Pasadena, California based GlobaLink Securities, Inc. and Junhua Michael Liao submitted a Letter of Acceptance, Waiver and Consent in which the firm and Mr. Liao consented to, but did not admit to or deny, the described sanctions and the entry of the Financial Industry Regulatory Authority's (FINRA) findings that the firm, acting through Mr. Liao, executed an agreement to market and sell a Regulation D offering of promissory notes for Medical Capital Holdings Inc. (Med Cap) without performing adequate due diligence. FINRA's findings stated that the firm sold $1,260,049 of the Med Cap notes to some customers, and these sales generated approximately $56,700 in commissions for the firm. The findings also stated that as the firm's chief compliance officer and president throughout the relevant period, Mr. Liao was responsible for ensuring that the firm established, maintained, and enforced a supervisory system and written supervisory procedures (WSPs) reasonably designed to achieve compliance with applicable laws, rules, and regulations.
FINRA included findings that the firm maintained WSPs pertaining to the sales of private placements, but the WSPs were inadequate in that they lacked specifics concerning how the firm would conduct due diligence, process private placement transactions, ensure that a Regulation D product was suitable for investors, and document the firm's decisions and actions regarding private placement transactions. As a result of the firm's deficient supervisory system and WSPs, FINRA found the firm failed to conduct adequate due diligence on the offering. Further, that the failure to conduct due diligence prevented the firm and Mr. Liao from learning that the issuer had experienced payment problems on earlier note offerings and thus, the private placement memorandum (PPM) misrepresented the issuer's past performance. GlobaLink Securities was fined $20,000 jointly and severally with Mr. Liao. Mr. Liao, of San Gabriel, California, was also suspended from association with any FINRA member in any principal capacity for one month - the suspension was in effect from June 3, 2013 through July 2, 2013.
Broker-dealers must establish and implement a reasonable supervisory system and WSPs governing adequate due diligence of investments they intend to market and sell. If broker-dealers do not establish such systems and procedures, they may be liable to investors for damages. Therefore, investors who have suffered damages in the Med Cap private placement can bring forth claims to recover their investment losses from GlobaLink Securities, which should have performed adequate due diligence prior to offering and selling the investment to its customers. Have you suffered losses in your GlobaLink Securities, Inc. account? 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 33 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.
Showing posts with label Failure to do Due Diligence. Show all posts
Showing posts with label Failure to do Due Diligence. Show all posts
Wednesday, January 8, 2014
Friday, February 8, 2013
VIATICAL SETTLEMENTS - LIFE PARTNERS OR DEATH PARTNERS?
One must wonder if Life Partners Holdings Inc., a Waco, Texas company that has arranged sales of several billion dollars of life-insurance policies to investors through broker-dealers and investment advisors is your life partner or death partner. Yes, they partner in life with ill life individuals needing immediate cash to take care of themselves, but they are death partners with many investors who expected to profit from these viatical settlement contracts many years ago.
Since investors are on the hook for premium payments until the insured dies, a short mortality estimate would result in the investor anticipating less cost and a higher return on the investment. The company's mortality estimates suggested annual returns of 10% or 15%, which has not been the case. Investors have faced much higher costs and lower returns because Life Partner's mortality estimates were unrealistically short. Many of the insureds are living well beyond the company's estimates.
How did the company derive its mortality estimates, which are critical for investors, is the burning question? The company apparently derived its mortality estimates from a Reno, Nevada, physician, Dr. Cassidy, who provided his data to the United States Securities and Exchange Commission (SEC). Upon review, the SEC concluded Dr. Cassidy was using an "unrealistic" approach that tended to produce inaccurately short life expectancies.
Based on data Life Partners filed with the Texas Department of Insurance, for policies sold from 2002 through 2005, its insureds (many of whom were HIV positive) outlived the company's projections approximately 90% of the time.
Between January 2004 and July 2009, the SEC took legal action against 27 U.S. life-settlement funds and advisers, according to Leslie Scism and Larry Light in their Feb. 6, 2010 Wall Street Journal article, "Grim Risks of Reaping Death's Rewards." Life settlements are on the North American Securities Administrators Association's top-10 list of "investor traps." In 2008, Life Partners reportedly settled a fraud action filed by Colorado regulators, agreeing to repurchase policies sold to Colorado investors.
Life Partners appears to be doing better than its clients, who often buy pieces of multiple policies. The company has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since 1991, and it extracted fees averaging $308,000 per policy sold in its most recent fiscal year, according to the article. Life Partners reported earnings of $29.4 million on $113 million of revenue for its fiscal year ended Feb. 28, 2010.
In sum, life settlements may benefit the sellers and promoters, but are a risky gamble that is unsuitable for most investors. Are you still holding a viatical settlement contract purchased through a broker from Life Partners or any other viatical settlement company? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against brokers who failed to do their due diligence and/or who made unsuitable recommendations of viatical settlement contracts when they sold these products to investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the 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
Since investors are on the hook for premium payments until the insured dies, a short mortality estimate would result in the investor anticipating less cost and a higher return on the investment. The company's mortality estimates suggested annual returns of 10% or 15%, which has not been the case. Investors have faced much higher costs and lower returns because Life Partner's mortality estimates were unrealistically short. Many of the insureds are living well beyond the company's estimates.
