Securities America

Gana LLP Investigation: Customer Complaints Against Howard Slater

December 13, 2015 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints against broker Howard Slater (Slater). In addition, The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2015046156301) against Slater. There are at least 18 customer complaints against Slater and 2 regulatory actions. The customer complaints against Slater allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, breach of fiduciary duty, and unauthorized trading among other claims.

The most recent customer complaint was filed in November 2013 and alleges unsuitable investments, fraud, and negligence concerning investments in alternative investments in real estate investments. The complaint seeks $90,000 in damages. In another complaint filed in July 2013, a customer complained that Slater misinformed her regarding the risks of three non-traded real estate investment trusts (Non-Traded REITs).

In a FINRA regulatory action against Slater, the agency alleged that in February 2008 and August 2008, Slater sent emails to two customers in connection with their purchases of IMH Secured Loan Fund, LLC (IMH Fund) that contained misrepresentations regarding the features of the IMH Fund. In addition, according to FINRA, in March 2008, Slater sent an email to a customer that contained exaggerated and misleading statements about the safety of the IMH Fund. Finally, FINRA found that in April 2008, Slater caused an SAI customer’s account records to reflect false annual income and net worth information that caused the business records maintained by his firm to be inaccurate.

Massachusetts Files Complaints Against Securities American and Its Broker Barry Armstrong

August 31, 2015 | by Staff Attorney

The Massachusetts Office of the Secretary of Securities Division filed complaints against brokerage firm Securities America, Inc. (Securities America) and one of its financial advisors Barry Armstrong (Armstrong) concerning allegations that in 2014, Securities America authorized Armstrong to run a deceptive AM radio advertising campaign. According to the complaint, the advertising campaign was designed to target vulnerable Massachusetts senior citizens by trumpeting the looming dangers of Alzheimer’s disease and implying that the brokerage firm has special access to medical information and support.

Massachusetts found that the advertising campaign was a classic “bait and switch” in which callers inquired about Alzheimer’s support and information and instead were solicited solely for brokerage and financial planning services. Massachusetts found that advertising used alarmist language designed to pull in senior citizens with concerns about Alzheimer’s disease while failing to disclose the nature of the services Armstrong actually offers. Indeed, when callers contact the number provided the only information concerning Alzheimer’s that is provided is a Fact Sheet published by the National Institute of the Aging and some other publicly available free information about Alzheimer’s.

Massachusetts found Securities America’s approval of the advertising used “astounding” stating that as a national-scale broker-dealer the firm failed to make “substantive comment or follow up of any kind” when reviewing Armstrong’s advertising materials. In sum, Massachusetts alleged that “Securities America failed to prevent or even flag glaringly unethical conduct.”

FINRA Bars Former Securities America Broker Judith Woodhouse

August 10, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Judith Woodhouse (Woodhouse) has been barred for failing to respond to requests for information by the agency. The requests may have related to the reasons Securities America, Inc. (Securities America) gave for terminating Woodhouse’s employment. Upon termination from Securities America the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Woodhouse was due to allegations by the firm that Woodhouse violated the firm’s policies relating to the borrowing of funds and responding to supervisory requests.

In addition, to the most recent FINRA action and bar, Woodhouse has been the subject of at least one customer complaint involving a private placement. In addition, Woodhouse has several financial disclosures and two regulatory actions. Another FINRA action in 2013, concerned Woodhouse’s involvement in private securities transactions totally over $500,000 that were made without Securities America’s consent. This action resulted in a $10,000 fine and three month suspension.

It is important for investors to know that all advisers have an obligation and 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.

Securities America Broker James McLaughlin Sanctioned Over Churning Allegations

December 22, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Securities America, Inc. (Securities America) broker James McLaughlin (McLaughlin) alleging that between October 2010, through October 2012, McLaughlin: (i) engaged in excessive trading (churning) in four customers’ accounts; (ii) recommended unsuitable short-term trading of mutual funds in four customers’ accounts; (iii) engaged in unauthorized trading in three customers’ accounts and; (iv) exercised discretion in one customer’s account without having written authorization.

