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Securities Fraud Blog

Greco & Greco, P.C.

W. Scott Greco

Fight Investment Fraud

Greco & Greco's lawyers represent investors to recover losses caused by securities fraud, churning, lack of suitability, negligence, sales of unregistered securities, unauthorized trading, and other misconduct by stock brokers, investment advisors, financial planners and their firms.

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Private Placements

State Securities Regulators release new list of top investor threats

NASAA (the North American Securities Adminstrators Association) has released its 2013 list of top financial product and practice threats to investors here.

The top threat is one that we at Greco & Greco see often - Private Offerings.  As stated by NASAA:  “These offerings commonly are referred to as Reg D/Rule 506 offerings, named for the exemption in federal securities laws that allows private placements to be sold to investors without registration). By definition these are limited investment offerings that are highly illiquid, generally lack transparency and have little regulatory oversight. While Reg D/Rule 506 offerings are used by many legitimate companies to raise capital, they carry high risk and may not be suitable for many individual investors.”

These private offerings are often high risk investments.  Be wary should your stockbroker or investment advisor recommend them to you as safe or low risk.

Other potential threats listed by NASAA include real estate investment schemes, high yield investment and ponzi schemes, affinity fraud, self directed IRAs, Oil and Gas Drilling Programs, and digital currency.

If your stockbroker or investment advisor has sold you a product without disclosing the risks involved, or if you think you are a victim of a fraudulent investment scheme, please contact Greco & Greco for a free consultation.

Posted by W. Scott Greco on 11/08/13.
Affinity FraudArbitrationBrokerage FirmsFraudIRAsPonzi SchemePrivate PlacementsSecurities FraudState RegulatorsSuitabilityPermalink

Update on Recent TIC Awards in FINRA Arbitration

Back in March of 2012 we listed five recent FINRA arbitration awards to customers who had suffered losses in TIC investments - the post can be found here.  FINRA arbitration panels have issued several additional awards to customers based on claims of securities fraud, negligence, lack of suitability, breach of fiduciary duty, etc. in relation to TIC (Tenant In Common) sales by brokerage firms and brokers:


DRG Hendersonville TIC 13 LLC, et al. v. Behrends, Capstone Financial, CapWest Securities, et al.

  FINRA arbitration #11-01909, Los Angeles, California.  This claim related to two TIC investments:  Marriott
Renaissance Meadowlands Hotel and the Arbors on Main Apartments.  The Panel issued an award to Claimants for $338,000 plus interest against Capwest and two individuals.  Unfortunately, Capwest is no longer licensed with FINRA so the collectibility of the award is questionable.


Castro v. Capwest Securities, et al.

, FINRA Arbitration # 10-02633, Los Angeles, California.  This is another LA FINRA arbitration against CapWest and invididuals.  The TICs involved were Water Song Apartments (CWC Water Song S&H LP), and Cabot Turfway Ridge Acquisition, LLC.  The panel awarded $156,250 plus interest to the Claimants against Capwest and the individual Respondents.


McLean v. Great Northern Financial Securities, Inc.

, FINRA Arbitration #11-03787, Seattle Washington.  Once again, another customer award but against a defunct Brokerage Firm.  This case involved a DBSI TIC as well as other private placement investments.  The panel awarded $424,553 which included damages, interest, treble damages, and attorneys fees.

Greco & Greco is currently pursuing multiple TIC claims against Broker-Dealers and registered representatives in FINRA Arbitration.  To read more about the duties of brokers selling TIC’s, please click here through to our website.  If you wish to speak to one of our attorneys about a possible claim, please contact us for a free consultation.

Posted by W. Scott Greco on 10/05/12.
ArbitrationBrokerage FirmsCapWestFINRAPrivate PlacementsSecurities FraudTICPermalink

New FINRA Suitability Rule Goes Into Effect

As of July 9, 2012, FINRA’s new suitability Rule (Rule 2111) takes effect to replace the old NASD/FINRA Rule 2310.  The new Rule can be found here. 

The new suitability Rule, and its supplemental material, contains several clarifications which are important for investor protection.  First, the Rule clearly states that recommendations of investment strategies as well as transactions fall under the rule.  The supplemental material further states that “investment strategy” is to be interpreted broadly, including recommendations to hold securities. 

