FINRA Arbitration: What To Expect And Why You Should Choose Our Law Firm

If you are reading this article, you are probably an investor who has lost a substantial amount of money, Googled “Securities Arbitration Attorney,” clicked on a number of attorney websites, and maybe even spoken with a so-called “Securities Arbitration Lawyer” who told you after a five minute telephone call that “you have a great case;” “you need to sign a retainer agreement on a ‘contingency fee’ basis;” and “you need to act now because the statute of limitations is going to run.” You may want to ask yourself whether that attorney is as bad as the stockbrokers you were concerned about in the first place. Some attorneys will rush you to hire them before you speak to anyone else and not tell you about the clause in their contract that allows them to drop you as a client later on if they cannot get a quick settlement. They will solicit you without a real case evaluation and/or without any explanation of Financial Industry Regulatory Authority (“FINRA”) proceedings. The scenario above is not the way for attorneys to properly serve clients, and it is not the way we do business at The Law Offices of Robert Wayne Pearce, P.A. If you are planning on speaking or meeting with us or any other attorney, let us introduce you to the FINRA arbitration proceeding by giving you some information in advance to help you understand the different stages of FINRA arbitration, what you should expect from skilled and experienced FINRA securities arbitration lawyers, and what you should expect to personally do in order to have the best outcome: 1. CASE REVIEW Before we accept any case, our attorneys conduct a thorough interview of you to understand: the nature of your relationship with your broker; the level of your financial sophistication; the representations or promises made to you in connection with any investment recommendation; and your personal investment experience, investment objectives, and financial condition at the time of any recommendation or relevant time period. We will review your account records, including, but not limited to: account statements; confirmations; new account opening documents; contracts; correspondence; emails; presentations; and marketing materials that you may have received in connection with your accounts and the investments made therein, etc. Investors rarely contact our office without knowing whether they have suffered investment losses, but sometimes that occurs because the particular investor does not have all their records and/or is unsophisticated, inexperienced, and unable to decipher the account records they retained. If you retained your account statements and provide them, we should be able to at least estimate (under the different measures of damages) the amount you may be able to recover if you win your arbitration proceeding. If you do not have those records, we will help you retrieve them without any obligation so that all of us are fully aware of the amount we may possibly recover for you if we are successful in arbitration. In addition, we will spend the time necessary to get to know you and the facts of your dispute to have a good chance of success in proving your case. After all, it does not benefit either you or our law firm to file an arbitration claim that, months or years later, we discover has little chance of success. Ultimately, we want to know, and so should you, whether or not you have a claim with merit and are likely to recover damages if we go through a full arbitration proceeding. The fact is Attorney Pearce does not take cases unless he and his team believe you suffered an injustice and are likely to succeed at the final arbitration hearing. 2. THE STATEMENT OF CLAIM Many of these young and/or inexperienced attorneys with flashy websites and Google Ad Word advertisements (to get them to the top of the page) are more interested in marketing and signing up cases to settle early than they are in going all the way and winning your case at a final arbitration hearing for a just result. Oftentimes, they will insert your name in a form pleading, one that they use in every case, which states little more than if you (the “Claimant”) were an investor with brokerage firm ABC and stockbroker XYZ (the “Respondent(s)”) made misrepresentations, failed to disclose facts, made unsuitable recommendations, and violated laws 123, you are entitled to damages. They are unwilling and/or fail to take the time necessary to study the strengths and weaknesses of your case and write a detailed Statement of Claim (also referred to as the “Complaint”) with all of the relevant facts necessary to inform the arbitrators what happened and why you are entitled to recover your damages. That is not the way Attorney Pearce, with over 40 years of experience with investment disputes, files a Statement of Claim, the first and sometimes the only document that the arbitrators will read before the final arbitration hearing. 3. THE ANSWER After we file the Statement of Claim and it is served, the brokerage firm and/or stockbroker will have forty-five (45) days to file the Answer to your allegations. Oftentimes, the Respondent(s) will ask for an extension of time to file the Answer and we will give it to them provided no other deadline is extended, particularly the deadlines associated with the selection of arbitrators and scheduling of the initial pre-hearing conference, where all of the other important deadlines and dates of the final arbitration hearing are scheduled. Some clients have asked why would you give them extra time to file their best Answer? Well, we believe after 40 years of doing these FINRA arbitrations, that it is better to know the story they intend to tell the arbitrators early on and lock them in so we can come up with the best strategy and all the case law necessary to overcome their best defenses and win your arbitration. In other words, we would rather know about the defense early on than be surprised at the final hearing. Besides, Respondent(s) can always try to file...

Continue Reading

UBS ETRAC Exchange Traded Note Investors: How Do You Recover Your UBS ETRAC Investment Losses?

