Securities Lawyers Blog
Previously financial advisor James Kirchner (Kirchner), previously employed by brokerage firm Cabot Lodge Securities LLC has been subject to at least 5 disclosable events. These events include 4 customer complaints, one regulatory event. 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 final customer complaint on February 23, 2022.
Without admitting or denying the findings, Kirchner consented to the sanctions and to the entry of findings that he falsified a document used in connection with the purchase of a private placement. The findings stated that when Kirchner submitted the customer’s documentation to his member firm for approval, the firm rejected the proposed purchase because the customer had initialed the document incorrectly. Subsequently, Kirchner altered that document with the intention of submitting it to the firm to complete the customer’s private placement purchase. Kirchner used his personal email address to send the original document to a third party, a person Kirchner knew could electronically alter the document for him. This third party received the document from Kirchner, and then altered it by moving the customer\\u2019s initials to the location that the firm required in order to approve the purchase. The third party altered the document at Kirchner’s request and sent it back to Kirchner using Kirchner’s personal email address. Kirchner then used his personal email to send the falsified document back to his firm email account. Kirchner’s use of his personal email account to communicate with the third party violated the firm\\u2019s written policy requiring that all business-related communications be conducted with firm-issued email addresses, and Kirchner did so in order to circumvent his firm’s supervisory review of his conduct. Although Kirchner did not submit the altered document to the firm, it identified his use of his personal email address and the falsification, and terminated Kirchner’s registration with the firm.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $250,000.00 on November 02, 2020.
Customer alleges alternative investment purchases were unsuitable.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $101,000.00 on August 17, 2020.
Customer alleges purchase of alternative investment was unsuitable.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $175,000.00 on March 23, 2020.
Customer alleges that alternative investments recommended were not suitable.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $300,000.00 on January 21, 2020.
Customers allege that investments made in private placements during 2016 and 2017 May be unsuitable.
Alternative investments like nontraded REITs, oil and gas offerings, and equipment leasing products are part of DDPs. With high fees and costs, these alternative investments are usually inappropriate for investors and rarely provide meaningful returns. The extra commissions paid to brokers for selling these inferior investments create misleading incentives, driving an artificial demand for the products.
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. It is the responsibility of brokers to inform investors that non-traded REITs deliver lower returns than treasuries and are both high risk and illiquid—but they frequently fail to do so. As investors do not gain extra returns to offset higher risk and illiquidity, these alternative investment products are almost never a good fit for them.
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.
Kirchner has been in the securities industry for more than 22 years. Kirchner has been registered as a Broker with Cabot Lodge Securities LLC since 2019.
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.