Securities Lawyers Blog

Behringer Harvard REIT Fund Investor Losses Continue to Mount

August 22, 2013 | by Staff Attorney

Investors continue to suffer substantial losses from recommended investments in the Behringer Harvard REIT Funds. The Behringer Harvard REIT Funds including the Behringer Harvard Mid-Term Value Enhancement I, Behringer Harvard Short-Term Opportunity Fund I, and the Behringer Harvard REIT I and II (Behringer REITs) have sometimes been sold to investors as safe, stable, income producing real estate investment trusts. While the Behringer REITs were initially sold to investors for $10 per share, currently some of these REITs trade as low as approximately $2.00 on the secondary market. Worse still, some of the funds no longer pay a dividend or investors receive only a fraction of what their advisor initially told their clients they could expect the investment to yield.

The Behringer REITs are speculative securities, non-traded, and offered only through a Regulation D private placement. Unlike traditional registered mutual funds or publicly traded REITs that have a published daily Net Asset Value (NAV) and trade on a national stock exchange, the Behringer REITs raised money through private placement offerings and are illiquid securities. In recent years, increased volatility in stocks has led to an increasing number of advisor recommendations to invest in non-traded REITs as a way to invest in a stable income producing investment. Some non-traded REITs have even claimed to offer stable returns while the real estate market has undergone extreme volatility. Brokers are often motivated to sell non-traded REITs to clients due to the large commissions that can be earned in the selling the Behringer REITs.

Investors are now bringing claims against the brokerage firms that sold them the Behringer REITs alleging that their advisor failed to disclose important risks of the REITs. Some common risks that customers have alleged were not disclosed include failing to explain that Behringer REITs may not be liquidated for up to 8 to 12 years or more, that the redemption policy can be eliminated at any time, and that investor returns may not come from funds generated through operations but can include a return of investor capital.

Adorean Boleancu Fined and Barred By FINRA On Fraud Charges

August 21, 2013 | by Staff Attorney

On March 6, 2013, Adorean Boleancu reached a settlement with the Financial Industry Regulatory Authority (FINRA) concerning allegations that he converted at least $650,000 from a customer. By agreeing to the FINRA settlement Boleancu does not admit or deny any of the findings made against him but accepts a bar from associating with any broker dealer and to pay restitution in the amount of $650,000.

The complaint alleges that Boleancu converted at least $650,000 from an elderly widow while he was working at Wells Fargo Advisors, LLC (Wells Fargo). Boleancu worked for Wells Fargo from February 1, 2008 until his termination on December 6, 2011.

Boleancu allegedly was able to convert the money from the investor by issuing checks in her name without her authorization and issuing those checks to others including his own girlfriend. The checks were drawn from the investor’s two home equity lines of credit that were opened shortly after Boleancu became her adviser. In an attempt to keep his activities hidden, Boleancu allegedly made unauthorized payments through the investor’s checking account to pay interest accrued on the outstanding balances. In the end it is estimated that Boleancu converted approximately $650,000.

James Glover Settles Charges with FINRA Accepting a Ban From the Securities Industry

August 21, 2013 | by Staff Attorney

James R. Glover reached a settlement with the Financial Industry Regulatory Authority (FINRA) resulting in a permanent bar from the securities industry. Glover failed to appear and participate in FINRA’s investigation of his securities activities.

The FINRA complaint alleges that while Glover was employed by Signator Investors, Inc. (Signator), Glover misappropriated customer funds and sold unregistered securities products in violation of the securities laws.

From 1998 through May 2012, Glover was associated with Signtor. During this time, it has been alleged that Glover sold interests in private placements, limited liability companies, and real estate related ventures. Glover’s CRD lists that Glover is also employed by GW Financial Group, Inc. In addition to FINRA’s sanctions against Glover, at least 25 customer complaints have been filed against Signator for the firm’s failure to supervise Glover’s business activities. Nearly all of the customer complaints accuse Glover of selling fraudulent real estate related securities and of mishandling the customer’s accounts.

The SEC Accused Blake Richards of Stealing $2 Million from Clients

August 20, 2013 | by Staff Attorney

Blake Richards (Richards), a former Georgia representative of LPL Financial (LPL), was charged by the Securities and Exchange Commission (SEC) with defrauding investors and misappropriating $2 million dollars from at least seven clients. According to the complaint filed by the SEC in the Northern District Court of Georgia, Richards directed clients to write checks from retirement accounts or from life insurance policy proceeds in the name of investment businesses he owned, such as “Blake Richards Investments” and “BMO Investments.” However, according to the SEC, his clients’ money was not used for legitimate investing purposes as Richards siphoned off millions for his own personal use.