If you are reading this article, we are guessing you invested in some of those high-dividend paying UBS ETRAC Exchange Traded Notes (ETNs) your stockbroker recommended to increase your retirement income. We would not be surprised if you were also told the UBS ETRAC investments had a proven track record of great returns. You probably also heard: No need to worry about these investments because they were backed by one of the largest brokerage firms in the world – UBS Financial Services, Inc. (UBS). We’re not shocked because that is just what many other investors have told us about the pitch made to them to invest in UBS ETRACs. Regardless of what you were told, we will bet (dollars for donuts) you didn’t know that you were going to be forced to liquidate your investment at the price UBS set and realize a loss on your investment. Well, if you owned the following UBS ETRAC ETNs, you certainly discovered in March 2020 that UBS could declare a mandatory redemption and force you to sell them back to the company at a loss: ETRACS Monthly Pay 2xLeveraged Dow Jones Select Dividend Index ETN due May 22, 2042 ETRACS – Pro-Shares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Sub-index ER due January 4, 2047 ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN due May 5, 2045 ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN due December 10, 2043 ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN Series B due December 10, 2043 ETRACS Monthly Pay 2xLeveraged Diversified High Income ETN due November 12, 2043 ETRACS Monthly Pay 2xLeveraged Wells Fargo MLP Ex-Energy ETN due June 24, 2044 ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN due May 5, 2045 ETRACS – Pro-Shares Daily 3x Inverse Crude linked to the Bloomberg WTI Crude Oil Sub-index ER due January 4, 2047 ETN ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN due December 10, 2043 ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN Series B due December 10, 2043 ETRACS 2xMonthly Leveraged Alerian MLP Infrastructure Index ETN Series B due February 12, 2046 2×Leveraged Long ETRACS Linked to the Wells Fargo® Business Development Company Index due May 24, 2041 2×Leveraged Long ETRACS Wells Fargo® Business Development Company Index ETN Series B due May 24, 2041 ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN due October 16, 2042 ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN Series B due October 16, 2042 ETRACS 2xMonthly Leveraged S&P MLP Index ETN Series B due February 12, 2046 ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN due February 6, 2045 What exactly were those so-called investments in the UBS ETRAC ETNs? The first thing you needed to know when you purchased those structured products was that you were not investing—you were speculating! They were high risk bets that you might receive some dividends in a complex product managed by UBS fund managers with multiple conflicts of interest. The UBS ETRAC ETNs were exotic derivative products that not even the most sophisticated institutional investors could understand and calculate the returns one might earn. These products were simply unsecured debts of UBS, and if UBS went bust (like Lehman Brothers), the ETNs UBS sold you would be worthless (like the Lehman Brothers-Principal Protected Notes UBS pushed on its clients a decade ago). The UBS ETRAC ETNs were derivatives that tracked an index of various income producing investments, like mortgage real estate investment trusts, closed-end funds, oil and gas master limited partnerships, andbusiness development companies. Unlike another “ET” (extra-terrestrial) investment known as Exchange Traded Funds (ETFs), the UBS ETRAC ETNs did not buy any shares in any of the indexes. The manager of the ETNs tracked the index performance and decided if and when you get a dividend payment after some very murky math by a quant holed up in an UBS office somewhere in the world. And for those of you who bought any of the UBS ETRAC ETNs beginning with the 2X or 3X, you were leveraged 2 to 3 times the amount of each dollar deposited in the fund. By the way, you also paid extra fees for the 2X to 3X leverage and privilege of losing your money twice or three times as fast as other investors. While these investments may have been suitable for a financial institution making a short term bet on a particular income sector, they were never suitable for any investor with a conservative or moderate risk tolerance seeking a steady stream of income for their retirement. Unfortunately, many financial advisors, intentionally, recklessly and/or negligently did not represent them truthfully or explain all of the risks of these structured products to those type of investors. There is no way you will recover your losses on these structured products without some legal action. Do you think UBS lost any money on those forced redemptions? At The Law Offices of Robert Wayne Pearce, P.A., we represent investors in UBS ETRAC ETNs and all kinds of structured product investment disputes in FINRA arbitration and mediation proceedings. The claims we file are for fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla español CONTACT US FOR A FREE INITIAL CONSULTATION WITH EXPERIENCED STRUCTURED PRODUCT INVESTMENT ATTORNEYS IN FINRA ARBITRATIONS The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many structured product cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and who work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in structured product cases and all kinds of securities law and investment disputes, contact the firm...

Continue Reading

EquiAlt Private Placement Investments

We are investigating and representing investors against FINRA-registered brokerage firms and financial advisors who offered and sold securities issued by affiliates of EquiAlt, LLC (EquiAlt), a private real estate company which organized at least four private placements: EquiAlt Fund, LLC; EquiAlt Fund II,LLC; EquiAlt Fund III, LLC; and EA Sip, LLC (collectively referred to as the EquiAlt Funds). According to a recent SEC Complaint, Brian Davison (Davison) and Barry Rybicki (Rybicki) offered and sold $170 million of unregistered debentures issued by the EquiAlt Funds to over 1,100 investors nationwide. The SEC alleged that Davison, Rybicki, and others committed securities fraud by misrepresenting the debentures as “secure,” “safe,” “low risk,” and “conservative.” Further, while investors were promised “that substantially all of their money would be used to purchase real estate in distressed markets in the United States and their investments would yield generous returns … EquiAlt, Davison, and Rybicki misappropriated millions in investor funds for their own personal use and benefit.” According to the SEC, the revenues that were generated by the EquiAlt Funds became insufficient to pay the interest owed to investors. As a result, the SEC alleged “the Defendants resorted to [a Ponzi Scheme] fraud, using new investor money to pay the returns promised to existing investors.” While many of the sales were solicited by unregistered EquiAlt salespersons, it is reported there were many sales by small offices of registered salespersons associated with large independent FINRA-registered stockbrokerage and insurance firms primarily located in Florida, Arizona, California, and Nevada, and many other states nationwide. It is alleged that EquiAlt salespersons received “commissions of anywhere between 10%-14%,” which is extraordinarily high for the sale of any investment product. Thus, there was such a strong incentive to sell these debentures by any means. It is likely that many of the FINRA registered brokerage firms did not authorize sales of the EquiAlt Fund debentures and that no due diligence or any other investigation of the company or its investment offerings were ever conducted. Consequently, it is very likely that the EquiAlt Funds were sold via misrepresentations and misleading statements. We have learned that investors who purchased the EquiAlt Funds debentures through FINRA-registered brokerage firm representatives also received the same sales pitch; that is, the debentures are “secure,” “safe,” “low risk,” and “conservative” investments, which was untrue which constitutes securities fraud. If you invested in any of the EquiAlt Funds private placements, you may be able to recoup your losses through a FINRA arbitration proceeding. Mr. Pearce has over 40 years of experience with private placement investment disputes and recovering money for investors lost in Ponzi Schemes. The cases we accept will be filed against FINRA registered broker-dealers for misrepresentation, omissions due to failed due diligence, unsuitable investment recommendations, and unauthorized private securities transactions otherwise known as “selling away.” If Attorney Pearce accepts your case there will be no attorney’s fee or arbitration expenses unless we recover funds for you in a settlement with the brokerage or through an arbitration award. Call 1-800-SEC-ATTY (1-800-732-2889) or email us now and get your questions answered and top notch representation in connection with your EquiAlt Funds private placement investments. If you purchased your investment directly from EquiAlt or BR Support Services, your recovery will probably be limited to what assets the Court Appointed Receiver is able to locate, liquidate, and distribute to investors. However, please call us to find out what recourse is available for this investment fraud.

