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Archive for January 2012

Jan/12

26

FINRA Recommends Heightened Supervision of Complex Products

Comments off · Posted by Securities Lawyer in FINRA

The following information is excerpts from the article on the FINRA website. 

The fact that a product is “complex” indicates that it presents an additional risk to retail investors because its complexity adds a further dimension to the investment decision process beyond the fundamentals of market forces. This may be the case even though the complexity of some products may arise from features that seek to reduce the probability of investment losses in particular situations. Regulators have expressed concern about complex products because the intricacy of these products can impair the ability of registered representatives or their customers to understand how the product will perform in a variety of time periods and market environments, and can lead to inappropriate recommendations and sales.

Although this Notice provides guidance about the characteristics of many complex products, it does not define a “complex product” or provide an exhaustive list of features that might render a product “complex.” Moreover, some relatively simple products may also present significant risks to investors that warrant heightened scrutiny or supervision. Each firm is responsible for determining which products require enhanced compliance and supervisory procedures. 

The fact that a product is “complex” indicates that it presents an additional risk to retail investors because its complexity adds a further dimension to the investment decision process beyond the fundamentals of market forces. This may be the case even though the complexity of some products may arise from features that seek to reduce the probability of investment losses in particular situations. Regulators have expressed concern about complex products because the intricacy of these products can impair the ability of registered representatives or their customers to understand how the product will perform in a variety of time periods and market environments, and can lead to inappropriate recommendations and sales.

The fundamental point for firms is that if a product has similar features of complexity, such as embedded derivative-like features or a structure that produces different performance expectations according to price movements of other financial products or indices, then firms should err on the side of applying their procedures for enhanced oversight to the product.

Reasonable diligence must provide the firm or registered representative “with an understanding of the potential risks and rewards associated with the recommended security or strategy.” This understanding should be informed by an analysis of likelyproduct performance in a wide range of normal and extreme market actions. The lack of such an understanding when making the recommendation could violate the suitability rule. Firms should have formal written procedures to ensure that their registered representatives do not recommend a complex product to a retail investor before it has been thoroughly vetted. Those procedures should ensure that the right questions are answered before a complex product is recommended to retail investors. 

A well-designed system of internal controls should include a process to periodically reassess complex products a firm offers to determine whether their performance and risk profile remain consistent with the manner in which the firm is selling them. While a firm’s procedures for approving specific complex products will help to ensure that the solicitation of investors is properly supervised, firms also should consider developing procedures to monitor how the products performed after the firm approved them. Every product presents risks that may cause the product to perform differently than anticipated, particularly when market conditions have changed. Some firms require that complex products be formally reviewed for a specific period of time so that the firm can assess their performance and determine whether product limitations are being met and whether market conditions have altered the risks associated with each product. Firms also should conduct periodic reviews to ensure that only associated persons who are authorized to recommend complex products to retail customers are doing so.

Registered representatives who recommend complex products must understand the features and risks associated with those products. For example, a registered representative who recommends a collateralized mortgage obligation should understand the various features of the instrument, including the prepayment, credit and liquidity risks associated with the collateral and the particular tranche being recommended. Registered representatives who recommend structured products with embedded options and derivatives should possess a sophisticated understanding of the payoff structure, any limit on upside potential and the risks to investors that the payoff structure presents.

The registered representative who intends to recommend a complex product should discuss with the retail customer the features of the product, how it is expected to perform under different market conditions, the risks and the possible benefits, and the costs of the product. The registered representative also should discuss the scenarios in which the product may perform poorly. The registered representative should do so in a manner reasonably likely to facilitate the customer’s understanding. The registered representative should consider whether, after this discussion, the retail customer seems to understand the basic features of the product, such as the fundamental payout structure and the nature of underlying collateral or a reference index or asset.

Conclusion

The decision to recommend complex products to retail investors is one that a firm should make only after the firm has implemented heightened supervisory and compliance procedures. Firms should rigorously monitor the extent to which these procedures address the various investor protection concerns raised by the recommendation of complex products to retail investors. Firms also should monitor the sale of these products in a manner that is reasonably designed to ensure that each product is recommended only to a customer who understands the essential features of the product and for whom the product is suitable.

