Private Placement

FINRA Warns Brokerage Firms About Selling “Liquid Alt” Investments.

May 17, 2022 | by justia.admin

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from alternative investments. Some brokers like to pitch investors on the idea of making a lot of money by investing in alternative investments, mostly because brokers get paid handsome commissions for selling them. GPB Capital and more recently, GWG Holdings are examples of alternative investments that were pushed hard by brokerage firms, with terrible results. There is a sub-category of these investments called “liquid alternative”, which are complex and costly for clients.

FINRA, the U.S. securities industry regulator, recently issued a warning about liquid “alts,” which invest in assets “other than stocks and bonds — such as real estate, commodities and derivatives — to give retail investors exposure to alternative investments in a vehicle that can be traded daily. They are touted as a way to beat market returns but also can be risky and expensive.”

“While these funds may be appropriate for some investors,” the regulator’s warning stated, “FINRA has consistently emphasized the importance of member firms’ sales practice obligations for these and other products, especially when such products may carry additional risks for customers.” These products are inappropriate for investors unless their objective is speculation – plain and simple.

BlockFi to pay SEC and NASAA $100 million in penalties for Unregistered Securities Offerings

April 4, 2022 | by Stoltmann Law Offices

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from investing in unregistered securities based on the recommendation of their financial advisor. All too often, brokers pitch investors on making a quick profit on unregistered securities. These investments, typically not on the radar screen of regulators, can easily lose money. They can skirt the safeguards of state and federal securities laws.

A group of securities regulators recently launched a crack-down on a company marketing unregistered securities. The North American Securities Administrators Association (NASAA) and the U.S. Securities and Exchange Commission (SEC) jointly announced a “$100 million settlement with BlockFi Lending, LLC (BlockFi) concerning its lending products and practices. Thirty-two state securities regulators have agreed to the terms of a settlement with BlockFi to resolve its past unregistered activities. More jurisdictions are expected to follow.”

The settlement focused on BlockFi’s sales of unregistered securities to retail investors through BlockFi interest accounts (BIAs). “BlockFi promoted its BIAs with promises of high returns for investors who purchased the products. The company took control of and pooled its investors’ loaned digital assets, and exercised sole discretion over the pooled digital assets, including how to use those assets to generate a return and pay investors the promised interest.”

Horizon Private Equity Victims Have Options to Recover Their Losses

February 9, 2022 | by Stoltmann Law Offices

Chicago-based Stoltmann Law Offices represents investors nationwide on a contingency fee basis who’ve been victimized by Ponzi schemes. One of the most notorious Ponzi schemes in recent years involved Horizon Private Equity, which bilked some $110 million from 400 investors. The operators of the scheme have been sued by investors in a class action lawsuit, but some investors have viable individual claims to pursue against Oppenheimer through FINRA Arbitration. The fund was sold by brokers at Oppenheimer.

An investor class-action suit claims “Oppenheimer management, from 2008 through December 31, 2016, actively aided” John J. Woods (the lead seller for Horizon); his brother, defendant James Wallace Woods; and their cousin, defendant Michael J. Mooney, each a financial adviser at the firm, with funneling investor money into Horizon.” The Horizon scheme “continued to raise money from unsuspecting investors through Southport Capital, a registered investment advisory firm, for nearly five more years,” the suit alleges. The alleged Ponzi scheme, according to the suit, “made no significant profits from legitimate investments, and `returns’ to investors came instead from new investor money.”

On August 20 2021, the U.S. Securities and Exchange Commission (SEC) filed an emergency action against Woods, Southport Capital and Horizon Private Equity, III, LLC for “alleged violations of federal securities fraud, with the intent of freezing the parties’ assets, appointing a receiver and gaining a full accounting of the finances involved.”

