Articles Tagged with non-traded real estate investment trusts

shutterstock_178801067Our investment attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Paul Neves (Neves) currently associated with Securities America, Inc. (Securities America) alleging unsuitable investments, breach of fiduciary duty, common law fraud, and elder abuse among other claims.  According to brokercheck records Neves has been subject to five customer complaints.  Many of the complaints involve direct participation products (DPPs) such as non-traded real estate investment trusts (REITs), equipment leasing funds – such as LEAF or ICON, and other alternative investments.

In November 2015 a customer filed a complaint alleging unsuitable investments and elder abuse.  The customer claimed damages of $800,000.  The claim is currently pending.

Our firm has represented many clients in illiquid alternative investments products.  All of these investments come with high costs and have historically underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them and have created a large market for a failed product.  Further, investor often fail to understand that they have lost money in these illiquid investments until many years after investing.  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.

shutterstock_159036452Our investment attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Raymond Harrison (Harrison) currently associated with Cambridge Investment Research, Inc. (Cambridge) alleging unsuitable investments , lack of due diligence, lack of supervision, and omissions of material information among other claims.  According to brokercheck records Harrison has been subject to six customer complaints and two financial disclosures.  Many of the complaints involve direct participation products (DPPs) such as non-traded real estate investment trusts (REITs), equipment leasing funds – such as LEAF or ICON, and other alternative investments.

In October 2016 a customer filed a complaint alleging unsuitable investments for investment experience and risk tolerance, lack of adequate due diligence in regard to investments, a lack of supervision and the omission of material information.  The customer claimed damages of $603,000.  The claim is currently pending.

Our firm has represented many clients in illiquid alternative investments products.  All of these investments come with high costs and have historically underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them and have created a large market for a failed product.  Further, investor often fail to understand that they have lost money in these illiquid investments until many years after investing.  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.

shutterstock_171721244Our investment attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Kenneth Saunders (Saunders) currently associated with National Planning Corporation (NPC) alleging unsuitable investments among other claims.  According to brokercheck records Saunders has been subject to six customer complaints.  Some of the complaints involve direct participation products (DPPs) such as non-traded real estate investment trusts (REITs) and other alternative investments.

Saunders has also disclosed a number outside business activities including his d/b/a Saunders Investment & Tax Advisory Group, Inc., Heron Bay Association, and Parke Place HOA.  The most recent customer complaint was filed in March 2016 and alleged that Saunders recommended unsuitable alternative investments causing $150,000 in damages.  The claim is currently pending.

Our firm has represented many clients wo have invested in Direct Participation Products and REITS.  Many of these types of investments come with high costs and have historically underperformed various benchmarks.  For example, according to FINRA, products like REITs, and DPPs are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all.  Further, investors often fail to understand that they have lost money in these illiquid investments until many years after investing. 

shutterstock_52426963The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Mark Trewitt (Trewitt).  According to BrokerCheck records Trewitt has been subject to at least four customer complaints.  The customer complaints against Trewitt allege securities law violations that including unsuitable investments and misrepresentations among other claims.   Many of the complaints involve direct participation products (DPPs) and private placements including non-traded real estate investment trusts (REITs), and other alternative investments.

Our firm has represented many clients in these types of products.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them.  Further, investor 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.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client.  In order to make a suitable recommendation the broker must meet certain requirements.  First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors.  Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

shutterstock_12144202The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Steven Orr (Orr).  According to BrokerCheck records Orr has been subject to at least five customer complaints and two criminal matters.  The customer complaints against Orr allege securities law violations that including unsuitable investments and misrepresentations among other claims.   Many of the complaints involve direct participation products (DPPs) and private placements including oil and gas partnerships, non-traded real estate investment trusts (REITs), and other alternative investments.

Our firm has represented many clients in these types of products.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them.  Further, investor 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.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client.  In order to make a suitable recommendation the broker must meet certain requirements.  First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors.  Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

shutterstock_191231699The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Craig Hayward (Hayward).  According to BrokerCheck records Hayward has been subject to at least six customer complaints.  The customer complaints against Hayward alleges securities law violations that including unsuitable investments and misrepresentations among other claims.   Many of the complaints involve direct participation products (DPPs) and private placements including oil and gas partnerships, non-traded real estate investment trusts (REITs), and other alternative investments.

Our firm has represented many clients in these types of products.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them.  Further, investor 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.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client.  In order to make a suitable recommendation the broker must meet certain requirements.  First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors.  Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

shutterstock_1832895The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Susan Moore (Moore). According to BrokerCheck records Moore has been the subject of at least four customer complaints. The customer complaints against Moore allege securities law violations that including unsuitable investments and misrepresentations among other claims.   Many of the most recent claims involve allegations concerning non traded real estate investment trusts (Non-Traded REITs).