The entire article is available on FINRA’s website.  The posting is excerpts from the article obtained on FINRA’s website.

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Jan/12

25

Behringer Harvard Client Sees Fund Drop by 96%

Comments off · Posted by Securities Lawyer in FINRA

In a January 24th., 2012 article for InvestmentNews.com, Bruce Kelly writes that it’s more bad news for Behringer Harvard Holdings LLC, as an investor who saw the value of her real estate fund drop to $2,000, from an original investment of $50,000, has begun to complain to regulators.

On January 20th., 2012, D. Gayle Salyer wrote a letter to the Financial Industry Regulatory Authority Inc. to complain about the real estate firm, which has seen the estimated valuations of some its real estate investment trusts and funds slashed recently.

“What is going on with the Behringer Harvard Short-Term Opportunity Fund?” Ms. Salyer wrote. “In a six-year period, BH has blown away $48,000 of my money. I would like to know how much of my money has been taken by Mr. Behringer as salary, benefits and expenses, as well as the management team.”

At the end of 2011, investors in the Behringer Harvard Short-Term Opportunity Fund I LP, which had about $130 million in total assets, saw its valuation drop to 40 cents a share, down drastically from $6.48 a share Dec. 31, 2010.

Kelly writes that Ms. Salyer, 70, said she had not filed an arbitration complaint against her broker, Dennis Freeman, who is affiliated with Capital Financial Services Inc. She also said she wrote the letter to Finra with the assistance of Mr. Freeman, who said that she also sent a letter to the Texas State Securities Board. Behringer Harvard is based in Addison, Texas.

The InvestmentNews.com article adds that particularly distressing is the lack of direct communication from Behringer Harvard explaining what happened to wipe almost all of the fund’s value, said Ms. Salyer, who also lost $32,000 of a $50,000 investment in Provident Royalties LLC, a series of private placements that the Securities and Exchange Commission in 2009 charged with fraud. Behringer Harvard “keeps sending me stuff that shows my money is gone,” she said. “The only communication is the [account] statement. They sent nothing to say we’re in trouble. Nothing.”

The (SEC) Securities and Exchange Commission has jurisdiction over funds and REITs, while Finra has jurisdiction over broker-dealers that sell those products, industry observers noted.

Kelly writes that Finra has recently drawn attention to the issue of how the valuation of illiquid investments — including non-traded REITs — are shown on client account statements. In September, Finra issued for comment a proposed amendment to the current rule, and the proposal would limit the time period that the initial, estimated value would be used on the client account statement. The rule change would also require broker-dealers to deduct costs of the offering, such as commissions to brokers, from that initial valuation.

“We are looking into the areas over which we have jurisdiction, including sales to investors by broker-dealers,” said Finra spokeswoman Nancy Condon. “But we can’t comment about ongoing investigations.”

“Client-specific information is confidential and Behringer Harvard does not comment publicly about specific clients,” Behringer CEO Bob Aisner said in a statement. “Our investment services team is available to speak with investors and their financial representatives about specific account questions.”

Kelly writes that  the Short-Term Opportunity Fund makes information public through regular reports and filings with the Securities and Exchange Commission. In the statement, Mr. Aisner also said: “Behringer Harvard has been very committed to the success of the fund, as evidenced by $40 million of support from Behringer Harvard which will not be recouped.” That support included waived fees and cash support from the sponsor for the fund, he wrote in the statement.

“Since the inception of the fund, investors have received $2.12 per unit in total distributions, which includes both recurring monthly distributions and special distributions,” Mr. Aisner wrote. “Condominium projects and single-family lot developments, which usually depend on redevelopment, repositioning or recapitalization, were especially hard-hit, and the fund invested in these asset types before the great recession. In addition, the fund was significantly negatively impacted by the lack of availability of financing for opportunistic assets over the last several years.”

Capital Financial Services stopped selling Behringer Harvard products within the last year said the broker, Mr. Freeman.

