Victory – Vindicated By The California Court of Appeals

“The victory benefits investors everywhere by making clear that basic rules of due process do apply in FINRA arbitration”

In August, 2014, I represented Sandra Liebhaber in a FINRA hearing requested by Royal Alliance Associates and its one time financial advisor, Kathleen Tarr. This was an expungement hearing in which Royal Alliance and Tarr asked FINRA to erase any trace of the claim that my client had filed and settled with Royal Alliance. To grant that extraordinary remedy, the FINRA three-person panel had to find essentially that Ms. Liebhaber had filed a false claim. Ms. Liebhaber did not and would not file a false claim, and when I found out about the request, Darlene Pasieczny and I agreed to represent her without charge at the hearing to oppose the expungement. At the hearing, the arbitrators allowed Ms. Tarr to testify that she was a minister’s daughter and had done nothing wrong. When I asked to cross examine Ms. Tarr, the FINRA panel refused to allow me to ask her any questions. I then asked permission to call Ms. Liebhaber as a witness, to testify about what Ms. Tarr really had done. The panel refused to allow her to testify, as well. And, along the way, they told me that they had heard enough from me, despite the fact that I retained my cool and acted with respect through the entire Gulag-like ordeal. When the decision came down, and not surprisingly, the panel granted the expungement.

Yesterday, we were vindicated by the California Court of Appeals. The court found that the panel had acted improperly. It vacated the FINRA panel’s decision granting expungement. Ms. Liebhaber’s claim will remain on Ms. Tarr’s Broker-Check report, as it should.

The victory benefits investors everywhere by making clear that basic rules of due process do apply in FINRA arbitration. It was the product of many hands. I owe a debt of gratitude to my friend and colleague in Beverly Hills, Lenny Steiner, who ably represented Ms. Liebhaber before the California Court of Appeals. I thank FINRA itself for recognizing that the panel had done wrong, and joined us in the request that the court toss the arbitration ruling. I also thank Susan Antilla, whose reporting on this case originally in The New York Times, and again yesterday in TheStreet.com, brought much-needed national attention to the case. And, last but clearly not least, I thank Sandra Liebhaber, who cared enough for future victims of investment abuse to fight the good fight.

A copy of the California Court of Appeals decision, which is scheduled for publication, can be found on the California Courts website.

 

Investor Defenders is a practice group of Samules Yoelin Kantor LLP focused on representing investors in situations where professional misconduct resulted in a financial loss. Lead securities attorney Bob Banks has earned a national reputation for his success fighting on behalf of investors in FINRA arbitration and in court for over 30 years. Consultations are complimentary and most cases are done on contingency fee, meaning that our clients do not pay any attorney fees unless we recover losses.

Aequitas Investor Updates

                  UPDATE: We have created a site specific hub for investors wanting information about the Aequitas Situation.

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Recent Concerns:

 In the last two weeks, we have been contacted by investors  around the country who were sold investments in the Aequitas Income Opportunity Fund II, LLC in 2015 and into 2016.  This was at a time when the Securities and Exchange Commission was investigating Aequitas, when Aequitas was unable to make payments on its private notes to lenders, and when the Consumer Financial Protection Bureau was investigating Aequitas for its lending practices. We are at a loss to understand how professional Registered Investment Advisory firms and their investment advisors would put their clients’ retirement money into the Income Opportunity Fund II (or any Aequitas investment) in 2015 and 2016 in light of those events.   We also question how Aequitas and its accountants and legal advisors could offer those investments without amending or supplementing their written disclosures to reflect Aequitas’s list of new problems.

Early Aequitas Warnings.