The new Rule also sets out more specifically investor financial information that a registered representative must consider when making recommendations.  Specific information includes:  “customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”  The Rule also sets out a standard to be applied in regard to the representative’s efforts to discover customer suitability information:  “reasonable diligence” is required to discover the customer’s investment profile.

The supplemental material to the Rule further clarifies FINRA standards regarding three kinds of suitability:  reasonable-basis suitability, customer-specific suitability, and quantitative suitability.  Reasonable basis suitability is required due diligence on a security before it can be recommended to customers - this issue can arise in private placement or TIC situations where the security is not on a national exchange.  Customer specific suitability is, as described above, recommending a security only if it is suitable for a customer’s specific situation.  Quantitative suitability is in essence a ban on churning - representatives cannot recommend (or trade with discretion) if the number of trades is excessive in light of the customer’s financial situation and investment profile.  Turnover rates and cost-equity ratios are often used to demonstrate the lack of suitability of churned accounts.

Posted by W. Scott Greco on 08/03/12.
ArbitrationBrokerage FirmsChurningFINRAIRAsMutual FundsPrivate PlacementsSECSecurities FraudSuitabilityTICPermalink

FINRA Ousts Firm and President for Fraud

As set out in this recent FINRA Press Release, a FINRA hearing officer expelled a member firm (Pinnacle Partners Financial) and its President.  The decision stated that Pinnacle operated a “boiler room” that placed thousands of cold calls per week soliciting investments in oil and gas drilling joint ventures.  Furthermore, the decision found the investments to be “fraudulent,” and determined that the monies raised were misused to pay back previous offerings and to pay personal expenses.  In addition to the expulsion from FINRA, the firm was ordered to offer full rescission to its customers.

Posted by W. Scott Greco on 04/27/12.
FINRAPonzi SchemePrivate PlacementsSecurities FraudUnregistered SecuritiesPermalink

Multiple Investor Awards in Recent FINRA Arbitrations of TIC Claims

A review of recent FINRA Arbitration Awards show that TIC investors have had multiple victories in sales practice claims against the FINRA brokerage firms that sold them Tenant in Common (TIC) investments.  Claims have included securities fraud, breach of fiduciary duty, negligence, failure to supervise, elder abuse, and misrepresentations and omissions.  The following FINRA awards may be found at the FINRA web site:

1.  Hardt, et al. v. LPL Financial LLC.  No. 11-00347.  The arbitration panel in this San Diego, California arbitration awarded $1,367,000.00 in compensatory damages, interest, and costs.  Claims against two other Broker-Dealers were dismissed by Claimants.  The claims related to investments with Direct Invest LLC which included investments in Heron Cove. LLC and Braintree Park, LLC.

2.  Lightfoot, et al. v. Pacific West Securities, et al.  No. 11-00230.  A Seattle, Washington panel submitted another multi-million dollar award:  $1,862,960,65 plus $200,000 in attorneys fees for violations of the Securities Act of Washington.  The panel found a violation of the standard of care by Respondents for “the disavowal by Respondents of any obligation to conduct a suitability analysis for the sale of TICs in the circumstances of a Section 1031 - like kind assets exchange for tax deferral purposes.”  Multiple TICs were involved: TSG Midwest, Evergreen Springs, Argus TriWest, Passco River Park and Passco Promenade.

3.  Griswold v. Burch & Company, Inc., et al.  No. 10-02477.  In this Alaska case, the panel awarded almost all of the compensatory damages requested ($350,000), plus interest for a claim related to Beamer Place Apartments.

4.  Tommerup, et al. v. Waveland Capital Partners LLC, et al.  No. 10-04616.  This Helena Montana arbitration involved two DBSI TIC investments (Executive Park LLC, and DBSI Arrowhead, LLC 1965, 1705 & 1715
Indian Woods Circle), and a request for $410,000 in damages.  The panel awarded $301,875.00 which included interest, and $27,000 of discovery sanctions.

5.  Wiborg, et al. v. Pacific West Securities, Inc.  No. 10-02818.  In another arbitration involving Pacific West (this one in San Francisco), the Panel awarded $300,000 plus $50,000 in punitive damages.  In awarding the punitive damages, the panel described the basis for its finding that Respondent “failed to supervise” the broker involved.  The Claimant alleged damages from two TICs -  DBSI Offices at Brookhollow Tenant-in-Common securities and Garlock & Company Museum Park Garage Tenant-in-Common securities.