Behringer Harvard continues to see a reshuffling of its management team. This morning, it said that Michael J. O’Hanlon has joined the firm as executive vice president and that he will be the chief executive of Behringer Harvard Opportunity REIT I Inc., which saw its estimated value decline to $4.12 per share at the end of last year, from $7.66 a year earlier. He will also be the CEO of Behringer Harvard Opportunity REIT II. He replaces Mr. Aisner, who will be vice chairman for both those REITs.

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Jan/12

25

BEHRINGER HARVARD PRICE DROP – CALL A SECURITIES LAWYER TO DISCUSS YOUR RIGHTS.

Comments off · Posted by Securities Lawyer in FINRA

Investors in the Behringer Harvard Short-Term Opportunity Fund I LP, which had about $130 million in total assets, saw its valuation drop to approximately .40 cents a share, down drastically from aproximately $6.48 a share.
 
Behringer Harvard still hasn’t explained what happened to wipe almost all of the fund’s value.
 
The Securities and Exchange Commission has jurisdiction over funds and REITs, while Finra has jurisdiction over broker-dealers that sell these products, industry observers noted.
 
Speak to a FINRA arbitration lawyer today regarding your Behringer Harvard losses. Call 888-760-6552 or visit http://www.securitieslawyer.com. Representing Behringer Harvard investors nationwide.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Jan/12

22

Complex Investment Products to See More Scrutiny by Finra

Comments off · Posted by Securities Lawyer in FINRA

In an InvestementNews.com article from January20,2012, Dan Jamieson writes that in a regulatory notice, Finra outlined characteristics of what it calls “complex products,” which could include structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products such as asset-backed securities.

Finra stated that brokerage firms should have formal written procedures covering everything from the initial due diligence to post-sale performance. This notice specifically identifies duties that fall to individual brokers in understanding complicated products and explaining them to customers. The notice also said that registered representatives should consider whether less complex and cheaper products might achieve the same objectives.

“Finra is letting it be known that recommendations of complex products will be given even more scrutiny going forward,” said Mary Harris-King, co-founder of Comprehensive Securities Compliance Solutions Inc.

Jamieson writes that in its notice, Finra reviewed what a number of European regulators had done in characterizing various complex products. The notice also said that registered representatives should consider unbundling structured products.

“Registered representatives should compare a structured product with embedded options to the same strategy through multiple financial instruments on the open market, even with any possible advantages of purchasing a single product,” Finra said in the notice.

This was good news to Robert Gordon, chief executive at Twenty-First Securities Corp., which replicates structured notes by buying underlying instruments like zero-coupon Treasuries and options on ETFs.

“It looks like Finra is saying that brokers can’t say this [structured note] is simpler — that’s not a good excuse” to buy it, he said.

The InvestmentNews.com article goes on to say that buying the components of a note that guarantees principal is 2% to 3% cheaper than buying the package, offers tax advantages, and lessens counterparty risk, Mr. Gordon said.

If you or a family member have sustained losses in  your investments due to your stock broker or financial advisor’s recommendation, call 888-760-6552, or visit www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
 

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Jan/12

20

Cerulli Study Finds Most Advisers Overstating their Expertise

Comments off · Posted by Securities Lawyer in FINRA

In a January 19th., 2012, article for InvestmentNews.com, Jeff Benjamin writes that when pressed, it seems financial intermediaries will tend to overstate their qualifications and services, according to Cerulli Associates Inc.

“Most advisers don’t want to say that they don’t offer some kind of service, so they are more likely to overstate their capabilities,” said Scott Smith, a Cerulli analyst.

Benjamin states that in studying the responses of more than 1,500 financial intermediaries, gathered over the past year as part Cerulli’s annual quantitative-update report on the industry, Mr. Smith recognized a pattern of misrepresentation.

“We found that 59% of respondents were calling themselves full-scale financial planners, when it fact many of them were actually investment planners,” he said.

In Cerulli’s report, which divides the overall financial intermediary universe into four broad categories, there are subtle yet distinct differences between an investment planner and a more comprehensive financial planner.

The InvestmentNews.com article goes on to say that even though 59% of respondents identified themselves as financial planners, Cerulli calculated that only 30% actually fit the definition of being better qualified and certified, working with clients to build comprehensive plans that include insurance and estate planning.

