Securities Lawyers Blog

Oil and Gas Private Placement Losses: Investigation of Reef Oil and Gas Companies

December 21, 2015 | by Staff Attorney

Reef Oil and Gas Companies located in Richardson, Texas, is a sponsor of oil and gas private placements and investments. The investment attorneys at Gana Weinstein LLP continue to report on investor losses in oil and gas related investments, like Reef Oil and Gas.

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.

If investments in oil and gas private placements rarely succeed during oil booms, then they will certainly fail under current market conditions. According to Bloomberg, many oil companies are in trouble as U.S. high-yield debt issued to junk-rated energy companies grew four-fold to $208 billion. Most of these companies are now struggling to stay afloat with oil prices at $45. Many of these companies relied upon high energy prices in order to sustain their operations. As reported by the Wall Street Journal the drop in oil and energy prices and the industry downturn has made it difficult for many companies to refinance their debts.

Non-Traded Business Development Companies (BDCs) About to Get Even Riskier?

December 17, 2015 | by Staff Attorney

As one of the largest non-traded real estate investment trust (Non-Traded REIT) company, AR Capital, closes shop on new offerings, a growing non-traded product lines up to take retail investor’s money. Enter the non-traded business development company (BDCs). BDCs have been a growing asset class that markets itself to investors as a non-stock market, non-real estate, high yield alternative investment. However, BDCs appear to be just as speculative, suffer from high commissions and fees, and are inappropriate for most investors just like Non-Traded REITs. Indeed, according to a Wealth Management Article front-end load fees on Non-Traded BDCs are typically around 11.5 to 12 percent. In addition, BDCs also usually have an incentive compensation following the “two and twenty” rule where the fund charges two percent of assets in management fees and 20% of capital gains based upon performance.

As we have reported in the past, BDCs make loans to and invest in small to mid-size, developing, or financially troubled companies either broadly or in a particular sector, such as oil and gas. BDCs have stepped into a role that many commercial banks left during the financial crisis due to capital raising requirements. In sum, BDCs lend to companies that may not otherwise get financing from traditional sources. Non-Traded BDCs offer investors similar risks as Non-Traded REITs including higher fees, less liquidity, and less corporate transparency. The major difference is that Non-Traded BDCs are regulated under the 1940 Act that governs mutual funds and that a BDC is valued quarterly.

The largest player in this space is Franklin Square Capital Partners which manages multiple Non-Traded BDC funds including the FS Investment Corporation (FSIC) FS Investment Corporation II (FSIC II), FS Investment Corporation III (FSIC III), FS Investment Corporation IV (FSIC IV), FS Energy and Power Fund (FSEP), and FS Global Credit Opportunities. Franklin Square’s BDC assets were approximately $14.5 billion under management as of March 31, 2015. Other firms seeking to capitalize on the BDC wave including CNL Securities’ Corporate Capital Trust, ICON Investment’s CĪON Investment Corporation fund (CĪON); and American Realty Capital’s Business Development Corporation of America II.

FINRA Sanctions Morgan Stanley Broker Clarence Mark Tingle Over Unauthorized Trades

December 17, 2015 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints against broker Clarence Mark Tingle (Tingle). In addition, The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2014042951501) against Tingle. There are at least 2 customer complaints against Tingle and 1 regulatory action. The customer complaints against Tingle allege a number of securities law violations including that the broker made unauthorized trading, excessively traded accounts, and failed to follow instructions among other claims.

The most recent customer complaint was filed in October 2014 and alleges excessive trading from September 2011 through July 2014 causing $40,954 in damages.

In a FINRA regulatory action against Tingle, the agency alleged that between August 2009 and June 2014, Tingle at times exercised discretion in the accounts of six customers without first obtaining the customers’ written authorization. Although the customers orally authorized the use of discretion Tingle failed to obtain their written authorization in violation of industry rules.

Broker Investigation: VSR Financial Services Advisor Robert Bragg

December 16, 2015 | by Staff Attorney

The investment lawyers of Gana Weinstein LLP are investigating customer complaints against broker Robert Bragg (Bragg). There are at least 4 customer complaints against Bragg. The customer complaints against Bragg allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, and breach of fiduciary duty among other claims. The claims appear to relate to allegations regard direct participation products and limited partnerships such as equipment leasing and non-traded real estate investment trusts (Non-Traded REITs). Our firm has written numerous times about investor losses in these types of programs such as equipment leasing programs like LEAF Equipment Leasing Income Funds I-IV and ICON Leasing Funds Eleven and Twelve. Investors are destined to lose money in these investments because the costs and fees associated with these investments make significant returns virtual impossibility. Yet for all of their costs investors are in no way compensated for the additional risks of these products.

The most recent complaint was filed in February 2015 and alleged unsuitable investments for investments made between 2005 though August 2013 causing $460,488 in damages. Another complaint filed in November 2014 alleged breach of fiduciary duty among other claims for investments made in October 2007 though September 2010 causing $322,432.

Bragg entered the securities industry in March 2004. Since March 2004, Bragg has been registered with VSR Financial Services, Inc. out of the firm’s Colorado Springs, Colorado office location.