How did the company derive its mortality estimates, which are critical for investors, is the burning question? The company apparently derived its mortality estimates from a Reno, Nevada, physician, Dr. Cassidy, who provided his data to the United States Securities and Exchange Commission (SEC). Upon review, the SEC concluded Dr. Cassidy was using an "unrealistic" approach that tended to produce inaccurately short life expectancies.
Based on data Life Partners filed with the Texas Department of Insurance, for policies sold from 2002 through 2005, its insureds (many of whom were HIV positive) outlived the company's projections approximately 90% of the time.
Between January 2004 and July 2009, the SEC took legal action against 27 U.S. life-settlement funds and advisers, according to Leslie Scism and Larry Light in their Feb. 6, 2010 Wall Street Journal article, "Grim Risks of Reaping Death's Rewards." Life settlements are on the North American Securities Administrators Association's top-10 list of "investor traps." In 2008, Life Partners reportedly settled a fraud action filed by Colorado regulators, agreeing to repurchase policies sold to Colorado investors.
Life Partners appears to be doing better than its clients, who often buy pieces of multiple policies. The company has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since 1991, and it extracted fees averaging $308,000 per policy sold in its most recent fiscal year, according to the article. Life Partners reported earnings of $29.4 million on $113 million of revenue for its fiscal year ended Feb. 28, 2010.
In sum, life settlements may benefit the sellers and promoters, but are a risky gamble that is unsuitable for most investors. Are you still holding a viatical settlement contract purchased through a broker from Life Partners or any other viatical settlement company? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against brokers who failed to do their due diligence and/or who made unsuitable recommendations of viatical settlement contracts when they sold these products to investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the 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, February 6, 2013
WHY WOULD YOU WANT TO INVEST IN HEDGE FUNDS?
Warren Buffett has called hedge funds "manager compensation schemes." According to a recent article in The Economist, "Rich Managers, Poor Clients," investors pay for manager expertise, but controlling costs is a better way of having a successful investment than betting on a manager's track record. Some hedge funds charge performance fees of 20% of the gains plus another fixed 2-3% management fee regardless of whether the fund is profitable - a total of 22% in fees. In other words, the hedge fund would have to gain over 22% for investors just to breakeven. The only way to achieve those types of returns is to take extraordinary risk with your investment capital. As The Economist article stated: "It is easy to think of people who have become billionaire's by managing these hedge funds; it is far harder to think of any of their clients who have got as rich."
It is not only the costs associated with hedge funds that trouble me. The reality is they have performed poorly over the last 10 years, while they have made hedge fund managers very wealthy. As measured by the HFRX Indices (widely used benchmarks for hedge fund performance), hedge funds returned just 3% in 2012 compared to an 18% return of the S & P 500 stock Index. The major problem all hedge funds suffer these days is that they have attracted so much money that they cannot invest as they did in the past. There are too many dollars chasing too few market opportunities. And now, hedge funds are "going retail" and becoming widely available to small investors in Funds of Funds and becoming embedded in variable annuities, pension funds, endowments, foundations and other retirement plans. There are nearly 8000 hedge funds on the market and more coming online every day.
The biggest problem we have with hedge funds is a lack of transparency and the lack of due diligence that many brokers perform prior to offering and selling these investments to their biggest and best clients. The complexity and lack of transparency of hedge funds makes them the vehicle of choice for fraudsters. The United States Securities and Exchange Commission (SEC) has become especially concerned and set up a special unit "The Market Abuse Unit" to investigate the problems and abuses in the hedge fund industry. The SEC and the attorneys at our law firm are concerned about unregistered investment advisers engaging in general solicitations to unaccredited investors to put their capital in unregistered hedge funds. Too many retired, income-oriented investors, in search of higher yields have been misled into a number of hedge fund frauds such as the MAT/ASTA funds offered by Smith Barney and Citibank advisers.
Have you suffered losses resulting from an investment in any hedge fund? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against hedge fund salespersons who fraudulently offered and sold the fund to investors.
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.
It is not only the costs associated with hedge funds that trouble me. The reality is they have performed poorly over the last 10 years, while they have made hedge fund managers very wealthy. As measured by the HFRX Indices (widely used benchmarks for hedge fund performance), hedge funds returned just 3% in 2012 compared to an 18% return of the S & P 500 stock Index. The major problem all hedge funds suffer these days is that they have attracted so much money that they cannot invest as they did in the past. There are too many dollars chasing too few market opportunities. And now, hedge funds are "going retail" and becoming widely available to small investors in Funds of Funds and becoming embedded in variable annuities, pension funds, endowments, foundations and other retirement plans. There are nearly 8000 hedge funds on the market and more coming online every day.
The biggest problem we have with hedge funds is a lack of transparency and the lack of due diligence that many brokers perform prior to offering and selling these investments to their biggest and best clients. The complexity and lack of transparency of hedge funds makes them the vehicle of choice for fraudsters. The United States Securities and Exchange Commission (SEC) has become especially concerned and set up a special unit "The Market Abuse Unit" to investigate the problems and abuses in the hedge fund industry. The SEC and the attorneys at our law firm are concerned about unregistered investment advisers engaging in general solicitations to unaccredited investors to put their capital in unregistered hedge funds. Too many retired, income-oriented investors, in search of higher yields have been misled into a number of hedge fund frauds such as the MAT/ASTA funds offered by Smith Barney and Citibank advisers.
