It has taken longer than most practitioners expected, but finally, a securities regulator has formally filed a complaint against GPB Capital and its myriad private placement funds.  Stoltmann Law Offices has been representing GPB Fund investors since January 2019 and filed dozens of cases against a laundry-list of brokerage firms that sold these speculative, conflict-laden disasters to their clients. Those brokerage firms we have filed cases against include National Securities, Madison Avenue, Kalos Capital, Newbridge Securities, Ausdal Financial, D.A. Noyes, and others. Every client’s case is unique, but fundamentally, each one of our GPB cases begin with the brokerage firm’s duties and obligations to perform due diligence on private placements prior to offering these opaque, complicated, unregulated, and speculative investments. This obligation is rooted in FINRA RN-10-22 and several other notices. Stoltmann Law Offices has written extensively on this blog about GPB and its numerous issues.

The regulatory complaint filed by Secretary Galvin of the Commonwealth of Massachusetts, alleges that GPB misrepresented material facts in connection with the offer of several of its funds. Galvin’s complaint details the gross conflicts of interest at play inside of and between these various GPB Funds. The Administrative Complaint alleges that GPB Capital Holdings, LLC violated MASS. GEN. LAWS ch. 110A, the Massachusetts Uniform Securities Act (the “Act”), and the regulations promulgated thereunder at 950 Mass. CODE REGS. 10.00 – 14.413 (the “Regulations”). The Enforcement Section also alleges that GPB Capital engaged in acts and practices in violation of Section 101 of the Act and Regulations. The Massachusetts action goes for the jugular, seeking ten forms of relief including rescission or all Massachusetts GPB investors, disgorgement of profits, civil penalties, and permanent bars from the securities and investment adviser industries.

Generally, the complaint alleges what those of us prosecuting FINRA cases for investors have known for some time. GPB began to pay investor distributions with new investor money beginning as early as 2017.  This created an accounting disaster and GPB cannot find an auditor worth its salt to perform and sign off on an audit. The complaint also confirms the exceptionally complex spider web of interrelated companies across the funds and holding companies, including hundreds of different bank accounts. Eventually, all road lead back to David Gentile, the founder. The Massachusetts complaint also confirms that GPB used the promise of high commissions payable to selling brokers, and lots of bold promises about 8% distributions and a profitable exist plan, to raise $1.5 billion from retail investors nationwide. Selling brokerage firms collectively earned close to 10% of that total raise, or $150,000,000 in commissions for selling these conflict-laden complicated funds.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous investment brokers selling municipal bonds.

Although municipal bonds are generally regarded as “safe,” that is, investors are, in most cases likely to be paid interest over the life of the bond, “muni” bonds don’t guarantee payments. The market has been under duress lately as the coronavirus pandemic has bruised government bodies by reducing tax revenues. If investors generally fear that they won’t be paid, then prices of these bonds fall.

Municipal bonds are debt securities usually issued by government entities to raise money for a wide range of projects from schools to airport expansions. Munis come in several varieties. Many “general obligation” bonds have interest payments, or coupons, that are not taxed while others are taxable. Like other bonds, their coupon yields are based on the amount of risk an investor takes in purchasing them. The higher the risk, the lower the bond’s credit rating – and the higher the interest payment. You’re usually compensated for taking on more risk.

Chicago-based Stoltmann Law Offices, P.C. is currently investigating claims on behalf of TCA Global Credit Fund and TCA Fund Management Group investors involving Royal Alliance advisor Mark Young, and Watts Capital, LLC and Thomas Watts. On May 11, 2020, the United States Securities and Exchange Commission (SEC) filed a civil suit in federal court in Miami, Florida against TCA Fund Management Group and TCA Global Credit Fund.

The SEC complaint seeks to prevent TCA Fund Management Group and the Global Credit Fund from committing ongoing securities law violations and also sought the appointment of a receiver. The SEC alleges that for many years, the TCA Global Credit Fund, through its affiliate TCA Fund Management, intentionally inflated the net-asset-value – or price – of the fund hiding massive losses from investors. The SEC alleges that TCA inflated these values in two ways.  First, the fund recognized revenues that it never actually received. It would essentially book a gain on loan fees prior to actually receiving them and if the loans never closed, TCA would not adjust their books to reflect reality. The second way TCA artificially inflated its books, according to the SEC, was to book investment banking fees it never actually earned, and actually knew in many instances that it would never earn. Basically, the way this scam worked, according to the SEC, is TCA would enter into a contract with a company to perform investment banking services for, let’s say, $100,000.  Instead of waiting to actually perform the services and receive the $100,000 payment, TCA would book the $100,000 as received on their books at the time the contract was executed. The result of these practices was to provide investors with inflated values of these funds. The SEC alleges that these practices violations Section 17(a) of the Securities Act of 1933, 15 U.S.C. Section 77q(a), and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78j(b), and Exchange Act Rule 10b-5, 17 C.F.R. Section 240.10b-5; and violations of Sections 206(1), (2), and (4), along with Section 2076 of the Investment Advisers Act of 1940, 15 U.S.C. Sections 80b-6(1), 80b-6(2), 80b6(4), and 80b-7, and Advisers Act Rules 206(4)-7 and 206(4)-8, 17 C.F.R. Sections 275.206(4)-7, 275.206(4)-8.

