Investment Fraud Lawyer Blog

Given the array of exotic alternative investments being sold to the public, it’s logical that many investors often don’t understand what they are buying. What is even scarier is that it is likely their professional investment adviser doesn’t understand the alternative investment either. Investment advisers – 75 percent of them – admit they do not understand alternative investments. Notwithstanding their puzzlement, 50 percent of advisers said they intend to increase their use of them in their clients’ accounts this year. They could use some help, however, because of alternative investments are so confusing. (“Alternatives spur anxiety,” InvestmentNews).

Continue reading " Most Financial Advisers Don't Understand Alternative Investments According To John Hancock Survey" »

Broker-dealers that sold billions of dollars in fraudulent private placements, such as Medical Capital and Provident Royalties notes, “failed massively in their due diligence responsibilities to investors” according to Gordon Yale, a CPA and expert witness in securities fraud cases. (See “Private-placement due diligence ‘sloppy,’” Investment News). They grossly misrepresented investigations into the investments and issuers they claimed to have performed, and, in fact, merely relied on self-serving representations made by management that were false and fraudulent.

Continue reading "Expert Contends that Brokerage Firms are Failing to Satisfy their Due Diligence Obligations." »

Many investors in alternative investments are in for unpleasant surprises. Alternative investments are very popular these days, as traditional stock and bond investments are not doing well. Alternative Investments include a wide variety of investments that fall outside the traditional stock and bond categories. Examples include structured products (such as principal protected notes and reverse convertibles); hedge funds; private equity; nontraded REITs; niche, leveraged, inverse leveraged, and synthetic exchange traded funds; and many others.

Continue reading "Alternative Investments - High Risk 'Pigs in a Poke'" »

Many registered investment advisors and brokerage firms have increased their use of alternative investments for clients, many of whom are retired and lack the knowledge and sophistication to understand the complex investments, according to Liz Skinner’s InvestmentNews article entitled “Clients clamoring for alternative investments and advisers obliging.” But are alternative investments suitable for most investors? Similarly, are most investors provided with balanced disclosures of the risks that they are taking when they invest in alternative investments? Unfortunately, the answer to both questions appears to be no.

Continue reading "Alternative Investments Are Very Complex and Involve Significant Risks" »

The association of state securities regulators known as NASAA has released its top 10 investment traps. NASAA finds that scam artists are peddling various get-rich-quick schemes to take advantage of the economic uncertainty. According to NASAA, investments that investors should be particularly wary of include distressed real estate schemes, energy investments, gold and precious metal investments, promissory notes, and securitized life settlement contracts. Tactics used to peddle such investments often involve affinity fraud, bogus or exaggerated credentials, mirror trading, private placements, and securities and investment advice offered by unlicensed agents.

Continue reading "Securities Cops Issue Warnings about Current Investment Scams" »

Many non-traded (private) REITs are very dangerous for retail investors. These investments typically charge extremely high fees, are illiquid and are virtually impossible to value. Many non-traded REITs have routinely been valued at their original cost on reports provided to investors when such valuations are highly suspect given the tumultuous conditions that have existed in the economy and real estate markets during the past four years. Such valuations are often deceptive and misleading.

Continue reading "Investor Alert - Non-Traded (Private) REITs Involve a Dangerous Mix of Risks for Retail Investors" »

The Securities and Exchange Commission is scrutinizing of the selling of real estate investment trusts that are private placements, that is, are not traded on an exchange, according to an Wall Street Journal article by Anton Troianovski and Craig Karmin entitled “Nontraded REITs Are Put on Notice by SEC.” The SEC is inquiring into the operations and disclosures of nontraded REITs, according to the article.

Continue reading "SEC To Investigate Nontraded REITs" »

The drum beat goes on for broker-dealer closings, as MCL Financial Group Inc. of Santa Ana, California, another small broker-dealer that sold a lot of illiquid alternative investments, has gone the way of QA3 Financial Corp., Jesup & Lamont Securities Corp., GunnAllen Financial Inc., Securities Network LLC, Omni Brokerage Inc., and WFP Securities, according to the latest in Bruce Kelly’s series on the subject for InvestmentNews, “MCL Financial: Another big seller of alternative investments goes under.” These firms folded under the legal costs of their failure to perform proper due diligence on the private placements.

Continue reading "Private Offerings Scuttle Another Brokerage Firm" »

The list of independent broker-dealers that sold private offerings and are now out of business, is impressive. The private offerings include Provident Royalties LLC, Medical Holdings Inc., and DBSI Inc. So far, the list of B-Ds that have closed since 2010 includes, but is not limited to, QA3 Financial Corp., Jesup & Lamont Securities Corp., GunnAllen Financial Inc., Securities Network LLC, Omni Brokerage Inc., and most recently, WFP Securities. See series of InvestmentNews articles by Bruce Kelly entitled “Securities Network latest B-D to close its doors,” “Omni present no longer: Brokerage latest B-D to close,” and “WFP Securities bites the dust.”

