Private Placements

VFG Securities Broker Mark Trewitt Subject to Customer Complaints Over Non-Traded REITs and Private Placements

September 14, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Mark Trewitt (Trewitt). According to BrokerCheck records Trewitt has been subject to at least four customer complaints. The customer complaints against Trewitt allege securities law violations that including unsuitable investments and misrepresentations among other claims. Many of the complaints involve direct participation products (DPPs) and private placements including non-traded real estate investment trusts (REITs), and other alternative investments.

Our firm has represented many clients in these types of products. All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds. For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed. However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. Further, investor 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.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

Gana LLP Files Claim On Behalf of Vertical Recovery Fund Investor

May 24, 2016 | by Staff Attorney

The investment attorneys at Gana Weinstein LLP have recently filed a case on behalf of an investor in the Vertical Fund private placements. The investor purchased a Vertical Fund private placement through Financial West Group broker Jeffrey Gieseke. The Vertical Funds include Vertical Recovery Management, LLC, Vertical Mortgage Fund I, LLC, Vertical US Recovery Fund, LLC, and Vertical US Recovery Fund II, LLC. These funds were marketed to investors as as buying real estate notes at a discount that would pay income and then allow investors to profit through a future sale. However, in September 2015, these funds entered a bankruptcy alternative through a General Assignment for Benefit of Creditors under California law. Investors can expect to suffer substantial losses on their investment.

In addition, an action is pending against the accounting company for the Vertical Funds naming Haynie & Company of California Accountancy Corporation and Michael Zurovski as defendants for aiding and abetting the conversion of funds among other claims. According to the complaint, beginning at least as early as 2011, assets from Vertical Funds I and II were diverted to Vertical Fund Group and other entities. Assets were falsely titled “Acquisition Deposits” in the amounts of over $1.9 and $4.0 million respectively for the two funds. These accounts were titled in a way to suggest they were related to the acquisition of mortgages in the ordinary course of business but instead these amounts represented transfers to Vertical Fund Group seemingly for use in paying the costs of operation of the entirety of the Vertical Group. The complaint alleges that these payments were impermissible advances and were an improper use of funds under the terms of the offering documents and operating agreements and represent a breach of fiduciary duty on behalf of the fund manager.

Private placement offerings are among the most speculative and costly investment products offered to retail investors. While the size of the private placement market is unknown, according to 2008 estimates, companies issued approximately $609 billion of securities through Regulation D offerings. Private placements allow many small companies to efficiently raise capital. However, regulators continue to find significant problems in the due diligence and sales efforts of some brokerage firms when selling private placements to investors. These problems include fraud, misrepresentations and omissions in sales materials and offering documents, conflicts of interest, and suitability abuses.

Mewbourne Oil Company Oil and Gas Private Placements

March 24, 2016 | by Staff Attorney

The investment attorneys at Gana Weinstein LLP are investigating the potential unsuitable sales of securities sponsored by Mewbourne Oil Company (Mewbourne). Mewbourne claims on its website to have grown into one of the more prominent independent oil and natural gas producers in the Anadarko and Permian Basins of Texas, Oklahoma and New Mexico. The company sponsors several oil and gas private placements and investments including:

Mewbourne Energy Partners 11-A
Mewbourne Energy Partners 12-A

Vertical Funds Private Placements

March 23, 2016 | by Staff Attorney

The investment attorneys at Gana Weinstein LLP are investigating the potential unsuitable sales of securities in Vertical Funds private placements. The Vertical Funds include Vertical Recovery Management, LLC, Vertical Mortgage Fund I, LLC, Vertical US Recovery Fund, LLC, and Vertical US Recovery Fund II, LLC.

Some of the Vertical Funds were advertised as buying real estate notes at a discount and collect mortgage funds through borrower refinancing or a future sale. Upon information and belief at least one of these funds has entered the bankruptcy alternative of General Assignment for Benefit of Creditors under California law. This development is expected to wipe away the majority of investor capital.

Private placement offerings are among the most speculative and costly investment products offered to retail investors. While the size of the private placement market is unknown, according to 2008 estimates, companies issued approximately $609 billion of securities through Regulation D offerings. Private placements allow many small companies to efficiently raise capital. However, regulators continue to find significant problems in the due diligence and sales efforts of some brokerage firms when selling private placements to investors. These problems include fraud, misrepresentations and omissions in sales materials and offering documents, conflicts of interest, and suitability abuses.

