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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.

For a Free Attorney Consultation, call us at 877-821-5550 or 

UBS Puerto Rico Funds Suffering Drastic Losses

Since 1995, UBS Financial Services Inc. of Puerto Rico (UBS PR) has been the primary underwriter for 14 separately organized closed end fund companies and 9 co-managed closed end fund companies.  The funds primarily held Puerto Rico municipal bonds and were available only to Puerto Rico residents.  Many of these funds’ values have collapsed recently, resulting in massive losses in UBS PR customer accounts.

The background of these Puerto Rico funds can be found here in a SEC cease and desist Order from 2012.  The Order, to which UBS PR consented entry, finds that UBS PR “willfully violated Section 17(a) of the Securities Act, which prohibits fraudulent conduct in the offer and sale of securities, and Sections 10(b) and 15(c) of the Exchange Act and Exchange Act Rule 10b-5, which prohibit fraudulent conduct in connection with the purchase or sale of securities.”

UBS Puerto Rico Funds referenced in the SEC Order include:

Puerto Rico Fixed Income Funds I – VI
Puerto Rico Mortgage Backed & US Govt. Fund
Tax-Free Puerto Rico Funds I and II
Tax-Free Puerto Rico Target Maturity Fund
Puerto Rico AAA Portfolio Target Maturity Fund
Puerto Rico AAA Portfolio Bond Funds I and II
Puerto Rico GNMA & U.S. Gov. Target Maturity Fund
Puerto Rico Investor’s Tax-Free Funds I – VI
Puerto Rico Tax-Free Target Maturity Fund I and II
Puerto Rico Investors Bond Fund I

The SEC Order, which was issued in 2012, discusses at length a voluminous number of misrepresentations and omissions in relation to these funds, which purportedly represented “the largest single source of revenue for UBS PR.”  The SEC found that the “market values” reported by UBS PR were “misleading” because they were “simply what UBS PR thought they should be, not true market prices.”  Despite warnings and concerns in 2008 about the concentration of customer investments in these funds, UBS PR continued to promote the sales of these funds through its financial advisors.  In response to high levels of these funds being owned by UBS PR on its own books, the SEC details how UBS PR encouraged sales to customers and reduced its inventory by “undercutting customer sell orders.”

Specific findings made by the SEC in its Order include the following:

Page 3.  “Since 1995, UBS PR has been the primary underwriter of fourteen separately organized closed-end fund companies’ CEFs [closed-end funds] with a total market capitalization of approximately $4 billion, and nine co-managed closed-end fund companies’ CEFs with more than $1 billion in total market capitalization.”

“The CEFs represent the largest single source of revenue for UBS PR. For example, between 2004 and 2008, the CEF business generated 50% of annual total revenues for UBS PR and UBS Trust Company combined, which included Fund advisory and administration fees, and primary and secondary market sales commissions.”

Page 2.  “During 2008 and 2009, UBS PR, its former CEO (“CEO”) and its Head of Capital Markets (“HCM”) made misrepresentations and omissions of material facts to numerous retail customers in Puerto Rico regarding the secondary market liquidity and pricing of UBS PR-affiliated, non-exchange-traded closed-end funds (“CEFs” or “Funds”). For example, UBS PR claimed CEF prices were based on market forces such as supply and demand. However, UBS PR did not disclose that CEF prices were set solely at the discretion of the trading desk. Moreover, although UBS had certain disclosures about liquidity in prospectuses (not supplied to secondary market customers) and on its website, it did not adequately disclose, among other things, that as the dominant CEF broker-dealer, UBS PR controlled the secondary market. In reality, any secondary market sales investors wanted to make depended largely on UBS PR’s ability to solicit additional customers or willingness to purchase shares into its inventory.”

“As UBS PR, the CEO and the HCM promoted CEF sales throughout 2008, they knew investor demand was significantly declining relative to supply. For much of 2008, UBS PR purchased millions of dollars of CEF shares into its own inventory while promoting the appearance of a liquid market with stable prices, without disclosing UBS PR’s actions were propping up prices and liquidity.”

“But in the spring of 2009, UBS PR’s parent firm determined UBS PR’s growing CEF inventory represented a financial risk to the firm. The parent company directed UBS PR to substantially reduce its inventory of CEF shares. To accomplish the reduction, UBS PR and the HCM executed a plan, dubbed “Objective: Soft Landing” in one document, in which UBS PR routinely offered and sold its CEF shares at prices that undercut pending customer sell orders.”

