Monday, December 31, 2012

HOLD BROTHERS FINED MORE THAN $5.9 MILLION FOR MANIPULATIVE TRADING, ANTI-MONEY LAUNDERING, AND OTHER VIOLATIONS

The Financial Industry Regulatory Authority (FINRA), along with the NYSE, NASDAQ, and BATS Exchange, announced that they have fined and censured Hold Brothers On-Line Investment Services $3.4 million for manipulative trading activities, anti-money laundering (AML), and other violations. In addition, the Securities and Exchange Commission (SEC) announced a settlement with Hold Brothers, fining the firm greater than $2.5 million. In resolving these matters, FINRA and the exchanges took the SEC's action into consideration, which included bars for three Hold Brothers senior managers.
Headquartered in New York, Hold Brothers is a self-clearing broker that provides direct market access to customers and proprietary traders by operating primarily as a day trading firm. Between January 2009 and December 2011, Hold Brothers' biggest accounts, Demonstrate LLC and Trade Alpha, were day trading firms wholly-owned and funded by Hold Brothers' principals. Demonstrate and Alpha engaged traders in numerous countries, mainly in China, to trade its capital. FINRA discovered that Demonstrate and Trade Alpha were under the control of Hold Brothers - hundreds of instances were uncovered where foreign traders used spoofing and layering activities to induce market participants to provide the traders with favorable execution pricing that would not have been available but for such violations.
Spoofing is a type of market manipulation, which involves placing non-bona fide orders, usually inside the National Best Bid or Offer (NBBO), with the intent to cause another market participant to join or improve the NBBO. The non-bona fide order is then canceled, and an order on the opposite side of the market is entered. Layering consists of the placement of multiple, non-bona fide limit orders on one side of the market at various price levels at or away from the NBBO to create the illusion of a change in the levels of supply and demand - this action artificially affects the movement of the price. An order is then executed on the opposite side of the market at the illusory price, and the non-bona fide orders are canceled.
It was also found that Hold Brothers failed to establish and maintain a supervisory system and written procedures that were reasonably designed to supervise trading activities. In addition, Hold Brothers' AML policies were insufficient and failed to detect suspicious transactions. For example, between 2009 and 2011, the firm averaged 400,000 trades per day, 90 of which were placed through the Demonstrate account. Despite the high volume of trading Hold Brothers' AML procedures only provided for manual monitoring to detect suspicious trading in the accounts. Furthermore, there were also numerous instances when Hold Brothers' compliance department determined that Demonstrate and Trade Alpha had engaged in suspicious or manipulative trading. No suspicious activities reports were filled out, and the firm's compliance officer was never informed of the activity.
Have you suffered losses resulting from illegal activity at Hold Brothers? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

FINRA ORDERS NEXT FINANCIAL GROUP TO PAY RESTITUTION TO INVESTORS NATIONWIDE FOR PROVIDENT ROYALTIES SALES

NEXT Financial Group has been fined by the Financial Industry Regulatory Authority (FINRA) for failing to conduct adequate due diligence on private placement offerings by Provident Royalties. NEXT was responsible for selling tens of millions in Provident, which caused its investors to lose hundreds of millions of dollars. NEXT will pay a $50,000 fine and $2 million in restitution to clients. Also, the Securities and Exchange Commission (SEC) has accused Provident of committing fraud, and at least one Provident broker has admitted to such allegations.

Due diligence requires a reasonable investigation of all material facts before entering into an agreement or transaction with another person or entity. It is a measure taken to prevent unnecessary harm to an innocent party. The measure would require an entity offering and selling a security to analyze the legitimacy, nature, and risks associated with the product.

According to FINRA, NEXT did not perform adequate due diligence prior to the offering. However, NEXT did receive a fee for purportedly reviewing the private placement memorandum for the offering. This shortcoming clearly fell below FINRA's due diligence requirements. In fact, NEXT did not see any financial figures or any other information that was not contained in the private placement memorandum.

Securities regulators have fined NEXT for committing violations in the past. Some examples include failure to report customer complaints, disclosing private customer information, failure to supervise and detect churning, and excessive trading activity.

Were you a NEXT Financial Group client who suffered losses in Provident Royalties? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WAS THE HINES REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?

Many investors have been calling my office and asking whether Hines Real Estate Investment Trust was an unsuitable investment for them. Hines Real Estate Investment Trust is a non-traded Real Estate Investment Trust (REIT). For most investors, liquidity, income and risk tolerance are a concern but if you are elderly and retired they are paramount! If you have limited resources and no ability to generate income from other sources to meet your liquidity and income needs then a non-traded REIT is an unsuitable investment. Likewise, if you cannot afford a total risk of loss, then speculative non-traded REITs are unsuitable investments. The suitability problem is compounded when any investors' portfolio is concentrated in non-traded REIT investments. A rule of thumb is that no more than 10% of anyone's investment portfolio should be concentrated in real estate investments, including REIT investments, and that percentage should be far less as a person reaches retirement and advances in age, perhaps zero!

Every brokerage firm has the responsibility of "knowing the customer" and making a customer specific "suitability" determination for every investment recommendation. The "Suitability Rule," Financial Industry Regulatory Authority (FINRA) Rule 2111, requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile." This is a new rule but it contains the core features of the previous National Association of Securities Dealers ("NASD") and New York Stock Exchange ("NYSE") suitability rules and codifies well-settled interpretations of those rules. Brokerage firms and their associated persons have always had the responsibility to make suitable recommendations in light of individuals in stating investment objectives and financial condition, tax status, and other relevant factors. According to FINRA, some non-traded Real Estate Investment Trust investments ("REITs") aren't suitable for anyone based on the offering terms, misrepresentations and unreasonable projections by the promoters (see FINRA News Release "FINRA Issues Investor Alert on Public Non-Traded REITs").

The primary cause of the increased number of telephone calls to our office over the last five years is many elderly and retired investors have been steered into non-traded REIT investments as the yields on other income producing investments have steadily declined. According to many investors, the REITS were recommended as safe, secure, and steady income producing investments which sounded to be exactly what many seniors wanted and needed. But these products offer little liquidity for investors who at this stage of their life are likely to need to dip into their investment savings to support their lifestyle or for medical and other emergencies. There is no public market, early redemption of shares in REITs is often very limited, and the fees associated with the sales of these products can be high and erode the total return, if they can be sold at all. Further, many of these investments do not truly generate income but make distributions with borrowed money, with newly raised capital, or by a return of principal rather than a return on investment which can stop at any time. Although non-traded REITs may offer some diversification benefits as part of a balanced portfolio, they all have underlying risk characteristics that make them unsuitable for certain investors, particularly the elderly retired investor with limited financial resources.