Richards was a registered representative of LPL from 2009 through May 2013 out of his company, Lanier Wealth Management LLC. According to the SEC’s complaint, Richards used a variety of devices to deceive investors and gain their trust. For instance, Richards is alleged to have created fictitious statements on LPL letterhead in order to continue and conceal his scheme. Richards also gave investors business cards with false professional designations, such as “AAMS”, standing for Accredited Asset Management Specialist, when Richards was not accredited. Finally, Richards even delivered pain medication during a snowstorm to one client’s husband who had been diagnosed with terminal pancreatic cancer in order to gain the client’s trust.

The SEC complaint seeks an order to disgorge Richard’s ill-gotten gains and to free his assets pending further investigation.

Berthel Fisher Sued Over Failed Thompson National Properties 2008 Participating Notes Program

August 20, 2013 | by Staff Attorney

Investors have filed a class action complaint against Berthel Fisher & Co. Financial Services Inc. (Berthel Fisher) and CEO and founder Thomas Berthel for allegedly failing to perform due diligence on the Thompson National Properties (TNP) 2008 Participating Notes Program. TNP 2008 is a non-traded Real Estate Investment Trust (REIT) created by Anthony Thompson in 2008.

Unlike traded REITs, non-traded REITs do not trade on a securities exchange, are illiquid for eight years or more, have high broker commissions and fees, and are exposed to greater risks. In recent years, increased volatility in stock markets led many brokers to recommend REITs to investors as a way to invest in a stable income producing investment. Some non-traded REITs have claimed to offer stable returns while the real estate market has undergone extreme volatility. Both the Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC) have recently noted that REITs may not be as safe and stable as sometimes claimed. In a Investor Alert, FINRA noted that a common sales tactic of brokers is to sell non-traded REITs claiming that they are able to eliminate volatility. However, since the REITs often determines the value of their own assets, investors may simply not be informed about the declining value of their investment.

The complaint against Berthel Fisher was filed on July 8, 2013 in the U.S. District Court in the Northern District of Iowa. Berthel Fisher was TNP 2008’s underwriter and managing broker-dealer. Berthel Fisher has been being accused of simply ignoring and failing to investigate red flags that pointed to misrepresentations and omissions. In addition, the complaint also alleges that Berthel Fisher’s TNP 2008 due diligence failures allowed the fund to act like a Ponzi scheme by paying old investors through funds raised by new investors. According to the complaint, Berthel Fisher managed to raise more than $26 million from 200 investors. However, the complaint alleges that Berthel Fisher provided many investors with outdated offering materials that misled investors and hid the catastrophic losses TNP had already suffered while soliciting new investor capital.

Oppenheimer Fined $ 1.4 Million by FINRA For Alleged Improper Sale of Penny Stocks

August 19, 2013 | by Staff Attorney

On May 6, 2013 the Financial Industry Regulatory Authority (FINRA) filed a complaint against Oppenheimer & Co. (Oppenheimer) for the sale of unregistered penny stock shares and for not having an adequate anti-money laundering (AML) compliance program to detect suspicious penny stock transactions.

On July 9, 2013 and August 5, 2013, Oppenheimer settled with FINRA agreeing to the sanctions and paying a fee of $1.4 million to resolve the charges brought in the complaint. In agreeing to the settlement Oppenheimer neither admits nor denies any of the allegations made against the firm.

The alleged penny stock sales took place from August 19, 2008, through September 20, 2010. According to the settlement, the stocks were sold through seven brokers out of five different branch offices around the country. These seven brokers reportedly sold over one billion shares of twenty penny stocks without registration or any applicable exemption from registration. Customers are said to have deposited “large blocks” of penny stock shortly after opening the accounts, then liquidated the accounts and transferred the proceeds out.

SEC Sanctions Colorado-Based Portfolio Manager for Forging Documents and Misleading Chief Compliance Officer

August 19, 2013 | by Staff Attorney

August 27, 2013 – The Securities and Exchange Commission sanctioned a former portfolio manager at a Boulder, Colo.-based investment adviser for forging documents and misleading the firm’s chief compliance officer to conceal his failure to report personal trades.