Default on the GWG Holdings Inc. L Bonds is Imminent after Missing January 15, 2022 Interest and Principal Payments of $13.6 Million

January 25, 2022 | by Deanna Besbekos-LaPage

Stoltmann Law Offices is representing investors whose brokers or financial advisors sold them GWG Holdings, Inc. L Bonds. Brokerage firms, including but not limited to Aegis Capital, recommended this speculative private placement to clients, collecting up to 5% of the Bond’s market price as their commission. The L Bonds are high-yield life insurance bonds used to finance the purchase of life insurance on the secondary market. Any type of investment in the secondary life insurance market is an extremely risky investment, and these bonds certainly were not suitable for many, if any, clients. Given recent events, default on the L Bonds seems to be imminent, and may leave investors with a total loss of their investments. These investment losses may be recoverable from the financial advisors who sold the L Bonds as a result of their due diligence failures, and for making unsuitable recommendations.

According to their filings with the Securities and Exchange Commission (“SEC”), GWG has halted the sale of the L Bonds and failed to issue $10.35 million of interest payments and $3.25 million of principal payments to L Bond investors by the January 15, 2022 due date. If these payments are not made by the end of the 30-day grace period on February 14, 2022, GWG will be in default. Pursuant to GWG’s Amended and Restated Indenture, when in default, noteholders or trustees holding at least 25% of the aggregate outstanding principal amount of the L Bonds may elect to accelerate liquidation of the Bonds.

By halting the sale of the L Bonds, GWG has also cut-off a main source of its liquidity. If the “interest” payments that GWG was making on the L Bonds was actually paid from incoming principal from new investors, rather than revenue, then GWG will not be able to make interest payments any time soon. GWG is underwater based on its balance sheets. While it has close to $1 billion in tangible assets, GWG has over $1.5 billion in outstanding L Bonds, plus $327.7 million in senior credit facilities. Based on these numbers, if liquidation of the L Bonds is accelerated, GWG will not have enough in assets to cover the liquidation.

Fusion Analytics Financial Advisor Eric Willer Suspended 9-Months for Fraudulent Bond Offering, Investors Have Options

December 9, 2021 | by Joe Wojciechowski

Stoltmann Law Offices is a Chicago-based investor rights and securities fraud law firm with offices throughout the Chicago-Land area, offering representation to clients nationwide, including Texas, on a contingency fee basis. We are currently investigating allegations involving solicitations by Eric Willer to clients to invest money in private placements bonds. These allegations were made in a regulatory filing specific to Eric Willer, who accepted a nine-month suspension from the securities industry, as a result of the regulatory investigation. If you were sold bonds in a private offering by Eric Willer, you may have legal claims to pursue in FINRA arbitration against the brokerage firm he worked for at the time, Fusion Analytics out of Dallas, Texas.

According to an investigation by FINRA, which is the primary regulator over brokers and brokerage firms in the United States, while registered with Fusion Analytics, Eric Willer recommended that 13 investors purchase bonds in two private placements offerings without a having a reasonable basis to believe the bonds were suitable for any investor, in violation of FINRA Rule 2111 and 2010. FINRA also alleged that Willer negligently misrepresented and omitted material facts when distributing offering documents to investors that contained misrepresentations and omissions, in violation of FINRA Rule 2010. FINRA does not identify the offerings, but provided some details in the regulatory filing against Eric Willer. FINRA alleges that the company at issue claimed to have developed some new clean energy engine and raised $80 million from investors between 2004 and 2011. The SEC nailed this company in 2013 imposing sanctions for violating registration requirements. In 2017, this same company engaged Willer to sell bonds for another offering, through Fusion Analytics. This offering was intended to raise $6 million to build a clean energy-tech power plant, despite no one involved in the company having any experience in building or operating a power plant. FINRA alleges that Willer knew this and sold the bonds to investors anyways.

Willer failed to have a reasonable basis to recommend these bonds to any investor, according to FINRA. What this means is, in order for a financial advisor to recommend an investment, regardless of its risk profile, he/she and the brokerage firm must have performed a reasonable investigation into the security before offering it. Even if an investigation is performed, and red flags about the company are ignored and the offering is sold anyways, that too can be grounds for a claim against the firm. The claims take the form of negligence or, if the facts were material and known by the advisor or firm and were not adequately disclosed to the investors, that can lead to securities act and fraud claims.

