FINRA Filings from Conservative Investors Who Were Sold Complex Products is on the Rise

Financial regulators are confronting investor frauds that are giving retirement savers steep losses on complex products that until a few years ago were aimed only at the most sophisticated investors, writes Nathaniel Popper in a New York Times article from Feb. 11, 2013.

These victims are among the millions of Americans whose mutual funds and stock portfolios fell in the financial crisis, and who started searching for ways to make better returns. Many investors put money into speculative bets promoted by aggressive financial advisers. These investments included private loans to young companies and shares in bundles of commercial real estate properties.

"Since the crisis, we've seen more and more people reaching out into different types of exotic investments that are a big concern to us," said William F. Galvin, the Massachusetts secretary of the commonwealth.

Wednesday, Feb. 6th., 2013, Mr. Galvin's office ordered one of the nation's largest brokerage firms, LPL Financial, to pay $2.5 million for improperly selling the real estate bundles, known as nontraded REITs, or real estate investment trusts, to hundreds of Massachusetts residents from 2006 to 2009, in some cases overloading clients' accounts with them.

J. Bradley Bennett, chief of enforcement at the Financial Industry Regulatory Authority, or FINRA, said that for the last two years, 10 staff members have looked at the "proliferation of these products, to understand how they are being sold."

"It's got our attention," he said. "We recognize the trends."

Brokers are eager to sell these investments because they often bring in higher commissions. Several of these products hold out the promise of higher returns. Many of the investors in these complex products have filed claims with FINRA.

Private placements have been on the list of top enforcement concerns published by the national organization of state securities regulators every year since 2007. The private placements are supposed to be available only to wealthy, sophisticated investors, but several loopholes have allowed them to end up in the portfolios of less sophisticated retirement savers.

REITs have been one of the most heavily sold products. The new version, nontraded — the type that got LPL Financial in trouble in Massachusetts — can be bought and sold only in private transactions.

The outstanding amount of such nontraded REITs grew to $65 billion last year, from $43 billion in 2009. FINRA also issued a $14 million fine in October against David Lerner Associates, a large purveyor of nontraded REITs in the New York area.

If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations regarding non-traded REITs, private placements, or other complex products, 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 and complete our online form at: https://www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.