Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers and advisers in FINRA, AAA, and JAMS arbitrations for over fifteen years. One of the biggest problems with resolving investor or consumer complaints is that people are forced to go through a mandatory arbitration process. While this system avoids having to go to court – and can be less expensive – it’s often patently unfair because of lack of diversity among arbitrators.

Another overwhelming issue is that mandatory arbitration, which is in nearly every brokerage and consumer dispute resolution agreement, takes away your right to sue a firm that’s wronged you. That often limits your ability to be made whole and collect damages. And who sits on arbitration panels may restrict your legal options even more.

A recent study by the American Association for Justice found three major, disturbing flaws in the private arbitration system:

Stoltmann Law Offices, P.C, a Chicago-based investor-rights law firm, has recovered millions of dollars for investors who were sold shares in non-traded Real Estate Investment Trusts (REITs). We have filed over one hundred claims in FINRA arbitration against the brokerage and investment firms responsible for soliciting investors to invest in these illiquid, speculative, and high-commissioned investments. Usually, a common scam is used to justify the sale of these awful investment products to their clients – they are “non-correlated” to the stock market. The ruse is, they are non-correlated because they are non-traded!  They do not trade daily and reset their net-asset-value/share price. So, non-traded REIT investors have no idea how much what they own is worth because the investment has only a very thin secondary auction market. If your financial advisor wants to sell you a non-traded REIT, ask these two questions. 1) My home is one of my largest assets, why do I need more real estate in my portfolio? and 2) Why can’t I invest in publicly-traded REITs?

Hospitality Investors Trust, formally of the scandal-ridden American Realty Capital, has cost investors likely hundreds of millions of dollars. Now that the entity is formally in bankruptcy, it means investors can expect little to no return of the money they invested in this poorly-run REIT.  If you were solicited by a financial advisor to invest in Hospitality Trust, you may have a viable claim to recover these losses through the FINRA Arbitration process. When brokers sell alternative investments like non-traded REITs, most of their firms require them to limit the total exposure of the client’s net worth in these products to a maximum of 30%, and sometimes less.  This is a red-flag right off the bat that these investments are speculative and potentially unsuitable.  Brokers have for decades weaseled around these limitations imposed by their compliance department by inflating net-worth numbers on client new account forms or alternative investment trade tickets. The higher the net worth listed on these forms, the more the brokers can sell to their clients.

Brokers sell non-traded REITs like Hospitality Trust because they offer very high commissions, usually between 8%-12%. It is extremely rare for an investor to buy a non-trader REIT unsolicited; non-traded REITs are sold, not bought, goes the saying.  Our firm has written extensively on the foibles of Non-Traded REITs even as this sector gains popularity once again with brokers.  Regulators like FINRA have warned about non-traded REITs for more than a decade.  Hospitality Trust investors are now likely facing a near total-loss of their investment given the bankruptcy filing and need consider their options for securing some recovery.

Stoltmann Law Offices, P.C. is a Chicago-based investment fraud and investor rights law firm that offers representation to victims of investment fraud nationwide. We have tried and won many cases against LPL Financial over the years and represented hundreds of investors who were victims of various types of investment fraud as a result of the misconduct of LPL financial advisors.

According to multiple reports, including a complaint filed by the Securities and Exchange Commission, for upwards of ten years, James K. Couture, while a registered representative for LPL Financial based in Boston, Massachusetts, stole upwards of $2.9 million from clients.  Couture pulled this off by convincing his clients to sell legitimate securities in their accounts and transfer the funds to an “investment” in a company owned and controlled by Couture called Legacy Financial.  Once Couture gained control of his clients’ money, he converted it and spent it for his own use. This is a classic scheme in the brokerage and advisory world known as “selling away”.  According to the SEC and the indictment filed by the U.S. Attorney for the District of Massachusetts, Couture kept the scam going by fabricating account statements for his clients that showed money being “reinvested” and also provided account reviews which disguised the fact that he was committed rote fraud.  When clients would request withdrawals, Couture would take money from Client A and pay it to Client B, which is the classic sign of a Ponzi scheme.