Continue Reading

SEC Halts Alleged EquiAlt Ponzi Scheme: How do Investors Recover Their Losses?

On February 11, 2020, the United States Securities and Exchange Commission (“SEC”) filed a Complaint for injunctive relief to halt an alleged ongoing fraud conducted by EquiAlt LLC (“EquiAlt”), a private real estate investment company that controlled the business operations of EquiAlt and its four real estate investment funds: EquiAlt Fund, LLC (“Fund I”); EquiAlt Fund II, LLC (“Fund II”); EquiAlt Fund III (“Fund III”); and EA SIP, LLC (“EA SIP Fund”) (collectively referred to as the “EquiAlt Funds”). Simultaneously, the SEC and filed an Emergency Motion to freeze all of the Defendant assets and appoint a Receiver to marshall all of the assets and take control of EquiAlt and the EquiAlt Funds. The Court entered an Order that granted the SEC’s request for Temporary Restraining Order and Asset Freeze and another Order Appointing a Receiver. According to the SEC, beginning in 2011 and up until it filed suit, Defendants EquiAlt, Brian Davison (“Davison”), and Barry Rybicki (“Rybicki”), through fraudulent unregistered securities offerings, raised more than $170 million from over 1,100 investors nationwide. The Defendants were supposed to invest all of the investors’ money in the EquiAlt Funds by purchasing real estate in distressed markets throughout the United States. The managers of the EquiAlt Funds were supposed to manage the real estate, pay high rates of returns to investors, sell the real estate for a profit, and then liquidate the EquiAlt Funds. Instead, according to the SEC, EquiAlt, Davison, and Rybicki misappropriated millions in investor funds for their own personal use and benefit. According to the SEC, the revenues generated by the EquiAlt Funds were insufficient to meet the interest rate obligations of the debentures sold to the investors. In addition, the SEC alleged Defendants Davison and Rybicki paid themselves millions from the EquiAlt Funds and spent it on automobiles, jewelry, and private jets. The insufficient cash flow due to operations and alleged misappropriation of funds supposedly led the Defendants to perpetrate the Ponzi Scheme fraud. As time went by, the Defendants allegedly sold more and more debentures and used the sales proceeds to pay the interest obligations to the earlier investors in the EquiAlt Funds. The SEC further alleged the investments – unregistered securities in the form of debentures issued by four real estate investment funds managed by EquiAlt – were falsely touted to investors as “secure,” “safe,” “low risk,” and “conservative.” The Defendants paid significant sales commissions to numerous unregistered sales agents who allegedly repeated the same misrepresentations and sold investments to unaccredited and unsophisticated investors in various states. Sadly, the combined assets of EquiAlt and its three active funds (Fund I, Fund II, and the EA SIP Fund) are insufficient to repay the principal and interest owed to investors. By December 2020, investors in these three funds will be owed approximately $167 million in principal and interest. However, as of November 2019, the assets of EquiAlt, Fund I, Fund II, and the EA SIP Fund total only $6.8 million in cash and real property purportedly worth $145 million based upon EquiAlt’s own inflated valuation. Thus, the combined assets of the three active EquiAlt Funds are insufficient to pay investors the principal and interest owed to them at the end of this year. The SEC suit has resulted in an Asset Freeze and appointment of a Receiver who has taken control of EquiAlt and all of the EquiAlt Funds. Since that appointment, the Receiver, in a letter to all investors, said he has stopped making any interest payments and will not return any principal invested in the EquiAlt Funds to investors while the suit is pending. The length of time before any investor will see any of their money again is uncertain and will depend upon: 1) whether the SEC proves its case of fraud or the Defendants settle and relinquish all right to the assets of EquiAlt and the EquiAlt Funds; 2) the Court Orders a liquidation of EquiAlt and the EquiAlt Funds and all other assets marshalled by the Receiver from the Defendants; and 3) the time it takes the Receiver to liquidate the assets and distribute the proceeds. It is fair to say this process will take years to complete. But one thing is certain, and that is investors will not receive back their entire investment due to the Defendants’ dissipation of assets and the Receiver’s fees and expenses, including attorney fees, to marshal the assets and liquidate them. And so, the investors in the EquiAlt Funds will need to take charge of their own case and hire their own attorneys to recover their losses from those who offered and sold the investment, such as attorneys, accountants, stockbrokers, insurance brokers and other salespersons. Attorney Pearce has over 40 years of experience with private placement investment disputes and recovering money for investors lost in Ponzi Schemes. If you invested in any of the EquiAlt Funds, you may be able to recoup your losses through a FINRA arbitration proceeding. We are reviewing and accepting EquiAlt Fund cases on a contingency fee basis, meaning you do not pay any fees or expenses unless we are successful in recovering money for you in a court or arbitration proceeding or settlement. The cases we accept will be filed against FINRA registered broker-dealers for misrepresentation, omissions due to failed due diligence, unsuitable investment recommendations, and/or unauthorized private securities transactions otherwise known as “selling away” in a FINRA arbitration proceeding. We may also group investors in lawsuits to be filed with the Receiver or other counsel against attorneys, accountants, and other unlicensed salespersons who are not subject to mandatory arbitration. Please complete the Contact Us form below for help recovering your EquiAlt Fund investment losses. Alternatively, call 1-800-SEC-ATTY (1-800-732-2889) or email us now and get your questions answered along with top-notch representation in connection with your EquiAlt Funds private placement investments. If Attorney Pearce accepts your case there will be no attorney’s fee or expenses charged unless we recover funds for you by judgment, award, or settlement.