An SEC investigation found that Carl Johns of Louisville, Colo., failed to pre-clear or report several hundred securities trades in his personal accounts as required under the federal securities laws and the code of ethics at Boulder Investment Advisers (BIA). Johns concealed the trades in quarterly and annual trading reports that he submitted to BIA by altering brokerage statements and other documents that he attached to those reports. Johns later tried to conceal his misconduct by creating false documents that purported to be pre-trade approvals, and misled the firm’s chief compliance officer in her investigation into his improper trading.

To settle the SEC’s charges – which are the agency’s first under Rule 38a-1(c) of the Investment Company Act for misleading and obstructing a chief compliance officer (CCO) – Johns agreed to pay more than $350,000 and be barred from the securities industry for at least five years.

Two JP Morgan Traders charged with Overvaluing Investments

August 15, 2013 | by Staff Attorney

On August 14, 2013, the Securities & Exchange Commission issued a press release explaining that it had charged two JPMorgan traders with attempting to conceal investor losses by overvaluing the investments in a portfolio that they managed. The traders were Javier MarBecause of the overvalued investments, JPMorgan’s first quarter income before income tax expense was overstated by $660 million because of the alleged misconduct.

From the SEC:

The SEC alleges that Javier Martin-Artajo and Julien Grout were required to mark the portfolio’s investments at fair value in accordance with U.S. generally accepted accounting principles and JPMorgan’s internal accounting policy. But when the portfolio began experiencing mounting losses in early 2012, Martin-Artajo and Grout schemed to deliberately mismark hundreds of positions by maximizing their value instead of marking them at the mid-market prices that would reveal the losses. Their mismarking scheme caused JPMorgan’s reported first quarter income before income tax expense to be overstated by $660 million…

Morgan Stanley pays fines to State Regulators over Exchange Traded Funds (ETFs)

July 30, 2013 | by Staff Attorney

The New Jersey Bureau of Securities alleged that Morgan Stanley violated state securities laws and regulations in connection with the sale of non-traditional Exchange Traded Funds (ETFs), including leveraged ETFs and inverse leveraged ETFs.

Non-traditional ETFs use derivatives and debt to magnify market returns. There are several types of non-traditional ETFs. Leveraged ETFs are designed to deliver two or three times the performance of the index or benchmark they track. Inverse-leveraged ETFs are designed to deliver multiples of the opposite of the performance of the index or benchmark they track. These non-traditional ETFs can present a significant amount of risk that the general public may not realize.

In 2009 the Financial Investment Regulatory Authority (FINRA) released Notice 09-31 drawing attention to the “highly complex” nature of the ETF, while also reminding firms of their sales practice obligations in connection with leveraged and inverse ETFs. In a statement, Abbe R. Tiger, Chief of the New Jersey Bureau of Securities, said investigators “found that Morgan Stanley’s staff lacked proper training about non-traditional ETFs, and that the company failed to adequately supervise its personnel handling ETF transactions, to the detriment of investors.” As part of its settlement with the Bureau, Morgan Stanley was ordered to pay $100,000 in penalties and costs. Morgan Stanley has also already paid restitution to some investors.

Sunset Financial Services, Inc. Fined by FINRA Regarding Private Placement Sales

July 13, 2013 | by Staff Attorney

On July 12, 2013, Sunset Financial Services, Inc. (Sunset) reached a settlement with the Financial Industry Regulatory Authority (FINRA) concerning allegations that Sunset failed to supervise the sale of certain private placement securities. FINRA accused Sunset of failing to establish and maintain appropriate supervisory systems in compliance with FINRA rules regarding the sale of private placements.

The FINRA complaint alleges that the improper activity took place between January 2008 and March 2011. Sunset began private placement investment sales in 2001 and in 2004 the fund at issue was approved for sale to customers by Sunset. The private placement provided bridge loans for short-term mortgages for properties in California and Arizona. Sunset was paid 2% of sales plus trail concessions from the fund. In 2008, Sunset made $1.14 million form the total $57 million raised for the private placement.

According to FINRA, the first red flag indicating that the private placements were not as safe as the firm was advertising to customers occurred in 2008. At that time, a third party published a report on that highlighted that the mortgages the fund invested in had experienced a 20% increase in the rate of default. Sunset failed to follow up on the report such as re-evaluating the adequacy of keeping the fund on an approved sales list. The second red flag occurred from 2008-2009 when the private placement no longer allowed fund redemptions due to financial difficulties. It was also later discovered that the CEO of the private placement was also the son of a registered representative of Sunset.