This article defines investment planners, as focusing on asset management, retirement and college savings plans but tend to offer more-modular-style plans.

According to Mr. Smith, the Cerulli analyst, only 22% of the 1,500 respondents identified themselves as investment planners. But when he went over the details of each respondent’s business, Mr. Smith realized that 56% of respondents are actually investment planners. Mr. Smith said much of the discrepancy could be attributed to that fact a lot of advisers view themselves as being more comprehensive than they actually are, simply because they believe they have the potential to be more comprehensive.

“Firms have encouraged their advisers to expand their advice relationships with clients; however, advisers tend to overstate the degree to which they are involved in the planning process,” he said. “The movement to extend advice services is likely being accelerated by turbulent markets, as advisers who base their value to investors on investment performance have suffered more than those with broad advice relationships.”

Benjamin writes that in the two remaining categories — money manager and wealth manager — Cerulli found that advisers have a more realistic perspective on the services they are providing.

Money managers, defined as mostly managing and building portfolios, were identified by Cerulli as representing 9% of the total universe, which was in line what survey respondents indicated.

Cerulli identified 11% of respondents as wealth managers, which compares with 6% of survey respondents identifying themselves as such.

If you or a family member have sustained losses in any of your investments due to your stock broker or financial advisor’s recommendation, call 888-760-6552, or visit www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Jan/12

18

Did you Invest in Barclays’ Exchange Traded Notes?

Comments off · Posted by Securities Lawyer in FINRA

Exposure to the CBOE Volatility Index (VIX) has been available since 2004 in the form of futures, and since 2006 in the form of options, but recently new exchange-traded products have offered retail investors an easier way to gain exposure to this popular measure of market sentiment. The most successful of these products so far has been Barclays’ VXX ETN, which has grown to a market cap of just under $1.5 billion. However, the VXX ETN has lost more than 90% of its value since its introduction in 2009, compared to a decline of only 60% for the VIX index. This poor relative performance is because the VXX ETN tracks an index of VIX futures, contracts that can incur negative roll yield.
 
The Volatility Index (VIX) is a calculation by the Chicago Board Options Exchange (CBOE) that is designed to measure the market expectation of future volatility implied by the S&P 500 stock index options prices. Inclusion of exposure to the VIX index in an investor’s portfolio can be desirable as a diversification and a hedge.
 
However, exposure to the VIX index can only be achieved by investing in VIX futures and options contracts. Barclays introduced in 2009 the VXX Exchange Traded Note that offers exposure to the return to a reference index that reflects the changes in return to a bundle of 1 and 2 month futures contracts on the VIX index, and thus, indirectly, the VIX index.
 
The VXX ETN is an extremely complicated and risky investment. Equity volatility is notoriously difficult to predict, and while its negative correlation with equity market movements may seem attractive as a long-term hedge, the fact that the VXX ETN’s
reference index tracks futures contracts instead of the actual VIX index means that substantial deviations between the two are likely. Investors should understand that the relationship between the VXX ETN and the VIX index is not straightforward, and that the relationship between the VIX and the S&P 500 indexes is also complex.
 
The VXX ETN should be considered only by investors who fully understand the term structure of the VIX futures market and who are prepared for the large, sudden movements and prolonged periods of decline characteristic of volatility exposure.
 
Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained losses in Barclays’ Exchange Traded Notes, due to your stock broker or financial advisor’s recommendation, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Jan/12

17

Did You Invest in These Oil and Gas Offerings?

Comments off · Posted by Securities Lawyer in FINRA

Soreide Law Group, PLLC, is currently investigating the following oil and gas deals:

KBS REIT, DBSI, BDA Bradford Drilling, United Development Fund, Leaf Equipment Leasing Fund, Cypress Equipment Fund, Net REIT, REEF Income and Development Fund, and Waveland Drilling Partners.

Investors can file arbitration claims, as an option if they have been victimized by these products, if the investments were recommended by a financial advisor at a brokerage firm.

There were massive commissions involved in oil and gas deals, and the commissions often provided an incentive for the broker to recommend these products. In many cases, these were not appropriate or suitable investment recommendations for their clients. Often, an unsuitable and inappropriate amount of the client’s portfolio was placed into these investments. Brokers and financial advisors have a duty to only recommend investments that are appropriate for their client.
 
