Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from broker-advisors who’ve sold their clients money-losing hedge fund investments. Often a broker’s pitch is almost entirely focused on high potential returns with little attention paid to the risk of losing money. Such was the case when brokers sold a hedge fund managed by Prophecy Asset Management. The investment firm was “supposed to spread out funds to dozens of separate money managers, but instead concentrated the money with a single Florida manager whose performance tanked when the pandemic threw markets into turmoil early last year,” according to Indianapolis Business Journal (IBJ).
Two funds managed by Prophecy ran aground last spring when news of the COVID pandemic roiled world markets. The two funds then suspended redemptions, which prevented investors from withdrawing their money. Brokers who sold Prophecy funds, led by a company called Indie Asset Partners, are now suing Prophecy.
The plaintiffs say in the suit that Prophecy CEO Jeffrey Spotts told them that “ostensibly due to the market volatility surrounding the coronavirus pandemic, the Trading Advisors Fund’s assets in their entirety—totaling approximately $363 million—have been placed at risk,” adds the IBJ. Spotts, who cofounded Prophecy Asset Management in 2001 after spending 12 years at Merrill Lynch, declined to comment to IBJ. Prophecy, which listed $561 million in assets under management in a February 2020 regulatory filing, shuttered its website recently.
Hedge funds are lightly regulated entities that can invest myriad ways. Many of them employ high-risk strategies that are unsuitable for investors with moderate or low risk. They are generally sold to high net-worth investors as “alternative” investments, often as a way to buffer risk in the stock and bond markets.
Indie Asset Partners began recommending Prophecy to clients in 2012 “as a means to diversify into alternative investments, a hodgepodge of investment classes outside of stocks and bonds. They can include private equity, venture capital, commodities, real estate and private debt, some of which are illiquid and thus difficult to sell quickly.” On its website, IBJ reported, Indie Asset Partners says its approach to alternatives is to provide clients “a conservative, absolute rate of return in both bull and bear markets, with lower overall volatility than the stock market, rather than to swing for the fences in pursuit of huge returns.”
Clients invested directly in Prophecy, Indie Diversified Absolute Fund or through First Landing Fund, a fund managed by Virginia-based Vantage Consulting Group that funneled funds to Prophecy. First Landing was a plaintiff alongside Indie Asset Partners in the suit seeking access to Prophecy’s books and records.
Have you invested with brokers who have invested your money in high-risk hedge fund investments or not honestly reported their performance? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case in arbitration. Broker-advisers can be cited in investor arbitration claims if they don’t perform their duty to protect investors.
Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!