Investor rights attorney Bob Banks (click here for full biography)  has been following Aequitas since 2011, when a  high net worth client asked for advice on whether an investment in secured subordinated promissory notes issued by Aequitas Commercial Finance, LLC Fund was a safe investment.  After reviewing the prospectus for that investment, Banks strongly advised his client not to make the investment.  Among other things, Banks told his client that, contrary to the oral statements that were made to him, the Aequitas fund was not comprised of truly “secured” notes because other creditors would be paid before investors per the subordination agreements tied to the notes.  Additionally, Banks noted, the Commercial Finance LLC notes involved loans to companies that were not able to get financing from traditional financial institutions, making them more of a credit risk.  The “security” that was touted on some of the loans was equipment whose true value was not disclosed and may have been worth less than the loans they secured.  And, the “security” was based on personal guarantees from persons of unknown credit reliability.  Finally, Banks advised his client of the levels of fees charged to investors in the Commercial Finance LLC Fund, which is a common denominator running through all of the Aequitas investments Banks has reviewed.

Since then, Mr. Banks, associate attorney Darlene Pasieczny, and others on the team at Samuels Yoelin Kantor have followed Aequitas’s growth decline.

What Now? Primer On The Laws Governing Investment Advisors and Issuers of Investment Securities.

It is against the law to sell investments by means of misrepresentations of fact or by omitting to state important facts that a reasonable investor would want to know about. The rules governing FINRA-licensed financial advisors requires that the advisor understand any investment he or she recommends, and state that advisors cannot recommend any investment that is not suitable to the investment objectives and risk tolerance levels of the investor.  The law also provides that Registered Investment Advisors have a fiduciary duty to their clients.  That means, first and foremost, that they must place their clients’ interests ahead of their own interests.  In other words, they cannot recommend investments that pay high commissions and fees if it is not in their clients’ best interest.  We believe that Aequitas investments were sold in violation of the securities laws and the fiduciary responsibility laws, and that the investors we have agreed to represent are entitled to a refund of their investments, together with interests and their attorney fees. We are preparing to pursue those claims for investors in the Aequitas Income Opportunity Fund II and all other Aequitas investments that were misrepresented to individuals and institutions.

If you have questions about your investment and what you should do, or if you have information to share, please contact our office at 800-647-8130 or by email at bbanks@samuelslaw.com

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George Merhoff and Energy Stocks – The Investigation Continues

The Investigation of Klamath Falls Financial Advisor George Merhoff Jr. and Cetera Investments, Pacific West Securities, Inc. Continues

Customer Concerns Grow About Energy Stock Concentration and George Merhoff

Our office continues to investigate Cetera Investments and its representative George Merhoff Jr. Since our last reporting, even more investors have called us to report that they suffered significant losses in their accounts as a result of having virtually all of their investments in energy stocks. We continue to evaluate how widespread this problem is for our clients and potentially others who were customers of George Merhoff. Mr. Merhoff is currently a registered representative of Cetera Investments, and was previously a registered representative of Pacific West Securities, Inc.

If you are or were a customer of George Merhoff and are willing to share your information with us that might help us in this investigation, or if you have lost money in another investment or have concerns about the conduct of another financial advisor, please call our office at 800-647-8130 for a confidential, and free no obligation consultation.

Is Your Investment Portfolio Over-Concentrated in Energy Stocks?

Here is why we are conducting our investigation: When a portfolio is heavily weighted in one particular industry sector, we refer to it as a non-diversified, over-concentrated account. Over-concentration increases volatility and risk in investment portfolios. Licensed securities stockbrokers and have an obligation under the law and FINRA Rule 2110 to recommend only suitable investments and trading strategies, based upon the particular customer’s risk tolerance, investment objectives, investment experience, time frame, and other factors when recommending an investment. If a broker recommends the same types of concentrated energy sector portfolios to a broad array of clients, regardless of their needs for safety and moderation, that suggest that the securities laws may have been violated.

What is FINRA and what is the Suitability Rule?

FINRA (the Financial Industry Regulatory Authority) is the self-regulatory organization that is authorized by Congress to regulate the securities industry.

That includes brokers and brokerage firms. FINRA has various rules to do this including Rules 2110 and 2111, which provide that a broker’s investment recommendations must be “suitable” for the customer. Suitability includes reasonable-basis suitability (that the investment or investment strategy is suitable for at least some investors), customer-specific suitability (the recommendations are suitable for that specific customer), and quantitative suitability (that a series of recommended transactions, even if suitable in isolation, when considered together are not excessive and unsuitable for that customer). Violations of the FINRA suitability rules may implicate other laws such as negligence and breach of fiduciary duty, and financial losses caused by the unlawful conduct may be recoverable by the investor.