If you or a family member have sustained losses in any of these oil and gas investments due to your stock broker or financial advisor’s recommendation, call 888-760-6552, or visit www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Jan/12

16

Did You Invest in These TIC/DST Offerings?

Comments off · Posted by Securities Lawyer in FINRA

 Soreide Law Group, PLLC, is currently investigating the following TIC/DST Offerings. If your stock broker or financial advisor recommended any of the following investments, and you sustained a significant loss of your investment. call 888-760-6552 for a free consultation.

TIC/DST Offerings -

ArciTerra Strategic Retail – Park Lee
Bluerock Mesa Ridge Apartments DST
PASSCO – Legends at Indian Springs
Inland Discount Retail Portfolio III
Inland Grocery & Pharmacy Portfolio DST
Inland Walgreens Pharmacy Portfolio II DST
Inland CVS Pharmacy Portfolio III DST
Inland CVS Pharmacy Portfolio IV
Inland National Net Lease Portfolio
Principle Equity National Oilwell Varco DST
Rainier Exchange Portfolio I, DST
Rancon Medical and Educational Center
REVA – Raleigh RTP, LLC 1
REVA – Raleigh RTP, LLC 1
TNP 121 S. Martin Luther Blvd.
 
If you have sustained losses in any of these funds due to your stock broker or financial advisor’s recommendation call 888-760-6552, or visit www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Jan/12

16

Have You Invested in These REITS?

Comments off · Posted by Securities Lawyer in FINRA

Soreide Law Group, PLLC, is currently investigating the following REIT investments. If your stock broker or financial advisor recommended any of the following investments, and you sustained a significant loss of your investment. call 888-760-6552 for a free consultation.

- REITS -
 
Medical Hospitality Group, Inc.
American Realty Capital Daily Net Asset Value, Inc.
ARC Retail Centers of America
American Realty Capital Trust III, Inc.
ARC Healthcare Trust
American Realty Capital Phillips Edison Shopping Center REIT
American Realty Capital Trust, Inc.
American Realty Capital New York Recovery REIT
ARC Property Trust, Inc.
Arciterra National REIT, LP
Behringer Harvard Multifamily REIT II, Inc.
Behringer Harvard 2008 Multifamily REIT I
Behringer Harvard Opportunity REIT II
Bluerock Enhanced Multifamily Trust, Inc.
Carter Validus Mission Critical REIT
Clearwater Opportunity REIT
Cornerstone Core Properties REIT, Inc.
Hines Global REIT, Inc.
Inland Diversified REIT
Lightstone Value Plus REIT II
NetREIT Dubose Model Home REIT, Inc.
O’Donnell Strategic Industrial REIT, Inc.
Preferred Apartment Communities, Inc.
US Apartment Investors 2010, Inc.
Wells Core Office Income REIT
Wells REIT II
Wells Timberland REIT
 
If you have sustained losses in any of these REIT funds due to your stock broker or financial advisor’s recommendation call 888-760-6552, or visit www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Jan/12

16

Did Your Stock Broker or Financial Advisor Recommend the Purchase of Roundstone Healthcare Capital Partners, LLC or one of its Affiliates?

Comments off · Posted by Securities Lawyer in FINRA

Recently, start-up fund, Roundstone Healthcare Partners, and its affiliates, have filed a RICO suit against numerous defendants in “GREENFISH II, L.P. et al v. INTERNATIONAL PORTFOLIO, INC. et al,” which alleges that Roundstone and their affiliates were sold portfolios of medical receivables at artificially inflated values with no real ability to resell. Roundstone then, through stock brokers and financial advisors, sold these receivables to the general public.
 
Roundstone Healthcare Capital has purchased more than $2 billion of discounted portfolios of hospital patient-care receivables. The firm gets returns for its investors through collection efforts and the eventual resale of the portfolios into the secondary credit collection markets.
 
If you have invested in a Roundstone receivable through your stock broker or financial advisor contact Soreide Law Group, PLLC, today at (888) 760-6552 or visit our website at:  http://www.securitieslawyer.com
 

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