Continue reading "Reg D and Other Private Offerings are Dangerous for Brokerage Firms as well as their Clients" »

Richard Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority (FINRA) admonished broker-dealers that sell risky private placements under the Regulation D exemption to conduct more vigorous due diligence, following up on red flags and “pushing and pulling” for information about the products, according to Bruce Kelly’s InvestmentNews article entitled “Finra’s Ketchum: B-Ds must ‘push and pull’ for Reg D details.”

Continue reading "Reg D and Other Private Placement Offerings are Often Plagued by a Lack of Due Diligence" »

Fraudulent acts make headlines nearly every day. But when fraud occurs amongst friends and family, the violation really “hits home” – perhaps even in the most literal sense. Unfortunately, it is surprising how callous or devious some people can be, even the people trusted the most.

Continue reading "Affinity Fraud Generally Occurs When People Least Expect It" »

Securities regulators all agree that exploitation of retirees is a significant and growing problem. According to the U.S. Securities and Exchange Commission, 40 million Americans are age 65 or older, and that number will be 89 million in 2050. Seniors make up 15% of the U.S. population but 30% of fraud victims.

Continue reading "Financial Exploitation of Senior Citizens Continues to Increase" »

Broker-Dealers are pushing back against FINRA’s attempt to cap commissions on private offerings, also known as Reg D offerings. Most of these offerings are very high risk, involve high commission payments and high fees. Thus serious concerns have developed about whether such investments are sold to investors because they are viable investments or because they generate the most commissions. In an effort to reduce the potential conflicts of interest, FINRA has proposed requiring firms to limit these charges.

Continue reading "Brokerage Firms Oppose Efforts to Restrict Excessive Fees in Private Offerings" »

InvestmentNews has reported that FINRA has issued the first in an anticipated series of sanctions against broker-dealers and executives of firms who sold private placements in two alleged Ponzi schemes. The actions were taken against Workman Securities Corp and Askar Corp for deficient investigation and due diligence associated with the sale of high risk investments.. The investments involved were Medical Capital Holdings Inc and Provident Royalties LLC who were charged with fraud by the SEC in 2009.

Continue reading "Regulators Issue Sanctions Against Brokers for Misconduct in Private Offerings (Reg D Offerings)" »

First it was Florida and the Southwest watching their housing prices plummet, now Seattle, Atlanta and Minneapolis have followed suit. The ongoing correction has yet to end as the housing market goes into a double-dip cycle. Mortgage applications are at a 15-year low. These developments do not bode well for the rest of the winter and into spring.

Continue reading "No Market is Immune to the Real Estate Crash" »

National Securities Corp. is the latest broker-dealer in FINRA’s crosshairs over the sale of fraudulent private placements, according to Bruce Kelly’s InvestmentNews article titled “Finra goes after yet another B-D in private-placement crackdown.”

Continue reading "Private Offerings (a/k/a Reg D Offerings) Continue to Haunt Brokerage Firms" »

Real estate prices across the country are dropping even further according to the S&P/Case-Shiller Index. As reported on CNNMoney.com by staff writer Les Christie, recent results show prices in all 20 key cities dropped 1.3% for an annualized decline of 15%. Six markets reached their lowest price levels since the beginning of the bust in mid-2006. They are Atlanta, GA, Charlotte, NC, Miami, Portland, OR, Seattle and Tampa, FL. Sales volume is down by 25%. If we are not already in a double-dip slump we may be soon.

Continue reading "Falling Real Estate Prices Threaten Economic Recovery" »

QA3 Financial Corp. will apparently join approximately twenty-four other brokerage firms that have shut down over the past twelve months. The firm announced that it will cease operations effective February 11, 2011, according to Bruce Kelly’s InvestmentNews article, “B-D down: QA3 to close up shop next week.” The announcement was made by owner and CEO Steve Wild in an email to the firms’ 400 brokers, according to the article. It is unclear as to when and how QA3 plans to inform its customers. According to InvestmentNews, Mr. Wild did not return phone calls on Thursday and Friday.

Continue reading "Brokerage Firm QA3 Will Cease Operations as a Result of Soured Private Offerings" »

The Financial Industry Regulatory Authority (FINRA) is examining sales of opaque and illiquid private investments with a critical eye, according to Bruce Kelly’s InvestmentNews article, “Private deals at top of FINRA’s hit list.”

Continue reading "Private (Reg D) Offerings, Reverse Convertibles and Leveraged ETFs are on FINRA's Hit List" »

Anton Troianovski’s WSJ article, “Ruling Offers a Peek Into Boom’s Fallout,” shows how individual investors, many of them retired and seeking safe income, were victim’s of both the commercial real estate bubble and, more particularly, promoters and sellers of tenant-in-common (or TIC) interests in commercial real estate. One of the big promoters was a company named NNN Realty Advisers, which merged with well-known Grubb and Ellis, a publicly traded company that, according to its website, “is one of the largest and most respected commercial real estate services and investment companies in the world.“

Continue reading "Investor Alert - Beware of Tenant-in-Common (TIC) Interests in Real Estate Sold as Safe Investments" »