According to his FINRA BrokerCheck Report, Couture was registered as a licensed securities broker and advisor through LPL Financial from February 2009 through July 2020 out of offices in Worcester and Springfield, Massachusetts.  At that point, LPL fired him for cause based on the same misconduct that led to his indictment and the SEC complaint. A few months later, in October 2020, Couture accepted a permanent bar from the securities industry from FINRA when he knowingly failed to respond to a request for information from the regulator in connection with an investigation into his misconduct.

Chicago-based Stoltmann Law Offices has represented investors who have suffered losses as a result of their brokerage or investment accounts being infiltrated by hackers.  How safe are your retirement funds from hackers? With massive hacking activity and cybersecurity in the news every day, that’s an essential question to ask your financial advisor. Cybercriminals are trying to steal money and personal financial information 24-7.

Here’s a series of questions to ask: When financial advisors suspect that your retirement accounts are being hacked, have they reported this information to you? Even more importantly, have they reported it to federal authorities such as the FBI or Treasury Department? That’s not only the right thing to do, they are legally obligated to do so.

Of course, if an advisor or third party fails to report suspicious online activity to regulators, they may be breaking the law. The U.S. Securities and Exchange Commission (SEC), for example, recently imposed a $1.5 million fine and settled charges against GWFS Equities, an affiliate of Great West Life and Annuity Insurance Company, “for violating the federal securities laws governing the filing of Suspicious Activity Reports (SARs).”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who’ve recommended variable annuities. There’s little question that when broker-advisors peddle variable annuities to clients that in most cases it’s in the best interests of brokers, not customers.

Variable annuities, or “variables,” are complex investments that combine mutual funds within a “wrapper” of an insurance policy. Beneficiaries will be paid a death benefit when the holder of the annuity dies. In the interim, an investor’s capital is invested in an array of mutual funds that can invest in bonds and stocks.

When variable annuities are combined with other insurance policies, the broker’s pitch is that you can tap funds at any time. But the truth is that you’re paying onerous expenses in this set-up. Such arrangements can run afoul of securities regulations. When variable annuities are paired with a whole-life insurance policy, it could constitute an “unsuitable investment strategy,” according to FINRA, the main U.S. securities industry regulator. FINRA recently reached a $1.3 million settlement with a broker-dealer owned by Ohio National Financial Services (O.N. Equity Sales Company) for selling this package to clients.

Chicago-based Stoltmann Law Offices represents clients who’ve suffered losses as a result of unsuitable and speculative trading recommendations and strategies. If a broker recommends an awful securities trade – and you lose money – is the broker legally liable? Under rules that govern the conduct of securities brokers and financial advisors through FINRA, the prime U.S. securities regulator, if the trades they recommend are unsuitable, unauthorized, or a part of a larger scheme to defraud,  the answer is a resounding “yes”.

A UBS Financial Advisor who promoted to clients the idea of “short-selling” shares of Tesla (symbol TSLA) stock in 2019 and 2020, is accused of multiple violations in a FINRA complaint, according to AdvisorHub.com.

The broker, Andrew Burish, a 38-year industry veteran, recommended shorting Tesla stock, that is, making money on the stock price if it declines.  The problem is, during the relevant time period, Tesla stock price went through the roof  “triggering more than $23 million in losses for four couples—all members of an extended family—and another investor,” according to an arbitration claim filed with FINRA.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with financial advisors and brokerage firms who recommended questionable tax shelters. Broker-dealers frequently peddle investments that are loaded with false bonuses such as earning a return on an investment plus reaping a generous tax break. Yet often those write-offs garner the attention of the IRS and can trigger a stream of tax troubles.

Syndicated conservation easements were offered as a triple win. By donating your land for conservation purposes, you could take a generous federal tax write-off. Brokers selling these partnership deals promised that for every dollar you invested, you could reap up to $4 in charitable tax deductions. The investments were packaged and sold to thousands of investors. The IRS, however, didn’t approve these partnerships and took 1,400 investors and syndicators to court, claiming the operators shorted the U.S. Treasury of some $11 billion through illegal deductions based on inflated land appraisals. Some of the originators and marketers of the partnerships face jail time.

