Securities Lawyers Blog
Previously financial advisor Edward Muster (Muster), previously employed by brokerage firm Herbert J. Sims & Co, INC. has been subject to at least 2 disclosable events. These events include 2 customer complaints. According to a BrokerCheck reports most of the recent customer complaints concern either corporate debt securities or alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.
FINRA BrokerCheck shows a pending customer complaint with a damage request of $5,000,000.00 on January 26, 2024.
Alleged firm sold inappropriate private placements
FINRA BrokerCheck shows a settled customer complaint with a damage request of $500,000.00 on December 13, 2023.
SOC states that investments were not in the best interest of the client and that all risks were not disclosed.
Alternative investments, including nontraded REITs, oil and gas offerings, and equipment leasing products, are examples of DDPs. Investors almost never benefit from these alternative investments, which are typically inappropriate because of their high fees and expense structure. By offering brokers extra commissions, firms incentivize the sale of poor-quality investments, ultimately leading to a manipulated market driven by artificial demand.
Several studies have confirmed that Non-traded REITs underperform publicly traded REITs with some showing that Non-Traded REITs cannot even beat safe benchmarks, like U.S. treasury bonds. Although brokers are required to disclose that non-traded REITs underperform treasuries and come with high risk and illiquidity, they seldom fulfill this obligation. Since investors do not receive extra returns for taking on higher risk and illiquidity, these types of alternative investment products are seldom, if ever, suitable for investors.
Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client after conducting due diligence. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors. Appropriate due diligence would identify that an alternative investment’s high costs, illiquidity, and conflicts of interests that would make the investment not suitable for investors. Investors 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.
Unfortunately, these types of alternative investment products continue to popular among brokers due to their high commissions. In order to counter the perverse incentives to sell these flawed product many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs and BDCs. Many states impose these limitations because these investments do not benefit investors.
Muster has been in the securities industry for more than 27 years. Muster has been registered as a Broker with Herbert J. Sims & Co, INC. since 1998.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.