Posted by W. Scott Greco on 03/16/12.
ArbitrationBrokerage FirmsBurch & CompanyLPL FinancialPacific West SecuritiesWaveland Capital PartnersFINRAPrivate PlacementsSecurities FraudSuitabilityTICPermalink


Tenant in Common (TIC) claims against the brokerage firms that sold them have recently resulted in multiple large FINRA arbitration awards, according to this this Investment News article

The use of Tenant-in-Common (TIC) real estate investments in conjunction with IRS 1031 exchanges greatly increased after the 2002 issuance of IRS Rev. Proc. 2002-22 which clarified issues related to the uses of TICs in like-kind exchanges.

TICs since that time have been typically sold as securities by securities salespersons registered with FINRA which is a self-regulatory organization overseeing the securities industry.  These salespersons (registered representatives) are required to be registered with a Broker-Dealer (brokerage firm) also regulated by FINRA.  The sale of TICs by Broker-Dealers and their representatives is very lucrative.  Selling commissions can be 7% or higher, and sponsors also would pay additional percentages to Broker-Dealers for “due diligence” expenses and marketing / selling expenses. 

The failure of securities salespersons and their firms to perform due diligence on the TIC deals they recommend, and on the sponsors of the TIC deals, can result in disastrous outcomes for their customers.  In addition, salespersons must engage in a suitability analysis prior to recommending TIC deals to their customers to ensure that these illiquid investments are suitable for the customer?s financial situation.  Federal and State Securities laws also prohibit the misrepresentation or omission of material facts in conjunction with the sale of a security.  Many state Acts provide for the recovery of losses, attorneys fees, and interest.

FINRA issued guidance to its members back in 2005 regarding the sale of TICs (NASD [now FINRA] Notice to Members 05-18).  The selling firm had duties with regard to obtaining a clear understanding of the customer?s investment goals and financial status for the purposes of making a suitability determination.  The firms’ representative also had to take into account the illiquid nature of the TIC interest, the risks from over-concentration, and the ?investment potential of the underlying real estate asset(s).?  In regard to overconcentration, FINRA warned:  “Concentration of an investor?s assets in a single asset class, however, is not suitable for many investors.”

The high sales fees of TICs, combined with the profits and expenses retained by the sponsors, could raise serious suitability concerns for salespersons recommending them as a tax deferral vehicle.  In fact, the Notice 05-18 above further warned: “As fees charged in connection with a TIC exchange increase, the money saved as a consequence of tax deferral will be offset. Accordingly, members should consider the effect of fees on each TIC exchange”

TICs are typically leveraged with a bank loan, and such leverage can unfortunately result in customers’ investments being wiped out should the bank foreclose on the property.  If you have lost monies in an illiquid or foreclosed upon TIC, and believe you may have a claim against the salesperson and firm, please contact one of the attorneys at Greco & Greco for a free consultation.  Greco & Greco regularly represents investors on a contingency basis.

Posted by W. Scott Greco on 02/21/12.
ArbitrationBrokerage FirmsInvest FinancialLPL FinancialFINRAPrivate PlacementsSecurities FraudSuitabilityTICPermalink

Fredericksburg Virginia Registered Rep Indicted

As set out in this article, John Robert Graves, a former FBI agent, was indicted on charges of defrauding Virginia investors out of $1,300,000.  According to the indictment filed in U.S. District Court in Richmond (Case 3:11CR246), Mr. Graves used funds obtained from investors to buy personal real estate, to pay personal expenses and credit cards, to pay himself cash, and to pay back prior investors.

Mr. Graves operated Brooke Point Management in Spotsylvania County since 2003 which provided financial planning, insurance sales, estate planning, and investment advice to customers.  According to FINRA’s Brokercheck report, Mr. Graves had been a registered securities salesperson since 1998 with various firms including, Harrison Douglas, Community Bankers Securities, Fintegra, Questar Capital Corporation, Pacific West Securities, and H. Beck.  The Brokercheck report also discloses multiple pending arbitration claims alleging fraud, negligence, breach of fiduciary duty, and unsuitable investments regarding private placements, limited partnerships and REITs. 

If you wish to discuss a potential securities fraud claim with one of our attorneys, please contact us here for a free consultation.

