investment lawyer

FINRA Bars Gary Chackman Over Allegations of Unsuitable Non-Traded REIT Sales

March 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) imposed a permanent bar against Gary J. Chackman (Chackman) concerning allegations that he recommended unsuitable transactions in the accounts of at least eight LPL Financial, Inc. (LPL) customers by over-concentrating the customers’ assets in real estate investment trusts (REITs). Additionally, FINRA found that Chackman falsified LPL documents to evade the firm’s supervision by submitting dozens of “alternative investment purchase” forms that misrepresented customers’ liquid net worth. FINRA found that by submitting falsified documents Chackman increased his customers’ accounts’ concentration in REITs and other alternative investments beyond the firm’s maximum allocation limits.

From December 2001, through March 2012, Chackman was registered through LPL. On March 2012, LPL filed a Uniform Termination Notice for (Form U5) stating that Chackman was terminated for violating firm policies and procedures regarding the sale of alternative investments. From March 2, 2012 through April 3, 2013, Chackman was registered through Summit Brokerage Services, Inc. (Summit). In April 2013, Summit filed a Form U5 terminating Chackman stating that the broker was operating a business out of an unregistered location. According to Chackman’s BrokerCheck there have been at least five customer complaints filed against the broker. Many of the complaints involve allegations of unsuitable REITs

According to FINRA, from July 2009 to February 2012, Chackman recommended REITs and other alternative investments to at least eight of his LPL customers. FINRA found that Chackman purchased the REITs at periodic intervals in each of their accounts. For example, in one customer’s account Chackman made seven purchases of a particular REIT, each for $75,000 over six months. After twelve months, FINRA found that 35% of the customer’s assets and more than 25% of her liquid net worth were invested in REITs and other alternative investments. In order to evade LPL’s limitation on the concentration of alternative investments in customers’ accounts, FINRA found that Chackman misidentified his customers’ purported liquid net worth on LPL forms. FINRA found that over sixteen months and on seventeen alternative investment purchase forms Chackman tripled the customer’s purported liquid net worth.

Will I Win My FINRA Securities Arbitration Claim?

February 19, 2014 | by Staff Attorney

One of the most common questions I receive as a FINRA securities attorney is whether or not a client is likely to prevail at a FINRA arbitration hearing. My first gut reaction, and the one I tell clients, is honestly I just don’t know. Most clients are puzzled by this answer because after handling hundreds of arbitration claims one would think I would have a better sense and certainty as to the strength of the case. However, the answer to whether the client would win at arbitration is not just a function of the strength of the case.

The better way to phrase the question is: What is the likely outcome of my securities case? That question is more readily answerable. I tell clients that it has been our experience that approximately 80% of all cases filed will be resolved through settlement or other means sometime prior to hearing. Recent data released by FINRA supports that approximately 80% of cases never make it to hearing. According to FINRA, of all arbitrations decided between 2009 and 2013 between 75% and 79% of those claims are resolved either through settlement, withdrawn, or means other than a hearing.

But what of the 20% of cases that do go to hearing? What are the chances of success at the FINRA arbitration hearing? The answer to that question is again usually unknowable at the time it’s first asked. There are so many considerations that go into determining the likelihood of success, many of which are unknown at the outset. Once of the biggest unknowns at the outset is who the arbitrators will be.

SEC Staff Issues Risk Alert on Alternative Investments Due Diligence

February 15, 2014 | by Staff Attorney

The Office of Compliance Inspections and Examinations (OCIE), in coordination with other Securities and Exchange Commission (SEC) staff released guidance and observations concerning investment advisers due diligence process for selecting alternative investments. The OCIE has observed that investment advisers are increasingly recommending alternative investments to their clients in lieu of other investment options. Investment advisers are fiduciaries and must act in their clients’ best interests. Since an investment adviser exercises discretion to purchase alternative investments on behalf of clients the adviser must determine whether the investments: (i) meet the clients’ investment objectives; and (ii) are consistent with the investment principles and strategies that were disclosed to the client by the manager to the adviser.

Alternative investments include a variety of non-traditional investments including hedge funds, private equity, venture capital, real estate, and funds of private funds. The commonality amongst alternative investments is that they employ unique investment strategies and assets that are not necessarily correlated to traditional stock and bond indexes.

The OCIE staff examined the due diligence process processes of advisers to pension plans and funds of private funds in order to evaluate how advisers performed due diligence, identify, disclose, and mitigate conflicts of interest, and evaluate complex investment strategies and fund structures. The OCIE noted indicators that led advisers to conduct additional due diligence analysis, request the manager to make appropriate changes, or to reject the manager or the alternative investment.