When any Hines Real Estate Investment Trust investor calls our office, we will make a customer specific suitability determination after we learn the "essential facts" concerning that investor. We will ask, just as their stockbroker should have asked, about their age, investment experience, time horizon liquidity needs (length of time they could hold the investment without need for the principal), risk tolerance, other holdings, and financial situation in terms of liquid total net worth, tax status and investment objectives. All of these factors are relevant to suitability and determination and most weigh against the ownership of REIT investments by elderly retired investors. If we believe a brokerage firm or its representatives made an unsuitable recommendation that any person invest in a non-traded REIT, we recommend that they file a FINRA arbitration claim and attempt to recover their losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Sunday, December 30, 2012

SEC SUES WALTER MORALES AND COMMONWEALTH ADVISORS FOR HIDING LOSSES FROM MORTGAGE-BACKED SECURITIES

The Securities and Exchange Commissions (SEC) has sued Walter Morales and his firm, Commonwealth Advisors, for swindling investors by concealing millions of dollars in losses suffered during the financial crisis from investments tied to residential mortgage backed securities (RMBS). The SEC accused the hedge fund manager of purchasing the lowest and riskiest tranches of collateralized debt obligation (CDO) called Collybus. Even though they Mr. Morales and Commonwealth were familiar with the facts that the RMBS market had declined sharply, they sold mortgage-backed securities into the CDO at prices they had obtained four months earlier. Because of the continuous poor performance of the CDO, management orders its firm to carry 150 deceptive cross-trades between the hedge funds they advised in order to hide a $32 million loss suffered by one of the funds in its Collybus investment. The firm even presented bogus documents to justify and certify their false valuations about the amount and value of mortgage backed assets held in hedge funds.
A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization. Collateralized debt obligations are a type of structured asset-backed securities with multiple risk "tranches" that are issued by special purpose entities and collateralized by debt obligations including bonds and loans. With the real estate market collapse in 2008, many of these investments plummeted and investors lost billions.
The SEC charged Mr. Morales and Commonwealth Advisors with breaching various sections of the Securities Acts of 1933 and the Securities and Exchange Act of 1934 as well as Rule 10b-5. SEC Division of Enforcement Director Robert Khumazi said, "Morales and Commonwealth Advisors concealed significant hedge fund losses from investors, including pension fund investors, instead of owning up to them and facing the consequences." Mr. Khumazi also stated that "investors put their fundamental trust in the hands of their investment adviser, and they deserve better than being manipulated and lied to through deceptive trades and phony documents."
Have you suffered losses in mortgage-backed securities resulting from Commonwealth Advisors' concealment scheme? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE OF BNI TENANT-IN-COMMON INVESTMENTS

Broker-dealers are at the forefront of an ongoing investigation into BNI tenant-in-common investments (TICs). This is attributable to the broker-dealers' failure to conduct adequate due diligence prior to offering and selling the TIC investment to their clients. Therefore, brokers misrepresented the product as a safe and guaranteed investment, with returns ranging from 7 to 12%. The results were hefty commissions for brokers, while clients were left with unsuitable and risky real estate investments in the midst of a property bubble.

TICs are investment vehicles that allow individual investors to buy shares of real estate interests directly, rather than shares of stock, bond certificates, or other forms ownership. Properties can include a high-rise office building, a retail center, a triple-net lease from a national drugstore chain, oil or gas wells, or any other type of investment property. Investors are attracted to TICs because they can purchase an interest in expensive properties - typically $30 million or more in value. Over the past decade, TICs have become popular among retail investors. This is partially attributable to the IRS' rule amendment, which allows investors to avoid capital gains taxes by investing property sale proceeds into TICs.

Due diligence requires a reasonable investigation of all material facts before entering into an agreement or transaction with another person or entity. It is a measure taken to prevent unnecessary harm to an innocent party. In many instances, broker-dealers do not perform sufficient due diligence prior to offering products such as tenant-in-common investments. If broker-dealers do not perform their due diligence, they risk misrepresenting the true nature of the product and placing clients in an unsuitable investment. As a result, an investor can claim damages against the broker-dealer that sold the BNI TIC for not performing its due diligence prior to the offer and sale.

Have you suffered a loss in a BNI tenant-in-common investment? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

CAN I RECOVER MY RETAIL PROPERTIES OF AMERICA REAL ESTATE INVESTMENT TRUST LOSSES?

Many investors in the Retail Properties of America, Inc. REIT, formerly the non-traded Inland Western REIT, have inquired about their ability to recover their losses after learning about the results of the recent Initial Public Offering (IPO) to ostensibly give them liquidity to sell their non-traded Inland Western REIT interests. The Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT, IPO fell well short of its estimated pre-offering price of $12. After the reverse-stock-split, the $8 offering price only yielded original investors a split-adjusted value of $3 per share-a loss of over 70% of their original investments. As a result, many claims are being filed by Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT, and other REIT investors for misrepresentation, unsuitable recommendations and/or overconcentrations of their investment funds in Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT, and other REIT investments to recover their REIT losses.

At first blush, one may think that the best claim is against the Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT, itself and its management but one needs to remember why they first invested. Undoubtedly, the Retail Properties of America, Inc., f/k/a Inland Western REIT, and other REIT investments were recommended by your brokerage firm and financial advisor who have a fiduciary duty to not misrepresent or omit to state important facts, perform due diligence on any REIT and first make sure that the investment is suitable at all for any investor and then specifically ensure that the investment is appropriate in light of the investor's actual age, investment experience, investment objectives, tax and financial condition. If the brokerage firm and its advisor fail in fulfilling any one of these duties under common law and under the FINRA Code of Conduct, investors will have the right to recover their investment losses against them through a FINRA arbitration proceeding and/or court if no arbitration agreement has been executed.

The most common misrepresentation and misleading statement claims that Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT, and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that the Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT and other REITs were not adequately represented before purchase and that they did not know the real truth about the valuations, performance, prospects, liquidity, or distribution and redemption practices of management relating to their investment. Many elderly investors seeking income were overconcentrated in the Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT and other REITs because they needed income. Sadly they learned too late that there were no guarantees that distributions would be made. Some REIT investors have just learned that they would no longer be receiving distributions or that the distributions they actually received were derived from loans and not the true cash flow of the REIT. Brokerage firms and their financial advisors were eager to push REIT investments on their clients for the high commissions compared to other products. Unfortunately, many investors are locked in and unable to sell their REIT investments without suffering without selling into deeply discounted secondary market for some other REIT investments. If you are a Retail Properties of America, Inc. REIT, f/k/a Inland Western REIT investor with the same complaints, we believe we can help you recover your REIT losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Saturday, December 29, 2012

HANTZ FINANCIAL SERVICES NO LONGER UNDER THE LEGAL RADAR FOR SELLING MEDCAP NOTES

Hantz Financial Services, a mid-sized firm based in Michigan with 260 affiliated advisers, is no longer under the legal radar for selling MedCap notes to investors. A recent report revealed that Hantz Financial sold MedCap notes to 300 clients, who could have over $20 million in combined damages against the firm. The MedCap fallout stems from a $2.2 billion Ponzi scheme built on shaky medical receivables that the Securities and Exchange Commission shut down in July 2009. This news comes after a private placement debacle that swept through the independent broker-dealer industry and forced dozens of small to mid-size firms to close. This particular revelation is quite surprising seeing as it has been several months since InvestmentNews and other industry publications have covered the story in any significant way - most likely because a certain amount of stability has returned to the market.
A Ponzi scheme is an unsustainable fraud pyramid that inevitably ends in ruin. Schemers use money raised from latter investors or investors higher up the pyramid to pay an earlier investor's returns. Ponzi schemes invariably fall apart when markets deteriorate or when the schemer is unable to raise more cash.
Due diligence requires a reasonable investigation of all material facts before entering into an agreement or transaction with another person or entity. It is a measure taken to prevent unnecessary harm to an innocent party. The measure would require an entity offering and selling a security to analyze the legitimacy, nature, and risks associated with the product.
Hantz Financial had a duty to investigate MedCap before offering and selling the private placement to its clients. If broker-dealers such as Hantz Financial do not perform adequate due diligence, they can be liable to investors for damages. Hantz Financial's failure to perform due diligence caused hundreds of its clients to lose millions of dollars in MedCap. Therefore, investors are encouraged, and are certainly entitled, to file arbitration claims against Hantz Financial to recover losses incurred due to the massive Ponzi scheme that defrauded thousands of MedCap investors.
Have you suffered losses in MedCap notes sold by Hantz Financial Services Inc.? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