Posted by W. Scott Greco on 10/13/11.
ArbitrationBrokerage FirmsCommunity Bankers SecuritiesH. BeckPacific West SecuritiesQuestar Capital CorporationPonzi SchemePrivate PlacementsSecurities FraudState RegulatorsVirginiaSuitabilityPermalink

SEC Fraud Charges Regarding The Nutmeg Group LLC

As set out in the SEC Complaint which can be found here, the SEC filed civil fraud claims in Illinois against The Nutmeg Group, LLC, Randall Goulding, and others.  The SEC alleges in its Complaint that Nutmeg was an investment adviser to 15 funds which invested fund assets in private investments in public equity (PIPE) transactions.  As a basis for its fraud claims, the SEC alleges in the Complaint that Nutmeg “improperly commingled investor and fund assets,” “misappropriated over $4 million in fund assets,” “failed to maintain the required books and records,” and “overstated the performances of its Funds to investors.”  (paragraphs 2 and 3 of SEC Complaint). 

All FINRA registered representatives are required to be registered with a FINRA firm (Broker-Dealer).  FINRA firms have legal responsibilities to supervise their registered representatives, and further may be found liable for the wrongful actions of their agents.  Examples of legal grounds for liability of Broker-Dealers in these situations include:

a) under tort and agency law, principals can be found liable for the acts of their agents even if they are entirely innocent and have received no benefit from the transaction;

b) a broker?s Broker-Dealer can also be found liable as a ?control person? of that broker under state and federal securities laws; and

c) claims can be pursued in arbitration based on violations of FINRA rules including Rules related to supervision, suitability, and outside business activities.

If you were sold investments in Nutmeg Group funds by a FINRA registered representative, and you would like to discuss legal options with an attorney, please contact Greco & Greco for a free consultation with one of our lawyers.

Posted by W. Scott Greco on 06/08/11.
ArbitrationBrokerage FirmsPonzi SchemePrivate PlacementsSECState RegulatorsColoradoFloridaSuitabilityUnregistered SecuritiesPermalink

Medical Capital Charged With Fraud by SEC

Medical Capital Holdings is another private placement investment that has been subject to claims of fraud by the SEC.  In the Amended Complaint found on the Receivership site the SEC alleges that despite promises in the offering memoranda from Medical Capital not to use investor funds to pay administrative fees, 24% of investor funds were paid out as administrative fees, and the companies engaged in sham intercompany transactions to pay back principal and interest to investors in prior offerings. 

Furthermore, as set out in this Orange County Register article, the head of Medical Capital (Sidney Field) had previously had his insurance license revoked by California, had been sued twice by state insurance regulators for racketeering and fraud, and had filed bankruptcy.

Investors who were sold these offerings by their stock brokers and have suffered losses may have claims that they can bring in FINRA arbitrations against their brokerage firms.  Firms selling such offerings have due diligence duties prior to approval of their sale, and representatives are required to only make suitable recommendations to their customers.  Additionally, representatives may not misrepresent the risk of securities they recommend, and they must disclose material facts related to risk.  Greco & Greco is pursuing claims in arbitration on behalf of customers who were sold these products.  If you think you may have a claim, please contact us for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 03/19/10.
ArbitrationBrokerage FirmsCapWestGunn AllenFINRAPrivate PlacementsSECSuitabilityPermalink

Provident Royalties / Shale Royalties charged with fraud by SEC

As set out in this SEC Release, Provident Royalties, LLC and many related entities (including Shale Royalties entities) have been charged with engaging in a $485 million offering fraud and orchestrating a ponzi scheme.  According to the SEC’s Complaint and release, “Provident falsely promised yearly returns of up to 18 percent,” and used investor funds from later offerings to pay “expenses related to earlier offerings and returns to investors in those offerings.”  Unaffiliated brokerage firms were solicited by Provident to sell the investments through placement agreements for each offering, thereby selling the investments to retail investors nationwide.

Investors who were sold these offerings by their stock brokers and have suffered losses may have claims that they can bring in FINRA arbitrations against their brokerage firms.  Firms selling such offerings have due diligence duties prior to approval of their sale, and representatives are required to only make suitable recommendations to their customers.  Additionally, representatives may not misrepresent the risk of securities they recommend, and they must disclose material facts related to risk.  Greco & Greco is pursuing claims in arbitration on behalf of customers who were sold these products.  If you think you may have a claim, please contact us for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 11/13/09.
ArbitrationBrokerage FirmsCapWestGunn AllenFINRAPonzi SchemePrivate PlacementsSECSuitabilityPermalink

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