According to documents field with the SEC for TCA funds, called a Form D, TCA Fund Management Group used numerous FINRA-Registered broker/dealers to sell  investments in the TCA Global Credit Fund for many years including:

Chicago-based Stoltmann Law Offices  represents investors who’ve suffered losses from dealing with unscrupulous investment brokers. On April 28, 2020, the Financial Industry Regulatory Authority’s (FINRA) Department of Enforcement filed a complaint against an ex-Ameriprise representative, alleging he converted more than $42,000 of an elderly client’s funds for his own use. Sean Michael Refsnider, of Haddon Heights, New Jersey, was a representative at Ameriprise from 2012 until Aug. 20, 2019. The company stated he was fired after it concluded that his client’s funds were “misappropriated.” FINRA is the chief U.S. regulator of broker dealers.

According to the FINRA complaint, Refsnider allegedly “procured a check from `Customer A’ in the amount of $20,000 and then used the funds to pay his mortgage and other personal expenses.” Refsnider allegedly also had used a debit card linked to the client’s account to make purchases totaling about $17,317, in addition to $4,300 in cash withdrawals, the complaint said. Ameriprise said in a statement that it “quickly detected and stopped the activity, ensured the client was fully reimbursed, terminated the advisor and notified the proper authorities.”

In the past, Ameriprise has been cited by regulators for failure to protect customer assets. The U.S. Securities and Exchange Commission (SEC) fined Ameriprise $4.5 million in 2018 to settle charges “that it failed to safeguard retail investor assets from theft by its representatives.” According to the SEC’s order, five Ameriprise representatives “committed numerous fraudulent acts, including forging client documents, and stole more than $1 million in retail client funds over a four-year period.” The SEC also found that Ameriprise, a registered investment adviser and broker-dealer, “failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives.” The five Ameriprise representatives were based in Minnesota, Ohio, and Virginia, and three previously pled guilty to criminal charges. Each of the representatives was terminated by Ameriprise for misappropriating client funds and barred from selling securities by FINRA.

Chicago-based Stoltmann Law Offices, P.C. is a securities investor protection law firm offering representation nationwide to investors seeking to recover investment losses.  Our team is monitoring and reviewing information in connection with former LPL  financial advisor Donald Stephen Woods. According to published reports, Mr. Woods, of Louisville, Kentucky and currently registered with Thurston Springer Financial, intentionally manipulated and changed documents at LPL to qualify non-traded REIT sales that would have otherwise not been approved. LPL has certain limitations on how much of an investor’s declared liquid net worth can be concentrated in alternative investments, like non-Traded REITs.  Typically, LPL limits this exposure to 25% of liquid net worth, but can be lower for elderly investors and those with more conservative investment objectives. Brokers like Woods get around this limitation by inflating the client’s net worth numbers adjusting them upwards by a few hundred thousand dollars can be the difference between compliance approving the transaction and the broker getting paid his massive commission, and not approving it, leaving the broker to find something else to sell the client.

Ultimately, the responsibility for this sort of amateur chicanery engaged in by Mr. Woods falls on his firm. Stoltmann Law Offices has represented hundreds of investors in cases just like this. Almost always, there is an obvious disconnect or contradiction between the net worth numbers on the alternative investment forms, and the client’s new account forms. Compliance has a responsibility to ensure that brokers like Mr. Woods are not artificially inflating client net-worth numbers on these forms in order to qualify them for the investment. Most of the time all it would take is a simple phone call from compliance to the client to determine the accuracy of these numbers and reveal that the broker either forged the documents altogether, or advised the client to ignore the net worth numbers included on the form, to trust their adviser, and not worry about it.