Options Exist for DeepRoot Funds Investor Victims to Recover Their Losses

October 5, 2021 | by Joe Wojciechowski

Stoltmann Law Offices, a Chicago-based securities, investor, and consumer rights law firm has spoken to victims of the DeepRoot Funds scam and continues to investigate claims against third parties to recover these losses. On August 20, 2021, the Securities and Exchange Commission filed a complaint against Robert J. Mueller, DeepRoot Funds, LLC, Policy Services, Inc., and several other “relief defendants” alleging that Mueller and DeepRoot abused their roles as investments advisors to the two primary DeepRoot funds; the 575 Fund, LLC and the Growth Runs Deep Fund, LLC. The SEC flat-out alleges that Mueller used these funds as his personal piggy bank, including paying for weddings to wives number 2 and 3, and paying for the divorce from wife number 2. Investors are likely looking at a total loss of funds invested amounting to nearly $58 million. Because the SEC has already gone after Mueller and the Funds, investors need to look for viable third parties that could have liability for investor losses.

The first and most obvious target for investors here would be the financial or investment advisor that solicited the transactions in the first place. If your RIA or broker solicited you to invest in DeepRoot, it is almost certain this solicitation constituted a breach of fiduciary duty. RIAs will, with a straight face, ask clients in these situations rhetorically “how were we supposed to know?” Well, the investment advisor with the licenses, training, education, and statutory fiduciary duties to their clients are paid to know. Whether your advisor is a FINRA registered broker or a Registered Investment Advisor (RIA), they have obligations to understand and know the products they sell to their clients. On their faces, these DeepRoot Funds were unregistered, private, unproven, and speculative private-investment plays. Right there is enough information to disqualify these funds for investment by almost every retail investor in America.

To put it bluntly, the law obligates fiduciary investment advisors to understand the risks and characteristics of the investments they offer to their clients. Failing to do so constitutes a breach of a fundamental and basic duty. Investment advisors can be liable to their clients for this fundamental breach of duty. How are they supposed to know? They are paid to know and they are licensed professionals who are obligated to know whether the fund that are recommending uses investor funds to legitimately invest, or, as with DeepRoot, used investor funds to pay for divorces, a wedding, amongst other abuses.

Sanctuary Securities, formally David A. Noyes, Gets Whacked by Securities Regulatory for Multiple Violations

August 13, 2021 | by Stoltmann Law Offices

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers whose firms promote high risk alternative investments and private placements. Did you know that brokerage firms can be held accountable when their brokers sell high-risk, illiquid investments that are unsuitable for their clients? Such was the case with Sanctuary Securities, which was forced to pay more than $530,000 in fines and restitution to investors for “failures to supervise certain product sales,” according to Advisorhub.com.

Sanctuary was fined $160,000 and ordered to pay restitution of $370,161.39 plus interest “for the various supervisory failures dating as far back as 2014 that were uncovered over multiple FINRA examinations, according to a letter of acceptance, waiver and consent finalized on July 1.” Formerly David Noyes and Company, Indianapolis-based Sanctuary has about 190 registered brokers and 35 offices. The company said that no current employees were involved in this action. The FINRA enforcement action involved the firm’s sales of money-losing, risky products called “leveraged exchange-traded funds (ETFs).” These investments multiply gains and losses based on market movements of popular securities indexes. These “non-traditional” or “alternative” investments can lose money for investors if brokers or investors guess wrong on market movements.

According to FINRA, from January 2014 through December 2018, “Sanctuary did not sufficiently address the unique features and risks related to solicited sales of inverse and leveraged ETFs (collectively, non-traditional ETFs) as required by suitability obligations under FINRA Rule 2111. Around 30 brokers recommended customers purchase about $5 million worth of non-traditional ETFs, resulting in significant net losses for those who held their positions for extended periods of time. The firm, meanwhile, generated roughly $60,000 in commissions over the course of about 600 purchases in 150 customer accounts,” FINRA stated.

Conservation Easements, Land Easements, They’re Trouble for Investors and the Advisors who Sold Them!

