Stoltmann Law Offices, a Chicago-based securities and investment fraud law firm offers representation to defrauded investors and consumers nationwide on a contingency fee basis. Our firm is investigating potential claims against Herbert J Sims & Co., a/k/a HJ Sims, in connection with dozens of private offerings solicited and engineered by HJ Sims.
Private placements are investments that are not publicly registered with the Securities and Exchange Commission. Although a totally legitimate way to raise capital, private placements fall into the alternative investment category. They are supposed to only be sold to “accredited investors”, are speculative, illiquid, and opaque when compared to publicly traded securities. Private placements are the darlings of the independent broker-dealer community because they generate commissions many times higher than publicly traded securities. For most private placements, commissions range from 7% to 12% in total fees, costs, and commissions to the brokerage firm. The justification for such high commissions, the brokers say, is that they have to spend so much time and resources in the due diligence process to vet the investments prior to offering them for sale to their clients. This due diligence process is required to be undertaken and is mandated by FINRA Rule 2111, Regulation Best Interest, and several FINRA notices, including most prominently, Regulatory Notice 10-22.
HJ Sims hits the trifecta with its private placement offerings. Not only does it receive high commissions, HJ Sims actually creates many of the investments they sell, and their board and corporate officers share in the loot raised by HJ Sims selling these deals to their client base. One of these offerings is Madison Funding I, LLC, which HJ Sims brought to market in 2019. They issued $5,115,000 in bonds due June 1, 2024. The bonds defaulted on principal payments due March 2, 2021 and has paid reduced interest since. Incredibly, AFTER the bonds defaulted, HJ Sims continues to valuate the bonds at $100 on customer account statements, and shockingly, Madison Funding I, LLC is owned and controlled by executives of HJ Sims. It is common sense that a bond in default is NOT worth what it was sold at, but don’t tell that to HJ Sims.