Unsuitable Investments

Purshe Kaplan Hit by Massachusetts Securities Division for Leveraged ETF Issues

March 23, 2022 | by Stoltmann Law Offices

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered as a result of financial advisors recommending high risk leveraged exchange-traded funds (ETFs). Broker-dealer Purshe Kaplan Sterling Investments was charged by the Massachusetts Securities Division with selling “unsuitable investments to investors while operating as independent investment advisers of Harvest Group Wealth Management,” according to thediwire.com. “Despite warnings from FINRA that leveraged exchange-traded funds are typically unsuitable for average investors who plan to hold them for more than a day, the Harvest Group invested more than 340 client accounts in leveraged exchange-traded funds for days, weeks, months, and even a year,” the state regulator stated. FINRA is the federal regulator of the U.S. securities industry.

According to the Massachusetts complaint, “more than $2.3 million in losses were incurred as a result of unsuitable investments in leveraged ETFs. Purshe Kaplan had a duty to review the transactions as part of their supervisory responsibilities, even though they were conducted outside of the firm.”

Investments like ETFs can be highly leveraged, which means they carry high downside risk and can easily lose money under certain market conditions. Brokers are under a legal obligation to carefully vet all trades and investments with you to ensure that the investments they are selling meet your financial goals and risk tolerance. Leveraged ETFs specifically, are designed to be trading vehicles, not held long-term, because they will not achieve their stated objectives long-term. They are designed to achieve their objectives daily, and are totally unsuitable for buy-and-hold investors. Unfortunately, many financial advisors do not understand this.

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.

JP Morgan Ordered To Pay Client $4 million for Edward Turley’s Misdeeds

January 13, 2022 | by Stoltmann Law Offices

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from dealing with broker-advisors who’ve placed clients in unsuitable investments.

FINRA, the federal securities regulator, has ordered JP Morgan to pay an investor $4 million for “unsuitable securities — including high-risk equities and junk bonds –without authorization,” according to Advisorhub.com. The JPM client also alleged a JP Morgan broker had “used leverage to increase the bets in her portfolio, including high-risk foreign currency positions.”

The broker on the accounts appears to be Edward L. Turley, Advisorhub reported. Morgan fired Turley, a “star” broker who reportedly generated as much as $30 million in revenue on $1.6 billion in assets, in August. He has $57 million in pending damage claims from four customer complaints on his record tied to losses sustained in last year’s pandemic-triggered market crash, excluding the award in the most recent case.

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.”

Investors who Lost Money in Fear-Index ETPs Have Recovery Options

November 17, 2020 | by Stoltmann Law Offices

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers selling unsuitable Exchange Traded Products (ETPs). When a broker sells you a product that is “guaranteed” to make money during volatile markets, there’s no downside for the person selling the vehicle. They always make money on investors’ fear and ignorance.

A prime recent example is the widespread sale of volatility-linked Exchange-Traded Products. While these vehicles may make money in the short term when the stock market turns bearish, they can lose money in the long run, which brokers may not disclose. Volatility ETPs are linked to “fear” indexes like the CBOE Volatility Index, or VIX, a short-term gauge of downside activity. When the market dips, they can increase in value.

Average investors, however, get burned when they hold onto fear indexes. Brokers who sold these products know that, but often don’t get clients out before they lose money. The U.S. Securities and Exchange Commission (SEC) recently cracked down on broker-dealers who sold these vehicles to unsuspecting investors.

Victims of Scott Wayne Reed’s Selling-Away and Speculative Private Placement Investments

October 1, 2020 | by Deanna Besbekos-LaPage

Scott Wayne Reed (“Agent Reed”), of Scottsdale, Arizona, has been engaging in various misconduct in customer accounts for years now. Most recently, earlier this year a Wells Fargo customer alleged that Agent Reed solicited him to invest in “an investment opportunity in a company not offered by Wells Fargo Advisors”, Reed broker-dealer at the time. Upon information and belief, Reed tried to solicit several customers to invest in outside business activities sponsored by Hollywood producers. This “selling away” activity led to Reed’s departure from Wells Fargo on April 7, 2020.

Several of Agent Reed’s customers have complained that he sold them unsuitable investments in private placements, oil and gas investments, hedge funds, and mutual funds and over-concentrated their accounts in private placements. In 2017, elderly clients of Reed filed a complaint against Reed’s previous brokerage firms, Accelerated Capital Group (“ACG”) which is now out of business, and Coastal Equities, and later adding him personally to the complaint, for selling them several unsuitable investments. Included in these investments were various Staffing 360 issuances, Aeon Multi-Opportunity Fund, which became Kadmon, and Aequitas, which ended up being a Ponzi scheme. The clients lost their entire investment in Aequitas. They lost between 92% to 99% of their investments in Staffing 360 and lost 70% of their investments in Aeon/Kadmon. Reed sold these investments to his clients even after there were red flags that these companies were completely failing and drowning in debt.

Agent Reed has bounced around several brokerage firms, and has also worked as a registered investment advisor. From 1999-2001, he was registered at Ameritrade. His longest tenure was at Fidelity from 2001 through July 2010. He had brief stints at Strategic Advisors, Inc. and Meridian United Capital before joining Accelerated Capital Group from 2010 through 2015. Agent Reed was registered with Coastal Equities for only five months then joined Wells Fargo from April 2016 through April 2020. While his CRD Report states that he “voluntarily resigned” from Wells Fargo, the explanation details that his resignation came while he was under investigation for selling away. He has been registered with First Financial Equity Corporation since April 2020. Reed was also a dually registered RIA with Gentry Wealth Management from July 2010 through April 2016, which became Ashton Thomas Financial in 2015. According to his FINRA BrokerCheck Report, Mr. Reed operates as “Reed Private Wealth”.