FINRA SANCTIONS EIGHT FIRMS AND TEN INDIVIDUALS NATIONWIDE FOR SELLING INTERESTS IN PROVIDENT ROYALTIES

After previously announcing that it sanctioned two firms and seven individuals for selling interests in private placements, the Financial Industry Regulatory Authority (FINRA) has added eight more firms and 10 more individuals to its investigation. The firms and individuals sold interests in high-risk private placements such as Provident Royalties without conducting a reasonable investigation, therefore having no reasonable basis to recommend the investments. FINRA has ordered the firms to pay $3.2 million in restitution due to significant investor losses.

Between September 2006 and January 2009, Provident Asset Management, LLC, marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by its affiliate, Provident Royalties. The Provident offerings were sold to customers through more than 50 retail broker-dealers nationwide and raised approximately $485 million from over 7,700 investors. Although a portion of the proceeds of Provident Royalties' offerings was used for the acquisition and development of oil and gas exploration and development activities, millions of dollars of investors' money was transferred from the later offerings' bank accounts to the Provident operating account in the form of undisclosed and undocumented loans, and were used to pay dividends and returns of capital to investors in the earlier offerings, without informing investors of such activities. In July 2009, the SEC filed a civil injunctive action in the Northern District of Texas naming Provident and others for violations of the federal securities laws. While the SEC action was pending, FINRA announced that it had expelled Provident Asset Management, LLC, a Dallas based broker-dealer, for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties.

FINRA's findings revealed that the broker-dealers did not have adequate supervisory systems in place to identify and understand the inherent risks of the offerings and, as a result, many of the firms failed to conduct adequate due diligence of the offerings. Also, many firms did not have reasonable grounds to believe that the private placements were suitable for their customers. Furthermore, the sanctioned principals did not have reasonable grounds to permit the firms' registered representatives to continue selling the offerings, regardless of the numerous red flags or signals that existed regarding the private placement. The following firms have been sanctioned by FINRA for failing to conduct a reasonable investigation or for failing to enforce procedures with respect to the sale of private placements offered by Provident Royalties: NEXT Financial Group, Investors Capital Corporation, Capital Financial Services, National Securities Corporation, Securities America, and Meadowbrook Securities.

FINRA has vowed to continue to look closely at sales of private placements to determine whether the selling firms are fulfilling their responsibilities to customers. These efforts reinforce that any firm or person who fails to conduct reasonable investigations of offerings, especially when there are multiple red flags, will not be permitted to shift all the responsibility to the issuers of fraudulent private placement investments.

Have you suffered losses in Provident Royalties? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WAS THE AMREIT REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?

Many investors have been calling my office and asking whether AmREIT Real Estate Investment Trust was an unsuitable investment for them. AmREIT Real Estate Investment Trust is a non-traded Real Estate Investment Trust (REIT). For most investors, liquidity, income and risk tolerance are a concern but if you are elderly and retired they are paramount! If you have limited resources and no ability to generate income from other sources to meet your liquidity and income needs then a non-traded REIT is an unsuitable investment. Likewise, if you cannot afford a total risk of loss, then speculative non-traded REITs are unsuitable investments. The suitability problem is compounded when any investors' portfolio is concentrated in non-traded REIT investments. A rule of thumb is that no more than 10% of anyone's investment portfolio should be concentrated in real estate investments, including REIT investments, and that percentage should be far less as a person reaches retirement and advances in age, perhaps zero!

Every brokerage firm has the responsibility of "knowing the customer" and making a customer specific "suitability" determination for every investment recommendation. The "Suitability Rule," Financial Industry Regulatory Authority (FINRA) Rule 2111, requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile." This is a new rule but it contains the core features of the previous National Association of Securities Dealers ("NASD") and New York Stock Exchange ("NYSE") suitability rules and codifies well-settled interpretations of those rules. Brokerage firms and their associated persons have always had the responsibility to make suitable recommendations in light of individuals in stating investment objectives and financial condition, tax status, and other relevant factors. According to FINRA, some non-traded Real Estate Investment Trust investments ("REITs") aren't suitable for anyone based on the offering terms, misrepresentations and unreasonable projections by the promoters (see FINRA News Release "FINRA Issues Investor Alert on Public Non-Traded REITs").

The primary cause of the increased number of telephone calls to our office over the last five years is many elderly and retired investors have been steered into non-traded REIT investments as the yields on other income producing investments have steadily declined. According to many investors, the REITS were recommended as safe, secure, and steady income producing investments which sounded to be exactly what many seniors wanted and needed. But these products offer little liquidity for investors who at this stage of their life are likely to need to dip into their investment savings to support their lifestyle or for medical and other emergencies. There is no public market, early redemption of shares in REITs is often very limited, and the fees associated with the sales of these products can be high and erode the total return, if they can be sold at all. Further, many of these investments do not truly generate income but make distributions with borrowed money, with newly raised capital, or by a return of principal rather than a return on investment which can stop at any time. Although non-traded REITs may offer some diversification benefits as part of a balanced portfolio, they all have underlying risk characteristics that make them unsuitable for certain investors, particularly the elderly retired investor with limited financial resources.

When any AmREIT Real Estate Investment Trust investor calls our office, we will make a customer specific suitability determination after we learn the "essential facts" concerning that investor. We will ask, just as their stockbroker should have asked, about their age, investment experience, time horizon liquidity needs (length of time they could hold the investment without need for the principal), risk tolerance, other holdings, and financial situation in terms of liquid total net worth, tax status and investment objectives. All of these factors are relevant to suitability and determination and most weigh against the ownership of REIT investments by elderly retired investors. If we believe a brokerage firm or its representatives made an unsuitable recommendation that any person invest in a non-traded REIT, we recommend that they file a FINRA arbitration claim and attempt to recover their losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Friday, December 28, 2012