Continue Reading

Investing in Hedge Funds

THE BASICS Hedge funds are similar to mutual funds in that they pool and invest investors’ money in an effort to earn a positive return. However, hedge funds have more flexible investment strategies than mutual funds. Many hedge funds seek to profit in all kinds of markets by using leverage, short-selling, and other speculative investment practices that are not typically used by mutual funds. Unlike mutual funds, hedge funds are not subject to some of the regulations that are designed to protect investors. In addition, depending on the amount of assets in a hedge fund, some hedge fund managers may not be required to register or to file public reports with the SEC. Fortunately for investors, hedge funds are subject to the same laws and rules against fraud as are other market participants, and their managers owe a fiduciary duty to the funds that they manage. Hedge funds are not required to follow any standard procedure when calculating performance, and they may invest in securities that are illiquid and difficult to value. On the other hand, federal securities laws specifically prescribe a mutual fund’s methodology for advertising and calculating current yield, tax-equivalent yield, average annual total return, and after-tax return. Mutual funds must also have detailed requirements for the types of disclosure that must accompany any performance data. Any investor provided with performance data for a hedge fund, should verify whether it reflects cash or assets actually received by the fund as opposed to the manager’s estimate of the change in value of fund assets and whether the data includes deductions for fees. THE RISKS Hedge fund investing can pose several risks for inexperienced and risk averse investors. One of the primary risks associated with hedge fund investing is management’s use of leverage. Generally speaking, leverage is the use of borrowed money to make an investment. Hedge funds manager use borrowed money along with capital provided by investors to make investments with an objective to exponentially increase the potential returns of the fund. Conversely, the use of leverage can magnify the potential loss if an investment strategy fails to work. This can turn a generally conservative investment into an extremely risky investment. Hedge funds also invest in other non-conventional securities such as derivatives (options and futures), and they engage in short-selling strategies (selling a security it does not own), which can likewise increase the potential for major losses to its investors. Another risk associated with hedge fund investing is the limitation placed on investors’ rights to redeem shares. Hedge funds typically limit opportunities to redeem (cash in) shares to monthly, quarterly, or even annual windows, and they often impose “lock up” periods of one year or more, which prohibits investors from cashing in shares during the stated period. During the time it takes investors to redeem shares, the value of the fund could diminish significantly, which in turn could leave investors with a worthless investment. In addition, hedge funds are able to suspend redemptions in certain scenarios, including in times of market distress or when their investments cannot be quickly or easily liquidated. Furthermore, hedge funds may charge investors a redemption fee before allowing them to cash in shares. Hedge funds may also invest in highly illiquid securities. An illiquid security can be difficult to value if the security is thinly traded, or if there is a lack of a secondary market for the security. Hedge funds have wide discretion in valuing illiquid securities, and they oftentimes tend to overstate the securities’ true intrinsic value. This poses a significant risk for investors because they may refrain from redeeming shares if they believe the value of the illiquid security is holding strong, when it could be worth much less. Investors are encouraged to fully understand a hedge fund’s valuation process and know the extent to which a fund’s securities are valued by independent sources. Investors should also keep in mind that valuations of fund asset will affect the fees that the manager charges. THE COSTS Investors should be well informed of the fees and expenses charged before investing in a hedge fund. Fees and expenses significantly affect the return on a hedge fund’s investment. They typically charge an annual asset management fee that ranges between 1 and 2 percent of assets as well as a “performance fee” of 20 percent of the fund’s profit. The peril in such high performance fees is that the manager may make riskier investment decisions to generate a heftier profit for herself. This two layered fee structure stands for the obvious notion that hedge fund profits tend to benefit its managers instead of its investors. It pays and saves to do one’s homework before investing in a hedge fund. Prospective hedge fund investors should start out by researching a hedge fund manager’s background and qualifications. Managers should have a solid investment track record, which proves that they are qualified to effectively manage money, and they should have a clean disciplinary history within the securities industry. In addition, investors should determine whether a potential conflict of interest exists before investing. If an adviser recommending a hedge fund that is managed by the adviser, it may be motivated to recommend the fund because it may earn higher fees from an investor’s investment in the fund than from other available investment opportunities. Hedge funds can be liable to investors for fraudulent activity just as an investment adviser can be liable for wrongfully recommending a hedge fund. Investors who have suffered losses in a hedge fund are encouraged to consult a hedge fund attorney to discuss any possible claims that may lead to a significant recovery of lost capital. The most important of investors’ rights is the right to be informed! This article on hedge funds is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 40 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting...

Continue Reading

GPB Capital Fund Investors: How Do You Recover Your GPB Capital Investment Losses?