As a background since the mid-2000s Non-Traded REITs became one of Wall Street’s hottest products. However, the failure of Non-Traded REITs to perform as well as their publicly traded counterparts has called into question if Non-Traded REITs should be sold at all and if so should there be a limit on the amount a broker can recommend. See Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part I

Non-Traded REITs are securities that invest in different types of real estate assets such as commercial, residential, or other specialty niche real estate markets such as strip malls, hotels, storage, and other industries. Non-traded REITs are sold only through broker-dealers, are illiquid, have no or limited secondary market and redemption options, and can only be liquidated on terms dictated by the issuer, which may be changed at any time and without prior warning.

shutterstock_189276023The securities fraud lawyers of Gana Weinstein LLP are investigating the employment separation filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Patrick Sands (Sands). According to BrokerCheck records Sands has been the subject of at least one customer complaint and one employment termination for cause.

In November 2015, Sands’ then brokerage firm Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) terminated Sands for cause alleging that the broker engaged in conduct inconsistent with the firm’s selling away policies. Participated in private securities transactions without approval of the firm is a practice known as “selling away” in the industry. The allegations appear to involve investments in private placements or direct participation programs such as non-traded real estate investment trusts (Non-Traded REITs), oil and gas programs, or equipment leasing.

In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

shutterstock_20354398The securities lawyers of Gana Weinstein LLP are investigating a complaint filed by The Financial Industry Regulatory Authority (FINRA) against broker Gopi Krishna Vungarala (Vungarala) and his brokerage firm Purshe Kaplan Sterling Investments (Purshe Kaplan). FINRA alleged that from at least June 2011 through January 2015, Vungarala regularly lied to his customer who is a Native American tribe regarding commissions paid to the broker and firm on non-traded real estate investment trusts (Non-Traded REITs) and business development companies (BDCs).

Vungarala served the tribe as both a financial advisor and was employed by the tribe as its Treasury Investment Manager and participated in decisions regarding the tribe’s investments. According to FINRA, Vungarala knew that the tribe prohibited employees such as Vungarala from engaging in business activities that could constitute a conflict of interest with the tribe. In order to induce the tribe to make purchases in Non-Traded REITs and BDCs in light of the prohibition against conflicts of interests Vungarala falsely represented to the tribe that he would not receive any commissions on the purchases. Despite the prohibition and the representations, FINRA alleged that Vungarala fraudulently induced the tribe to invest $190 million of dollars in Non-Traded REITs and BDCs without revealing that he and his firm received commissions on the sales at a typical rate of 7% generating $11.4 million in commissions for Purshe Kaplan of which $9.6 million was paid to Vungarala.

Worse still, FINRA alleged that the tribe was eligible to receive volume discounts on the products purchased but instead paid full commission. FINRA alleged that Purshe Kaplan’s supervisory failures led to the volume discounts not being applied. FINRA alleged that the tribe failed to receive more than $3.3 million in volume discounts and that these funds funds were instead paid to Purshe Kaplan and Vungarala in the form of commissions.

shutterstock_89758564The securities lawyers of Gana Weinstein LLP are investigating investors that were recommended to invest in non-traded real estate investment trusts (Non-Traded REITs) and non-traded Business Development Companies (BDCs). Based upon the investor’s investment objectives and other information such investments may have been unsuitable for the investor. Recently, one publicly traded BDC has been under scrutiny, Prospect Capital Corporation (Prospect Capital) (Stock Symbol: PSEC). As the New York Times reported, in the last year and a half Prospect Capital’s stock price and net-asset value per share have been steadily sinking. Prospect Capital’s stock now has traded at discounts to net-asset-value of more than 30 percent this year.

As a background, BDCs have been a growing asset class that markets itself to investors as a non-stock market, non-real estate, high yield alternative investment. As we have reported in the past, BDCs make loans to and invest in small to mid-size, developing, or financially troubled companies either broadly or in a particular sector, such as oil and gas. BDCs have stepped into a role that many commercial banks left during the financial crisis due to capital raising requirements. In sum, BDCs lend to companies that may not otherwise get financing from traditional sources. However, BDCs appear to be just as speculative, suffer from high commissions and fees, and are inappropriate for most investors just like Non-Traded REITs. Indeed, to a Wealth Management Article front-end load fees on Non-Traded BDCs are typically around 11.5 to 12 percent. In addition, BDCs also usually have an incentive compensation following the “two and twenty” rule where the fund charges two percent of assets in management fees and 20% of capital gains based upon performance.

In the case of Prsopect Capital, some analysts have accused Prospect of charging conspicuously high fees even in the face of as investor returns. For example, Prsopect Capital paid its chief executive, John F. Barry III more than $100 million annually in recent years when the CEO of the largest internally managed BDC earned just $16.9 million in 2014. In addition, investors have accused Prsopect Capital because they claimed the firm inflates the fees it pays its management firm, Prospect Capital Management. Further, investors believe that Prsopect Capital trades at a 28 percent discount to net-asset value because of investor belief that the value Prospect Capital’s reported asset value may be inflated.