Have you suffered losses resulting from an investment in any hedge fund? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is actively investigating and accepting clients with valid claims against hedge fund salespersons who fraudulently offered and sold the fund to investors.
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, January 2, 2013
WAS THE COLE REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?
Many investors have been calling my office and asking whether Cole Real Estate Investment Trust was an unsuitable investment for them. Cole 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 Cole 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.
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 Cole 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.
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.
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.
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.
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.
Thursday, December 20, 2012
WATCH OUT NON-TRADED REIT INVESTORS: YOU ARE DESTINED TO LOSE!
According to a study performed by BlueVault Partners LLC and the University of Texas at Austin's McCombs School of Business, non-traded REITS consistently underperform the broad market of real estate investing in large part because of the high fees and commissions associated with these investments (the fees for non-traded REITs are often as high as 12-15%). The study found that 70% of the non-traded REITs included in the study underperformed basic benchmarks. The study is particularly timely as the initial public offering market for non-traded REITs, known in the industry as a "liquidity event" or "going full cycle," has heated up this year. Since March, three non-traded REITs have listed on exchanges, with more likely to come, each with limited to no success.
Notwithstanding the poor track record of these investments, brokerage firms have only increased the sale of such products. According to an executive summary of the study performed the non-traded REIT industry had $84 billion in assets under management at the end of 2011 (representing huge growth in the industry). Certainly, an inference can be made that the industry is actively looking to grow this investment area because of the very commissions that makes it so difficult for these investments to succeed.
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.
Notwithstanding the poor track record of these investments, brokerage firms have only increased the sale of such products. According to an executive summary of the study performed the non-traded REIT industry had $84 billion in assets under management at the end of 2011 (representing huge growth in the industry). Certainly, an inference can be made that the industry is actively looking to grow this investment area because of the very commissions that makes it so difficult for these investments to succeed.
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 9, 2012
NOW THAT KBS REAL ESTATE INVESTMENT TRUST INVESTORS LOST OVER 50%: WHAT SHOULD THEY DO?
It is now estimated by KBS Real Estate Trust Inc. (KBS REIT I) that investors' interests are worth $5.16. The new valuation represents a 29% drop from the last change to the valuation in late 2009 and a nearly 50% drop since shares of KBS REIT I were initially offered at $10.00. Many investors in the non-traded KBS I and II REITs 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. Additionally, KBS REIT investors were told that they would no longer be receiving any distributions. Our answer is: file a FINRA arbitration. Many claims are being filed by KBS REIT and other REIT investors for misrepresentation, unsuitable recommendations and/or overconcentrations of their investment funds in KBS REIT and other REIT investments to recover their REIT losses.
At first blush, one may think that the best claim is against the KBS REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the KBS 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 the KBS REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that the KBS 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 KBS 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 a KBS 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.
At first blush, one may think that the best claim is against the KBS REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the KBS 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 the KBS REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that the KBS 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 KBS 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 a KBS 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.
Sunday, December 2, 2012
WHAT SHOULD DESERT CAPITAL REAL ESTATE INVESTMENT TRUST INVESTORS DO?
Many investors in the non-traded Desert Capital REIT have inquired about their ability to recover their losses after learning that: (1) Desert Capital REIT suspended its dividend and redemption programs in or about 2008; (2) Desert Capital REIT filed for Chapter 11 bankruptcy in the summer of 2011; and (3) Desert Capital REIT has been subpoenaed by the Securities and Exchange Commission reportedly due to fraudulent payments and transactions between Desert Capital and CM Capital (a related entity). Our answer is: file a FINRA arbitration. Many claims are being filed by Desert Capital REIT and other REIT investors for misrepresentation, unsuitable recommendations and/or overconcentrations of their investment funds in the Desert Capital REIT and other REIT investments to recover their REIT losses.
At first blush, one may think that the best claim is against the Desert Capital REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the Desert Capital 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 the Desert Capital REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that the Desert Capital 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 Desert Capital 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. Desert Capital REIT paid an extremely high commission to the brokerage firms that sold the investment (somewhere between 7-10% depending on whether the brokerage firm was entitled to an additional "due diligence" fee). This likely explains the financial advisors and broker-dealers' motivation in recommending and selling this investment. 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 Desert Capital 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.
At first blush, one may think that the best claim is against the Desert Capital REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the Desert Capital 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 the Desert Capital REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that the Desert Capital 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 Desert Capital 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. Desert Capital REIT paid an extremely high commission to the brokerage firms that sold the investment (somewhere between 7-10% depending on whether the brokerage firm was entitled to an additional "due diligence" fee). This likely explains the financial advisors and broker-dealers' motivation in recommending and selling this investment. 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 Desert Capital 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.