Recently, we have received telephone calls from investors inquiring about whether they have suffered losses in one or more of the GPB Capital Holdings, LLC sponsored private placement investments known as: GPB Automotive Portfolio, LP GPB Waste Management Fund, LP GPB Holdings Fund I, LP GPB Holdings Fund II, LP GPB Holdings Fund III, LP GPB New York Development, LP, GPB Cold Storage, LP. GPB Holdings Qualified, LP For some reason, these investors still believe their $50,000, $100,000 or $250,000 investments in one or more of the above-listed limited partnerships (the “GPB Funds”) are still valuable even though they invested in a company: that stopped making the promised distributions with no audited financial statements for years with no Audit Committee because they quit due to perceived risks in the firms books and records that failed to send out Form K-1s so now some IRA investors are going to be penalized whose Chief Compliance Officer was indicted for Obstruction of Justice whose former business partner sued alleging it has been engaged in a massive Ponzi -like scheme for some time that has failed to file mandatory SEC annual and quarterly statements for two years that last reported 39% and 25% declines in valuations of its two biggest funds two years ago and given no valuations since that time whose funds will no longer be permitted on broker-dealer platforms because they cannot be valued whose 2015 and 2016 financial statements admittedly needed to be restated because they were wrong that is under investigation by the FBI, SEC, FINRA, State of Massachusetts and NYC Business Integrity Commission that is a defendant in multiple class action lawsuits GPB Capital investors are shocked when we tell them they lost 8 to 10% of their investment the second they delivered the check due to the excessive commissions paid the broker who sold them. It’s true, GPB Capital has not filed bankruptcy and the company itself has not been indicted or proven to be a Ponzi-like scheme but we will bet (dollars for doughnuts) GPB Capital investors have investment losses and so, you do not have to wait for someone to tell you it’s all gone. But first, what exactly were those so-called investments in the GPB Funds and when are you supposed to get your money back? Investors purchased limited partnership interests that are not transferable and cannot be sold in any public market. The GPB Funds were never obligated to make any redemption or repurchase any investor’s interest in any of the funds. Yet investors were led to believe they would get all of their money back with a nice dividend up until the point of termination. However, there was never any definite termination date for return of those funds. For example, the GPB Automotive Fund stated: While we generally expect the Dealerships to operate for approximately 2 to 5 years, the company’s term will expire on the earliest of: (i) a determination by GPB that the Company should be wound up, (ii) the date we divest our ownership interest in all of the Dealerships, (iii) the termination, bankruptcy, insolvency or dissolution of GPB, (iv) the sale of substantially all of our assets, (v) upon written consent of all our partners to terminate, (vi) an event of withdrawal of GPB, or (vii) a court decree requiring our winding up or dissolution. This appears to be nothing more than an illusory promise about termination and when there will be a return of investor’s capital. Further, if any investment capital is going to be returned, it will not be for years and probably only after a bankruptcy, insolvency or other court ordered dissolution of GPB Capital and the funds it sponsored. Notwithstanding, there is a way for investors to recover the amount they invested in one or more of the GPB Funds before the termination date, whenever that may be in the future. According to SEC filings, more than 60 brokerage firms sold investments in the various GPB Funds. The major players were financial advisors associated with Royal Alliance, FSC Securities, SagePoint Financial, Cetera Advisors and Woodbury Financial Services. These broker-dealers and the others who sold the limited partnership interests (otherwise known as securities) in the GPB Funds were all subject to the federal and state securities laws and regulations, as well as the Financial Industry Regulatory Authority (FINRA) rules governing the offer and sale of securities. They were responsible for conducting due diligence to make sure these investments were reasonable investments for individuals and not a fraud. These broker-dealers and their financial advisors who actually offered and sold the investments were obligated to make sure they did not misrepresent the investment and that these limited partnership interests were suitable investments for the person to whom they were offered and sold. Did they act properly or were the firms conflicted and their advisors blinded by the huge 8-10% commissions? The only avenue for investors to recover their capital invested before the termination date of the GBP Funds is to file a FINRA arbitration proceeding. Many GPB Fund investors are reporting that the stockbrokers and investment advisors who recommended the GPB Funds to them are telling them to hold off and not be so quick to file any suit or arbitration claim. Investors are being told the funds have assets and they have suffered any losses. Why any investor would continue to believe any salesman (who received a 8 to 10% commission) is beyond comprehension given all the bad news, inaccurate financials and now the absence of any meaningful financial information? Investors need to understand those salesman are conflicted in giving you any advice. Any further delay in filing claims could be detrimental to your case and ability to obtain certain remedies under the law like rescission. If you file a timely claim under certain securities statutes you could be entitled to rescind the investment transaction and receive a return of your entire investment plus legal interest from the date of purchase (less any income received) plus attorney...

Continue Reading

Investing in Exchange-Traded Funds (ETFs)