Investment Investigation: Sales of Adageo Energy Private Placements

February 5, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating potential unsuitable investments and recommendations in a number of oil and gas related ventures including Adageo Energy. According to the company’s website Adageo Energy specializes in high-growth, high-return opportunities in the energy sector. The company’s focus includes the identification, acquisition, drilling, development, and operation of oil and gas properties. Adageo Energy is a sponsor of several oil and gas private placements.

One such issuance is Adageo Energy Partners, LP which according to SEC filings sought to raise $50 million and raised at least $31 million of that amount through brokerage firms including Direct Capital Securities, Inc., Madison Avenue Securities, Inc., WFP Securities, Inc., Arete Wealth Management, LLC, Newbridge Securities Corporation, Charter Pacific Securities, LLC, ePLANNING Securities, Inc., Sunset Financial Services, Inc., Jesup & Lamont Securities Corp., and Capital Guardian, LLC.

As reported in Reuters for issuers other than Adageo Energy, many of these types of private placement deals fail and investors take outsized risks compared to the scant compensation they are likely to receive. The issue with oil and gas private placements is two fold. First the much of the investor’s funds are eaten up by fees and costs and are never used for investment purposes. For instance and analysis of Atlas Energy LP found that the issuer typically charged between 15 percent and 20 percent in upfront fees from investors and paid brokers an additional 10 percent of the total offering in sales commissions. According to Reuters, investors only get to see 65-70% of their capital actually put to work on oil and gas projects.

Broker Harris Kirk Under FINRA Investigation

January 15, 2016 | by Staff Attorney

The investment lawyers of Gana Weinstein LLP are investigating customer complaints against broker Harris Kirk (Kirk). There are at least 3 customer complaints against Kirk. In addition, there is one employment separation disclosed and a FINRA investigation. Some of the customer complaints appear to be related to recommendation of oil and gas private placements and investments likely offered by Reef Oil and Gas Companies. The investment attorneys at Gana Weinstein LLP continue to report on investor losses and unsuitable investments in oil and gas related investments, like Reef Oil and Gas.

The employment termination from Reef Securities, Inc. (Reef) came in September 2013 after the firm alleged that Kirk engaged in actions inconsistent with the firm’s policies in that Kirk provided inaccurate information concerning his outside business activities. Thereafter, Kirk was employed by Chestnut Exploration Partners, Inc. until February 2015 at which time he was once again associated with Reef.

Investors often do not appreciate the risks when investing in oil and gas private placements. Even before the collapse of oil prices it was rare for investors to make money on oil deals. According to Reuters, of 34 deals Reef Oil and Gas has issued since 1996, only 12 have paid out more cash to investors than they initially contributed. Reuters also found that Reef sold an additional 31 smaller deals between 1996 and 2010 taking $146 million from investors and only paying out just $55 million.

Joseph Sturniolo Wipes Investor Complaints From Record Using FINRA’s Flawed Expungement Process

December 14, 2015 | by Staff Attorney

Recently, Joseph Sturniolo’s (Sturniolo) attorney reached out to our firm to inform us that our post on Sturniolo was inaccurate. The post detailed that Sturniolo had been subject to at least eight customer complaints and that the many of these complaints involved the recommendation of unsuitable and misrepresented recommendations concerning tenants-in-common (TICs).

The post also detailed how TICs have virtually disappeared as an investment option because they are almost always unsuitable. According to InvestmentNews “At the height of the TIC market in 2006, 71 sponsors raised $3.65 billion in equity from TICs and DSTs…TICs now are all but extinct because of the fallout from the credit crisis.” In fact, TICs recommendations have been a major contributor to bankrupting brokerage firms. For example, 43 of the 92 broker-dealers that sold TICs sponsored by DBSI Inc., a company whose executives were later charged with running a Ponzi scheme, a staggering 47% of firms that sold DBSI are no longer in business.

TIC investments entail significant risks. A TIC investor runs the risk of holding the property for a significant amount of time and that subsequent sales of the property may occur at a discount to the value of the real property interest. FINRA has also warned that the fees and expenses associated with TICs, including sponsor costs, can, and in our opinion, do outweigh the any potential tax benefits associated with a Section 1031 Exchange. That is, the TIC product itself may be a defective product because its costs outweigh any potential investment value or tax benefit offered to the customer.