Tuesday, November 27, 2012
AXA ADVISORS FINED $100,000.00 FOR NOT FIRING BROKER WHO RAN A MISSOURI PONZI SCHEME
AXA Advisors has been fined $100,000.00 by the Financial Industry Regulatory Authority (FINRA) for not investigating and firing a broker who was running a Ponzi scheme, which dates back to 2001. Kenneth Neely began to work with AXA Advisors in Clayton, Missouri in 2007 before FINRA permanently barred him from the financial industry in 2009. Mr. Neely's Ponzi scheme defrauded investors out of $600,000.00 who for the most part belonged to a church and were led to believe they were investing in a real estate investment trust. Be that as it may, AXA was aware of Mr. Neely's fraudulent activity in 2008 when AXA conducted a yearly audit of him, which revealed a spreadsheet with investor payout information. Mr. Neely falsely claimed that the figures were for a client who wanted to start and budget a business. Mr. Neely eventually pled guilty to mail fraud and converting and commingling funds. Mr. Neely was fired by AXA Advisors in 2009.
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. According to FINRA, Mr. Neely used his investors' money to pay earlier investors while generating sham invoices, which represented ownership certificates.
Selling away is the inappropriate practice of an investment professional that sells or solicits securities or investments not held or approved by the brokerage firm with which the professional is associated with. Under NASD and FINRA rules, brokerage firms must approve investments offered by their investment professionals and supervise its sales. AXA Advisors can be held liable for Mr. Neely's activities because it either failed to establish a reasonable supervisory system, or because it failed to implement an existing reasonable supervisory system. Even if AXA Advisors did not know of Mr. Neely's activities, it can still be liable to investors for damages for not investigating into Mr. Neely's computer records, lies, and questionable history.
Have you suffered investment losses in Kenneth Neely's Ponzi 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.
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. According to FINRA, Mr. Neely used his investors' money to pay earlier investors while generating sham invoices, which represented ownership certificates.
Selling away is the inappropriate practice of an investment professional that sells or solicits securities or investments not held or approved by the brokerage firm with which the professional is associated with. Under NASD and FINRA rules, brokerage firms must approve investments offered by their investment professionals and supervise its sales. AXA Advisors can be held liable for Mr. Neely's activities because it either failed to establish a reasonable supervisory system, or because it failed to implement an existing reasonable supervisory system. Even if AXA Advisors did not know of Mr. Neely's activities, it can still be liable to investors for damages for not investigating into Mr. Neely's computer records, lies, and questionable history.
Have you suffered investment losses in Kenneth Neely's Ponzi 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.
Sunday, November 25, 2012
NO MORE KBS REIT CLASS ACTION
On July 23rd, KBS REIT investors' lead plaintiff George Stewart withdrew his class action suit against KBS REIT, alleging that KBS made misrepresentations about the REIT, including its investment objectives, the dividend payment policy and the value of the REIT's investments. No reason was given, but the Motion to Dismiss the Complaint pointed out the onerous pleading requirements of securities class actions. Perhaps Mr. Stewart will proceed to take his case to arbitration, the more traveled and less bumpy road to resolve investors' disputes. While the pending class action lawsuit against KBS has been withdrawn, investors in KBS can still file FINRA arbitration claims to attempt to recover their losses. In any event, KBS REIT investors will not benefit from his decision and need to take matters in their own hands!
Brokerage firms have a fiduciary duty to their clients to perform adequate due diligence on investments before recommending them to their clients. Based on what is now known about KBS REIT, it appears that the firms that sold the product will be unable to demonstrate that they performed adequate due diligence. Rather, it appears that the firms that sold KBS REIT were more interested in the high commissions selling the investment created (and not whether the investment was appropriate for investors).
KBS REIT I raised $1.7 billion in equity in its initial offering, according to an investor presentation the company filed with the Securities and Exchange Commission in March. It has $3.4 billion in property assets, and holds loans and other debt of $2.3 billion. Investors in KBS REIT I were notified in March that the REIT's value would be cut to $5.16 per share, from $7.32, a drop of 29%. The REIT's offering price was $10 per share. It also said it was stopping distributions to investors. Investors have good reason to be upset with KBS REIT, and more reason to complain about the brokers who recommended the investment.
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.
Brokerage firms have a fiduciary duty to their clients to perform adequate due diligence on investments before recommending them to their clients. Based on what is now known about KBS REIT, it appears that the firms that sold the product will be unable to demonstrate that they performed adequate due diligence. Rather, it appears that the firms that sold KBS REIT were more interested in the high commissions selling the investment created (and not whether the investment was appropriate for investors).
KBS REIT I raised $1.7 billion in equity in its initial offering, according to an investor presentation the company filed with the Securities and Exchange Commission in March. It has $3.4 billion in property assets, and holds loans and other debt of $2.3 billion. Investors in KBS REIT I were notified in March that the REIT's value would be cut to $5.16 per share, from $7.32, a drop of 29%. The REIT's offering price was $10 per share. It also said it was stopping distributions to investors. Investors have good reason to be upset with KBS REIT, and more reason to complain about the brokers who recommended the investment.
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, November 22, 2012
TEXAS PONZI SCHEMES: INVESTORS SUE MORGAN STANLEY SMITH BARNEY AND PROVIDENT ROYALTIES
11 investors in Dallas, Texas are suing Morgan Stanley Smith Barney and one of its financial advisers, Delsa Thomas, for running a Ponzi scheme. 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. The investors alleged that Ms. Thomas took advantage of their trust by suggesting that they invest in Tejas Eagle Financial LLC; Ms. Thomas established an investment range of $125,000.00 to $250,000.00, which was made up of her investors' retirement and savings money. Investors also contended that Ms. Thomas' recommendation was unsuitable and was bound to destroy whatever amount they had invested and that Morgan Stanley Smith Barney breached its duty of care by allowing her to give investment advice that was unsuitable. Damages are being sought under vicarious liability, fraud, negligent misrepresentation, and negligent supervision.