“During this period, numerous UBS PR customers were also attempting to sell their holdings but UBS PR’s actions effectively prevented certain customers from selling their CEF shares. Between March and September 2009, UBS PR sold about $35 million, or 75%, of its inventory to investors. At the same time, UBS PR increased its efforts to solicit sales of CEFs while continuing to misrepresent how it was setting secondary market prices and the liquidity of the market. UBS PR also did not disclose its withdrawal of market support. By September 2009, when UBS PR completed its CEF inventory reduction, the market price of certain funds had declined by 10-15%.”

Page 4.  “The CEF share prices in UBS PR customers’ monthly account statements were similarly misleading in that they described “market values.” As with the newspaper prices, these prices were simply what UBS PR thought they should be, not true market prices.”

Page 6.  “Notwithstanding his knowledge of the weak demand for CEF shares in the secondary market, the CEO repeatedly misled UBS PR’s financial advisors throughout the fall of 2008 into continuing to promote CEF sales. In numerous e-mails, he repeatedly misstated the strength, stability and liquidity of the CEF market. The CEO did not disclose to the sales force the liquidity issues in the secondary market, or that UBS PR was keeping the CEF prices high by increasing its CEF inventory.”

Page 9.  “UBS PR did not disclose to its customers it was substantially reducing the use of its inventory to support the CEF market. UBS PR also continued to accept customer limit orders without disclosing that it was undercutting those limit orders to sell UBS PR’s shares first. UBS PR also failed to disclose the conflict of interest created by recommending CEFs to investors while selling its own shares.”

Page 11.  “UBS PR willfully violated Section 17(a) of the Securities Act, which prohibits fraudulent conduct in the offer and sale of securities, and Sections 10(b) and 15(c) of the Exchange Act and Exchange Act Rule 10b-5, which prohibit fraudulent conduct in connection with the purchase or sale of securities.”

Page 12.  “UBS PR shall, within 14 days of the entry of this Order, pay disgorgement of $11,500,000.00, prejudgment interest of $1,109,739.94, and a civil money penalty of $14,000,000.00 to the Securities and Exchange Commission.”

The risk in the funds was also increased by leverage within the funds, and according to news reports, leverage within customer accounts.  According to this New York Times article, UBS customers in the funds “were encouraged by its brokers to borrow even more money to invest in those funds.”  Such leverage of already leveraged investments can lead to increased risk as well as increased losses.

If you have suffered losses in the above funds with UBS PR, and wish to speak to an attorney with our firm at no charge to discuss your legal options, please contact Greco & Greco.

Posted by W. Scott Greco on 10/01/13.
ArbitrationBondsBrokerage FirmsUBS Financial Services Inc. of Puerto RicoFINRAFraudSECSecurities FraudSuitabilityPermalink

Consent Order in Maryland Case Against Joseph Giordano

The Securities Commissioner of Maryland entered a Consent Order against former FINRA registered representative Joseph A. Giordano in May, 2013.  The Order can be found here. 

According to the Consent Order, Giordano violated the Maryland Securities Act by “misrepresenting or omitting to disclose material facts to investors, and making unsuitable recommendations.”  The investments at issue were Empire bonds and debentures.

Giordano was a FINRA registered securities salesperson with Capital Investment Group, Inc. from October, 1992 to June, 2012.  Mr. Giordano’s FINRA Brokercheck report states that he was terminated for cause by Capital Investment Group for “selling away and making false and misleading statements to the firm.”  The Consent Order states that Capital Investment Group raised issues of concern regarding Empire Corporation debentures in 2006.

Greco & Greco regularly represents investors in “selling away” cases such as this where the broker sells unauthorized securities away from his firm.  Customers may attempt to recover their losses in FINRA arbitration by demonstrating firms’ failures to supervise, failure to follow up on red flags, and by arguing the firm is responsible for the acts of its agent under the legal theories of respondeat superior and vicarious liability.  Federal and state securities laws also mandate liability of control persons (such as brokerage firms) if certain requirements are met.  If you are the victim of a fraudulent sale of securities by a FINRA registered broker, please contact one of our attorneys for a free consultation.

Posted by W. Scott Greco on 09/09/13.
ArbitrationBondsBrokerage FirmsCapital Investment Group, Inc.FINRAFraudSecurities FraudState RegulatorsMarylandSuitabilityUnregistered SecuritiesPermalink

David Lerner Associates Fined by FINRA for sale of Apple Reits

As shown by this FINRA Order, FINRA sanctioned David Lerner and Associates for sales of Apple REIT Ten and markups related to municipal bonds and CMO’s.  Of the $14 million in fines and restitution, approximately $12 million is to be paid to affected customers.