McLaughlin was registered as a broker from 1989 until October 2012. McLaughlin was registered with Securities America from October 2000, until October 2012. On October 29, 20l2, Securities America terminated McLaughlin’s registrations for violating firm policies and procedures relating to excessive trading.

FINRA alleged that McLaughlin excessively traded at least four customers’ accounts. By analyzing the number of trades, turnover rate, and cost-to-equity ratio for these accounts FINRA determined that across a two-year relevant period from October 2010, through October 2012 that the accounts were excessively traded. In one account 286 purchase and sale transactions occurred resulting in a turnover rate of 47.63 and a cost-to-equity ratio of 228.03%. In a second account 459 purchase and sale transactions occurred resulting in a turnover rate of 15.86 and a cost-to-equity ratio of 69.54%. In a third account FINRA alleged that McLaughlin executed 140 purchase and sale transactions resulting in a turnover rate of 6.79 and a cost-to-equity ratio of 32.74%. Finally, in fourth customer’s account FINRA found McLaughlin executed 111 purchase and sale transactions resulting in a turnover rate of 8.75 and a cost-to-equity ratio of 44.50%.

Atlas Energy Oil and Gas Investments: Risks Investors Should Know Part II

December 17, 2014 | by Staff Attorney

This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.

In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.

In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.

Atlas Energy Oil and Gas Investments: A Risky Proposition Part I

December 16, 2014 | by Staff Attorney

As recently reported in Reuters, Atlas Energy LP has marketed itself to investors as a way to get into the U.S. energy boom. By contributing at least $25,000 in a private placement partnership that will drill for oil and gas in states such as Texas, Ohio, Oklahoma and Pennsylvania and share in revenues generated from the wells. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal sounds good when pitched: participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of fossil fuels into potentially viable prospects and to boot Atlas will invest up to $145 million of its own capital alongside investors. Through this method and similar deals, oil and gas projects have issued nearly 4,000 private placements since 2008 seeking to raise as much as $122 billion.

But before you take the plunge a review of the Atlas’s offering memorandum reveals some red flags and given Atlas’ past failure rate investors should think twice. First, up to $45 million of the money raised will be paid to Atlas affiliate Anthem Securities that will then be turned over to as commissions to broker-dealers who pitch the deal to investors. Up to $39 million more will be used to buy drilling leases from another affiliate. Think investors will get a fair price on the leases when Atlas controls both sides of the deal? More conflicts ahead as Atlas affiliated suppliers may also get up to $53 million for buying drilling and transport equipment. Next, an additional $8 million of Atlas’s investment is a 15 percent markup on estimated equipment costs. Finally, Atlas will pay itself nearly $52 million in various other fees and markups.

In sum, at least 40% of Atlas’s $145 million investment alongside mom and pop goes right back to the company. In addition, Atlas’ profits don’t stop there, when the venture starts generating revenue Atlas is entitled to 33% before accounting for those payments and markups. In the end, not much of a risk at all for Atlas.

Brokerage Firms Halt Sales of American Realty Capital Related REITs

November 4, 2014 | by Staff Attorney

According to InvestmentNews, recently several brokerage firms including Securities America Inc., with 1,772 registered reps and advisers, and the four National Planning Holdings Inc. firms with 3,954 registered reps and advisers including INVEST Financial Corp., Investment Centers of America Inc., National Planning Corp., and SII Investments Inc., announced that they are temporarily suspending some or all of the non-traded real estate investment trust (Non-Traded REITs) sales sponsored or distributed by American Realty Capital and its affiliated companies.