Exchange-traded funds (ETFs) are mutual fund-like registered investment companies whose shares trade on a securities exchange. ETF shares typically trade throughout the day at prices established by the market, just like common stock issuances. ETFs can provide investors with a liquid, low-cost, and tax-efficient way to achieve returns similar to a diversified stock index such as the S&P 500 and the Russell 2000. However, ETFs have become more complex in recent years. Wall Street, in its efforts to generate more profits, has created numerous ETFs that utilize leverage and focus on narrower market sectors, which increases risk for investors. Therefore, investors considering ETFs should evaluate each ETF investment individually and not assume all ETFs are alike. Two types of ETFs that pose a significant risk to investors’ portfolios are leveraged and inverse leveraged funds. Leverage is a technique used in the financial industry to multiply investment gains by using borrowed money. If, however, an investment is generating losses, money can be lost at a multiple rate due to the amount of money owed. Leveraged ETFs seek to deliver multiples of the performance of an index by using borrowed funds. Inverse leverage funds also use borrowed funds to achieve multiples of the opposite of the movement of an index by employing a range of investment strategies such as swaps, futures contracts, and other derivative investments. Thus, leveraged and inverse leverage funds can lose many times their value in a single day, which could ultimately lead to significant losses for investors. ETFs that focus on narrower market sectors are known as Niche ETFs, which pose risks that are not typically explained to investors. Some of the risks associated with investing in Niche ETFs include: Closure – Niche ETFs rarely attract enough capital to make them profitable for their mangers, and they are oftentimes closed because of this. As a result, investors may incur losses or develop tax liabilities on any gains. Illiquidity – Since Niche ETFs are thinly traded, they are illiquid. Consequently, they are more vulnerable to price volatility and market manipulation. Overconcentration – Niche ETF brokers are pushing speculative investments based on hot trends. This investment strategy coupled with a focus on narrower market sectors will result in an under-diversified portfolio for investors. Niche ETFs should be limited to a portion of a well-diversified ETF portfolio, but only after an investor has been qualified. Fees – Niche ETFs usually have hidden costs such as a differential between the purchase price and the sale price as well as a commission for the transaction. There are several measures investors can take to protect themselves against the risks associate with investing in ETFs. By reading the prospectus, investors will get detailed information related to an ETF’s investment objectives, investment strategies, risks, and costs. The Securities and Exchange Commission’s (SEC) EDGAR system, as well as online search engines, can help locate a specific ETF’s prospectus. Prospectuses are also available on the websites of the financial firms that issue a given ETF, as well as through the broker-dealer offering the ETF. Investors should also consider seeking the advice of an investment professional who takes into consideration each individual client’s investment objectives and tolerance for risk. The investment professional should understand the complexity of the product, be able to explain whether or how it meets an investor’s objectives, and be willing to actively monitor the investment. In addition, investors should consider the following before making an investment decision: The stated objective might be relying on a risky strategy – Understand the techniques the ETF uses to achieve its goals will help avoid a host of risks. For example, engaging in short sales and using swaps, futures contracts, and other derivatives can expose the ETF, and ETF investors, to significant losses. The problem with buying and holding – While there may be trading and hedging strategies that justify holding leveraged and inverse leveraged ETFs longer than a day, buy-and-hold investors with an intermediate or long-term time horizon should carefully consider whether these ETFs are appropriate for their portfolio. Because leveraged ETFs “reset” every day, meaning that they are designed to achieve their stated objectives on a daily basis, it is possible to suffer significant losses even if the long-term performance of the index showed a gain. Risks that threaten the ETF’s stated daily objective – There is always a risk that not every leveraged or inverse leveraged ETF will meet its stated objective on any given trading day. Understanding the negative impact an ETF could have on returns while considering goals and tolerance for risk will help optimize portfolio performance. Verify the costs – Leveraged or inverse leveraged ETFs may be more costly than traditional ETFs. Investors can use FINRA’s Fund Analyzer to estimate the impact of fees and expenses on an investment. The SEC’s Mutual Fund Cost Calculator can also help estimate and compare costs of owning funds. Understand the tax consequences – Leveraged or inverse leveraged ETFs may be less tax-efficient than traditional ETFs because daily resets can cause the ETFs to realize significant short-term capital gains that may not be offset by a loss. Prior to investing, it would be best to consult a tax advisor about the consequences of investing in leveraged or inverse leveraged ETFs. The most important of investors’ rights is the right to be informed! This article on exchange-traded funds is by the Law Offices of Robert Wayne Pearce, P.A. , located in Boca Raton, Florida. For over 40 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please visit our blog, post a comment, call 800-732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about losses you may have suffered in exchange-traded funds and/or any related matter.

Continue Reading

Investing in Note-Linked Structured Products

In general, structured products are notes linked to a single security, a basket of securities, an index, a commodity, a debt obligation, and/or a foreign currency. There is a large variety of structured products, some of which offer full principal protection, while others offer limited or no protection of principal. The majority of structured products have a fixed maturity date and pay an interest rate substantially above the prevalent market rate, but they also frequently limit the upside participation in the reference asset if principal protection is offered. Investment banks or their affiliates are the primary issuers of structured products, but the products are not all listed on a national securities exchange. In fact, even those structured products listed on a national securities exchange may be illiquid or very thinly traded. Note linked structured products typically consist of a note and a derivative. The investor receives payments from the note component at a specified rate and interval, and the derivative established the payment at maturity. In some products, the derivative can be a put option sold by the investor, which gives the issuer the right, but not the obligation, to sell the investor the reference security at a predetermined price. On the other hand, the derivative can be a call option sold by the investor, which gives the issuer the right, but not the obligation, to buy from the investor the reference security at a predetermined price. Even though note-linked structured products comprise of a derivative, they are often marketed to investors as debt securities. Note-linked structured products were developed in the 1980s and sold primarily to institutional investors in the 1990s. In recent years, broker-dealers have increasingly targeted general retail investors. Although many of the note-linked products sold to retail investors are based upon “blue chip” and “household-name” stocks that comprise the S&P 500 or the NASDAQ -100 indexes, firm sales practices have created concerns about the manner in which the products are marketed to investors. Over $100 billion worth of note-linked structures products have been sold in recent years, often to senior investors looking to earn more interest while protecting their principal. In addition, they tend to pay higher commissions to brokers than conventional fixed income products do. The Financial Industry Regulatory Authority (FINRA) has established regulatory guidelines for activities related to note-linked structured products, including promotion and communications with the public, recommendations to customers, conflicts of interest, suitability, supervision, and training. In the promotion of note-linked structured products, FINRA has observed that the disclosures provided in supplemental sales materials tend to be unbalanced or offer fewer risk disclosures than are contained in the preliminary and final prospectus supplements. Note-linked structured product marketing materials should not portray the product as conservative or a predictable source of income unless such statements are fair, accurate, and balanced. In addition, guidelines prohibit exaggerated statements and the omission of any material fact that would cause a communication to be misleading. Furthermore, in promoting the interest rate offered by the product and the credit worthiness of the issuer, broker-dealers are required to balance their promotional materials with disclosures about the risks, which may include loss of principal and the possibility that the investor will own the reference asset at a depressed price at expiration – broker-dealers presenting a credit rating must address the fact that the creditworthiness of the issuer does not affect the performance of the investment. Moreover, broker-dealers must be careful to balance any statements concerning the fact that the product has a ticker symbol or has been approved for listing on an exchange with the risks that a liquid trading market may not develop. Broker dealers are required to consider whether note-linked structured products should be recommended to all investors, and not just those that have accounts that have been approved for options trading. Due to the similarity in the risk profiles of both note-linked structures products and options, FINRA deems it appropriate to require that note-linked structured products only be purchased in accounts approved for options activity. However, if firms opt not to limit activity to approved accounts, they out to develop other comparable procedures designed to ensure that note-linked structured products are only sold to investors with a sufficient risk tolerance profile. In addition, sales of note-linked structured products to discretionary accounts must comply with conflict of interest rules. FINRA rules state that if a conflict were to exist, prior specific written approval by the customer would be required. Broker-dealers understand that not every note-linked structured product will be suitable for every account approved to trade such products. Therefore, simply approving an account to trade note-linked structured products is no substitute for a reasonable suitability analysis. A reasonable suitability analysis consists of understanding a client’s financial situation, tax status, investment objectives, trading experience, and ability to meet the risks involved with such products. In order to completely discharge itself from its obligation to complete a reasonable suitability analysis, broker-dealers must also perform appropriate due diligence to ensure that it understands the nature of the product as well as the potential risks and rewards. Overall, broker-dealers cannot make any generalized conclusions about the suitability of a note-linked structured product and an investment in the reference asset seeing as such products may have very different risk-reward profiles than their reference assets. To help ensure that sales of note-linked structured products sales are conducted in compliance with securities laws, broker-dealers are required to establish and implement written supervisory procedures. Written procedures must include: 1) that reasonable basis suitability is completed before the product is offered and sold; 2) associated persons perform appropriate customer-specific suitability analysis; 3) the firm has procedures to determine accounts eligible to purchase structured products; and 4) all promotional materials are accurate and balanced. In addition, written supervisory procedures must be tested to ensure adequate compliance with all applicable securities laws and rules. FINRA guidelines require broker-dealers to train registered personnel about the characteristics, risks, and rewards of each structured product before they allow registered persons to sell...