The wrongful conduct alleged by FINRA includes the following:  1) failure to do proper due diligence on Apple REIT Ten prior to approving its sale to customers, many of whom were elderly and unsophisticated, 2) misrepresentations of the REITs performance, value, and returns, 3) false statements in sales seminars and letters describing the REITs, 4) improper markups, and 5) supervisory violations.

David Lerner Associates has had a great incentive for the sale of the Apple REITs - it earns 10% on every sale and has sold $7 billion of the REITs since 1996.  These revenues account for 60-70% of DLA’s business according to FINRA.  As stated by FINRA:  “Many of DLAs customers are senior and/or unsophisticated, and DLA solicits customers by general means such as the internet, radio, cold callings, mailings, and open-invitation seminars at senior centers, restaurants, and country clubs.”

Details of the restitution program may be found here.  As stated, the remediation plan does not prevent investors from pursuing additional losses through arbitration.  If you suffered losses in REITs and you would like to discuss your case for free with one of our attorneys, please contact Greco & Greco.

Posted by W. Scott Greco on 10/30/12.
ArbitrationBrokerage FirmsDavid Lerner AssociatesCMOs / CDOsFINRAFraudREITsSecurities FraudState RegulatorsNew YorkSuitabilityPermalink

Insurance and Life Settlement related claims regarding California Broker Winterrowd

Greco & Greco is currently pursuing claims on behalf of investors relating to wrongful conduct in life insurance sales, life settlement sales, and variable annuity withdrawals by Neil Winterrowd.  Mr. Winterrowd was formerly a FINRA registered representative of Crown Capital Securities LP and J.P. Turner & Company LLC.  According to FINRA’s Brokercheck, J.P. Turner discharged Mr. Winterrowd for “Improper handling of customer funds” related to variable annuities.  If you believe that you may have been a victim of the above conduct, please contact one of our attorneys for a free consultation.

Posted by W. Scott Greco on 10/12/12.
ArbitrationBrokerage FirmsCrown CapitalJ.P. TurnerInsuranceLife SettlementsSecurities FraudState RegulatorsCaliforniaVirginiaSuitabilityVariable AnnuitiesPermalink

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

SEC Releases Financial Literacy Study

Pursuant to the Dodd-Frank Act, the Securities and Exchange Commission (SEC) was required to conduct a study identify the financial literacy of retail investors in the U.S.  The study can be found here. 

Not surprisingly, the study showed that retail investors consistently lacked financial literacy of basic investment issues, and lacked critical knowledge about investment fraud.  The report states:  “... studies have found that investors do not understand the most elementary financial concepts, such as compound interest and inflation.  Studies have also found that many investors do not understand other key financial concepts, such as diversification or the differences between stocks and bonds, and are not fully aware of investment costs and their impact on investment returns.”

Despite most individuals’ lack of financial literacy, and the fact that most individuals rely on investment professionals due to their own lack of investment knowledge, a standard defense raised by brokerage firms in FINRA arbitrations is to blame the victim and claim that the investor understood the risks involved in following the broker’s advice.  This study refutes the common defense that almost every individual is a “sophisticated investor” capable of understanding the risks involved.  If you suffered losses due to the wrongful acts of a broker, advisor, or brokerage firm, please contact one of our attorneys for a free consultation.

Posted by W. Scott Greco on 08/31/12.
ArbitrationBondsBrokerage FirmsFINRARetirementSECSecurities FraudSuitabilityPermalink

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


Michael Crosswhite of Forest, Virginia pled guilty this week to wire fraud and money laundering in U.S. District Court for the Western District of Virginia.  The Information filed in Court alleged that he engaged in a wire transfer of $113,805 from a victim’s Allianz account to a bank account Crosswhite controlled, and that he transferred $103,079 by wire from another victim’s Allianz account to a TD Ameritrade account.  According to this Lynchburg News & Advance article, the U.S. Attorney’s Office stated that “Crosswhite was working from his home as a financial consultant under the umbrella of Allianz Life Insurance Company of North America.”  The article further stated that Crosswhite admitted “he liquidated the investment accounts of several victims without their knowledge, eventually using funds himself, losing them in questionable investments or floating them back and forth to pay off victims? accounts.”  This activity describes a classic Ponzi Scheme where monies from recent victims are used to pay past victims to keep the scheme hidden.

According to the State of Virginia’s Bureau of Insurance website, Crosswhite was registered to sell insurance (Life, Annuities, Health, and Variable Contracts) until September 1, 2011.  He further is listed in FINRA’s Brokercheck as being a registered securities representative for Metlife Securities until December, 2009.

