Non-Trade REITs

Broker Thomas Edward Gackle Barred For Failing To Cooperate With Regulatory Investigation

April 25, 2017 | by Staff Attorney

The investment fraud lawyers of Gana Weinstein LLP are investigating regulatory complaints of broker Thomas Edward Gackle (Gackle). According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Thomas Edward Gackle was permanently barred in July 2016 from the securities industry for failing to appear for on-the-record testimony requested by FINRA during the course of an investigation. In addition, the broker has been subject to at least one customer complaint and one employment separation for cause among other claims. The customer complaint against Gackle involve direct participation products (DPPs) such as non-traded real estate investment trusts (REITs).

In April 2015, a customer filed a complaint alleging that the amount of income ($100,000.00) stated on the suitability form was invalid and an investment purchased March 2015 caused $1,000,000.00 in damages. This complaint is currently pending.

This customer complaint resulted in Gackle to resign from his position at Lowell & Company in April 2015. This was based on allegations of failure to disclose material levents prior to association with Lowell & Company, which was an order issued by the Kansas Bar for the indefinite suspension from practicing law in the state of Kansas. Gackle’s resignation preceded FINRA’s sanctions, barring him from securities industry.

LPL Financial Fined For Failure to Properly Supervise Variable Annuities Transactions

September 26, 2014 | by Staff Attorney

LPL Financial was recently fined $2 million and ordered to pay $820,000 in restitution, for violations pertaining to variable annuity exchanges. This settlement, which was reached with the Illinois Securities Department, resulted from LPL’s inadequate maintenance of books and records with regards to documenting 1035 exchanges. A 1035 Exchange is a tax-free exchange of an existing annuity contract for a new one. In order for the new contract to qualify as a Section 1035 Exchange, the policyholder must have exchanged his or her existing contract for an equivalent new contract. The annuitant or policyholder must also remain the same.

According to LPL’s BrokerCheck file, LPL “failed to enforce its supervisory system and procedures in connection with the documentation of certain salespersons’ variable annuity exchange activities.” LPL has indicated that it will seek to enhance its procedures relating to surrender charges that often result from variable annuity exchange transactions. This, LPL believes, would ensure accuracy in their books and records along with client disclosures.

The product at issue was variable annuities, which have been closely watched by regulators dues to the complexity of the product and high fee structures. Elderly investors have often been sold variable annuities, when they were entirely unsuitable, just so that brokers could earn increased commissions. Regulators have paid especially close attention to those advisors who have switched their clients from one variable annuity to another, just to enhance their commissions.

Ameriprise Advisor Michael Hainsworth Sanctioned Over Misleading REIT Sales

May 29, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Ameriprise Financial Services (Ameriprise) broker Michael Hainsworth (Hainsworth) concerning allegations that the broker made certain misrepresentations and unbalanced statements in the sale of non-traded real estate investment trusts (REITs) by sending emails to potential investors that failed to provide a sound basis for evaluating the facts.

Hainsworth has been a broker in the securities industry since 1994. From 2007 through June 2009 Hainsworth was associated with Prime Capital Services, Inc. Thereafter, he was associated with brokerage firm Securities America, Inc. from July 2009 through September 2011. Finally, he was associated with Ameriprise from May 2009, through April 2012. Thereafter, Ameriprise filed a Form U5 Uniform Termination Notice stating that Hainsworth had been terminated from Ameriprise.

FINRA alleged that between May and October 2010, Hainsworth sent emails regarding a REIT to four potential investors. FINRA found that the emails were misleading and failed to provide a sound basis for evaluating the facts of the investment. In one email, Hainsworth stated that “My recommendation is to take $50,000 out of the market in your Trust account and $50,000 out of your IRA and allocate it to the…REIT…This pays 6.25 and matures Dec 3lst, 2015.”

Gana LLP Files Complaint Against H. Beck on Behalf of Client For Unsuitable Investment

April 4, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP recently filed a complaint against H. Beck, Inc., on behalf of a client accusing the investment advisory firm of making unsuitable recommendations and failing to properly supervise one of its representatives.

The Claimant in this case is a retired sixty-three year old from Hawaii, who sought to safely invest what was left of his retirement funds, after being hit hard in the down market of 2008. H. Beck, through one of its advisers, offered him high, risk-free returns, which the Hawaii native readily accepted. H. Beck, through one of its advisers, took nearly two-thirds of Claimant’s retirement savings and put them into the Inland American Real Estate Investment Trust (Inland) and the Lease Equipment Finance Fund 4 (LEAF).

LEAF is a limited partnership. Limited Partnerships are investment vehicles formed to acquire, operate, and sell assets for the benefit of the partners. Investors in Limited Partnerships, also known as limited partners, are entitled to receive distributions of operating cash flow as well as distributions from the sale or financing of assets as outlined in the partnership’s limited partnership agreement. Unlike stocks and bonds, Limited Partnerships are not listed on an exchange. They are illiquid assets with a relatively limited secondary market. Consequently, reliable pricing information is typically very difficult to obtain.

Broker-Dealers Settle with Massachusetts Securities Division Over the Alleged Improper Sales of Non-traded REITs

August 25, 2013 | by Staff Attorney

The Massachusetts Securities Division reached a settlement of $9.6 million with five independent broker dealers concerning allegations that the firms improperly sold non-traded real estate investments trusts (REITs) to hundreds of investors within the state. The firm’s fined include Ameriprise Financial Services Inc., Commonwealth Financial Network, Royal Alliance Associates, Inc. Securities America, Inc., and Lincoln Financial Advisors Corp. The Secretary of the Commonwealth of Massachusetts William Galvin announced that a part of the settlement would be used to distribute $6.1 million to investors as restitution.

A REIT is a security that invests in real estate directly either through properties or mortgages. REITs can be publicly traded on a national exchange or privately held. Private REITs are often referred to as non-traded REITs. Non-traded REITs have become increasingly popular as increased volatility in the stock market has led many investors to look for investment products that offer more stable returns. However, non-traded REITs may not be as safe and stable as advertised. Because non-traded REITs do not trade publicly the REIT itself determines its own asset values and only publishes updated valuations sporadically. Thus, a REITs volatility includes not only real estate market volatility but also management decisions and potentially leverage positions that investors may simply not be informed about.

Massachusetts alleged that the firms engaged in a “pattern of impropriety” selling these “popular but risky investments.” Massachusetts alleged significant and widespread problems with the firms’ compliance policies, practices, and procedures in the sale of non-traded REITs. In addition, Massachusetts alleged that the firms failed to only sell non-traded REITs to qualifying investors. Massachusetts allegations concerning each firm are as follows: