Securities Lawyers Blog
The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that Broker Dharmesh Vora (Vora), previously employed by Kalos Capital, Inc. has been subject to at least one disclosable event. These events include one tax lien. According to records kept by The Financial Industry Regulatory Authority (FINRA), Vora’s most recent customer complaint alleges that Vora recommended unsuitable investments in structured products and makes allegations concerning misconduct relating to the handling of the customer’s accounts.
FINRA BrokerCheck shows a final customer complaint on September 16, 2024.
The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Vora Wealth Management, PLLC (Vora Wealth) and Dharmesh Virendra Vora (Vora) (collectively, Respondents). In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement which the Commission has determined to accept. The commission finds that these proceedings arise out of breaches of fiduciary duty and compliance failures by Vora Wealth, a registered investment adviser, and Vora, Vora Wealth’s sole owner and principal investment professional, who invested the majority of his advisory clients’ assets in structured notes without adequate disclosure. Between at least November 6, 2020, through November 4, 2021, Vora Wealth and Vora used their discretionary authority over advisory client accounts to purchase structured notes that were inappropriate for the majority of their clients, particularly given the clients’ expressed safety and income goals, net worth, retirement status, and sophistication. The structured notes were tied to four stocks traded on Nasdaq. Of the 872 client accounts with securities holdings at Vora Wealth, Vora invested approximately 738 accounts (85%) in these structured notes, using approximately $124 million of the approximately $139.5 million in Vora Wealth’s total assets under management. For many clients, including those who relied on distributions from their accounts as part of their monthly living expenses, Vora sold their annuities held at Vora’s insurance firm to purchase the structured notes, Vora did not inform many of his clients that he purchased the structured notes until after they saw the investment on their account statements. Most of Vora Wealth’s clients never received an investment prospectus. Then, when verbally describing the investment to clients, Vora downplayed the possibility that they could lose most, if not all, of their principal invested in the notes, and instead touted the 18% to 32.5% annualized monthly interest payments. Beginning in November 2021, one of the stocks in the structured notes’ basket fell below the 50% downside protection level, which terminated the coupon payments to clients, and that stock never recovered. As of July 2024, most of the structured notes have reached maturity, and Vora Wealth’s clients’ accounts have a collective realized loss of their principal of over $89 million. Additionally, during this same period, Vora Wealth and Vora received undisclosed benefits from one of the brokers through which they purchased most of the notes, including a wine tasting, as well as payments to subsidize a Vora Wealth client event. As Vora Wealth’s sole owner and principal investment adviser representative, Vora was responsible for Vora Wealth’s failures. Based on this conduct, Vora Wealth and Vora willfully violated Sections 206(1) and 206(2) of the Advisers Act. Vora Wealth also willfully violated, and Vora caused Vora Wealth’s violations of, Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder.
The performance of structured products, driven by the market data, are a type of derivative. Market risk in a structured product is generally taken based on a referenced source. The source may be a single security, a collection of securities like a market index, commodities, interest rates, or a real estate loan portfolio. The variety of products that can be structured demonstrates the difficulty in formulating a single unified definition of a structured product.
However, most structured products produce inferior risk/return profiles than ordinary debt or equity instruments because the brokerage firms that issue these products, mostly large banks, seek to profit from the spread between the payment to investors and the amount of money the brokerage firm can make from the issuance of the structured notes minus the commissions and fees that must be paid to brokers selling the product. Due to the intricate nature of these products, many investors will lack the ability to accurately weigh their merits or estimate the probability of returns versus losses. Many brokers misrepresent these investments to clients as fixed income or bond like investments with return of capital. Due to their elevated risk of loss in comparison to corporate debt and fixed-income alternatives, structured products are rarely a suitable replacement.
Recently, firms have begun selling redeemable structured notes often linked to a single investment or a basket of investments. Examples of structured products linked to single securities illustrate the high risks involved without offering meaningful advantages. We conducted an analysis of a structured note based on Peloton’s stock, guaranteeing investors a 1.0625% monthly return (12.75% annually), and another note tied to Zillow’s stock, which offered 12% annual interest paid in monthly installments as long as the stock prices stayed above a predefined value. The interest payment would be fully canceled only if both stocks suffered a roughly 40% decline in value. In addition, if the stocks lost more than approximately 40% of their value then the investor would also lose their corresponding principal based upon the performance of the stocks and could lose their entire investment. Further, the notes were callable and could be cancelled by the sponsor.
These products are very high risk and low reward propositions because the investor can only profit at most by 12-12.75% over the course of one year. Even if Peloton or Zillow doubled in value all the investor could achieve would be the interest payment as their profit and none of the price appreciation. Meanwhile the maximum loss is 100% of the investment if the stocks fell severely. Accordingly, the investor takes dramatic downside risks associated with the volatile stocks while having no chance to participate in the success of the stock.
According to newsources, a study revealed that 7.3% of financial advisors had a customer complaint on their record when records from 2005 to 2015 were examined. Brokers must publicly disclose reportable events on their BrokerCheck reports that include customer complaints, IRS tax liens, judgments, investigations, terminations, and criminal cases.
Vora has been in the securities industry for more than 14 years. Vora has been registered as a Broker with Kalos Capital, Inc. since 2008.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.
