Securities Lawyers Blog
The law offices of Gana Weinstein LLP recently filed a complaint against H. Beck, Inc., on behalf of a client accusing the investment advisory firm of making unsuitable recommendations and failing to properly supervise one of its representatives.
The Claimant in this case is a retired sixty-three year old from Hawaii, who sought to safely invest what was left of his retirement funds, after being hit hard in the down market of 2008. H. Beck, through one of its advisers, offered him high, risk-free returns, which the Hawaii native readily accepted. H. Beck, through one of its advisers, took nearly two-thirds of Claimant’s retirement savings and put them into the Inland American Real Estate Investment Trust (Inland) and the Lease Equipment Finance Fund 4 (LEAF).
LEAF is a limited partnership. Limited Partnerships are investment vehicles formed to acquire, operate, and sell assets for the benefit of the partners. Investors in Limited Partnerships, also known as limited partners, are entitled to receive distributions of operating cash flow as well as distributions from the sale or financing of assets as outlined in the partnership’s limited partnership agreement. Unlike stocks and bonds, Limited Partnerships are not listed on an exchange. They are illiquid assets with a relatively limited secondary market. Consequently, reliable pricing information is typically very difficult to obtain.
Inland is a non-traded Real Estate Investment Trust (REIT). Non-traded REITS are pools of capital from numerous investors, used to purchase a portfolio of commercial real estate properties. Non-traded REITS, as opposed to exchange-traded REITS, are highly illiquid investments that are not registered for trading on any exchange and only periodically valued.
The Complaint alleges that H. Beck, through its representative, failed to disclose some of the notable product features as only understood by those within the industry. Alternative investments such as Limited Partnerships and non-traded REITS (1) are generally illiquid with redemption policies that force the investor to incur substantial charges, subject to change at any time; (2) are more costly to purchase than traditional exchange-traded products due to excessive commissions and administrative costs; (3) are volatile, yet only periodically valued creating an air of uncertainty; (4) are long term investments requiring at least five years for the investment to materialize; and (5) they depend upon the legitimate operation and accounting of an underlying business, with issuers often suffering from substantial conflicts of interest
At its origination, LEAF was paying distributions at an 8.5% rate, which, as the Complaint alleges, H. Beck used to lure in the Claimant. Just a few years later, however, LEAF is paying a mere 3% and has sent a letter to its investors explaining that they will be winding down, effectively reducing any chance for investors to recoup their principal investment.
The Complaint alleges that in putting the Claimant into LEAF, a Limited Partnership, H. Beck disregarded the investor’s risk tolerance and investment profile. When the investment adviser placed the Claimant’s money into an entirely unsuitable investment., he violated FINRA Rule 2111. The Complaint goes on to allege that H. Beck was or should have been aware of the risks inherent to the LEAF investment, and that the investment was inapposite given Claimant’s circumstances.
The attorneys at Gana Weinstein LLP are experienced in handling cases where investors have been improperly sold alternative investment products, such as non-traded REITS and Limited Partnerships. Our consultations are free of charge and the firm is only compensated if you recover.