May 7, 2021 | by Joe Wojciechowski

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

Tax Fraud Issues at Center of Looming Conservation Easement Investment Disaster.

March 19, 2021 | by Joe Wojciechowski

Stoltmann Law Offices, P.C. is a Chicago-based investor rights law firm that offers nationwide representation to investors who suffer investment losses as a result of unscrupulous, negligent, or fraudulent misconduct of financial advisors. In a tale as old as time, people prefer to avoid paying taxes if they can do so legally. The legality of tax breaks can be a touchy and constantly developing subject. An increasingly popular way for very wealthy land owners to generate massive tax write-offs is called the “conservation easement.” Simply put, in exchange for promising not to develop land, in the name of conservation, a land owner promises not to develop the tract. By doing so, the value of the property depreciates – because it cannot be developed – and theoretically, the owner of the land gives up something of value – the right to develop and exploit the land. The land owner then gets a tax deduction, which depends on two critically important factors: 1) the value of the property before the easement; and 2) the value after the easement. The spread between these two numbers is then used as a tax deduction.

And there is where the fraud begins, according to the IRS. Recent report published by Bloombergtax describes the increasing aggression with which the IRS and Department of Justice are prosecuting conservation easement transactions as crimes. One very notable transaction being investigated by the Manhattan District Attorney’s Office involves former President, Donald Trump, and an approximate $25 million tax break he received in connection with a conservation easement on land he owned in upstate New York. The tax scam begins with the appraisal of the land at values exponentially higher than reality, to appraisals after the easement well-below reality. That increases the spread – the tax loss – taken by the owner. These appraisals are done by professional outfits with attorneys and appraisers who sign off on all of these deals, and who can find themselves in a serious lurch with authorities.

These conservation easements became increasingly complex over time, involving massive tracts of land and found themselves being marketed and sold by FINRA registered broker/dealers as Regulation D private placement investments. The purpose of this scenario for investors is the tax break for the land owners trickles-down, through a series of complicated trusts and transactions, to the investor. Sometimes investors get upwards of 10X their investment back in the form of a tax write off. Usually, the write-off is for between 2X and 6X the investment. For example, if an investor puts $25K into a conservation easement offering 4X reduction, that investor can write-off $100,000 in income for tax purposes the next year. For high income investors, that is a dream scenario.

UPDATE – Arizona Corporation Commission Files Complaint Against Scott Wayne Reed for Selling-Away at Wells Fargo in Pebblekick, Inc.

December 16, 2020 | by Deanna Besbekos-LaPage

Stoltmann Law Offices previously posted about Scott Wayne Reed, former broker at Wells Fargo Advisors, selling away to his customers, including customers of Wells Fargo. On December 15, 2020, the Arizona Corporation Commission filed a “Notice of Opportunity for Hearing Regarding Proposed Order to Cease and Desist, Order for Restitution, Order for Administrative Penalties, Order for Revocation and Order for Other Affirmative Action” against Reed, his wife, Sarah Reed, Pebblekick, Inc. and Don K. Shiroishi, the Chief Executive Officer and President of Pebblekick.

According to the ACC’s notice, Mr. Reed sold at least $3.5 million of investments in short-term, high-interest notes issued by Pebblekick. Mr. Reed sold these notes as offering an annualized rate of return of sixty-percent (60%). In turn, Pebblekick paid at least $191,340 to Reed. He sold these notes to clients as “100% safe” investments and represented that he also invested in Pebblekick. He went as far as personally guaranteeing $100,000 of the $200,000 investment made by one investor.Reed also sold other outside investment to customers, which he alleged were connected to Pebblekick, including but not limited to Precision Surgical, Mako Studio, and Ascensive Creator.

Reed was a registered representative of Wells Fargo Advisors at the time that he sold this investment, but did not disclose that he was selling notes in Pebblekick or that he received nearly $200,000 in commissions and fees for selling Pebblekick. According to the ACC, “when Reed’s firm reported him for potentially selling away and the Securities Division requested Reed to provide information and documents concerning the allegation, Reed impeded the Division’s investigation by providing responses that were false, incomplete, and misleading.”