Do you have questions about losses in accounts managed by Cetera Investments or George Merhoff?

The fact that you invested with Mr. Merhoff or Cetera does not necessarily mean that there was wrongdoing. However, if your account was over-concentrated in energy stocks and you did not ask for those investments, we would like to hear from you. Bob Banks, a nationally recognized securities attorney, has fought for investors in court and FINRA arbitration since 1985. He has successfully represented investors in over-concentration cases where there has been a failure to diversify investments. He leads the Investor Defenders practice group at Samuels Yoelin Kantor LLP. If you have lost money in an investment, or if you have any concerns about the conduct of your financial adviser, please contact us, or call our office at 800-647-8130 for a free no obligation consultation.

Energy Stocks: Problems with Cetera Investments and George Merhoff

Investigation: Cetera Investments and George Merhoff

At the request of our clients, we are investigating Cetera Investments and its representative George Merhoff Jr. regarding concerns that the investment portfolios held at that firm were overly concentrated in energy stocks. Investors report to us that they have suffered significant losses as a result of having virtually all their investments in energy company investments. We are evaluating how widespread the problem is for our clients.  We also want to compare similarities of our clients’ investment portfolios to those of other clients of Cetera Investment where George Merhoff was the advisor. Please feel free to contact our office if you are willing to share information that might assist our clients and us in this investigation. You may remain anonymous if you prefer.

Is Your Account Concentrated In Energy Stocks?

Here is why we are conducting our investigation: When a portfolio is heavily weighted in one particular industry sector, we refer to it as a non-diversified, over-concentrated account. Over-concentration increases volatility and risk in investment portfolios. Licensed securities stockbrokers and have an obligation under the law and FINRA Rule 2110 to recommend only suitable investments and trading strategies, based upon the particular customer’s risk tolerance, investment objectives, investment experience, time frame, and other factors when recommending an investment. If a broker recommends the same types of concentrated energy sector portfolios to a broad array of clients, regardless of their needs for safety and moderation, that suggest that the securities laws may have been violated.

FINRA BrokerCheck Reveals Customer Complaints

Mr. Merhoff and Cetera are both registered with the Financial Industry Regulatory Authority. Mr. Merhoff’s (CRD#2918171) FINRA BrokerCheck report reveals six prior disclosure events. He previously was registered with Pacific West Securities Inc. in Klamath Falls, Oregon. Cetera Investment Services (CRD#15340) operates out of St. Cloud Minnesota, and has offices in Oregon. Their BrokerCheck report shows 26 disclosure events including claims of breach of fiduciary duty and failure to supervise.

Do you have questions about losses in accounts managed by Cetera Investments or George Merhoff?

The fact that you invested with Mr. Merhoff or Cetera does not necessarily mean that there was wrongdoing. However, if your account was over-concentrated in energy stocks and you did not ask for those investments, we would like to hear from you. Bob Banks, a nationally recognized securities attorney who is listed in SuperLawyers and Best Lawyers In America, has fought for investors in court and FINRA arbitration since 1985.  He has successfully represented investors in over-concentration cases where there has been a failure to diversify investments. He leads the Investor Defenders practice group at Samuels Yoelin Kantor LLP. If you have lost money in an investment, or if you have any concerns about the conduct of your financial adviser, please contact us or call our office at 800-647-8130 for a free no obligation consultation.

Three Protections For Pension Funds

Geoff Mulville wrote in an article for the Associated Press printed in The Oregonian on January 24 that pension funds could be damaged by the recent stock market slide.

Pension and other retirement funds will best weather the storm when protected by the following three strategies:

  1. Proper Asset Allocation
  2. Diversification Within Asset Classes
  3. Careful Management of Investment Costs

If you are an employer who selected your fund manager, do you know how to evaluate those criteria? Bob Banks works with registered investment advisors to evaluate and advise about the legal and investment consequences of your employer sponsored retirement fund.

