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The Securities Arbitration Commentator (SAC) recently took notice of a new investor education project that was spearheaded by our own Jason Doss.  Mr. Doss is a recent past president of the Public Investors Arbitration Bar Association, or PIABA, and the current president of the PIABA Foundation.  PIABA is an association of attorneys from around the country who represent investors against brokerage firms and their financial advisors. These investment-related disputes are resolved in arbitration proceedings and are often centered around investment fraud.  The damage done to victims of investment fraud – both financial and emotional – can be devastating.

Having seen the devastation up close for many years, Mr. Doss wanted to help alleviate as much of it as possible.  “Wouldn’t it be a good if we could help investors before they became victims,” he said.

Mr. Doss helped create the PIABA Foundation and has led the organization as its President to fulfill its mission of educating and protecting investors.  Mr. Doss and the PIABA Foundation then collaborated with the Alliance for Investor Education (AIE) in producing a National Investor Town Hall Meeting on October 29 in San Diego that SAC blogged about.  Mr. Doss also co-authored a book entitled “The Investors Guide to Protecting Your Financial Future,” and a short documentary entitled “Trust Me.”  The video uses the inability of government to prevent repeated financial collapses as a starting point for learning how investment fraudsters operate and what investors can do to protect themselves.  The video features the accounts of two actual investment fraud victims and commentary by several investor attorneys.

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The Securities and Exchange Commission has announced that UBS Financial Services will pay more than $15 million to settle charges related to unsuitable sales of reverse convertible notes (“RCNs”) to individual (“retail”) investors.  The SEC found that UBS failed to adequately educate and train its sales force in connection with the sale of RCNs as a result of which they had no reasonable basis for recommending them, and could not make proper disclosures to investors.

RCNs are complex securities.  In addition to the risk of default by the issuer, RCNs contain embedded put options giving the issuer the right to not return the investor’s principal at maturity, but instead assign the underlying security (usually a stock) at maturity if the stock price drops to a certain level.  In that case, the investor is left holding a stock that may be worth much less than the price paid for the RCN.

RCNs are alternative investments that typically offer above-market yields.  They are often sold to income-oriented investors who are unable to realize a sufficient return in the persistent low interest rate environment in which we live.  However, most individual investors who purchase RCNs have no idea they can lose money on this investment.

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Our firm has already filed many individual lawsuits alleging, among other things, investment fraud against Leavitt Sanders and the firms that he traded through.  Those firms include Invest Financial, Triad Advisors, Capital Asset Advisory Services, Sanders Yearian Advisory Group and Leavitt Financial Group. We have developed direct evidence that supports the allegations that these firms are legally responsible to pay back investors for their investment losses.

If you were a victim of this alleged fraudulent scheme, we would be interested in discussing representing your interests with the hope and expectation of recovering some or all of your losses.  We will evaluate your case at no charge.

As background, Mr. Sanders’ CRD reveals over 30 customer complaints for the same type of account mismanagement.  On December 26, 2014, Triad Advisors, Inc. terminated and discharged Mr. Sanders for “mismanagement of RIA related accounts” involving options trading.  (“RIA” means “registered investment advisor.”)

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Reuters reports that bankruptcies in the U.S. oil industry have reached record levels.  The number of bankrupt oil and gas companies is 59 and counting, and we are not even half-way through the wave of bankruptcy filings, according to a Reuters article entitled U.S. oil industry bankruptcy wave nears size of telecom bust.  As the article’s title indicates, the number of oil and gas bankruptcies is closing in on the 68 bankruptcy filings by telecom companies during the 2002-2003 telecom bust.

Given in the sustained low interest rate environment, many income-oriented investors have been steered by their investment advisors into oil and gas investments and other alternative or non-conventional investments.  However, non-traded investments like oil and gas limited partnerships are among the most speculative, high-risk investments available.  The category of oil and gas investments is one of the “Top Investor Threats” identified by the North American Securities Administrators Association (“NASAA”), which is the organization of state securities regulators.  They are often sold to investors by brokers and brokerage firms because of the high sales commissions paid to such brokers.

Please call us if you have questions about your oil and gas investments or other investments.  We offer a free initial consultation.  If based on that consultation we feel that further review is needed, we will analyze your situation and provide a recommendation on whether and how to proceed at no charge to you.  Cases are typically handled on a contingent fee basis – i.e., the attorney’s fee is a percentage of any amount we recover on your behalf.

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A South Carolina grand jury has indicted a Greenville broker named Claus Foerster for defrauding his clients out of $2.8 million.  According to news reports, the indictments states that Foerster persuaded clients to invest in a fictitious company called SG Investment Management.  According to the Associated Press, Foerster provided his clients with bogus earnings statements that falsely indicated their funds were invested and earning profits.

Foerster allegedly perpetrated this fraud over a 14 year period from 2000 to 2014 while he was associated with three different brokerage firms.  Foerster was associated with Raymond James & Associates, Inc. from February 2013 to June 2014; Morgan Keegan & Company, Inc. from February 2008 to February 2013; and Citigroup Global Markets, Inc. d/b/a Smith Barney from July 1997 to February 2008.