Continue Reading

Investing in Structured Products

Structured products are securities derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance and/or a foreign currency. They are a hybrid between two asset classes typically issued in the form of a corporate bond or a certificate of deposit but instead of having a pre-determined rate of interest, the return is linked to the performance of an underlying asset class. As this definition suggests, there are multiple types of structured products. These variations include certain products offering full protection of the principal invested while others may offer limited or no protection of principal. The Law Offices of Robert Wayne Pearce, P.A. focuses its practice on securities, commodities and other investment disputes in courtroom litigation, arbitration and mediation proceedings. We understand the features and risks of structured products. They are complex investments that often involve terms, features and risks that can be difficult for individual investors and investment professionals alike to evaluate. We have over 40 years experience representing domestic and foreign investors from offices located in Boca Raton, West Palm Beach, and Fort Lauderdale, Florida in courts, arbitrations and mediations nationwide. Contact us for a free consultation if you already have a dispute or problem with a structured product investment. If not, consider the following before you make any investment in structured product securities: HOW STRUCTURED PRODUCTS WORK Similar to a zero coupon bond, often, no interest payments are made during the life of the security. In most cases, the investor bypasses traditional payments in exchange for participation in the underlying asset class of that particular issue. Any payments earned by the investor, such as through market performance or the return of principal, are determined by the specific terms of each individual deal and are made on the set maturity date. Moreover, many structured products are designed by combining 2 components, a zero coupon bond, providing for the principal return, and a call option on the underlying asset, allowing investors to participate in the potential appreciation of the reference asset. UNDERLYING ASSET CATEGORIES Index: The performance of a selected index is used as a reference asset for some structured products. An index is a statistical measure of change in a securities market and the particular index selected varies by product and issuer. The S&P 500 and Dow Jones Industrial Average are two well known examples, but narrower types of indices may be used, such as those relating to particular sectors or regions. Currency: A selected group or basket of currencies whose weighted average is used as a reference asset for some structured products. The number of and particular currencies selected vary by product and issuer. The Euro and Yen are examples. Commodity: A selected, basic good or group of goods whose value is used as a reference asset for some structured products. The type and number of commodities selected vary by product and issuer. Grains, gold, oil and natural gas are examples. Interest Rates and Yields: Bond indices, yield curves, differences in prevailing interest rates on shorter and longer-term maturities, credit spreads, inflation rates and other interest rate or yield benchmarks are used as a reference asset for some structured products. RISKS TO CONSIDER As an investor, you must be fully aware of the associated risks and whether these securities fit within your investment parameters. Your investment objectives should be carefully considered and discussed with your Financial Advisor. Investors must understand the product’s features and be able to bear the risks associated with investing in them. Features of a particular product, dependent upon the type of structured products issued, to consider when determining its general suitability include: Credit Risk: Structured products are unsecured debt obligations of the issuer. As a result, they are subject to the risk of default by the issuer. The creditworthiness of the issuer will affect its ability to pay interest and repay principal. The financial condition and credit rating of the issuer are, therefore, important considerations. The credit rating, if any, pertains to the issuer and is not indicative of the market risk of the structured product or underlying asset. If a structured issue provides principal protection or a minimum return, any such guarantee rests on the credit quality of the issuer. Those issued by banks in the forms of CDs may also provide FDIC insurance with standard coverage limitations. Liquidity Risk: Structured products are generally not listed on an exchange or may be thinly traded. As a result, there may be a limited secondary market for these products, making it difficult for investors to sell them prior to maturity. Investors who need to sell structured products prior to maturity are likely to receive less than the amount they invested. Therefore, structured products with longer maturities are subject to greater liquidity risk. The price that someone is willing to pay for structured products in a secondary sale will be influenced by market forces and other factors that are hard to predict. Sometimes, a broker-dealer affiliate of the issuer may make a market for the resale of structured products prior to maturity but the price it is willing to pay will be adversely affected by the commissions paid by the issuer on the initial sale of the structured products and the issuer’s hedging costs. Some structured products have lock-up periods prohibiting their sale during such periods. Persons who invest in structured products should have the financial means to hold them until maturity. Pricing Risk: Structured products are difficult to price since their value is tied to an underlying asset or basket of assets and there typically is no established trading market for structured products from which to determine a price. Income Risk: Structured products may not pay interest (or may not pay interest in regular amounts or at regular intervals), so they are not appropriate for investors looking for current income. Because the return paid on structured products at maturity is tied to the performance of a basket of assets and will be variable, it is possible...

