact that they come with high commissions for the broker and low probability of success for the client. Our firm has written numerous times about investor losses in these programs such as equipment leasing programs like LEAF Equipment Leasing Income Funds I-IV and ICON Leasing Funds Eleven and Twelve. The costs and fees associated with all of these investments cause the security to be so costly that significant returns are virtual impossibility. Yet, investors are in no way compensated for the additional risks of these products.

In a typical equipment leasing program upfront fees are around 20-25% of investor’s capital. As for Non-Traded REITs, it was reported in the Wall Street Journal, that a study on “Nontraded REITs are costing investors, especially elderly, retired, unsophisticated investors, billions. They’re suffering illiquidity and ignorance, and earning much less than what they ought to be earning.” In conclusion, “No brokerage should be allowed to sell these things.”

Why the Investing Public Falsely Believes Advisors Are Fiduciaries

May 13, 2015 | by Staff Attorney

The investor advocacy bar association PIABA (the Public Investors Arbitration Bar Association) has recently issued a report called “Major Investor Losses Due to Conflicted Advice: Brokerage Industry Advertising Creates the Illusion of Fiduciary Duty.” The PIABA report argues that the brokerage industry uses false advertising to convey to investors that the firms have a fiduciary duty to their clients only then to do a 180 turn when sued to claim that no such duty exists.

According to the report, some of the largest firms in the United States are falsely advertise in this fashion including Merrill Lynch, Wells Fargo, Morgan Stanley, UBS, Fidelity, Ameriprise, Allstate Financial, Berthel Fisher, and Charles Schwab. The report claimed that all of these firms “advertise in a fashion that is designed to lull investors into the belief that they are being offered the services of a fiduciary.”

In the wake of the financial crisis of 2008, the Dodd-Frank legislation authorized the Securities Exchange Commission (SEC) to pass a fiduciary duty rule that would apply to brokers, as opposed to only financial advisors. Most investors do not realize and are usually shocked to learn that there broker only has an obligation to recommend “suitable” investments, and not to work in their client’s best interests. Currently, the fiduciary duty rule only applies to financial advisors (and brokers under certain circumstances).

Gana LLP Broker Investigation – Former Berthel Fisher Broker Robert Smith

December 5, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating a series of claims before The Financial Industry Regulatory Authority (FINRA) in relation to the conduct of financial advisor Robert Smith (Smith). Smith has been accused by at least 10 customers over his career concerning allegations that Smith overconcentrated the customer’s accounts in private placement securities including equipment leasing programs, oil & gas investments, and non-traded real estate investment trusts (Non-traded REITs).

Smith has been registered with several broker dealers over the years. Starting in 2000 Smith was registered with American General Securities (n/k/a SagePoint Financial, Inc.) until May 2006. Thereafter, Smith was associated with ProEquities, Inc. until June 2010. Finally, from June 2010, until June 2014, Smith was registered with Berthel, Fisher & Company Financial Services, Inc. (Berthel Fisher). Currently, Smith is not registered with any FINRA firm. Upon information and belief, from 2006 on Smith operated his securities business under a DBA called Proactive Retirement Investing.

The large number of complaints against Smith concerning the same or similar charges of misconduct is unusual in the brokerage industry. Most brokers go their entire careers without a single complaint. A small number have one or two complaints. But only a tiny percentage have more than two customer complaints. Here, at least 10 customers have made allegations against Smith all concerning difficult to value private placement securities.

FINRA Files Complaint Against Former VSR and Berthel, Fisher Broker, Steven L. Stahler

October 1, 2014 | by Staff Attorney

On August 27, 2014, FINRA filed a complaint against Steven L. Stahler, formerly a registered representative with multiple broker dealers including Lowell & Company, Inc., Ausdal Financial Partners, Inc., Berthel, Fisher & Company Financial Services, Inc., VSR Financial Services, Inc., among others. On November 1, 2013, Lowell & Company terminated Mr. Stahler according to his form U5.