These Non-Traded REITs include investments such as the Phillips Edison-ARC Grocery Center REIT II and Cole Capital Properties V. The decision to halt sales come as Nicholas Schorsch, ARC’s chairman, faces further investigation after it had been revealed that the traded REIT he controls, American Realty Capital Properties Inc., made a $23 million accounting error that resulted in the firing of its chief financial officer.

The firms halted the sales in order to conduct further due diligence on the Non-Traded REIT products. Suspending sales of these products will likely help protect the firms if it is later revealed that the irregularities are more widespread. Brokers have a duty to have a reasonable basis for recommending that Non-Traded REITs are suitable for investors. This means that the firm has investigated the product and believes that the information disclosed to investors has a factual basis. If a Non-Traded REIT, its parent company, or principals are under investigation for making material misstatements it would be difficult for the firm to later argue that it had a basis for believing that the information it provided to investors was accurate.

Non-Traded REITs Sales Grow As Shown in Second Quarter 2014 Rankings

October 21, 2014 | by Staff Attorney

Since the financial crisis the non-traded real estate investment trust (REIT) market has been a financial boon for the brokerage industry. A REIT is a security that invests typically in real estate related assets. Generally, REITs can be publicly or privately held. While publicly held REITs can be sold on an exchange, are liquid, and have lower commissions and fees, non-traded REITs are sold are private, are speculative, illiquid, and often charge fees of over 10%. Nonetheless, non-traded REITs have become a darling product of the financial industry, mostly because of the fat fees brokers earn for recommending these speculative products.

Brokers selling these products sometimes claim that non-traded REITs offer stable returns compared to the volatile stock market. As the Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC) have recently noted, these products may not be as safe and stabile as advertised.

InvestmentNews recently ranked non listed REITs by second quarter 2014 invested assets. As shown below, investment in these funds are substantial and continues to grow each quarter

Company	2Q invested assets ($M)	Original share price	Current share value	Original distribution rate	Current distribution rate	2Q14 FFO 2 payout ratio
Inland American Real Estate Trust	$10,128.5	$10	$6.94	6.20%	5.00%	75%
Corporate Property Associates 17 Global	$4,564.7	$10	$9.50	6.50%	6.50%	81%
Apple Hospitality	$3,960.0	$11	$10.10	8.00%	7.25%	83%
Industrial Income Trust	$3,747.6	$10	$10.40	6.00%	6.00%	100%
Tier REIT	$3,455.8	$10	$4.20	7.00%	0.00%	N/A
CNL Lifestyle Properties	$3,343.4	$10	$6.85	6.25%	4.25%	108%
Griffin-American Healthcare REIT II	$3,056.2	$10	$10.22	6.50%	6.65%	143%
Monogram Residential Trust	$2,879.1	$10	$10.03	7.00%	3.50%	189%
Cole Credit Property Trust IV	$2,833.0	$10	$10.00	6.25%	6.25%	145%
KBS Real Estate Investment Trust II	$2,714.1	$10	$10.29	6.50%	6.50%	98%
Cole Corporate Income Trust	$2,606.3	$10	$10.00	6.50%	6.50%	94%
Hines Real Estate Investment Trust	$2,422.1	$10	$6.40	6.00%	2.90%	88%
American Realty Capital Trust V	$2,233.5	$25	$25.00	6.60%	6.60%	86%
KBS Real Estate Investment Trust	$2,058.0	$10	$4.45	7.00%	0.00%	N/A
Landmark Apartment Trust	$1,889.4	$10	$8.15	6.00%	3.00%	38%
Phillips Edison – ARC Shopping Center	$1,846.9	$10	$10.00	6.50%	6.70%	129%
Steadfast Income REIT	$1,592.7	$10	$10.24	7.00%	7.00%	165%
Strategic Storage Trust	$731.5	$10	$10.79	7.00%	6.50%	120%
Signature Office	$676.4	$25	$25.00	6.00%	6.00%	83%
Lightstone Value Plus REIT	$643.2	$10	$11.80	7.00%	7.00%	69%

Many brokerage firms have come under fire for their non-traded REIT sales practices. For instance LPL Financial in particular has been accused by several regulators of failing to reign in their broker’s sales practices concerning alternative investments. On March 24, 2014, LPL Financial was fined $950,000 by the Financial Industry Regulatory Authority (FINRA) for failing to supervise its brokers’ marketing of nontraditional investments. LPL Financial was alleged to have deficient supervision in the sale of certain alternative investment products, including REITs, oil and gas partnerships, business development companies (BDC’s), hedge funds, and managed futures.