On another note, a federal court in Texas has sentenced Joseph Blimine to 20 years for running two oil and gas Ponzi schemes that began in Michigan in 2003. Mr. Blimine and other fraudsters made over $28 million before starting Provident Royalties in 2006 for the purpose of carrying on with their Ponzi scheme in Texas; close to 7,700 investors were defrauded out of over $400 million. Mr. Blimine pled guilty to the criminal charges brought against him by the Securities and Exchange Commission following a lawsuit against Provident Royalties, Provident Asset Management, and 21 other entities that offered and sold the investment.
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. An investor in Provident Royalties can claim damages against the entity that sold the investment for not performing its due diligence prior to the offer and sale.
Have you suffered investment losses in the Delsa Thomas or Provident Royalties Ponzi 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.
On another note, a federal court in Texas has sentenced Joseph Blimine to 20 years for running two oil and gas Ponzi schemes that began in Michigan in 2003. Mr. Blimine and other fraudsters made over $28 million before starting Provident Royalties in 2006 for the purpose of carrying on with their Ponzi scheme in Texas; close to 7,700 investors were defrauded out of over $400 million. Mr. Blimine pled guilty to the criminal charges brought against him by the Securities and Exchange Commission following a lawsuit against Provident Royalties, Provident Asset Management, and 21 other entities that offered and sold the investment.
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. An investor in Provident Royalties can claim damages against the entity that sold the investment for not performing its due diligence prior to the offer and sale.
Have you suffered investment losses in the Delsa Thomas or Provident Royalties Ponzi 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.
Friday, November 9, 2012
UNITED STATES ETF INVESTORS--DON'T BE FOOLED BY THE NAME!
Many exchange-traded funds (ETFs) now on the market have misleading names. According to Carey Research, many ETFs do not invest the way their names seem to indicate.
Here are some examples:
(1) ProShares Hedge Replication (HDG) Fund - ProShares Hedge Fund Replication Fund seems like it should be geared toward replicating hedge fund strategies and performance. In actuality, the ETF apparently holds 82% of its assets in three-month U.S. Treasury Bills.
(2) iShares MSCI Emerging Markets Eastern Europe Index Fund (ESR)- Although it seems that this fund would be investing throughout eastern Europe, it actually has three-quarters of its assets allocated to Russian companies and little in the rest of Eastern Europe.
(3) iShares MSCI Pacific ex-Japan (EPP) Fund- Although it would seem that this fund invested throughout the Pacific, it actually has 65% of its holdings in Australia and a smattering in Hong Kong and Singapore.
(4) Vanguard MSCI Pacific (VPL) Fund- Although this fund also would appear to be invested throughout the Pacific, it actually has a 62% allocation to Japan and 25% to Australia.
(5) Asia Pacific ex-Japan Portfolio Fund (PAF) - Another fund that does not spread around throughout the Pacific as its name would suggest. The fund apparently has a huge stake in South Korea (36%).
(6) PIMCO Build America Bond Strategy Fund (BABZ)- Although the fund would seem to invest throughout the United States, nearly 70% of the assets are invested in bonds from four states--California, New York, Illinois and New Jersey--that have budget problems and issue more bonds than most.
(7) United States Oil Fund (USO)- Although this fund was designed to follow WTI crude oil prices, investors can find their assets going in the opposite direction from crude oil prices because the fund does not actually hold any oil. Instead, it maintains positions on the futures markets.
(8) United States Natural Gas Fund (UNG) - Another fund that actually holds futures contracts as opposed to natural gas.
The Carey Research conclusions touch on a problem in the securities industry today. Many offerings currently out there, in particular structured products, ETFs, and ETNs created by the industry, do not invest the way their name suggests. Many of these investments are packaged as a way for investors to avoid the volatility of the market or capture growth in a particular sector. In reality, these structured investments are just ways for the industry to increase revenues generated from the creation, sale, and management of these products.
If you have experienced losses in any of these investments and feel the financial advisor that sold the product misrepresented the investment strategy or failed to perform due diligence on the actual underlying assets in the fund, you may be able to recover your losses in a FINRA arbitration claim.
Brokerage firms have a fiduciary duty to research investments and to ensure that the investments are appropriate for you in light of your age, investment experience, net worth, and investment objectives.
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.
Here are some examples:
(1) ProShares Hedge Replication (HDG) Fund - ProShares Hedge Fund Replication Fund seems like it should be geared toward replicating hedge fund strategies and performance. In actuality, the ETF apparently holds 82% of its assets in three-month U.S. Treasury Bills.
(2) iShares MSCI Emerging Markets Eastern Europe Index Fund (ESR)- Although it seems that this fund would be investing throughout eastern Europe, it actually has three-quarters of its assets allocated to Russian companies and little in the rest of Eastern Europe.
(3) iShares MSCI Pacific ex-Japan (EPP) Fund- Although it would seem that this fund invested throughout the Pacific, it actually has 65% of its holdings in Australia and a smattering in Hong Kong and Singapore.
(4) Vanguard MSCI Pacific (VPL) Fund- Although this fund also would appear to be invested throughout the Pacific, it actually has a 62% allocation to Japan and 25% to Australia.