ADVISERS ACTING AS PORTFOLIO MANAGERS POSES A MAJOR CONCERN FOR INVESTORS NATIONWIDE

Advisers acting as portfolio managers are causing major concerns about performance seeing as only about 10 percent of advisers are competent in allocating assets. This means that close to 90 percent of advisers are taking on more control and responsibility without fully understanding the investment decision making process. To date, advisers acting as portfolio managers have grown to approximately $150 billion at Morgan Stanley, up from $17 billion in 2003, and the trend is continuing to grow at a rate of $1 to $2 billion a month. This trend translates into a major dilemma for investors since very few advisers have the knowledge and skill to successfully analyze and allocate assets in a portfolio.
Asset allocation is an investment strategy that seeks to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals and investment time frame. A fundamental justification for asset allocation is the idea that different asset classes offer returns that are not perfectly correlated, and so diversification reduces the overall risk in terms of the variability of returns. There are many types of assets that may be included in an asset allocation strategy such as: cash, bonds, stocks, commodities, real estate, and derivatives, and there are several types of asset allocation strategies based on investment goals, risk tolerance, time frames and diversification.
Some broker dealers have rolled out new measures to gauge how each individual client's portfolio is performing. For example, Morgan Stanley advisers who manage their own portfolios rate each client as conservative, moderate, or aggressive. Individual returns are then compared with all the other clients' at the wirehouse in the same category, instead of a stock or bond index. Advisers who are trailing their peers' performance are targeted for more help, either through extra training or resources. In some cases, advisers who are trailing their peers are pushed to outsource their investments and focus on other areas of financial planning, such as relationship management, prospecting, and tax planning. These measures are a good start for broker-dealers who support the current trend of advisers taking on the role of portfolio managers, but the number of advisers who truly understand what it takes to successfully manage a portfolio is certainly not where it should be.
Have you suffered investment losses due to inadequate asset allocation? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE OF PUMP AND DUMP SCHEMES

Self-styled stock research firms send out emails almost daily in hope of convincing their recipients to invest in exciting new businesses. Typically, these companies are close to developing cures for cancer or HIV, have discovered gold deposits, or have developed cutting-edge internet technology. While these opportunities might seem intriguing, many of these research firms are more interested in making money from selling stock to investors without any experience than they are about capitalizing new businesses. What is usually occurring is an effort to pump up a stock price through an intense marketing campaign so that schemer stock holdings can be dumped on new investors when the share price peaks. Hence the name, "pump and dump."

A pump and dump scheme is a form of stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements. The objective is to sell the cheaply purchased stock at a higher price by driving up the value via new client stock purchases. They are usually conducted with the aid of one or more small broker-dealers who cold-call small investors from lead-lists and use high pressure sales tactics. Oftentimes, the brokers engage in unauthorized trading and refuse to execute all orders to pump up the stock price. Once the operators of the scheme pump up the price and dump their overvalued shares, the price falls and investors lose their money. While fraudsters in the past relied on cold calls, the internet now offers a cheaper and easier way of reaching large numbers of potential investors.

Fortunately, investors can spot pump and dump schemes by asking themselves a series of simple questions. The following will help eliminate most stocks that do not have real business:

1) What is the current stock price?

Check the recent stock price by getting a quote on the internet. Most worthwhile stock prices trade at around $5 per share. If you are a conservative investor or not risk tolerant, rule out stocks trading below that level.

2) How has the stock traded recently?

Heavily promoted stocks often move from below 50 cents to above $1 or more in a short period of time. Rule out stocks that have consistently traded below 50 cents per share.

3) What are the company's annual revenues?

Use the internet to look up the company's income statement. Rule out companies that do not produce at least $50 million in revenue per year.

4) What are the quarterly revenues?

Use the internet to look up the company's quarterly income. Rule out companies that do not produce at least $10 million in revenue per quarter.

5) Is the company solvent?

Use the internet to look up the company's balance sheet. The liabilities exceed assets, the company is financially weak. Rule out any companies whose current liabilities exceed current assets.

6) Has there been a change in business?

Use the internet to look up the most recent Quarterly 10-Q or Annual 10-K report and read the Overview section. Rule out any company that has recently changed its business plan, i.e. from mining to technology.

Investors should still realize that passing any one of these question does not necessarily mean that they will make money. At the least, they will know they are considering a real company.

Have you suffered losses in a pump and dump scheme? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

FINRA SANCTIONS EIGHT FIRMS AND TEN INDIVIDUALS NATIONWIDE FOR SELLING INTERESTS IN MEDICAL CAPITAL HOLDINGS

After previously announcing that it sanctioned two firms and seven individuals for selling interests in private placements, the Financial Industry Regulatory Authority (FINRA) has added eight more firms and 10 more individuals to its investigation. The firms and individuals sold interests in high-risk private placements such as Medical Capital Holdings without conducting a reasonable investigation, therefore having no reasonable basis to recommend the investments. FINRA has ordered the firms to pay $3.2 million in restitution due to significant investor losses.

Between 2001 and 2009, Medical Capital Holdings, a medical receivables financing company based in Anaheim, CA, raised nearly $2.2 billion from over 20,000 investors through nine promissory note private placement offerings. Interest and principal payments were made on the promissory notes until July 2008, when Medical Capital began experiencing liquidity problems and stopped making payments on notes sold in two of its earlier offerings. Still, Medical Capital continued with its last offering, Medical Provider Funding Corporation VI, offered in an August 2008 private placement memorandum. As a result, the SEC filed a civil injunctive action in federal court in which it sought, and was granted, a preliminary injunction to stop Medical Capital sales.

FINRA's findings revealed that the broker-dealers did not have adequate supervisory systems in place to identify and understand the inherent risks of the offerings and, as a result, many of the firms failed to conduct adequate due diligence of the offerings. Also, many firms did not have reasonable grounds to believe that the private placements were suitable for their customers. Furthermore, the sanctioned principals did not have reasonable grounds to permit the firms' registered representatives to continue selling the offerings, regardless of the numerous red flags or signals that existed regarding the private placement. The following firms have been sanctioned by FINRA for failing to conduct a reasonable investigation or for failing to enforce procedures with respect to the sale of private placements offered by Medical Capital: Garden State Securities, Capital Financial Services, National Securities Corporation, Newbridge Securities, and Meadowbrook Securities.

FINRA has vowed to continue to look closely at sales of private placements to determine whether the selling firms are fulfilling their responsibilities to customers. These efforts reinforce that any firm or person who fails to conduct reasonable investigations of offerings, especially when there are multiple red flags, will not be permitted to shift all the responsibility to the issuers of fraudulent private placement investments.

Have you suffered losses in Medical Capital Holdings? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Thursday, December 27, 2012

HEDGE FUND INVESTORS NATIONWIDE BEWARE - YOU MAY NOT BE GETTING THE WHOLE TRUTH!

Hedge fund investors do not receive all the federal and state law protections that typically apply to mutual fund investments. For example, hedge funds are not required to provide the same level of disclosure as one would receive if investing in mutual funds. This poses a serious concern for investors because it can be more difficult to evaluate the terms of an investment in a hedge fund. In addition, it may also be difficult to verify the representations an investor receives from the hedge fund. The Securities and Exchange Commission (SEC) has brought numerous actions against hedge funds and their managers for defrauding investors. Some examples include actions for managers misrepresenting their experience and track record, Ponzi schemes, and phony account statements to cover up losses and stolen cash. That is why it is extremely important to thoroughly check every aspect of any hedge fund one might consider investing in.
Hedge funds are similar to mutual funds in structure. Investor money is pooled together and invested in an effort to make a positive return. However, hedge funds have more flexible investment strategies than mutual funds. Hedge funds seek to profit in all kinds of markets by utilizing strategies involving leverage, short-selling, and other speculative investment practices that are not typically used by mutual funds. Another factor that distinguishes hedge funds from mutual funds is that hedge funds are not subject to the same regulations designed to protect investors. Depending on the amount of assets in the hedge funds advised by a manager, some hedge funds may not be required to file reports with the SEC. Fortunately, hedge funds are subject to the same prohibitions against fraud as are other market participants. In addition, managers owe a fiduciary duty the funds under management.
Investors interested in hedge funds can safeguard themselves from abuses and monetary losses by taking the following actions: 1) read a fund's offering memorandum and related materials to determine its investment strategy, the geographical location, fees earned by the manager, expenses charged by the manager, and any conflicts of interest that may exist; 2) understand the level of risk taken by the hedge fund and determine whether it is suitable; 3) determine if the fund is using leverage or other speculative investment techniques; 4) understand the fund's valuation process in case the fund is investing in highly illiquid securities; 5) understand how the fund's performance is determined; 6) understand any limitations on rights of redemption; and 7) research the backgrounds of the hedge fund managers. These simple investigations will help to shed light on whether a hedge fund is suitable for an inexperienced hedge fund investor, who should certainly employ every available measure in order to avoid losing his or her hard earned money.
Have you suffered significant losses in a hedge fund? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WAS THE BEHRINGER HARVARD REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?

