Articles Posted in COVID-19

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers who have failed to recognize their clients’ need for lower-risk portfolios. It’s no secret that the COVID pandemic has made the stock and bond markets more volatile. When the outbreak first hit markets, it triggered a massive sell-off in everything from blue chip stocks to municipal bonds.

Yet many broker-advisers failed to protect their clients, keeping them in high-risk portfolios that lost money. Even though they constantly make claims to the contrary, almost no advisor can time markets to fully protect investors. Few saw the pandemic coming, or the devastating impact it would have on the world economy.

After the stock market peaked on February 19, 2020, it dropped 34% in a month, hitting a bottom on March 23. But by June, the market had bounced back, surging 39%. Then, on Oct. 28, the Dow dropped more than 900 points as COVID cases again surged worldwide in a second, record-setting wave. Who could have predicted such stomach-churning volatility? Investors who were risk averse and needed to protect principal – and were overexposed to stocks – got burned the most.

2020 has been a difficult year for all. With the approval of the Pfizer and Moderna COVID-19 vaccinations, there is a mix of hope and fear across the country. Four out of ten people have stated that they will not get the vaccine, based on concerns over the safety of the COVID-19 vaccines. Most of the concerns stem from the fact that these mRNA vaccines were created and approved in less than one year, when it typically takes years to develop the vaccine, and test its safety, as reactions may occur months or years down the road. In fact, prior to the 2019 Novel Coronavirus (“COVID-19” or “2019-nCoV”) vaccine, the quickest turnaround for a vaccine was four-years for the mumps vaccine. With such a quick turnaround, (only eight months) there are concerns about adverse reactions, allergic reactions, and the long-term effects of the vaccines. Moreover, with mRNA vaccines being a new “vaccinology”, little is known about the long-term impact of these vaccines on our health.

As the Supreme Court of the United States recognized, vaccines are “unavoidably unsafe”, so many are curious to know, if you are injured, is there any recourse? The short answer is yes, but not against the vaccine manufacturers, administrators, or the FDA directly.

Vaccine manufacturers have been protected from liability for decades, dating back to 1986. Another layer of protection was added in 2005, when the Bush Administration signed into law the Public Readiness and Emergency Preparedness Act, which authorizes the Secretary of the Department of Health and Human Services (“HHS”) to declare that a vaccine manufacturer, along with others involved with the creation and distribution of the vaccine, are immune from liability for claims of loss or injury caused by the administration of the vaccine. This immunity is active for four years, but can be extended. The only exception to this immunity is if there is “willful misconduct” by the company. HHS Secretary Alex Azar invoked the PREP Act in February 2020 to protect COVID-19 manufacturers, distributors, developers, and administrators.

Chicago-based Stoltmann Law Offices continues to represent investors in claims to recover investment losses in connection with the COVID-19 pandemic.  The carnage wrought by COVID-19 on brick and mortar stores and retail shops has taken down two REITs:  The Pennsylvania Real Estate Investment Trust (PREIT) and the CBL & Associates Properties, Inc. (CBL) each filled for Chapter 11 Bankruptcy this week.  Facing catastrophic losses in connection with retail tenants unable to pay rents, the REITs didn’t seem to believe they had many other options available.  If you were an investor in CBL or PREIT, your shares are now worthless. If you were solicited to invest in CBL or PREIT by a financial or investment adviser, you could have a claim to pursue to recover your losses.

PREIT and CBL are publicly traded Real Estate Investment Trusts (REITs).  These REITs are listed on the New York Stock Exchange and trade on a fairly liquid basis. Any individual REIT maintains investments in any number of properties, from as few as two, to as many as twenty or more. REITs are concentrated real estate investments and should only play a small role in an investor’s otherwise well-managed, diversified portfolio of investments.  If your accounts have more than 10% invested in REITs, you should consider setting up an appointment with your financial advisor to discuss your broader asset allocation.

REITS, whether they are traded or the more speculative, illiquid non-traded REITs, may be unsuitable for most retail investors for another reason. Many retail investors have most of their net-worth concentrated in property already – their home – and do not need to have any additional exposure to complicated, potentially high risk investments like REITs.

Chicago-based Stoltmann Law Offices continues to represent investors who’ve suffered losses in connection with financial advisors who have oversold energy stocks and other energy-related investments. With the COVID-19 pandemic depressing demand for everything from gasoline to jet fuel, it’s been a mostly rotten year for energy stocks. In fact, when news first hit the markets in early March, stocks in many oil & gas companies and funds that invested in them crashed. At one time, the Energy Select SPDR (XLE), an exchange-traded fund that invests in energy companies, was down as much as 58%.

