Securities Lawyers Blog
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.
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.
The investment fraud attorneys at Gana Weinstein LLP represent investors who have suffered securities losses due to the mishandling of their accounts. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.