According to Bloomberg News, “two brothers who pleaded guilty to federal charges — Stein Agee, 42, and Corey Agee, 38 — said they prepared false tax returns for clients and that each received $1.7 million in commissions from 2013 to 2019. They arranged bogus deductions on syndicated land-conservation investments around Asheville, North Carolina, and near the coast in Georgia and the Carolinas, court records show. They each could face as much as five years in prison but would likely receive less time. That’s because they are cooperating with prosecutors in Charlotte investigating an accountant and developer named Jack Fisher, who organized at least 23 such deals across the U.S., people familiar with the probe said.”

Chicago-based Stoltmann Law Offices, P.C. offers contingency fee representation to investors nationwide who have been hit by the IRS for tax issues related to conservation or land easement investments sold by investment and financial advisors.  High-income investors are lured into investing in these products based on the promise of legal tax savings.  Through a complicated and circuitous waterfall, investors in conservation or land easements, can receive income tax breaks sometimes worth several times the amount of their actual investment. As the old adage goes, if it sounds too good to be true, it probably is.

A recent article by Investment News lifted the lid on three specific easements that resulted in an arbitration complaint by the investors, and includes an unsavory connection to motivational speaker Tony Robbins. The easements at issue in the investor complaint are:

  • GWM Capital Real Estate

Stoltmann Law Offices, P.C., a boutique Chicago-based law firm that offers representation nationwide to investors, has been fighting brokerage firms and investment firms for decades over variable annuities and insurance products.  Variable annuities, equity-indexed annuities, whole life insurance, variable life insurance, whatever they are called, and the names can get really complicated, these insurance products are designed to do two things.  First, they are designed to move money from your pocket to the insurance company.  Second, they are designed to pay handsome commissions to the salesmen who solicit clients to invest or purchase these annuity and insurance products.

Recently, FINRA, which is the regulatory body responsible for policing the brokerage/investment markets, fined O.N. Equity Sales Company, out of Cincinnati, Ohio, for failing to supervise and surveil the sale and switching of annuities and insurance policies by their clients.  FINRA penalized ON Equity $275,000 and ordered the firm to pay restitution to aggrieved investors in the amount of $1,001,146.86.  FINRA’s investigation found that O.N. Equity (ONESCO) failed to establish, maintain, and enforce a supervisory system reasonably designed to supervise the sale of variable annuities. Because of ONESCO’s failures, the firm failed to detect and deter sales practice abuses by Richard Wesselt. In a parallel action, Wesselt consented to a permanent bar from the securities industry as a result of his misconduct. According to the FINRA action, he violated FINRA Rule 2111 (suitability), in connection with the recommendation to 78 investors to purchase variable annuities, that were inconsistent with the customers’ investment profiles, risk tolerance, liquidity needs, and time horizon.  Using what he called his “Infinite Banking” strategy, he pursued investors to liquidate their retirement accounts, including 401(k)s or IRAs, and use the  proceeds to buy variable annuities, and then liquidate the variable annuities to build cash value in whole life insurance policies. Wesselt was ONESCO’s highest producer in 2016 – big surprise given his proclivity to sell high commission products like variable annuities and life insurance policies.

If a financial advisor ever recommends the liquidation of mutual funds or other securities in an IRA or 401(k) account in order to buy a variable annuity, stop what you are doing and start looking for a new financial advisor.  The main attraction to variable annuities has always been that the money grows tax-deferred like an IRA.  By investing IRA funds in a variable annuity, that benefit is irrelevant. Instead, what you are doing is agreeing to pay your broker a huge 5%+ up front commission and the insurance company 3%-4% of your money per year in various fees and charges.  Variable annuities also charge huge surrender fees for money withdrawn in the first several years, although some offer a 10% withdrawal without penalty. Lastly, the mutual fund options for variable annuity sub-accounts are greatly reduced versus what an investor can invest in through a traditional IRA.  Variable annuities are rarely suitable for any investor. Unless you check the following boxes, variable annuities are not for you: 1) you maximize your tax-deferred retirement savings every year, i.e., you are contributing the max amount to your 401Ks and IRAs; 2) You actually need life insurance; and 3) you are young enough that you don’t need the money invested in the annuity for at least ten years.  Few people check these boxes, and yet according to reports, there is almost $2 trillion dollars locked away in these products, with more than $35 billion in sales in 2020.

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