Investor Defender attorneys Robert S. Banks Jr. and Darlene Pasieczny have the experience, knowledge, and dedication to help you. Banks, a nationally recognized securities attorney, has fought on behalf of investors in court and FINRA arbitration since 1985. If you have concerns about your investments, lost money in an investment, or if you have concerns about the conduct of your financial advisor, please contact us for a free, confidential initial consultation with an experienced securities litigation attorney. For more information about different types of securities claims, the FINRA arbitration process, current investigations, sample cases and results, and our attorneys, visit our website at InvestorDefenders.com and SamuelsLaw.com.

Investment Losses in Oil, Gas, and Energy Driving Down Your Retirement Savings?

You might have a claim to recover your loss in oil, gas, or energy stocks.

If you have concerns about the effect that oil, gas and energy stocks and investments are having on your retirement savings, we are happy to provide a free and confidential review of whether claims may exist based on your investments, and whether you have a right to recover your losses.

Investments in oil and gas stocks and partnerships have taken a real hit lately. Energy stocks in general have as well. However, if your financial advisor has properly allocated and diversified your retirement savings, you should not see a significant decline in your savings because of these investments. That is because oil, gas and energy stocks should only represent a small portion of your retirement savings, unless you specifically instructed your advisor to overweight your savings with those investments.

We have received calls from very concerned investors this month, who tell us that their accounts have lost 50% or more in value in recent months. The reason is that they were grossly over-concentrated in energy stocks. We have been retained to investigate and file claims against advisers who have invested too much of their clients’ savings into the energy sector. Among others, we are investigating portfolios managed by Cetera Advisors and George Merhoff, based in Colorado and Oregon, respectively.

Since 1985 Bob Banks Jr. has fought on behalf of investors nationwide in court and FINRA arbitration. He leads the Investor Defenders team at Samuels Yoelin Kantor, LLP. He has represented many investors on claims to recover investment losses resulting from over-concentrations. If you’ve lost money in an investment, or if you have concerns about the conduct of your financial adviser, he will speak with you directly. Please contact us or call our office at 800-647-8130.

The North American Securities Administrators Association Nation (NASAA) and the Securities Exchange Commission (SEC) have published the linked informational articles about energy stocks. Please understand, while filing a complaint with these agencies is helpful for future investors, it is not likely to result in any loss recovery for you, and it does not stop the applicable statutes of limitation from running. Those time periods do not stop running until a lawsuit or FINRA arbitration claim is filed.

Before Hiring a Financial Professional – Ask These Questions

It’s a new year and you’re looking to hire a broker or investment advisor to help you with your financial planning and investment decisions. What questions should you ask at that first meeting? FINRA recently released an Investor Education top 5 questions to ask:

1. What experience do you have working with people like me?

2. Are you registered with FINRA, the SEC or a state securities regulator?

3. Do you or your firm have an overarching investment philosophy?

4. Do you or your firm impose any minimum account balances on customers?

5. How do you get paid?

Before you entrust your retirement or other savings with a financial professional, it’s important that you understand the answers to these and other questions.

The Investor Defenders attorneys at Samuels Yoelin Kantor represent investors each day who were unlucky in hiring the wrong adviser. We work to recover investment losses caused by negligent portfolio management, unsuitable product sales, excessive transactions (“churning”), and other bad acts.

Investor Defender attorneys Robert S. Banks Jr. and Darlene Pasieczny have the experience, knowledge, and dedication to help you. Since 1985, they have represented clients nationwide. If you have concerns about your investments or the conduct of your financial adviser, please contact us for a free, confidential initial consultation with an experienced securities litigation attorney. For more information about different types of securities claims, the FINRA arbitration process, current investigations, sample cases and results, and our attorneys, visit our website at InvestorDefenders.com and SamuelsLaw.com.