Non-Traded REITs have been selling at rates not seen since before the financial crisis in 2008. There is one reason for this – commissions.  Non-Traded REITs like those offered by Northstar, Cottonwood, Highlands REIT, KBS Growth & Income REIT, Resource Innovation Office REIT, and InvenTrust Properties Corp., pay brokers like Mr. Woods and their firms like LPL commission rates that are many times higher than if they just sold clients publicly-traded, liquid REITs.  The SEC, FINRA, and NASAA all warn about issues related to these non-traded REITs.  Scholarly articles decry them as being poor investments long term compared to their publicly-traded cousins. Some of the issues about these non-traded REITs include:

Stoltmann Law Offices has brought arbitration claims against dozens of brokerage firms like Ameriprise Financial, Merrill Lynch, Morgan Stanley, Wells Fargo, and JP Morgan Securities involving the unsuitable recommendations for investors to invest in oil and gas related securities.  In 2014 and 2015, we represented dozens of investors against various firms involving Master Limited Partnerships, or MLPs, which are almost always related to the oil and gas industry.  Then, during a big drop in the price of oil, a lot of oil and gas companies went into bankruptcy, dragging a lot of investor money with them.  History is repeating itself.

The price of oil has completely tanked in the last month. Even before the COVID-19 pandemic, the price of oil was being pressured by a price war involving Saudi Arabia, Russia, and OPEC.  Combined with the broad-based ongoing market crash, oil and gas investments – which are inextricably linked to the price of oil – have suffered catastrophic losses.  There are some well-know names on this list:

Goldman Sachs MLP and Energy Renaissance Fund – GER: Year to Date has dropped from 4.37 to 0.68 per share

Chicago-based Stoltmann Law Offices has represented investors who suffered losses in alternative investments like BDCs for many years.  Market fissures like the one impacting the markets now expose alternative investments for the speculative and unstable investments they truly are. For years, Stoltmann Law Offices has prosecuted cases against brokerage firms and advisors for selling these high-commissioned and unsuitable products to their clients. We approach these cases like the product-liability claims they truly are. These alternative investments have dozens of iterations. Private placements or all colors, limited partnerships, oil and gas drilling interests and partnerships, real estate investment trusts (REITs), and Business Development Companies (BDCs).

A BDC is a closed-end company that raises money for private businesses. They are basically banks for small companies that have poor credit profiles. They take in investor money and then lend it out to a portfolio of privately held businesses. The companies to whom investor money is lended to are typically not on the high-end of credit quality scale and typically seek funding through a BDC because more conventional funding is not available. So, these BDCs are speculative, high risk investments dependent exclusively on the underlying debt portfolio to make timely payments.  BDCs can be publicly-traded, non-traded, or private placement securities called “private BDCs“.

According to a recent article by InvestmentNews, BDCs, led by the largest issuer of non-traded BDCs, Franklin Square, are getting crushed by the recent bear market. That makes sense if you understand the structure of these products. If the success or failure of an investment is dependent on otherwise uncreditworthy companies paying interest and principal on loans, then any disruption in the economy can be devastating to that investment. Similar to how non-traded REITs were wiped out after the real estate crash and financial crisis, BDCs will face a similar fate in the coming economic malaise brought on by COVID-19.

Stoltmann Law Offices, P.C. located in Chicago, Downers Grove, and Barrington, Illinois is investigating claims for Illinois businesses that have been shuttered or curtailed due to COVID-19 Coronavirus civil authority orders.  On Sunday, March 15, Governor J.B. Pritzker issued an executive proclamation ordering all Illinois bars and restaurants to close to in-dining customers. Although these companies can still stay open and cater to carry-out and delivery customers, there is no question many restaurants and bars will suffer potentially cataclysmic losses.  It is in situations like this, when paying all of those insurance premiums, could pay off.

Most businesses have some form of commercial property insurance coverage or some other policy that may cover losses attributable to business interruption due to civil authority orders.  These policies are usually riddled with exceptions and the language of each policy is the determining factor here. Insurance carriers will undoubtedly rely on various exclusionary language to deny claims outright.  However, depending on the language of your policy, your business could have a viable claim against the insurer for damages in connection with the closure of your business due to a civil authority order.  What Governor Pritzker and Mayor Lightfoot did on Sunday, effective immediately, to bars and restaurants across the state of Illinois and City of Chicago, constitutes civil authority orders.

It is situations like this current crisis where insurance companies should step up and pay the claims of those businesses that had civil authority order business interruption protection. However, insurance companies don’t get their names on all of those tall buildings downtown because they write checks readily. In order to impose the obligations of your insurance coverage on your insurance carrier, you will need a lawyer to file a formal demand and likely a lawsuit for a declaratory judgment. What this means is, the business owner, the insured, files a complaint in court against the insurance company, the insurer, seeking a declaration from the court that the losses at issue are covered by the terms of the insurance policy. This is not a quick fix, and could take considerable time especially in Cook County. But if you have business interruption protection, it would certainly be worth a shot.  It is definitely time to dig up all of those insurance policies and see what protections your business has been paying for.