LPL Financial also paid a $500,000 fine to the Massachusetts Securities Division and was ordered to pay $4.8 million in restitution for supervisory and suitability related violations concerning non-traded REITs. In total six firms paid $11 million in restitution and fines related to REIT sales. The other firms including Ameriprise Financial Inc., Lincoln National, Commonwealth Financial Network, Royal Alliance Associates, and Securities America.

The attorneys at Gana Weinstein LLP are experienced in representing investors to recover their financial losses through the misrepresentation of non-traded REITs. Our consultations are free of charge and the firm is only compensated if you recover.

Investor Alert: Brokers Matthew Bell and Craig Josephberg Indicted in CodeSmart Holdings (OTC: ITEN) Scam

July 23, 2014 | by Staff Attorney

Gana Weinstein LLP is investigating claims were brought by securities and exchange commission (SEC) against Matthew Bell (Bell) and Craig Josephberg (Josephberg) in connection with participation in a $300 million securities fraud market manipulation scheme. The SEC brought charges against Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), and Ira Shapiro (Shapiro), for manipulating the stock price of sale of CodeSmart Holdings (OTC: ITEN), Cubed, Inc. (OTC: CRPT), StarStream (OTC: SSET) and The Staffing Group, Ltd. (OTC: TSGL).

According to the complaint, in 2013, Discala and Wexler conspired with Bell and Josephberg, both registered representatives with different brokerage firms, to inflate the price of the stock of CodeSmart. The SEC found that Discala, Wexler, Bell, and Josephberg then profited by selling their shares at inflated values at the expense of Bell’s clients and Josephberg’s customers.

Bell was taken into custody by the FBI and appeared in federal court in San Antonio. In Court, Bell was informed of a 10-count indictment returned in Brooklyn, New York, and was released on bond. Bell has a long history of customer complaints and two firm terminations.

Gana LLP Investigates Broker Angelo Talebi’s Investment Activities: Attention Iranian Investors in California

July 23, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating claims that broker Angelo Talebi (Talebi) made misrepresentations regarding investments in alternative investments such as Real Estate Investment Trusts (REITs) and oil and gas limited partnerships. Upon information and belief, Talebi is targeting Iranian investors in California. According to Talebi’s BrokerCheck, at least 13 customer complaints have been filed regarding Talebi’s sales practices in FINRA arbitration. Some of the complaints also allege that Talebi unsuitably invested clients in various investments including variable annuities and private placements including KBS 1 REIT, Leaf Equipment finance, Inland American Real Estate Trust, Atlas Resources. Another complaint alleges unsuitable equity investments and excessive use of margin.

From 1999 through December 2012, Talebi was associated with LPL Financial LLC (LPL Financial). Thereafter, until April 2014, Talebi was a registered representative of Royal Alliance Associates, Inc. Currently, Talebi is associated with Independent Financial Group, LLC.

The investment products that Talebi is alleged to have inappropriately recommended to clients are part of a growing industry trend of placing investors heavily in alternative investments and illiquid products. Many times brokers tell investors that these products are more stable and predictable than the stock market. After the financial crisis many investors were receptive to these sales pitches. However, brokers sometimes fail to disclose that the stability of these investments is artificially generated by the lack of disclosure and trading market for these products. In the cases of REITs and oil and gas private placements investors may only learn years after investing that the value of these assets has fallen substantially and some investors do not know of their losses until the investment goes completely bust.