LPL Financial In Trouble Again For Improper Sales of Non-Traded REITs

The North American Securities Administrators Association (NASAA) announced Wednesday a settlement with brokerage firm LPL Financial. The settlement is the result of a multi-state investigation led by the Nevada Secretary of State Securities Division into LPL’s failure to implement adequate supervisory systems and failure to enforce its own written procedures regarding sales of non-traded REIT shares.

Under the terms of the settlement, in addition to remediating certain investor losses, LPL will pay civil penalties of $1.425 million to be distributed among 48 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. LPL already reached a prior settlement with Massachusetts’s securities regulators in 2013, and a separate action by New Hampshire securities regulators is still pending.

This is only the latest sanction against LPL for improper sales of non-traded REIT shares to investors. In May, 2015, the Financial Industry Regulatory Authority (FINRA) ordered LPL to pay about $10 million for broad supervisory failures in the sales of non-traded REITs, non-traditional exchange-traded funds (ETFs), certain variable annuities and other complex products.

My advisor sold me a non-traded REIT…. I didn’t understand the risks. Can I get my money back from these state regulator settlements?

If you have any concerns about a sizable non-traded REIT purchase, contacting an attorney experienced in representing investors in securities litigation and FINRA arbitration is your first stop.   While the recent settlements between LPL and other brokerage firms with state securities regulators may include some limited compensation for certain investors, only a private action in court or FINRA arbitration is the best chance to rescind (unwind) an unsuitable investment sale, or otherwise recover your investment losses from improper investment recommendations.

What’s so Risky About Non-Traded REITs?

  • Not a “liquid” investment. Non-traded means not traded on a public securities exchange. It may be that the only way an investor can re-sell the shares is to take pennies on the dollar in a private secondary market.   A financial advisor should clearly explain this to you before you invest, and you should be willing to take the risk of not having access to your investment. Be wary if your advisor tells you not to worry, that the company will buy it back, or that they can make special arrangements for a sale. A non-traded REIT may occasionally offer to buy back a limited amount of investor shares at some highly discounted value, but the company is not required to do that and it is impossible to predict if or when it may happen.
  • Expected holding time can be long (7-10 years) and may never end. The idea behind a REIT is that it is a pooled investment fund for income-producing real estate with special tax breaks under the Internal Revenue Code. At some point, the real estate project may fully develop and the company has a “liquidity event” – the first date when an investor can sell his or her shares. But, that date can be years away – or never occur – if the underlying real estate investments are unsuccessful.   Retail investors are unsecured creditors if the company goes belly-up, putting you at the end of the line for a payout. Be wary if your advisor recommends a non-traded REIT without explaining the risk of a long time horizon or total loss of your investment, in particular if you are 60+ years old and thinking about retirement needs.
  • High front-end fees that may not be disclosed end up costing investors. Those fees can be up to 16%, so the $10,000 you put in is really only an $8,400 investment. That makes a big difference over time as to how dividend payments are calculated and your principal investment value.

A recent study by the Securities Litigation & Consulting Group found that investors are about $50 billion worse off for having put money into non-traded REITs, versus exchange-traded REITs (which do exist).

  • Those same front-end fees mean big commissions for the financial advisor. Your broker might earn 8 – 10% on the sale of a non-traded REIT. This can create an incentive to recommend unsuitable products to the investor. Be wary if your advisor does not (or cannot) explain the illiquidity, long time horizon, higher risk of loss of investment, and high costs of purchasing a non-traded REIT.

These are some of the most prominent risks of non-traded REIT sales. Many brokerage firms, not only LPL Financial, have been sanctioned for supervisory failures and other sales practice violations regarding these risky products. Whether a non-traded REIT is a suitable component of an investment portfolio is a case-by-case analysis, and the Investor Defender attorneys at Samuels Yoelin Kantor LLP may be able to help recover your money.

Investor Defender attorneys Robert S. Banks Jr. and Darlene Pasieczny have the experience, knowledge, and dedication to help you. Mr. Banks himself has over 30 years experience representing investors in recovering millions of dollars in investment losses, and he has served on FINRA’s own National Arbitration and Mediation Committee. If you have concerns about your financial advisor or investment portfolio, please contact us and visit our website at investordefenders.com.