Securities Lawyers Blog
Currently financial advisor Timothy Evans (Evans), currently employed by brokerage firm IBN Financial Services, Inc. has been subject to at least 2 disclosable events. These events include one customer complaint, one tax lien. According to a BrokerCheck reports most of the recent customer complaints concern either corporate debt securities or alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.
FINRA BrokerCheck shows a final customer complaint on January 29, 2025.
Without admitting or denying the findings, Evans and his member firm consented to the sanctions and to the entry of findings that they failed to reasonably supervise a registered representative’s recommendations of alternative investments, including a non-traded real estate investment trust (REIT) to two retail customers. The findings stated that the firm and Evans failed to reasonably supervise the registered representative’s recommendations of speculative alternative investments to the retail customers where the sales were not suitable or in the best interests of the customers given the customers’ investment profiles. Evans was the representative’s direct business line supervisor and was responsible for reviewing for supervisory approval applications to purchase alternative investments submitted by the representative. In January 2019, the representative recommended five illiquid, non-traded alternative investments totaling $400,000 to the first customer. The firm and Evans approved the sales notwithstanding the presence of red flags suggesting that the sales were unsuitable. Specifically, the firm and Evans were aware from the application documents that the customer was 71 years old, retired, had a moderate risk tolerance, and had a net worth, not including primary residence, of $851,889. The firm and Evans nevertheless approved the five sales, which resulted in the customer having a 47% concentration in speculative alternative investments. Subsequently, the representative recommended 11 sales of illiquid, non-traded alternative investments totaling $457,000 to a second customer. This included $90,000 of the non-traded REIT. Again, the firm and Evans approved the sales notwithstanding the presence of red flags suggesting that the sales were not in the customer’s best interest. Specifically, IBN and Evans were aware from the application documents that the customer had an annual income of no more than $25,000, had a moderate risk tolerance, and had a net worth, not including primary residence, of $587,438. The firm and Evans nevertheless approved the sales, which resulted in the customer having a 77% concentration in speculative alternative investments, including 15% in the REIT. Despite red flags that the recommendations were unsuitable for, and not in the best interest of, respectively, the two customers, the firm and Evans did not conduct any further review or take any further steps before approving the transactions, such as evaluating whether the representative had good cause for the recommendations given the concentration levels at issue as required by the firm’s WSPs.
FINRA BrokerCheck shows a pending customer complaint with a damage request of $633,000.00 on May 24, 2024.
Failure to supervise the activities of RR during his period of association, March 2021 through June 2022.
Alternative investments like nontraded REITs, oil and gas offerings, and equipment leasing products are part of DDPs. Investors almost never benefit from these alternative investments, which are typically inappropriate because of their high fees and expense structure. By offering brokers extra commissions, firms incentivize the sale of poor-quality investments, ultimately leading to a manipulated market driven by artificial demand.
Several studies have confirmed that Non-traded REITs underperform publicly traded REITs with some showing that Non-Traded REITs cannot even beat safe benchmarks, like U.S. treasury bonds. It is the responsibility of brokers to inform investors that non-traded REITs deliver lower returns than treasuries and are both high risk and illiquid—but they frequently fail to do so. As investors do not gain extra returns to offset higher risk and illiquidity, these alternative investment products are almost never a good fit for them.
Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client after conducting due diligence. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors. Appropriate due diligence would identify that an alternative investment’s high costs, illiquidity, and conflicts of interests that would make the investment not suitable for investors. Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
Unfortunately, these types of alternative investment products continue to popular among brokers due to their high commissions. In order to counter the perverse incentives to sell these flawed product many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs and BDCs. Many states impose these limitations because these investments do not benefit investors.
Evans entered the securities industry in 2013. Evans has been registered as a Broker with IBN Financial Services, Inc. since 2013.
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.