Many investors have been calling my office and asking whether Behringer Harvard Real Estate Investment Trust was an unsuitable investment for them. Behringer Harvard Real Estate Investment Trust is a non-traded Real Estate Investment Trust (REIT). For most investors, liquidity, income and risk tolerance are a concern but if you are elderly and retired they are paramount! If you have limited resources and no ability to generate income from other sources to meet your liquidity and income needs then a non-traded REIT is an unsuitable investment. Likewise, if you cannot afford a total risk of loss, then speculative non-traded REITs are unsuitable investments. The suitability problem is compounded when any investors' portfolio is concentrated in non-traded REIT investments. A rule of thumb is that no more than 10% of anyone's investment portfolio should be concentrated in real estate investments, including REIT investments, and that percentage should be far less as a person reaches retirement and advances in age, perhaps zero!

Every brokerage firm has the responsibility of "knowing the customer" and making a customer specific "suitability" determination for every investment recommendation. The "Suitability Rule," Financial Industry Regulatory Authority (FINRA) Rule 2111, requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile." This is a new rule but it contains the core features of the previous National Association of Securities Dealers ("NASD") and New York Stock Exchange ("NYSE") suitability rules and codifies well-settled interpretations of those rules. Brokerage firms and their associated persons have always had the responsibility to make suitable recommendations in light of individuals in stating investment objectives and financial condition, tax status, and other relevant factors. According to FINRA, some non-traded Real Estate Investment Trust investments ("REITs") aren't suitable for anyone based on the offering terms, misrepresentations and unreasonable projections by the promoters (see FINRA News Release "FINRA Issues Investor Alert on Public Non-Traded REITs").

The primary cause of the increased number of telephone calls to our office over the last five years is many elderly and retired investors have been steered into non-traded REIT investments as the yields on other income producing investments have steadily declined. According to many investors, the REITS were recommended as safe, secure, and steady income producing investments which sounded to be exactly what many seniors wanted and needed. But these products offer little liquidity for investors who at this stage of their life are likely to need to dip into their investment savings to support their lifestyle or for medical and other emergencies. There is no public market, early redemption of shares in REITs is often very limited, and the fees associated with the sales of these products can be high and erode the total return, if they can be sold at all. Further, many of these investments do not truly generate income but make distributions with borrowed money, with newly raised capital, or by a return of principal rather than a return on investment which can stop at any time. Although non-traded REITs may offer some diversification benefits as part of a balanced portfolio, they all have underlying risk characteristics that make them unsuitable for certain investors, particularly the elderly retired investor with limited financial resources.

When any Behringer Harvard Real Estate Investment Trust investor calls our office, we will make a customer specific suitability determination after we learn the "essential facts" concerning that investor. We will ask, just as their stockbroker should have asked, about their age, investment experience, time horizon liquidity needs (length of time they could hold the investment without need for the principal), risk tolerance, other holdings, and financial situation in terms of liquid total net worth, tax status and investment objectives. All of these factors are relevant to suitability and determination and most weigh against the ownership of REIT investments by elderly retired investors. If we believe a brokerage firm or its representatives made an unsuitable recommendation that any person invest in a non-traded REIT, we recommend that they file a FINRA arbitration claim and attempt to recover their losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE OF TRIPLE NET TENANT-IN-COMMON INVESTMENTS

Broker-dealers are at the forefront of an ongoing investigation into Triple Net tenant-in-common investments (TICs). This is attributable to the broker-dealers' failure to conduct adequate due diligence prior to offering and selling the TIC investment to their clients. Therefore, brokers misrepresented the product as a safe and guaranteed investment, with returns ranging from 7 to 12%. The results were hefty commissions for brokers, while clients were left with unsuitable and risky real estate investments in the midst of a property bubble.

TICs are investment vehicles that allow individual investors to buy shares of real estate interests directly, rather than shares of stock, bond certificates, or other forms of ownership. Properties can include a high-rise office building, a retail center, a triple-net lease from a national drugstore chain, oil or gas wells, or any other type of investment property. Investors are attracted to TICs because they can purchase an interest in expensive properties - typically $30 million or more in value. Over the past decade, TICs have become popular among retail investors. This is partially attributable to the IRS' rule amendment, which allows investors to avoid capital gains taxes by investing property sale proceeds into TICs.

Due diligence requires a reasonable investigation of all material facts before entering into an agreement or transaction with another person or entity. It is a measure taken to prevent unnecessary harm to an innocent party. In many instances, broker-dealers do not perform sufficient due diligence prior to offering products such as tenant-in-common investments. If broker-dealers do not perform their due diligence, they risk misrepresenting the true nature of the product and placing clients in an unsuitable investment. As a result, an investor can claim damages against the broker-dealer that sold the Triple Net TIC for not performing its due diligence prior to the offer and sale.
Have you suffered a loss in a Triple Net tenant-in-common investment? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Wednesday, December 26, 2012

INVESTORS NATIONWIDE BEWARE OF AFFINITY FRAUD SCHEMES THAT TARGET MEMBER GROUPS!

Affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. Some of the common interests include a religious beliefs, ethnic groups, immigrant communities, racial minorities, and members of a workforce. Various methods are used to access or target the groups. One common way is to persuade leaders from within to endorse the scheme. Sometimes the leaders do not even know that they are endorsing a scam, and they may end up becoming one of the victims of the fraud themselves. Because of the tight-knit structure of some of the groups, it can be quite challenging for regulators or law enforcement officials to detect affinity scams. Fraud victims often fail to notify the authorities in time, or they will try and work things out internally. This particularly true where the fraudsters have used respected community or religious leaders to convince members to join in on the investment.
Affinity fraud usually involves either fake investments or lies about important details such as an investment's risk/reward. Most affinity fraud cases stem from Ponzi schemes, where new money raised by the promoter gives money to earlier investors to create the illusion that the investment is yielding successful returns. This particular scheme makes no profit at all. Eventually, when the supply of new investor money dries up, and earlier investors demand to be paid, the scheme collapses and investors discover that they have lost most or all of their money.
The following tips will help investors avoid affinity fraud schemes:
•1) Always research the background of the person making the investment no matter how trustworthy the person seems to be.
•2) Do not make an investment based solely on the recommendation of a fellow member.
•3) Do not fall for investments that tout extravagant profits or guaranteed returns.
•4) Beware of any investment opportunity that cannot be put in writing.
•5) Do not be pressured into buying an investment you have not had time to adequately research.
Do you believe you are a victim of affinity fraud? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

CAN I RECOVER MY WELLS TIMBERLAND REAL ESTATE INVESTMENT TRUST LOSSES?

