Securities Lawyers Blog
Previously financial advisor Kevin Mccallum (Mccallum), previously employed by brokerage firm LPL Financial LLC has been subject to at least 2 disclosable events. These events include one customer complaint, 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 May 17, 2024.
Mccallum violated Commission Rule 830-X-3.12 when he overconcentrated clients’ accounts in the BDC when it was not suitable for the clients.
FINRA BrokerCheck shows a settled customer complaint on November 15, 2023.
Customers allege that between 2015 and 2019, representative made unsuitable investments in Medley Capital Corporation
Alternative investments like nontraded REITs, oil and gas offerings, and equipment leasing products are part of DDPs. Investors almost never benefit from these alternative investments, which are typically inappropriate due to their steep fees and costs. 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. Brokers selling these products must disclose to the investor that non-traded REITs provide lower investment returns than treasuries while being high risk and illiquid – but almost never do. 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.
Mccallum has been in the securities industry for more than 26 years. Mccallum has been registered as a Broker with LPL Financial LLC since 2012.
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.