Recovery Options for Investors in the Franklin Square BDCs (FSKR)

July 28, 2020 | by Joe Wojciechowski

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)

Brokers Peddling High Risk “Alternative” Investments at Alarming Rate

July 10, 2020 | by Stoltmann Law Offices

Chicago-based Stoltmann Law Offices, P.C. continues to see a surge of investor cases involving “alternative” investments like non-traded REITs, BDCs, oil and gas LPs, and other private placements. These “alts” are almost always considered to be on the speculative end of the risk scale, and frankly, they usually perform poorly and result in investor losses.

Alternative investments cover a wide variety of unconventional investment vehicles. They may employ novel or quantitative trading strategies or pool money for investments in commodities or real estate, for example. The one thing they all usually have in common is steep management fees along with commissions. Both expenses come out of investors’ pockets. Examples of alternative investments, or “alts” in industry parlance, include unlisted or “private” Real Estate Investment Trusts (REITs), private equity, venture capital and hedge funds. While they are generally sold to high-net worth investors who can afford to take on increased risk, they are usually illiquid and complex. Brokers who sell these vehicles may not fully disclose how risky they are. Most of these investments are unregulated, so supervision by regulators is typically light or non-existent.

Investors can file arbitration claims with FINRA if brokers sell inappropriate alternative investments to clients. A year ago, FINRA censured and fined the broker-dealer Berthel Fisher in connection with sales of “inappropriate” alternative investments. FINRA awarded six investors $1.1 million and fined the firm $675,000. Berthel Fisher has had a history of running afoul of investors and regulatory fines. In 2014, the firm was fined $775,000 by FINRA for “supervisory deficiencies, including Berthel Fisher’s failure to supervise the sale of non-traded real estate investment trusts (REITs), and leveraged and inverse exchange-traded funds (ETFs).” The firm was also selling managed commodity futures; oil and gas programs; business development companies; leveraged and inverse Exchange Traded Funds and equipment leasing programs.

News Coverage on FSC Brokers Craig Accardo and Frank Briseno III

August 12, 2019 | by Stoltmann Law Offices

Thirty New Orleans area investors have learned a lesson painfully you don’t have to. Investor fraud isn’t always a flood. It can go drip-drip-drip. The 30 have joined together to file a claim with a Financial Industry Regulatory Authority (FINRA) arbitration panel charging that their brokers tried to line their pockets with high commissions from high-risk securities instead of following the investors’ directions to put their money in low-risk assets.

One of the investments Craig Accardo and Frank Briseno III put the burned investors money into was a real estate investment trust that has lost more than half its value in a year and is being sued on claims it mislead investors. The brokers affiliated with FSC Securities Corporation frittered away the nest eggs slowly, one of the accusers, Gordon Dalrymple told Nola.com, a New Orleans news website.

“When I started drawing on it, as time went on, I noticed that the principal kept going down,” said the 70-year-old retired investor who worked in management for the technology firm Zedi. On the advice of a former boss who was also a friend, Darylmple entrusted nearly half of a million dollars from his 401 (k) with Accardo and Briseno III with FSC Securities who he now is charging with squandering the money in grossly unsuitable investment recommendations. A lawyer called the alleged fraud: “A long con, this kind of misconduct can be hard to detect, but the reverberations can linger.”

LiquidSpace Inc. – Just Another Illiquid Private Placement Costing Investors their Life Savings.

July 3, 2019 | by Deanna Besbekos-LaPage

LiquidSpace, Inc. is an illiquid Regulation D private placement in which investors have lost their hard-earned retirement savings. LiquidSpace is a flexible office space rental start-up that rents office space and meeting rooms on an hourly or monthly basis. The first Regulation D offering by LiquidSpace was registered on December 16, 2012 for $412 and a second registered on the same day for $1,805,740. The second offering stated that $1,299,999 had already been sold. On June 2, 2014, Robertson Stephens, an investment bank that provides capital to entrepreneurial clients, affiliated with LiquidSpace and registered the Robertson Stephens LiquidSpace LLC in California. Subsequently, LiquidSpace Inc. filed a third Regulation D offering of $19,999,997 with $14,015,701 sold.

Investments in LiquidSpace were sold as “convertible promissory notes”. According to the “Convertible Note Purchase Agreement”, the outstanding principal and unpaid accrued interest of the client’s note would be converted into Conversion Shares upon the closing of a Qualified Equity Financing. Stoltmann Law Offices has addressed the issues with promissory note investments in other articles. It is common for clients to be sold investments in the form of promissory notes, which are considered securities. Unfortunately, it is also common for promissory notes to be used in fraudulent investment schemes, such as Ponzi schemes, selling away (i.e. when a broker sells you an investment that was not approved by the brokerage firm), and theft. Given that these investments also are not publicly traded, it is impossible for investors to know the true value of their investment. It also makes it extremely difficult, and in many cases impossible, for them to liquidate the investment, unless the investment becomes publicly traded or the investment offers a liquidation period. At least some investors have not received any distributions or income from their investment in LiquidSpace, and it is unclear when they will be able to liquidate their investment.

If you invested in LiquidSpace through a FINRA Broker Dealer, Registered Representative, or a Registered Investment Advisor, then we may be able to file a complaint on your behalf to rescind your investment. Brokerage firms owed duties to their clients to perform due diligence into LiquidSpace prior to recommending it to their clients, and disclose any risks and conflicts of interests at the time of any recommendations to invest. In exchange for pushing speculative products like LiquidSpace, broker dealers were paid hefty commissions of approximately 10% which is why it was sold to clients regardless of the known risks or each client’s investment objectives. If you invested in LiquidSpace, contact Stoltmann Law Offices for a free evaluation to determine the best course of action for you to take. We are a contingency fee law firm which means we do not get paid until you do.