If you are a victim of a ponzi scheme, or have otherwise had your trusted investment representative transfer your monies without your knowledge, please contact Greco & Greco for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 06/15/12.
Brokerage FirmsAllianzMetlife SecuritiesFINRAInsurancePonzi SchemeSecurities FraudState RegulatorsVirginiaUnauthorized TradingVariable AnnuitiesPermalink

AXA fined by FINRA Due to Broker Ponzi Scheme

As set out in this FINRA link, FINRA recently fined AXA Advisors, LLC for its failures to act in relation to the sale by its registered representative of a ponzi scheme.  The Letter of Acceptance, Waiver, and Consent documents failures to supervise by AXA including failures to follow up on red flags regarding the ponzi scheme.  One red flag was a suspicious excel spreadsheet found in an audit of the broker’s office.  The broker also had a checkered regulatory history which made him a “compliance risk.”

Greco & Greco regularly represents investors in “selling away” cases such as these where the broker engages in ponzi schemes or outright steals funds from customers.  Customers may attempt to recover their losses in FINRA arbitration by demonstrating firms’ failures to supervise, failure to follow up on red flags, and by arguing the firm is responsible for the acts of its agent under the legal theories of respondeat superior and vicarious liability.  Federal and state securities laws also mandate liability of control persons (such as brokerage firms) if certain requirements are met.  If you are the victim of a ponzi scheme or broker theft by a FINRA registered broker, please contact one of our attorneys for a free consultation.

Posted by W. Scott Greco on 06/08/12.
ArbitrationBrokerage FirmsAXA AdvisorsFINRAPonzi SchemeSecurities FraudState RegulatorsSuitabilityUnregistered SecuritiesPermalink

FINRA Fines Multiple Firms for Leveraged and Inverse ETF Sales

As noted in this press release from FINRA, Wells Fargo, Citigroup, Morgan Stanley, and UBS were fined for failing to supervise sales of leveraged and inverse ETFs.  FINRA also alleged failures of a reasonable basis to recommend the securities (i.e. suitability).

FINRA found that:  “from January 2008 through June 2009, the firms did not have adequate supervisory systems in place to monitor the sale of leveraged and inverse ETFs, and failed to conduct adequate due diligence regarding the risks and features of the ETFs. As a result, the firms did not have a reasonable basis to recommend the ETFs to their retail customers.”

Many inverse and leveraged exchange traded funds, including some by Proshares and Direxion, were designed to seek multiples of the exchange they were designed to track.  However, many of these ETFs were designed to reset daily, thereby creating drastic differences in their performance over time compared to the index they were designed to track.  We have seen many situations where many of the risks of these funds were not disclosed to customers.

The prospectus for the Proshares leveraged and inverse ETFs from September 2007 makes clear that these investments were an aggressive day-trading tool, not an investment appropriate or suitable for most retail investors.  Specifically, the prospectus stated:

p. 7:  ‘The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.’
p. 8:  ‘The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments.’
p. 9:  ‘Certain Funds are ‘leveraged’ funds in the sense that they have investment objectives to match a multiple of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from these Funds’ use of leverage, which is that for periods greater than one day, the use of leverage tends to cause the performance of a Fund to be either greater than or less than the index performance times the stated multiple in the fund objective, before accounting for fees and fund expenses’

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  ‘inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.’

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 05/24/12.
ArbitrationBrokerage FirmsCitigroupMorgan StanleyUBSWells FargoETFFINRASecurities FraudSuitabilityPermalink

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

Virginia Financial Fraud Task Force

As set out in this Washington Post article, federal prosecutors in Virginia have set up the Virginia Financial and Securities Fraud Task Force.  This task force is comprised of members of the FBI, the Postal Inspection Service, the Securities and Exchange Commission, the Commodities Futures Trading Commission and the Virginia State Corporation Commission.

As set out in the story, the task force’s efforts have already resulted in multiple criminal convictions.  A criminal conviction, however, does not always recoup losses for investors wronged by financial fraud.  If you are the victim of a financial crime in which the salesperson or others involved in the scheme were registered to sell securities through a FINRA brokerage firm, you may be able to seek recovery of your losses through FINRA’s arbitration system.  Please contact Greco & Greco for a free consultation with one of our lawyers.

Posted by W. Scott Greco on 11/02/11.
ArbitrationBrokerage FirmsFINRAPonzi SchemeSECSecurities FraudState RegulatorsVirginiaPermalink

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

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