Broker Investigation: VSR Financial Services Advisor Robert Hinz

December 16, 2015 | by Staff Attorney

The investment lawyers of Gana Weinstein LLP are investigating customer complaints against broker Robert Hinz Jr. (Hinz). There are at least 7 customer complaints against Hinz. The customer complaints against Hinz allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, breach of fiduciary duty, and unauthorized trading among other claims. One of the claims involves the purchase of oil and gas private placement Reef Oil & Gas Income and Development Fund III.

The most recent complaint was filed in February 2013 and alleged fraud and negligence from activities that occurred from July 2007 until December 2009 and resulted in $240,000 in damages. Another complaint filed in January 2012 alleged dissatisfied performance with respect to investments and asked for $34,680. The case was closed with no action.

Hinz entered the securities industry in January 1982. Since August 1994, Hinz has been registered with VSR Financial Services, Inc. out of the firm’s Seattle, Washington office location.

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 Investigates NMS Capital Advisors Broker Sperry Younger

December 14, 2015 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating The Financial Industry Regulatory Authority’s (FINRA) investigation into broker Sperry Younger (Younger). In addition, there are at least 2 customer complaints against Younger, 6 judgments or liens, one financial matter disclosed. FINRA’s investigation relates to possible violations of NASD Rule 3010 and FINRA Rules 2010. Rule 3010 is FINRA’s rule concerning the industry’s requirement to supervise the activities of brokers. The customer complaints against Younger allege a number of securities law violations including that the broker misappropriated funds and made forged documents among other claims.

According to the disclosures, Younger recently filed for Bankruptcy in August 2015. Prior to bankruptcy filing Younger had a number of tax liens against him including a lien filed on April 2014 $3,037, a civil judgment of $9,678 on January 25, 2013, a civil judgement of $20,001 on July 11, 2012, a civil judgement of $21,890 on April 30, 2012, a civil judgement of $2,667 on March 22, 2012, and a civil judgment of $7,595 on January 10, 2012. A broker with large liens are an important consideration for investors to weigh when dealing with a financial advisor. An advisor may be conflicted to offer high commission investments to customers in order to satisfy liens and debts that may not be in the client’s best interests.

Younger entered the securities industry in January 1996. From May 2006 until May 2010, Younger was associated with Charles Morgan Securities, Inc. From May 2010 until October 2012, Younger was associated with John Carris Investments LLC. Thereafter, from October 2012 until April 2014, Younger was a registered representative of NMS Capital Securities, LLC (NMS). From July 2014 until April 2015, Younger was associated with Rothschild Lieberman LLC. From July 2014 until June 2015, Younger was associated with J. Streicher Capital LLC. From June 2015 until August 2015, Younger was associated with Avenir Financial Group. Finally, since October 2015, Younger has been registered with NMS out of the firm’s New York, New York office location.

Gana LLP Investigation: Customer Complaints Against Howard Slater

December 13, 2015 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints against broker Howard Slater (Slater). In addition, The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2015046156301) against Slater. There are at least 18 customer complaints against Slater and 2 regulatory actions. The customer complaints against Slater allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, breach of fiduciary duty, and unauthorized trading among other claims.

The most recent customer complaint was filed in November 2013 and alleges unsuitable investments, fraud, and negligence concerning investments in alternative investments in real estate investments. The complaint seeks $90,000 in damages. In another complaint filed in July 2013, a customer complained that Slater misinformed her regarding the risks of three non-traded real estate investment trusts (Non-Traded REITs).

In a FINRA regulatory action against Slater, the agency alleged that in February 2008 and August 2008, Slater sent emails to two customers in connection with their purchases of IMH Secured Loan Fund, LLC (IMH Fund) that contained misrepresentations regarding the features of the IMH Fund. In addition, according to FINRA, in March 2008, Slater sent an email to a customer that contained exaggerated and misleading statements about the safety of the IMH Fund. Finally, FINRA found that in April 2008, Slater caused an SAI customer’s account records to reflect false annual income and net worth information that caused the business records maintained by his firm to be inaccurate.

Broker Investigation: Customer Complaints Against Jeremy Monte

December 10, 2015 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints against Jeremy Monte (Monte). According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Monte has been the subject of at least 3 customer complaints and 3 judgment or liens. The customer complaints against Monte allege a number of securities law violations including that the broker made unsuitable investments among other claims.

The most recent customer complaint was filed in April 2015 and alleges unsuitable investments in non-traded real estate investment trusts (Non-Traded REITs) and variable annuities by charging advisory fees on these investments in addition to commissions. Another complaint filed in February 2013 alleges unsuitable recommendations from 2005 through 2009 leading to $61,000 in damages.

Monte also has three liens listed. In March 2013, a tax lien of $83,199 was filed. In May 2012, a tax lien of $13,999 was filed. Finally, in April 2010, a tax lien of $24,394 was filed against the broker. A broker with large liens are an important consideration for investors to weigh when dealing with a financial advisor. An advisor may be conflicted to offer high commission investments to customers in order to satisfy liens and debts that may not be in the client’s best interests.

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.