In 2014, the Financial Industry Regulatory Authority (FINRA) barred Foerster from the securities industry due to allegations that he was running a Ponzi scheme.  Foerster was terminated by Raymond James in 2014 after he admitted that he had misappropriated client funds.

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Following up on our previous blog post, broker dealers that sold UDF non-traded REITs to investors include, but are not limited to, IMS Securities Inc., Berthel Fisher & Co. Financial Services Inc., Centaurus Financial Inc., and VSR Financial Services, Inc.

These firms have a history of regulatory violations and customer complaints:

  • The Financial Industry Regulatory Authority (“FINRA”) has fined and/or reprimanded IMS Securities Inc. twice for failure to supervise and once for allowing a registered representative to sell securities in Texas without being licensed in Texas.
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Following up on our previous blog post, United Development Funding IV was organized on May 28, 2008.  UDF IV shares began trading on the NASDAQ under the symbol “UDF” on June 4, 2014.  Prior to June 4, 2012, UDF IV was a public non-traded REIT.

An investment in a public non-traded REIT is essentially an investment in in an illiquid start-up real estate company that must accumulate assets quickly and is subject to significant risks. Such an investment is unsuitable for most investors.  Non-traded REITs are typically sold to unsuspecting retail (“mom and pop”) investors who are seeking yield in the low-interest rate environment.  They get pitched to investors by financial advisers who are incentivized to sell non-traded REITs by getting paid outsized commissions from the company.

Shares of UDF IV were initially sold through a securities brokerage firm named Realty Capital Securities, LLC (“RCS”), as the Dealer Manager of the securities offering, and possibly through various other Soliciting Dealers – securities brokerage firms that may have been retained by RCS to sell shares of UDF IV.  RCS reportedly raised over $1 billion from retail investors and was paid commissions and fees for selling UDF IV to retail investors.

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Shares of United Development Funding IV collapsed 55% to $3.20 per share on Thursday, February 18, before trading was halted.  UDF IV is a publicly traded REIT.  The collapse occurred after the FBI raided the company’s offices in Texas.  A prominent hedge fund manager had previously accused UDF IV of essentially operating as billion dollar Ponzi scheme.  In addition, the firm’s independent accounting firm resigned and has not been replaced, according to reports.  Shareholder class action lawsuits have been filed.

What investors need to know is this.  Class actions lawsuits are designed to take a large group of investors with very small losses and aggregate them into a single lawsuit.  At the end of the process, the recovery is typically small.  There is another, better path for investors with significant losses, and that is filing a securities arbitration claim against the brokerage firm that sold the investment.

Investment advisers, brokers and their firms have a legal duty to understand and communicate to investors all the material facts about an investment, including the risks, before the investment is made.  In other words, they have a duty not to misrepresent or fail to disclose any important facts before the investment is made.  In addition, they have a duty not to recommend an investment that is unsuitable for the investor based on the investor’s investment objective, risk tolerance and time horizon.  If any of these duties is breached, and losses occur, the investor has a compelling claim to recover those losses in arbitration.

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Fortune magazine reports that investors have lost $1.78 Trillion so far this year!  Investors should review the asset allocation of their portfolios and determine whether or not it is appropriate given their risk tolerance, investment objective and time horizon.  Financial advisors and their firms have a duty to their clients to make suitable investment recommendations and to avoid recommending unsuitably risky investments.

A portfolio’s asset allocation – the percentage of stocks, bonds and cash – is responsible for over 90% of a portfolio’s performance, according to modern portfolio theory. A portfolio composed of 100% stocks is inappropriate for most investors.  The Vanguard S&P 500 Stock Index Fund has lost about 10% year-to-date as of February 12.  The Vanguard Balanced Index Fund has lost about 6% year-to-date.  The former is invested 100% in the 500 largest cap stocks.  The latter is a mix of 60% S&P500 stocks and 40% bonds.

We have many years of experience in representing investors in securities arbitrations against brokers who have breached such duties.  If you have any questions about your investments, we would be happy to evaluate your situation and make a recommendation at no charge to you.

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On December 15, 2015, the Securities and Exchange Commission commenced an action in federal district court in the Southern District of New York against Edward Durante for fraud in the sale of millions of dollars of VGTel stock to numerous of investors.  On January 6, 2016, the SEC filed an Amended Complaint naming Abida Khan, Larry Werbel, Christopher Cervino, Walter Reissman, Kenneth Wise and Evolution Partners Wealth Management, LLC (“Evolution Partners”) as additional defendants.  The activities detailed in the SEC Complaint occurred between 2010 and 2013.  Many of the investors were older investors with conservative risk tolerances.

According to the SEC Complaint, Durante had previously been sentenced to prison for perpetrating a multi-million dollar securities fraud.  Durante purchased VGTel as a shell company.  The SEC alleges that Durante assumed false identities in his dealings with investors (aka Edward Wise, Ted Wise, Efran Eisenberg and Anthony Walsh).  Investors were falsely told that VGTel was a publicly traded company that could rise in value to $50 per share quickly as a result of several major deals.  Unfortunately, VGTel was worthless, and Durante and his associates fraudulently manipulated the market to pump up the price of VGTel stock, according to the SEC Complaint.

Some investors sent their funds to companies controlled by Durante (either Zenith Estates or New Market Enterprises, Inc.).