Sturniolo’s attorney has brought it to our attention that Sturniolo has succeeded in using FINRA’s flawed expungement process system to remove five complaints from his BrokerCheck record. Sturniolo’s “award” does not even detail how much Sturniolo’s employer paid to settle all of the claims. As shown in Sturniolo’s expungement award Sturniolo’s sued his own employer, Geneos Wealth Management, Inc. (Geneos Wealth) for damages of $1.00 due to the placement on his record of five customer complaints. The “hearing” that took place appears to have been perfunctory at best. The hearing concerning five customer complaints was stretched out over a one year period of time in which the arbitrator participated in four hearing sessions on non-consecutive days. Usually there are two hearing sessions a day – meaning in this case the five cases were heard on four half-day hearings stretched out over the course of a full year. The total cost to Sturniolo by FINRA to expunge five customer complaints from his record was $250 – excluding any fees he privately paid his counsel.

FINRA Sanctions Braymen, Lambert and Noel Securities and Shannon Braymen Over Private Placement Supervisory Failures

December 9, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2011025610501) against brokerage firm Braymen, Lambert and Noel Securities, Ltd. (BLNS) and the firm’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Compliance Officer (CCO) Shannon Braymen (Braymen) resulting in a monetary sanction. FINRA’s allegations were that from April 2007 to November 2011 BLNS, acting through Braymen, failed to supervise its private placement securities business and the activities of brokers located in two offices. The firm was also accused of failing to register those two branch office locations. In addition, FINRA found that BLNS failed to conduct or to adequately document branch office inspections, and had inadequate supervisory systems and written supervisory procedures for non-branch office locations. Finally, FINRA found that BLNS and Braymen failed to capture and retain certain email correspondence.

BLNS is a member of FINRA and registered as a broker-dealer since March 2003, as a full-service broker-dealer. BLNS currently employs approximately 24 brokers and operates out of 4 branch offices. The firm conducts a securities business in corporate debt securities, over-the-counter equity securities, US government securities, mutual funds, options, private placements and variable contracts. BLNS is also authorized to underwrite corporate securities, proprietary trading and investment advisory services. Braymen entered the securities industry in February 1995. During Braymen’s career she has obtained various securities licenses and had supervisory responsibility for each of the supervisory areas complained of by FINRA.

FINRA’s findings highlighted supervisory deficiencies in a number of areas. One of FINRA’s findings was that BLNS and two brokers located in an unregistered branch office in San Antonio, Texas participated in nine private placement offerings. BLNS and Braymen were accused of failing to adequately supervise the firm’s participation in these nine offerings. FINRA found that the firm had no documentation of principal review and approval of any of the private placement documents, no documentation that a principal of the firm had conducted due diligence, and no documentation of principal review and approval of customer subscription documents. Review of subscription documents are required to determine the suitability of the investments for customers.

Broker Spotlight: Customer Complaints Against Advisor Kenneth Bolton

November 22, 2015 | by Staff Attorney

The attorneys at Gana Weinstein LLP are interested in speaking with investors of broker Kenneth Bolton. According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Kenneth Bolton (Bolton) has been the subject of at least 10 customer complaints, and 1 regulatory action, and one employment separation for cause. The customer complaints against Bolton allege securities law violations that including unsuitable investments, fraud, misrepresentations, failure to perform due diligence, violation of federal and state securities laws, and breach of fiduciary duty among other claims.

The most recent complaint was filed in January 2015, and alleged $413,000 in losses due to an unsuitable investment strategy. Another investor in May 2014, claimed $2,700,000 in damages. Some of the customer complaints appear to be in connection with in connection with the sales of tenants-in-common (TICs).

Bolton entered the securities industry in 1983. From March 1995, until August 2007, Bolton was associated with First Montauk Securities Corp. From August 2007, until December 2009, Bolton was associated with National Securities Corporation. Presently, Bolton is associated with Sandlapper Securities, LLC out of the firm’s Greenville, South Carolina branch office location.

Broker Investigation: Financial Advisor Salvatore Pizzimenti

November 3, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Salvatore Pizzimenti (Pizzimenti) has been the subject of at least 4 customer complaints. Customers have filed complaints against Pizzimenti alleging securities law violations including claims of churning and excessive trading, unsuitable investments, excessive commissions, unauthorized trading, breach of fiduciary duty, and fraud among other claims. In 2013, a customer complained that Pizzimenti churned their account causing $500,000 in damages. In August 2012, another customer also complained that Pizzimenti recommended a high risk private placement and also charged excessive fees causing $1,000,000 in damages.

Pizzimenti entered the securities industry in 2004. From January 2007, until January 2009, Pizzimenti was registered with Pointe Capital, Inc. From January 2009, until February 2010, Pizzimenti was associated with National Securities Corporation. From February 2010, until August 2011, Pizzimenti was a registered representative of J.P. Turner & Company, L.L.C. Since August 2011, Pizzimenti has been associated with Legend Securities, Inc. out of the firm’s New York, New York office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.