Securities Lawyers Blog
Previously financial advisor Cheryl Costa (Costa), previously employed by brokerage firm International Assets Advisory, LLC has been subject to at least one disclosable event. These events include one tax lien. According to a BrokerCheck reports most of the recent customer complaints concern either corporate debt securities or alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.
FINRA BrokerCheck shows a final customer complaint on August 07, 2023.
The Securities and Exchange Commission (‘Commission’) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (‘Securities Act’) and Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 (‘Advisers Act’) against CS Manager, LLC, Sica Wealth Management, LLC, Circle Squared Alternative Investments, LLC, Jeffrey C. Sica, and Cheryl Lynne Costa (‘Respondents’). \<char_lb_r>\, \<char_lb_r>\, The Commission finds that: From 2018 to 2020, Jeffrey Sica (‘Sica’) solicited twelve investors to invest a total of $1.65 million in securities offerings by CS Manager, LLC (‘CS Manager’), which Sica controlled. Sica provided investors with offering materials representing that investor funds would be used to conduct CS Manager’s business of acting as the managing member of companies that invest in real estate projects. \<char_lb_r>\, \<char_lb_r>\, CS Manager had no employees or office of its own, and to operate its business, it relied on the employees and other resources of Sica Wealth Management, LLC (‘Sica Wealth’) and Circle Squared Alternative Investments, LLC (‘Circle Squared’), two registered investment adviser firms (together, ‘the RIAs’) that Sica controlled and solely owned. Reflecting this, the CS Manager offering materials disclosed that investor funds could be used to reimburse the RIAs or Sica for expenses they incurred that were related to the business of CS Manager, or to pay the RIAs or Sica for services they provided to CS Manager. \<char_lb_r>\, \<char_lb_r>\, Sica used some investor funds in ways that were not disclosed in the offering materials. At Sica’s direction, approximately $1.2 million in investor funds was transferred to the RIAs. The investor funds were then commingled with other funds of the RIAs, which used the commingled funds to pay their employees and their other general operating expenses. Sica also directed the transfer of a total of $276,500 in investor funds to himself and his spouse and to pay Sica Wealth’s sanctions in a previous Commission proceeding. As these transfers occurred, the RIAs were providing support to CS Manager’s operations with their employees and other resources. Contrary to the offering materials, however, Sica did not contemporaneously tie the transfers to the actual cost of this support. In total, more than $375,000 in CS Manager investor funds was spent for undisclosed purposes. As a result of this conduct, Sica and CS Manager willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Sica Wealth and Circle Squared were each a cause of those violations. Sica and Sica Wealth willfully violated Section 206(2) of the Advisers Act, and Circle Squared and Costa were each a cause of those violations.\<char_lb_r>\, \<char_lb_r>\, Cheryl Costa (‘Costa’) was the Chief Operating Officer of both RIAs and their Chief Compliance Officer through October 2018. Costa distributed the CS Manager offering materials to some investors and processed investments. At Sica’s direction, Costa also executed the transfers of investor funds described above. Costa did not review the offering materials or take other steps to determine whether her transfers were consistent with representations to CS Manager investors about how their funds would be used. As a result of this conduct, Costa willfully violated Section 17(a)(3) of the Securities Act .
Products under DDPs include non-traded REITs, oil and gas offerings, equipment leasing investments, and a range of other alternative financial instruments. Investors almost never benefit from these alternative investments, which are typically inappropriate due to their steep fees and costs. To push these subpar investments, brokers are given additional commissions, leading to perverse incentives that manipulate the market.
Several studies have confirmed that Non-traded REITs underperform publicly traded REITs with some showing that Non-Traded REITs cannot even beat safe benchmarks, like U.S. treasury bonds. Those selling these products must disclose to investors that non-traded REITs yield lower returns than treasuries and carry significant risk and illiquidity—yet they almost never comply. Because investors are not compensated with additional return in exchange for higher risk and illiquidity, these kinds of alternative investment products are rarely, if ever, appropriate for investors.
Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client after conducting due diligence. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors. Appropriate due diligence would identify that an alternative investment’s high costs, illiquidity, and conflicts of interests that would make the investment not suitable for investors. Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
Unfortunately, these types of alternative investment products continue to popular among brokers due to their high commissions. In order to counter the perverse incentives to sell these flawed product many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs and BDCs. Many states impose these limitations because these investments do not benefit investors.
Costa has been in the securities industry for more than 18 years. Costa has been registered as a Broker with International Assets Advisory, LLC since 2016.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.