(5) Asia Pacific ex-Japan Portfolio Fund (PAF) - Another fund that does not spread around throughout the Pacific as its name would suggest. The fund apparently has a huge stake in South Korea (36%).
(6) PIMCO Build America Bond Strategy Fund (BABZ)- Although the fund would seem to invest throughout the United States, nearly 70% of the assets are invested in bonds from four states--California, New York, Illinois and New Jersey--that have budget problems and issue more bonds than most.
(7) United States Oil Fund (USO)- Although this fund was designed to follow WTI crude oil prices, investors can find their assets going in the opposite direction from crude oil prices because the fund does not actually hold any oil. Instead, it maintains positions on the futures markets.
(8) United States Natural Gas Fund (UNG) - Another fund that actually holds futures contracts as opposed to natural gas.
The Carey Research conclusions touch on a problem in the securities industry today. Many offerings currently out there, in particular structured products, ETFs, and ETNs created by the industry, do not invest the way their name suggests. Many of these investments are packaged as a way for investors to avoid the volatility of the market or capture growth in a particular sector. In reality, these structured investments are just ways for the industry to increase revenues generated from the creation, sale, and management of these products.
If you have experienced losses in any of these investments and feel the financial advisor that sold the product misrepresented the investment strategy or failed to perform due diligence on the actual underlying assets in the fund, you may be able to recover your losses in a FINRA arbitration claim.
Brokerage firms have a fiduciary duty to research investments and to ensure that the investments are appropriate for you in light of your age, investment experience, net worth, and investment objectives.
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, November 8, 2012
SEC ISSUES ALERT TO UNITED STATES BROKER-DEALERS AND INVESTORS ABOUT MUNICIPAL BONDS!
The SEC's Office of Compliance Inspections and Examinations has put out an alert reminding broker-dealers about what their supervisory and due diligence duties are when it comes to underwriting municipal securities offerings. According to the examination staff, there are financial firms that are not maintaining enough written evidence to show that they are in compliance with their responsibilities as they relate to supervision and due diligence. OCIE Director Carlo di Florio stressed how sufficient due diligence when determining the operational and financial condition of municipalities and states before selling their securities, is key to investor protection.
The SEC has also issued an Investor Bulletin to provide individual investors with key information about municipal bonds. Its Office of Investor Education and Advocacy wants to make sure investors know that the risks involved include:
Call risk: the possibility that an issuer will have to pay back a bond before it matures, which can occur if interest rates drop.
Credit risk: The chance that financial problems may result for the bond issuer, making it challenging or impossible to pay back principal and interest in full.
Interest rate risk: Should US interest rates go up, investors with a low fixed-rate municipal bond who try to sell the bond prior to maturity might lose money.
Inflation risk: Inflation can lower buying power, which can prove harmful for investors that are getting a fixed income rate.
Liquidity risk: In the event that an investor is unable to find an active market for the municipal bond, this could stop them from selling or buying when they want to or getting a certain bond price.
As a municipal bond buyer, an investor is lending money to the bond issuer (usually a state, city, county, or other government entity) in return for the promise of regular interest payments and the return of principal. The maturity date of a municipal bond, which is when the bond issuer would pay back the principal, might be years-especially for long-term bonds. Short-term bonds have a maturity date of one to three years.
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 has also issued an Investor Bulletin to provide individual investors with key information about municipal bonds. Its Office of Investor Education and Advocacy wants to make sure investors know that the risks involved include:
Call risk: the possibility that an issuer will have to pay back a bond before it matures, which can occur if interest rates drop.
Credit risk: The chance that financial problems may result for the bond issuer, making it challenging or impossible to pay back principal and interest in full.
Interest rate risk: Should US interest rates go up, investors with a low fixed-rate municipal bond who try to sell the bond prior to maturity might lose money.
Inflation risk: Inflation can lower buying power, which can prove harmful for investors that are getting a fixed income rate.
Liquidity risk: In the event that an investor is unable to find an active market for the municipal bond, this could stop them from selling or buying when they want to or getting a certain bond price.
As a municipal bond buyer, an investor is lending money to the bond issuer (usually a state, city, county, or other government entity) in return for the promise of regular interest payments and the return of principal. The maturity date of a municipal bond, which is when the bond issuer would pay back the principal, might be years-especially for long-term bonds. Short-term bonds have a maturity date of one to three years.
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, October 24, 2012
WATCH OUT UNITED STATES MUNICIPAL BOND INVESTORS--UNDERWRITERS' DUE DILIGENCE QUESTIONED!
The Securities and Exchange Commission (SEC) recently issued a Risk Alert on compliance measures to help broker-dealers fulfill their due-diligence duties when underwriting offerings of municipal securities.
The alert issued by the SEC's Office of Compliance Inspections and Examinations (OCIE) notes that in recent years there has been significant attention focused on the financial condition of some state and local governments, and cites concerns about the extent of written documentation by broker-dealers of due diligence efforts and supervision of municipal securities offerings.
The alert includes examples of practices used by broker-dealers that may help to demonstrate due diligence and supervisory reviews. These include the use of detailed written policies and procedures, the use of commitment committees, due diligence memoranda, outlines for due diligence calls, recordkeeping checklists, and on-site examination activities. Practices such as these could help a firm show how it is meeting its obligation to perform due diligence, and to support that it has a reasonable belief as to the accuracy and completeness of the Official Statements describing the municipal bond offering.