Many investors in the non-traded Wells Timberland REIT have inquired about their ability to recover their losses after learning that their fund is no longer valued as much as they were previously led to believe. As a result, many claims are being filed by Wells Timberland REIT and other REIT investors for misrepresentation, unsuitable recommendations and/or overconcentrations of their investment funds in the Wells Timberland REIT and other REIT investments to recover their REIT losses.

At first blush, one may think that the best claim is against the Wells Timberland REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the Wells Timberland REIT and other REIT investments were recommended by your brokerage firm and financial advisor who have a fiduciary duty to not misrepresent or omit to state important facts, perform due diligence on any REIT and first make sure that the investment is suitable at all for any investor and then specifically ensure that the investment is appropriate in light of the investor's actual age, investment experience, investment objectives, tax and financial condition. If the brokerage firm and its advisor fail in fulfilling any one of these duties under common law and under the FINRA Code of Conduct, investors will have the right to recover their investment losses against them through a FINRA arbitration proceeding and/or court if no arbitration agreement has been executed.

The most common misrepresentation and misleading statement claims that Wells Timberland REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that the Wells Timberland REIT and other REITs were not adequately represented before purchase and that they did not know the real truth about the valuations, performance, prospects, liquidity, or distribution and redemption practices of management relating to their investment. Many elderly investors seeking income were overconcentrated in Wells Timberland and other REITs because they needed income. Sadly they learned too late that there were no guarantees that distributions would be made. Some REIT investors have just learned that they would no longer be receiving distributions or that the distributions they actually received were derived from loans and not the true cash flow of the REIT. Brokerage firms and their financial advisors were eager to push REIT investments on their clients for the high commissions compared to other products. Unfortunately, many investors are locked in and unable to sell their REIT investments without suffering without selling into deeply discounted secondary market for some other REIT investments. If you are a Wells Timberland REIT investor with the same complaints, we believe we can help you recover your REIT losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE OF CITIGROUP PRINCIPAL PROTECTED NOTES

Investors nationwide should be wary of Citigroup principal protected notes due to the financial industry's questionable creditworthiness, regardless of U.S. Treasury support. The same type of structured product recently caused UBS clients to suffer dramatic losses after UBS misrepresented the creditworthiness of principal protected notes, which were back by the now-bankrupt Lehman Brothers. Lehman's bankruptcy left holders of at least $8 billion of its notes waiting in line with other senior unsecured creditors. Investors who suffered losses will be fortunate to collect more than 10 cents per dollar invested in these so-called safe and guaranteed investments.

A Principal protected note is an investment contract with a guaranteed rate of return of at least the amount invested. Traditional fixed-income investments such as CDs and bonds provide investment security and modest returns with little or no risk of capital loss, while stocks have the potential to deliver greater returns, but with much greater risk. In recent years, investors have turned to structured products such as principal protected notes that offer both security and potential growth for their principal. Principal protected notes are linked to a broad range of underlying investments that may include indices, mutual funds, equities, and even alternative offerings such as hedge funds. At the heart of a principal protected note is a guarantee - typically guaranteeing 100% of invested capital, as long as the note is held to maturity. This means that regardless of market conditions, investors receive back all money they invested plus appreciation from the underlying assets, if any.

Since the global financial crisis began, Citigroup has racked up more than $100 billion in credit losses and writedowns and sold businesses and reduced employees to preserve capital. Still, Citigroup managed to sell more than $211 million in principal protected notes in 2009, which were tied to Citigroup's own creditworthiness. This came only one year after the US government had to inject $45 billion to save the ailing bank.

Principal protected notes are subject to the credit risk of the issuer. Consequently, if an issuer is not financially sound, it cannot guarantee 100% redemption of principal at maturity to an investor if the underlying investment deteriorates in value. That is why investors, especially those in retirement, should not be misled by the words "principal protected," no matter how appealing the investment is perceived to be. This also goes for investors interested in principal protected notes sold by banks that expect the Treasury to stand behind them.

Have you suffered a loss in a principal protected note? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Tuesday, December 25, 2012

BANK OF AMERICA MERRILL LYNCH HIT WITH $1.3 MILLION ARBITRATION ORDER IN FLORIDA FOR FANNIE MAE PREFERRED STOCK SALES

Bank of America Merrill Lynch has been ordered to pay a $1.3 million arbitration award to a couple whose broker, Miles Pure, sold them Fannie Mae preferred stock. Although multiple warnings of its risks were apparent, including a sell rating from Merrill Lynch's own analysts, Mr. Pure sold Robert and Michelle Billings $2.3 million in Fannie Mae preferred shares two months before Fannie Mae collapsed and was placed into conservatorship. Also, just two weeks before the Billingses purchased the shares, Moody's downgraded Fannie Mae preferred stock, and Merrill Lynch removed the shares from its recommended list due to significant concerns about the company. The Billingses ended up losing their entire investment.
A fiduciary duty is an obligation to act in the best interest of another party. A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client. The fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure and must not obtain a personal benefit at the expense of the client. In the case of the Billingses, FINRA found that Merrill Lynch was liable for breach of fiduciary duty and was ordered to pay compensatory damages.
The Billingses were never given any research on Fannie Mae despite their repeated requests. This prevented them from learning that Merrill Lynch had taken recent action, including recent analysts' reports, which reflected its negative view of Fannie Mae. Contrary to Mr. Pure's representations, it was Fannie Mae agency bonds and not the preferred shares that were back by the US government. The distinction was either not understood by Mr. Pure, or it was completely ignored by him in his sale of Fannie Mae shares to the Billingses.
Have you suffered losses as a result of broker misconduct? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WAS THE KBS REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?

Many investors have been calling my office and asking whether KBS Real Estate Investment Trust was an unsuitable investment for them. KBS Real Estate Investment Trust is a non-traded Real Estate Investment Trust (REIT). For most investors, liquidity, income and risk tolerance are a concern but if you are elderly and retired they are paramount! If you have limited resources and no ability to generate income from other sources to meet your liquidity and income needs then a non-traded REIT is an unsuitable investment. Likewise, if you cannot afford a total risk of loss, then speculative non-traded REITs are unsuitable investments. The suitability problem is compounded when any investors' portfolio is concentrated in non-traded REIT investments. A rule of thumb is that no more than 10% of anyone's investment portfolio should be concentrated in real estate investments, including REIT investments, and that percentage should be far less as a person reaches retirement and advances in age, perhaps zero!

Every brokerage firm has the responsibility of "knowing the customer" and making a customer specific "suitability" determination for every investment recommendation. The "Suitability Rule," Financial Industry Regulatory Authority (FINRA) Rule 2111, requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile." This is a new rule but it contains the core features of the previous National Association of Securities Dealers ("NASD") and New York Stock Exchange ("NYSE") suitability rules and codifies well-settled interpretations of those rules. Brokerage firms and their associated persons have always had the responsibility to make suitable recommendations in light of individuals in stating investment objectives and financial condition, tax status, and other relevant factors. According to FINRA, some non-traded Real Estate Investment Trust investments ("REITs") aren't suitable for anyone based on the offering terms, misrepresentations and unreasonable projections by the promoters (see FINRA News Release "FINRA Issues Investor Alert on Public Non-Traded REITs").