Continue Reading

Investing in Private Placements

Private placement or “Regulation D” offerings have become an important source of capital for American enterprises. Since 2008, companies have issued over half a billion dollars a year in securities through the private placement market. Although the private placement market remains a viable source for small business growth, the Financial Industry Regulatory Authority (FINRA) has discovered significant issues in several of their investigations. Some of these alarming issues include fraud, illiquidity, valuation figures, sales practice abuses, and marketing materials issued with inaccurate statements or omitted information pertinent to making a sound investment decision. Such problems pose a legitimate concern for more than most investors who are attracted to the private placement market. However, there are important steps broker-dealers can take in order to limit the possibility of significant losses by clients in the private placement market. REGULATION D There are federal and state laws that prohibit the sale of securities that are not registered with the Securities and Exchange Commission (SEC) and state securities agencies unless the securities or the particular securities transaction is exempt from registration. There are three rules under Regulation D (504, 505 and 506) that provide exemptions from the registration provisions under section 3(b) of the Securities Act. Rule 504 applies to limited offerings for which the total offering price of securities within a one year period does not exceed $1 million. Under Rule 505, limited offerings of securities that do not exceed $5 million within a one year period are exempt and can be sold to an unlimited number of “accredited investors” and up to 35 non-accredited investors. Rule 506 provides a legal safe harbor for an exemption from registration under Section 4(2) of the Act for the sale of securities to an unlimited number of accredited investors and up to 35 non-accredited investors providing that non-accredited investors possess a certain degree of financial sophistication. According to Regulation D, an accredited investor is defined as “any person who meets, or who the issuer reasonably believes meets, certain requirements, including natural persons with a net worth in excess of $1 million or annual income in excess of $200,000 (or $300,000 jointly with a spouse).” PRIVATE PLACEMENT RISKS The following are some of the primary risks associated with investing in private placements: Inadequate disclosure – private placement marketing materials are oftentimes issued with inaccurate statements or omitted information, which are necessary to make an informed investment decision. In fact, Rule 505 and 506 do not require issuers to provide any specific written information concerning the offering to accredited investors. Lack of liquidity – Private placements are illiquid investments. Redemptions are usually restricted, which means that money can be locked up for months or even years. They are not publicly traded, and there is no ready secondary market where securities can be sold. If investors have immediate cash needs, they may not be able to sell the private placement securities without violating the law, and if they are able to sell them, they might find themselves struggling to sell them at a just price. Imprecise valuation – Since no ready market for private placements exists, valuation is left up to mathematical models that may use unreliable factors. Oftentimes, valuations are left up to personal estimates. Insufficient broker due diligence – broker-dealers that sell risky private placements should carry out rigorous due diligence procedures prior to offering them to their clients. However, too many broker-dealers are ignoring red flags and Financial Industry Regulatory Authority (FINRA) suggestions that could prevent clients from suffering investment losses. This may be due to concerns by broker-dealers that private placement sales may slow if clients are aware of the significant risks they pose. BROKER-DEALER OBLIGATIONS If a broker-dealer lacks important information about a private placement issuer or its securities it is recommending, the broker-dealer must disclose this fact along with the risks that arise from a lack of information. However, a broker-dealer is not permitted to rely blindly upon an issuer for information about a company, nor may it rely on information given by the issuer or its counsel in the place of conducting its own reasonable investigation. Broker-dealers are required to exercise a high degree of care in investigating and verifying an issuer’s representations and claims. Even if a broker-dealer’s customers are sophisticated and well-educated investors, it does not obviate their duty to conduct a reasonable investigation. It is recommended that broker-dealers provide the same information to accredited investors as they are required to provide to non-accredited investors to help avoid liability for fraud. The following are some of the other responsibilities that broker-dealers are required to fulfill when recommending private placement investments to customers: Suitability obligations – broker-dealers must conduct a reasonable basis suitability analysis when recommending securities to both accredited and non-accredited investors. This analysis should take into account the investor’s knowledge and experience and not just the investors net worth or income. In addition, broker-dealers must perform a customer specific suitability analysis that considers the individual customer’s other holdings, financial situation and needs, tax status, and investment objectives. Customer should also fully understand and be able handle the risks involved in private placement investing. Conduct reasonable investigations – broker-dealers should, at a minimum, conduct a reasonable investigation concerning the private placement issuer and its management, the business prospects of the issuer, the assets held by or to be acquired by the issuer, the claims being made, and the intended use of proceeds of the offering. Even if a subsequent offering may be for the same issuer, a broker-dealer must conduct a reasonable investigation in connection with each individual offering. Broker-dealers should also retain records documenting bot the process and results of its investigation. Resolve conflicts of interest – If a broker-dealer is an affiliate of an issuer in a Regulation D offering, it must ensure that its affiliation does not compromise its independence as it performs its investigation. Thus, broker-dealers must resolve any conflict of interest that could hinder its ability to conduct a detailed and independent investigation. Investigate private placement memorandum – a broker-dealer that prepares private...

Continue Reading