Brokerage firms have a duty to perform due diligence on any investment prior to recommending it for sale to its clients. As concerns grow that local governments may default on their debt, brokerage firms may have to demonstrate that they performed due diligence on these municipal securities prior to recommending them to their clients.
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 alert issued by the SEC's Office of Compliance Inspections and Examinations (OCIE) notes that in recent years there has been significant attention focused on the financial condition of some state and local governments, and cites concerns about the extent of written documentation by broker-dealers of due diligence efforts and supervision of municipal securities offerings.
The alert includes examples of practices used by broker-dealers that may help to demonstrate due diligence and supervisory reviews. These include the use of detailed written policies and procedures, the use of commitment committees, due diligence memoranda, outlines for due diligence calls, recordkeeping checklists, and on-site examination activities. Practices such as these could help a firm show how it is meeting its obligation to perform due diligence, and to support that it has a reasonable belief as to the accuracy and completeness of the Official Statements describing the municipal bond offering.
Brokerage firms have a duty to perform due diligence on any investment prior to recommending it for sale to its clients. As concerns grow that local governments may default on their debt, brokerage firms may have to demonstrate that they performed due diligence on these municipal securities prior to recommending them to their clients.
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, October 22, 2012
INLAND AMERICAN REIT UNDER SEC INVESTIGATION
According to the Wall Street Journal, the Securities and Exchange Commission is investigating Inland American Real Estate Trust (Inland American REIT) for potential violations of federal securities laws. According to the report, the SEC is looking at activity of Inland American REIT to determine if the REIT committed violations related to management fees, the timing and amount of distributions paid to investors, and transactions with affiliates.
Inland American is the largest of the non-traded REITs currently available and the investigation casts a large shadow on the non-traded REIT market.
Brokerage firms have a fiduciary duty to perform adequate due diligence on any investment that they recommend and to ensure that the investments recommended are appropriate in light of the client's age, investment experience, net worth, and investment objectives.
The problems we see involving non-traded REITs generally relate to the financial advisor's failure to adequately disclose the risks and illiquidity of these investments (as well as the high commission he/she earned for selling the REIT). REITs typically pay a high commission-often as much as 15% (which often explains the stockbroker's motivation in recommending the REIT investment to the investor). Due to the relatively high interest or dividend offered by non-traded REITs, elderly and retirees are often victimized by those misrepresented and unsuitable investment recommendations.
One of the other main complaints we continually hear relates to the problems in the valuation of these investments. FINRA rules currently mandate that sponsors of non-traded REITs establish an estimated per-share valuation within 18 months after the REIT stops raising money from investors. The problem with this language is that fund raising often lasts for years which results in the per-share valuation potentially remaining unchanged for years.
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, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is 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.
Inland American is the largest of the non-traded REITs currently available and the investigation casts a large shadow on the non-traded REIT market.
Brokerage firms have a fiduciary duty to perform adequate due diligence on any investment that they recommend and to ensure that the investments recommended are appropriate in light of the client's age, investment experience, net worth, and investment objectives.
The problems we see involving non-traded REITs generally relate to the financial advisor's failure to adequately disclose the risks and illiquidity of these investments (as well as the high commission he/she earned for selling the REIT). REITs typically pay a high commission-often as much as 15% (which often explains the stockbroker's motivation in recommending the REIT investment to the investor). Due to the relatively high interest or dividend offered by non-traded REITs, elderly and retirees are often victimized by those misrepresented and unsuitable investment recommendations.
One of the other main complaints we continually hear relates to the problems in the valuation of these investments. FINRA rules currently mandate that sponsors of non-traded REITs establish an estimated per-share valuation within 18 months after the REIT stops raising money from investors. The problem with this language is that fund raising often lasts for years which results in the per-share valuation potentially remaining unchanged for years.
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, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is 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, October 19, 2012
WELLS FARGO, CITIGROUP, MORGAN STANLEY, UBS FINED FOR IMPROPER SALES OF HIGH-RISK ETFS NATIONWIDE
The Financial Industry Regulatory Authority (FINRA) announced that it ordered Wells Fargo Advisors, Citigroup Global Markets, Morgan Stanley, and UBS Financial Services to pay more than $9.1 million for failure to supervise and failure to have a reasonable basis for recommending selling leveraged and inverse exchange traded funds. Each of the four firms sold billions of dollars of these leveraged and inverse exchange traded funds.
The payments consist of more than $7.3 million in fines and $1.8 million in restitution to customers who purchased the leveraged and inverse exchange traded funds. The breakdown is as follows:
In addition, FINRA found that the firms' registered representatives made unsuitable recommendations of leveraged and inverse exchange-traded funds to some customers with conservative investment objectives and/or risk profiles, some of whom held them for extended periods during January 2008 through June 2009 when the markets were volatile.
Leveraged and inverse exchange-traded funds have risks not found in traditional exchange traded funds. Those risks flow from the daily reset, leverage and compounding of leveraged and inverse exchange traded funds, which caused them to differ significantly from the performance of the underlying index or benchmark when held for longer periods of time. That was particularly true in the volatile markets that existed during January 2008 through June 2009.