The net effect of tens of millions of Americans sheltering in place, avoiding travel and not commuting slashed demand for fuels. Only a handful of people were getting on jets, buses, ships, trains, or driving to work. That resulted in energy companies eliminating dividends and losing money.  While the economy has recovered somewhat as more states have re-opened in recent months, energy demand is nowhere near where it was at the beginning of 2020. The U.S. economy is now in a recession, which may continue into 2021.

What is important to realize about oil/gas prices is, the decline in energy demand actually began a few years ago – primary energy consumption dropped by half in 2019 alone — hasn’t stopped brokers from selling investments in oil & gas companies. They have sold stocks, limited partnerships, and mutual funds that concentrate in fossil fuels, which are volatile commodities and have a long history or volatility.

Stoltmann Law Offices, P.C, a Chicago-based securities law firm specializing in representing investors nationwide, continues to hear from investors who have suffered devastating losses in alternative investments.  One of the most common and popular alternative investments peddled by brokers over the last several years are “business development companies” or “BDCs”. The most common issuer of BDCs is a company called Franklin Square, and brokerage firms have pushed hundreds of millions of dollars in these speculative investments to unsuspecting investors for a decade.

FSKR, the publicly-traded BDC called FS KKR Capital Corp. (NYSE: FSKR), was created by the merger of four Franklin Square non-traded BDCs in December 2019:

  • FS Investment Corporation II (FSIC II)

Chicago-based Stoltmann Law Offices has represented hundreds of investors who have been victims of one of the most egregious investment frauds: Ponzi schemes. These swindles promise quick riches and rely upon an increasing number of “investors” to keep the operation going, sometimes over a period of years. The schemes eventually blow up when new investors can’t be found to perpetuate it or promoters are outed by investors or associates for faking returns.

The most famous Ponzi scheme – and perhaps one of the largest – involved broker-money manager Bernie Madoff. Over a period of 17 years, Madoff defrauded thousands of investors, lying about profitable trades. In 2009, he was sentenced to 150 years in prison, after pleading guilty to a $65 billion swindle of some 65,000 victims around the world. Many of Madoff’s victims, which ranged from non-profit organizations to celebrities, were financially ruined. A court-appointed “Madoff Victims Fund” has distributed nearly $3 billion to investors. His sons, who worked for their father’s firm, turned Madoff into authorities when they learned of the scam.

Despite the notoriety of the Madoff swindle, Ponzi schemes are still ensnaring innocent investors. As one of the oldest investment fraud vehicles around, the Ponzi scheme has two selling points: Promoters promise outrageous returns in a short period of time and rely upon continuing stream of new victims to “pay off” early investors in fake profits. This perennial false promise of easy riches makes it one of the most durable schemes for dishonest brokers, who continue to sell them — until the frauds collapse.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered investment losses at the hands of financial and investment advisers who churned and burned their accounts. One of the most prevalent abuses in the securities industry is excessive trading, or “churning” client accounts. This practice, which is forbidden by industry regulators like FINRA and the SEC, is done to generate commissions, almost always at the expense of the client. As the stock market swings wildly during the Covid-19 pandemic, brokers take advantage by trading their clients’ accounts to generate commissions.

Brokers can open the door to churning by asking customers if they want an “active” trading strategy, which gives brokers discretionary ability to trade at will. Unless clients give specific directions on how and when to trade, brokers may take the opportunity to trade excessively and charge needlessly high commissions.

Churning has been the subject of numerous regulatory actions over several decades. Broker Frank Venturelli, a representative for First Standard in Red Bank, New Jersey, was cited by FINRA for excessive trading between 2016 and 2018. According to FINRA settlement, clients lost more than $373,000 during that period. Venturelli was suspended from the industry for 11 months and ordered to pay partial restitution of $30,000 to his clients.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous investment brokers selling exchange-traded products. Many of these high-risk products are unsuitable for retail investors.

With the COVID-19 crisis roiling financial markets, many investors have been sold products that rise when market indexes or individual securities fall. Many “exchange-linked products” (ETPs) often use borrowed money, or leverage, to magnify gains when the market drops, but they can also increase losses. They are generally only suitable for sophisticated investors and are linked to complex underlying futures contracts.

When the coronavirus crisis first made major headlines in the U.S. in early March, the stock, bond and commodities markets crashed. Since markets over-react to widespread greed and fear, traders went into mass selling mode over (later justified) expectations that demand for nearly everything from luxury goods to commodities would drop dramatically.

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.

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