The primary cause of the increased number of telephone calls to our office over the last five years is many elderly and retired investors have been steered into non-traded REIT investments as the yields on other income producing investments have steadily declined. According to many investors, the REITS were recommended as safe, secure, and steady income producing investments which sounded to be exactly what many seniors wanted and needed. But these products offer little liquidity for investors who at this stage of their life are likely to need to dip into their investment savings to support their lifestyle or for medical and other emergencies. There is no public market, early redemption of shares in REITs is often very limited, and the fees associated with the sales of these products can be high and erode the total return, if they can be sold at all. Further, many of these investments do not truly generate income but make distributions with borrowed money, with newly raised capital, or by a return of principal rather than a return on investment which can stop at any time. Although non-traded REITs may offer some diversification benefits as part of a balanced portfolio, they all have underlying risk characteristics that make them unsuitable for certain investors, particularly the elderly retired investor with limited financial resources.

When any KBS Real Estate Investment Trust investor calls our office, we will make a customer specific suitability determination after we learn the "essential facts" concerning that investor. We will ask, just as their stockbroker should have asked, about their age, investment experience, time horizon liquidity needs (length of time they could hold the investment without need for the principal), risk tolerance, other holdings, and financial situation in terms of liquid total net worth, tax status and investment objectives. All of these factors are relevant to suitability and determination and most weigh against the ownership of REIT investments by elderly retired investors. If we believe a brokerage firm or its representatives made an unsuitable recommendation that any person invest in a non-traded REIT, we recommend that they file a FINRA arbitration claim and attempt to recover their losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

THE SEC CHARGES FORMER JP TURNER COMPANY BROKER DIMITRIOS KOUTSOUBOS FOR CHURNING CLIENT ACCOUNTS

The Securities and Exchange Commission (SEC) has charged former JP Turner and Company broker Dimitrios Koutsoubos for churning client accounts with conservative investment objectives. Mr. Koutsoubos's churning activity caused severe losses for clients, while he collected hefty fees. He served as a JP Turner registered representative from July 2000 until August 2009, and he is currently a registered representative at Caldwell International Securities.

Churning is a fraudulent practice in which brokers ignore their clients' investment objectives and engage in excessive trading for the purpose of generating commissions. The SEC alleged that between January 2008 and December 2009, Mr. Koutsoubos churned two client accounts, which suffered approximate losses of $193,000.00. The SEC said that the trading in the accounts were excessive in light of Mr. Koutsoubos's customers' objectives, experience, age, and needs. Mr. Koutsoubos split commissions, fees, and margin interest totaling $845,000.00 with two other brokers accused by the SEC for churning client accounts at JP Turner. An administrative proceeding by the SEC against Mr. Koutsoubos is currently pending.

Broker-dealers must establish and implement a reasonable supervisory system to protect customers from churning and similar abuses. If broker-dealers do not establish a reasonable supervisory system, they may be liable to investors for damages. In the case of JP Turner, the SEC found that adequate procedures were not implemented to detect and prevent churning. Therefore, investors who have suffered damages can bring forth claims to recover losses against JP Turner due to Mr. Koutsoubos's churning.

Have you suffered losses as a result of Dimitrios Koutsoubos's churning? Did you have an actively traded account with Mr. Koutsoubos that the SEC did not review? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Monday, December 24, 2012

INVESTORS NATIONWIDE BEWARE - CHURCH BONDS ARE RISKY AND ILLIQUID INVESTMENTS!

The Financial Industry Regulatory Authority (FINRA) is concerned about sales of church bonds through inappropriate sales practices by brokers. This matter has earned church bonds a spot on FINRA's list of examination and enforcement priorities for 2012. Inappropriate sales of church bonds are usually affiliated with affinity fraud, making it somewhat easier for scam artists to hide the real risks associated with the bonds. This is why FINRA is initiating efforts to prevent broker misconduct and to make sure that firms are performing their due diligence, which will ultimately aid it protecting investors' assets.
Church bonds have numerous risks and problems. Among the risks associated with the bonds is their lack of liquidity. Liquidity issues arises because church bond issuances are small ($10 million or less), which translates into a lack of any secondary market for the bonds to trade in. In addition, the true financial condition and creditworthiness of church bond issuers are difficult to determine because their underlying source of revenue is never really clear. Still, church bond salespersons have been able to capitalize on the low interest rate environment and the desire for a relatively secure source of income, primarily by retirees - the impact of an increasing number of church bond defaults on retirees' investment portfolio has been devastating. This unfortunate reality was sparked by the general economic decline, which hindered the ability of many churches to pay their debt due to a slowdown in church donations.
The law requires broker-dealers and investment advisers to perform adequate due diligence before recommending investments such as church bonds to their clients. Some of the responsibilities include: 1) having a reasonable basis to believe that the investment is suitable; 2) examining the risks associated with the investment; and 3) making full disclosure of the risks associated with the investment. Unfortunately, these responsibilities often go unfulfilled. Therefore, investors can bring forth claims against broker-dealers for losses incurred.
Affinity fraud is a form of illegal conduct typically associated with an appeal to a common interest. Some examples of a common interest include a church, club, and cultural association. Scam artists target and exploit the tendency of members to ascribe to the trustworthiness of a fellow member. In the case of a church, scam artists pitch the notion that the funds will be to support the mission of the church.
Have you suffered losses in church bonds? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

CAN I RECOVER MY DAVID LERNER/APPLE REAL ESTATE INVESTMENT TRUST LOSSES?

Many investors in the non-traded Apple REITs Six, Seven, Eight, Nine, and Ten have inquired about their ability to recover their losses after learning that their fund is no longer valued as much as they were previously led to believe. As a result, many claims are being filed by Apple REIT and other REIT investors for misrepresentation, unsuitable recommendations and/or overconcentrations of their investment funds in Apple REIT and other REIT investments to recover their REIT losses.

At first blush, one may think that the best claim is against the Apple REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the Apple REIT and other REIT investments were recommended by the David Lerner & Associates brokerage firm and financial advisors who have a fiduciary duty to not misrepresent or omit to state important facts, perform due diligence on any REIT and first make sure that the investment is suitable at all for any investor and then specifically ensure that the investment is appropriate in light of the investor's actual age, investment experience, investment objectives, tax and financial condition. If the brokerage firm and its advisor fail in fulfilling any one of these duties under common law and under the FINRA Code of Conduct, investors will have the right to recover their investment losses against them through a FINRA arbitration proceeding and/or court if no arbitration agreement has been executed.