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, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is 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 payments consist of more than $7.3 million in fines and $1.8 million in restitution to customers who purchased the leveraged and inverse exchange traded funds. The breakdown is as follows:
- Wells Fargo - $2.1 million fine and $641,489 in restitution
- Citigroup - $2 million fine and $146,431 in restitution
- Morgan Stanley - $1.75 million fine and $604,584 in restitution
- UBS - $1.5 million fine and $431,488 in restitution
In addition, FINRA found that the firms' registered representatives made unsuitable recommendations of leveraged and inverse exchange-traded funds to some customers with conservative investment objectives and/or risk profiles, some of whom held them for extended periods during January 2008 through June 2009 when the markets were volatile.
Leveraged and inverse exchange-traded funds have risks not found in traditional exchange traded funds. Those risks flow from the daily reset, leverage and compounding of leveraged and inverse exchange traded funds, which caused them to differ significantly from the performance of the underlying index or benchmark when held for longer periods of time. That was particularly true in the volatile markets that existed during January 2008 through June 2009.
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, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is 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, October 12, 2012
SEC AND FINRA GIVE LIP SERVICE TO WALL STREET'S FAILURE TO PERFORM ADEQUATE DUE DILIGENCE
The Financial Industry Regulatory Authority has issued a number of notices to its member firms reminding them of their obligation to perform due diligence before recommending an investment. However, it has been our experience that, despite these "reminders," firms often fail to perform adequate due diligence, essentially accepting the promoter's assertions about the offering uncritically. Lack of due diligence has resulted in significant losses to investors, regulatory actions, lawsuits and arbitrations by aggrieved investors. Ultimately, the failure to perform due diligence has resulted in the collapse of numerous smaller broker-dealers under the weight of their legal liabilities.
Broker-dealers are also required to provide training sufficient to ensure that their registered representatives have a thorough understanding of the securities they sell. Again, firms have failed miserably in this regard. Over and over, representatives have demonstrated a lack of understanding of structured products, non-traded REITs, and other private investments, and have often frankly admitted that they just followed sales scripts.
In the midst of these problems, which have existed for a long time, an SEC official was quoted as saying, "We're looking at due diligence." ("SEC warns B-Ds to do their homework," by Bruce Kelly, InvestmentNews). The Securities and Exchange Commission has identified broker-dealer due diligence as an area of high risk. Before recommending any investment, a brokerage firm is required by law to have a reasonable basis for believing the investment is suitable for customers to whom the investment is recommended, and for understanding all the material facts (the pros and the cons) about the investment so that it can explain them to potential investors. The process by which the selling firm investigates a potential investment and learns the material facts about it is called due diligence. Due diligence is particularly important in recommending complex, non-publicly traded investments such as nontraded REITs.
The reasons why there is a lot of "looking at" the problem and little, if any, effective action being taken are twofold. First, many regard the SEC as a captive agency because of its revolving door and chummy relationship with Wall Street. Second, even assuming the SEC has the right kind of culture to take on Wall Street, there is a lack of political will in Washington to provide the necessary resources for successful regulation and oversight - perhaps because a majority of politicians in Washington are afraid to bite the hand that feeds them political contributions. There is no money in investor protection.
In the meantime, the SEC will continue to "look into" the lack of effective due diligence and the myriad other problems on Wall Street, and occasionally ask brokers whether they understand what they are selling - thereby putting the onus on ordinary investors to perform due diligence on the brokerage firms that promise, in their advertising, to be their expert guides through the bewildering maze of financial and investment decisions.
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, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights nationwide! 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.
Broker-dealers are also required to provide training sufficient to ensure that their registered representatives have a thorough understanding of the securities they sell. Again, firms have failed miserably in this regard. Over and over, representatives have demonstrated a lack of understanding of structured products, non-traded REITs, and other private investments, and have often frankly admitted that they just followed sales scripts.
In the midst of these problems, which have existed for a long time, an SEC official was quoted as saying, "We're looking at due diligence." ("SEC warns B-Ds to do their homework," by Bruce Kelly, InvestmentNews). The Securities and Exchange Commission has identified broker-dealer due diligence as an area of high risk. Before recommending any investment, a brokerage firm is required by law to have a reasonable basis for believing the investment is suitable for customers to whom the investment is recommended, and for understanding all the material facts (the pros and the cons) about the investment so that it can explain them to potential investors. The process by which the selling firm investigates a potential investment and learns the material facts about it is called due diligence. Due diligence is particularly important in recommending complex, non-publicly traded investments such as nontraded REITs.
The reasons why there is a lot of "looking at" the problem and little, if any, effective action being taken are twofold. First, many regard the SEC as a captive agency because of its revolving door and chummy relationship with Wall Street. Second, even assuming the SEC has the right kind of culture to take on Wall Street, there is a lack of political will in Washington to provide the necessary resources for successful regulation and oversight - perhaps because a majority of politicians in Washington are afraid to bite the hand that feeds them political contributions. There is no money in investor protection.
In the meantime, the SEC will continue to "look into" the lack of effective due diligence and the myriad other problems on Wall Street, and occasionally ask brokers whether they understand what they are selling - thereby putting the onus on ordinary investors to perform due diligence on the brokerage firms that promise, in their advertising, to be their expert guides through the bewildering maze of financial and investment decisions.
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, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights nationwide! 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.
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