Articles Tagged with Private Placements

It is time for GPB Fund investors to seriously consider their legal options. Over the last year, the GPB Capital Funds have been beset by serious issues raising red flags for investors:

  • On April 30, 2018, GPB missed a mandatory filing date with the SEC
  • In August 2018, GPB announced that is was “overhauling” and restating its 2015 and 2016 financials

The securities fraud attorneys at Stoltmann Law Offices, P.C. continue to investigate investor claims against brokerage firms that sold their clients investments in various GPB Capital Holdings offerings.  On March 22, 2019, attorney Joe Wojciechowski announced the filing of a Statement of Claim with FINRA Dispute Resolution for an investor who was sold units in GPB Automotive Fund, L.P. The claim was filed against NewBridge Securities and also includes allegations in connection with various non-traded REITs issued by American Realty Capital (ARC). The claim is for a retail investor whose financial advisor recommended she invest nearly 100% of her accounts in alternative investments offered by GPB Capital and ARC.  The claim alleges misrepresentations and omissions of material facts in violation of the Securities Act of Washington, consumer fraud in violation of the Washington Consumer Protection Act, negligence for violating numerous regulatory rules including FINRA Rules 2111 (suitability) and 3110  (supervision), and breach of fiduciary duty. Our client seeks rescission of her GPB Automotive Fund investment and compensatory damages for her realized losses in the ARC REITs, plus attorneys fees, costs, interest, and punitive damages.

Investors who were solicited by financial advisors and brokers to invest in GPB Capital funds should consider their legal options to seek rescission of those investments.  Under the state securities laws (frequently referred to as the Blue Sky Laws), the primary remedy for investors is called rescission, which means the investor sues to force the brokerage firm to buy the investment back.  The rescission remedy seeks to put the investor back in the same place she was prior to purchasing the investment. This is important for investors who own alternative investments like GPB Capital Funds.  These are not liquid or tradable investments, meaning an investor cannot call their advisor and sell it and realize a gain or a loss. Essentially, the investor is stuck. Given the troubling news about GPB Capital over the last several months, something Stoltmann Law Offices has written about extensively, investors are correct to be wary and should consider an exit strategy. Unfortunately, because there is no way out of the GPB Funds, the only option for investors may be to pursue arbitration claims against the brokerage firm responsible for soliciting the investments in the first place.

In the last several years, as interest rates remained very low, it has been difficult for investors to find fixed income investments, like corporate and municipal bonds, that offered higher yields without exposing them to speculative risk. Likewise, due to the long term low interest rate environment, the principal value of the bonds begin to drop as interests rates have risen. The solution to these problems for brokerage firms has been to sell “alternative investments” that offer relatively high yields, but because they are non-traded and do not report any real market value, they have the appearance of a stable value for investors. The bonus for brokerage firms is that these alternative investments offer the advisors commissions they could never achieve by selling standard fixed income securities like corporate bonds or municipal bonds. Advisors sell the sizzle of a high yield and fixed prices and either gloss over or completely misrepresent the speculative risk being taken by investors who entrust their money to private entities like GPB Capital.

AdobeStock_194438920-300x200Investors should be warned about private placement deals their broker may be trying to sell them. In recent years, according to a Wall Street Journal article yesterday, hundreds of billions of dollars in private placements have been sold each year by stockbrokers, and these brokers are more likely than others to have sketchy records. One in eight brokers marketing private placements had three or more red flags on their records, including complaints, regulatory actions, criminal charges, or employment separations. Brokers selling private placements are also six times as likely as the average broker to report at least on regulatory action against them. Private placements are used by businesses to raise money for projects typically in the real estate, or oil and gas development realms. In 2017 alone, private placement using brokers totaled at least $710 billion, almost three times as much as in 2009. Brokers like to market these to seniors, who may not know that they are unsuitable for them. A broker must take into account a customer’s age, net worth, and investment risk tolerance before recommending or selling a security. If he does not, his brokerage firm may be liable for losses. Private placements tend to be high-risk and illiquid investments, not suitable for the elderly.

Stoltmann Law Offices is investigating Rainmaker Securities, a Chicago-based securities brokerage firm. The Financial Industry Regulatory Authority (FINRA) filed a complaint against Rainmaker Securities and its President, Glen W. Anderson. FINRA alleges that Rainmaker and Anderson failed to devote adequate time and attention toward compliance and resources toward compliance and supervision where the sale of private placements was concerned. FINRA further alleged that Rainmaker lacked a “culture of compliance” and that it failed to maintain adequate supervisory systems to monitor its financial advisors. The private placements included: Buttonwood Social Network Fund, Eudora Global LLC, Incubation Factory Technology Fund and the Idea Fund. Rainmaker was fined $125,000 and Anderson was suspended for two months in a principal capacity and paid $10,000 in fines. If you invested money with Rainmaker, please call us at 312-332-4200 to speak to an attorney. We may be able to help you recover your investment losses. The call is free.

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