Stoltmann Law Offices, P.C has represented SIM-Swap hacking victims and continues to investigate ongoing claims related to this sordid scam impacting many people.  A story reported by CNN last week went into detail about a specific victim in San Francisco. According to the story, Robert Ross had over $2 million stolen from him when his phone was hacked through a process called “SIM-Swapping” or “SIM-Jacking.” Like so many of these victims, Mr. Ross was a crypto-currency investor and those were the funds that were stolen from him.  Mr. Ross is suing his cellular provider, AT&T, for its role in enabling the fraudsters who stolen millions from him. The outcome of that lawsuit is far from certain. However, Stoltmann Law Offices continues to monitor updates on these SIM-Swapping scams and are fully engaged in prosecuting cases on behalf of victims against their cellular providers.

These cases are not highly technical or difficult to grasp once you understand some of the basics. First, its important to understand one bit of technical jargon.  What is a “SIM” card? A “SIM Card” is a memory chip contained inside a mobile phone which carries a unique identification number specific to the owner, stores the owner’s personal data, and disables the mobile phone if removed. SIM Swapping is a means of infiltrating someone’s cellular world by taking control of the user’s SIM Card and have it activated in a phone controlled by the scammer, without stealing the phone or breaking it open to actually remove the SIM card. Here, the infiltration is virtual and once the scammer has the customer’s SIM card activated in the phone in his possession, it can then be used to gain access to emails, brokerage accounts, bank accounts, and cryptocurrency virtual wallets.

The scheme is so incendiary because it takes advantage of two-step authentication – something we’ve all been told for years to have set up to PROTECT us from hackers.  Here’s how it works: The crook convinces AT&T (or Verizon, Sprint, or T-Mobile) that he is the account owner. The crook accomplishes this typically by making up a story why the phone number needs to be transferred to a new phone. In one case the imposter simply called AT&T Customer Service, told them he dropped his phone in a lake, and that he had a new phone that needed to be activated. Instead of determining whether the phone that was allegedly at the bottom of a lake was still active and in-use, the AT&T representative accepted the unverified representations of the imposter and activated the “new” phone in the hands of the scam artist. The customer’s actual phone was deactivated and by the time it was realized, the fraudster gained access to the customer’s email and then virtual wallet. The CNN story about what happened to Mr. Ross – noticing his cell phone had no service, or “zero bars” for no apparent reason – is the first indication your SIM has been compromised.

Chicago-based Stoltmann Law Offices has represented investors for fifteen years in arbitration cases against their  brokerage firms and investment advisory firms to recover investment losses.  In times like these, when the stock market heaves violently downward, it is retired investors and the elderly who fall victim to what was years of mismanagement and negligence.  There is an old saying: “Everyone is a genius in a bull market”.  In times like this, we are reminded of another quote from the incomparable Warren Buffett: “Only when the tide goes out do you discover who’s been swimming naked.”

For the better part of the last decade, investment and financial advisors have been piling client money into variable annuities, structured products, private placements, and stocks. The Bull Market run is over and accounts that became over-exposed to equities through either stocks, mutual funds, annuities, or structured products, are bearing the brunt of this undisciplined approach. Herd mentality has caused more money to flow into the stock market than ever before and a lot of that money belongs to retirees in their IRAs and retirement nest eggs. Failing to diversify and asset allocate a retiree’s account is at a minimum, negligent, and could qualify for a FINRA Arbitration claim.

Stoltmann Law Offices has filed nearly 2,000 arbitration cases for investors over the year, recovering tens of millions of dollars of otherwise lost investment capital.  Our experience in FINRA Arbitration is unmatched. Stoltmann Law Offices has prosecuted cases against banks and brokerage firms involving the failure to diversify and asset allocate, along with securities product cases. Now, the failure to asset allocate and diversify – the cornerstone of investment advice that is so easily overlooked – is costing investors, especially retirees, money they cannot afford to lose. Asset Allocation is the simple concept that investors should never have all of their eggs, or too many eggs, in one basket.  Investments must be split across different asset classes like stocks, bonds, mutual funds, Exchange-Traded Funds, municipal bonds, commodities like gold and silver, and cash. The higher your risk tolerance, the more skewed this balance gets towards the equities and stocks side of the ledger.  The more conservative, the less exposure you should have to stocks and equity-based mutual funds and ETFs.  The reality is, maintaining an appropriate asset allocation takes discipline. As your equity portfolio grows in a bull market, the more concentrated you become in that high risk sector. Money should be continuously taken off the table during a bull market and re-allocated to more conservative, income producing assets like bonds.

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