The most common misrepresentation and misleading statement claims that the Apple REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that Apple REIT and other REITs were not adequately represented before purchase and that they did not know the real truth about the valuations, performance, prospects, liquidity, or distribution and redemption practices of management relating to their investment. Many elderly investors seeking income were overconcentrated in Apple REITs and other REITs because they needed income. Sadly they learned too late that there were no guarantees that distributions would be made. Some REIT investors have just learned that they would no longer be receiving distributions or that the distributions they actually received were derived from loans and not the true cash flow of the REIT. Brokerage firms and their financial advisors were eager to push REIT investments on their clients for the high commissions compared to other products. Unfortunately, many investors are locked in and unable to sell their REIT investments without suffering without selling into deeply discounted secondary market for some other REIT investments. If you are an Apple REIT investor with the same complaints, we believe we can help you recover your REIT losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE OF COVINGTON TENANT-IN-COMMON INVESTMENTS

Broker-dealers are at the forefront of an ongoing investigation into Covington tenant-in-common investments (TICs). This is attributable to the broker-dealers' failure to conduct adequate due diligence prior to offering and selling the TIC investment to their clients. Therefore, brokers misrepresented the product as a safe and guaranteed investment, with returns ranging from 7 to 12%. The results were hefty commissions for brokers, while clients were left with unsuitable and risky real estate investments in the midst of a property bubble.

TICs are investment vehicles that allow individual investors to buy shares of real estate interests directly, rather than shares of stock, bond certificates, or other forms ownership. Properties can include a high-rise office building, a retail center, a triple-net lease from a national drugstore chain, oil or gas wells, or any other type of investment property. Investors are attracted to TICs because they can purchase an interest in expensive properties - typically $30 million or more in value. Over the past decade, TICs have become popular among retail investors. This is partially attributable to the IRS' rule amendment, which allows investors to avoid capital gains taxes by investing property sale proceeds into TICs.

Due diligence requires a reasonable investigation of all material facts before entering into an agreement or transaction with another person or entity. It is a measure taken to prevent unnecessary harm to an innocent party. In many instances, broker-dealers do not perform sufficient due diligence prior to offering products such as tenant-in-common investments. If broker-dealers do not perform their due diligence, they risk misrepresenting the true nature of the product and placing clients in an unsuitable investment. As a result, an investor can claim damages against the broker-dealer that sold the Covington TIC for not performing its due diligence prior to the offer and sale.

Have you suffered a loss in a Covington tenant-in-common investment? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

Sunday, December 23, 2012

EX-MORGAN STANLEY SMITH BARNEY EXECUTIVE CLIFFORD JAGODZINSKI FIRED FOR BLOWING THE WHISTLE ON BIG PRODUCER

Former risk officer Clifford Jagodzinski was fired for blowing the whistle on a variety of violations by Morgan Stanley Smith Barney (MSSB) representatives. The most notable of Mr. Jagodzinski's discoveries was the churning of preferred securities by a star broker MSSB recruited from Bank of America Merrill Lynch. Mr. Jagodzinski claimed that Harvey Kadden "was flipping preferred securities in a manner that was generating tens of thousands of dollars in commissions but causing losses or minimal gains for his clients exposing (them) to unnecessary risks." A superstar producer, Mr. Kadden was a 30-year veteran of Merrill Lynch before joining MSSB. Mr. Kadden received a $25 million guarantee just for signing on. Mr. Jagodzinski alleged in his complaint that his firing by MSSB was "an action for unlawful retaliation under the Dodd-Frank Act," as well as state law claims.
A whistleblower is a person who tells the public or someone in authority about alleged dishonest or illegal activities occurring in a government department or private organization. The alleged misconduct may be classified as a violation of a law, rule, regulation and/or a direct threat to public interest, such as fraud, health/safety, and corruption. Whistleblowers may make their allegations internally (to other people within the accused organization) or externally (to regulators, law enforcement agencies, to the media or to groups concerned with the issues). The Dodd-Frank Act provides protection for whistleblowers against retaliation for exposing illegal activities. In recent years, the whistleblower has gained notoriety on Wall Street due to the discovery and exposure of numerous schemes by investment banks and investment advisers.
The Law Offices of Robert Wayne Pearce regularly represents whistleblowers through all stages of the action. Potential rewards to whistleblowers generally range between 10 - 30% of the amount recovered by the government. Actions can be filed anonymously, and the law prohibits employers from retaliating against whistleblowers - employers may not fire, demote, suspend, threaten, harass, or discriminate against a whistleblower. Whistleblowers who suffer from employment retaliation may sue for reinstatement, back pay, and any other damages incurred.
Have you considered blowing the whistle to protect public and/or private interests? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WAS THE DESERT CAPITAL REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?

Many investors have been calling my office and asking whether Desert Capital Real Estate Investment Trust was an unsuitable investment for them. Desert Capital Real Estate Investment Trust is a non-traded Real Estate Investment Trust (REIT). For most investors, liquidity, income and risk tolerance are a concern but if you are elderly and retired they are paramount! If you have limited resources and no ability to generate income from other sources to meet your liquidity and income needs then a non-traded REIT is an unsuitable investment. Likewise, if you cannot afford a total risk of loss, then speculative non-traded REITs are unsuitable investments. The suitability problem is compounded when any investors' portfolio is concentrated in non-traded REIT investments. A rule of thumb is that no more than 10% of anyone's investment portfolio should be concentrated in real estate investments, including REIT investments, and that percentage should be far less as a person reaches retirement and advances in age, perhaps zero!

Every brokerage firm has the responsibility of "knowing the customer" and making a customer specific "suitability" determination for every investment recommendation. The "Suitability Rule," Financial Industry Regulatory Authority (FINRA) Rule 2111, requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile." This is a new rule but it contains the core features of the previous National Association of Securities Dealers ("NASD") and New York Stock Exchange ("NYSE") suitability rules and codifies well-settled interpretations of those rules. Brokerage firms and their associated persons have always had the responsibility to make suitable recommendations in light of individuals in stating investment objectives and financial condition, tax status, and other relevant factors. According to FINRA, some non-traded Real Estate Investment Trust investments ("REITs") aren't suitable for anyone based on the offering terms, misrepresentations and unreasonable projections by the promoters (see FINRA News Release "FINRA Issues Investor Alert on Public Non-Traded REITs").

The primary cause of the increased number of telephone calls to our office over the last five years is many elderly and retired investors have been steered into non-traded REIT investments as the yields on other income producing investments have steadily declined. According to many investors, the REITS were recommended as safe, secure, and steady income producing investments which sounded to be exactly what many seniors wanted and needed. But these products offer little liquidity for investors who at this stage of their life are likely to need to dip into their investment savings to support their lifestyle or for medical and other emergencies. There is no public market, early redemption of shares in REITs is often very limited, and the fees associated with the sales of these products can be high and erode the total return, if they can be sold at all. Further, many of these investments do not truly generate income but make distributions with borrowed money, with newly raised capital, or by a return of principal rather than a return on investment which can stop at any time. Although non-traded REITs may offer some diversification benefits as part of a balanced portfolio, they all have underlying risk characteristics that make them unsuitable for certain investors, particularly the elderly retired investor with limited financial resources.

When any Desert Capital Real Estate Investment Trust investor calls our office, we will make a customer specific suitability determination after we learn the "essential facts" concerning that investor. We will ask, just as their stockbroker should have asked, about their age, investment experience, time horizon liquidity needs (length of time they could hold the investment without need for the principal), risk tolerance, other holdings, and financial situation in terms of liquid total net worth, tax status and investment objectives. All of these factors are relevant to suitability and determination and most weigh against the ownership of REIT investments by elderly retired investors. If we believe a brokerage firm or its representatives made an unsuitable recommendation that any person invest in a non-traded REIT, we recommend that they file a FINRA arbitration claim and attempt to recover their losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.