FINRA alleges that Mr. Stahler made unsuitable recommendations to customers in violation of FINRA Rule 2310 and 2110 and FINRA Rule 2010. Under FINRA Rule 2110 and 2310, all financial advisers and brokerage firms have a responsibility to deal fairly with their customers. All sales efforts are judged based upon the standards outlined in the FINRA Rules. Furthermore, all brokers must recommend the purchase, sale or exchange of securities that are reasonable given the customers investment objectives and risk tolerances.

According to the complaint, VSR Financial’s written supervisory procedures specify that no more than 40%-50% of a customer’s liquid net worth should be invested in alternative investments. VSR’s guidelines also required that new account forms used outline the customer’s percentage of the portfolio they would feel comfortable investing in high risk investments. FINRA alleges that from September 13, 2006 through October 24, 2006, Mr. Stahler recommended that a married couple, who had stated that no more than twenty percent of their portfolio be invested in aggressive/high risk investments, invested approximately $837,000 in twelve high risk investments at Mr. Stahler’s recommendation. These alternative investments included:

Berthel Fisher fined $775,000 by FINRA for Failing to Supervise the sale of Alternative Investments

April 9, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined broker-dealer, Berthel Fisher & Co. Financial Services and its affiliate, Securities Management & Research, Inc., a combined $775,000. FINRA alleged supervisory deficiencies, including Berthel Fisher’s failure to supervise the sale of alternative investments. FINRA also found that Berthel Fisher’s failure to supervise extended to non-traditional exchange traded funds (ETFs).

FINRA found that from January 2008 to February 2012, Berthel Fisher had inadequate supervisory systems and lacked proper written supervisory procedures with regards to the sales of these alternative investments, namely non-traded real estate investment trusts (REITs), managed futures, oil and gas programs, equipment leasing programs, and business development companies. In its report, FINRA also alleged that some investors were sold these products at a level of concentration that exceeded their respective investment objectives, making the sales and recommendations unsuitable. FINRA also claims that Berthel Fisher failed to train its employees on individual state suitability standards.

FINRA also found that from April 2009 to April 2012, Berthel Fisher did not have a reasonable basis for the sale of leveraged and inverse ETF’s. Before a registered firm may allow its registered representatives to recommend such products to its customers, it must conduct adequate research and review. Through its investigation, FINRA learned that Berthel Fisher representatives recommended approximately $49 million in these nontraditional ETF’s. Leveraged and inverse ETF’s expose holders to amplified movements that tend to deviate from their related benchmarks over extended periods of time. These products are often focused on short-term investment returns and subject to extreme movements during volatile markets, with the potential for significant loss of principal. According to FINRA, Berthel sold these products to conservative, buy-and-hold investors, sales that FINRA ultimately deemed unsuitable.

FINRA Finds George Kardaras and Brian Borakowski Sell Echo Canyon, LLC Away From Their Brokerage Firms

August 30, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently entered a default decision against George Alexander Kardaras (Kardaras) and Brian Matt Borakowski (Borakowski) after having alleged that the two brokers perpetrated a Ponzi scheme. FINRA found that the two solicited at least 12 customers over four years to invest more than $665,000 in total in Echo Canyon promissory notes. The notes bore interest rates between 14 to 56 percent and had quarterly, semiannual, and annual maturity dates.

Kardas’ and Borakowski’s scheme involved soliciting customers to purchase promissory notes in Echo Canyon LLC, a limited liability company in Arizona. Kardas and Borakowski told investors that their investment would be used to purchase used vehicles in U.S. auto auctions and shipped to Russia for re-sale. FINRA determined that Kardaras and Borakowski never intended to use the customer funds as represented. Instead, only two automobiles for EchoCanyon in or around late 2007 or early 2008 were actually purchased.

FINRA found that 95 percent of the funds raised, approximately $634,000 were used by the two brokers in order to pay personal expenses, to cover expenses at their employer firms’ branch office businesses, and to make payments to earlier investors in furtherance of the Ponzi scheme.

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.