Archive for July, 2013

Reverse Convertible Note Investments

July 18th, 2013
Stock Market

Stock Market (Photo credit: Ahmad Nawawi)

Daniel Carlson is a lawyer in San Diego focused on securities litigation who specializes in recovering investment losses for his clients.

A reverse exchangeable security (also known as a “reverse convertible”) is a type of structured investment product. These are complex investments that involve features, terms, and risks that are very difficult for investors to understand.

Firms that offer reverse convertible investments have been put on notice by FINRA of the high risk in these products in order to ensure that the promotional materials and public communications employed regarding these products are both fair and balanced. It is important that these materials do not understate the reality of the risks associated with reverse convertible investments. Moreover, member firms must also remember to make sure that their registered financial representatives comprehend the terms, costs, and risks associated with reverse convertible investments. With this understanding, these representatives should perform adequate analyses on each customer’s suitability prior to a recommendation and explain thoroughly all risks and returns involved.

Prior to a recommendation involving either the purchase or sale of a given security, financial firms must form a reasonable basis upon which to determine that the products not only suitable for at least some investors, but also suitable for each specific customer to whom the adviser recommends that particular product. The suitability of a reverse convertible investment must be reviewed carefully. This requires firms to comprehend and explain the risks, terms, costs, and conditions of these structured products. Firms must grasp a reverse convertible’s terms and features in a comprehensive manner. These include the reverse convertible’s payout structure, the volatility of the reference asset, the product’s credit, market and other risks, call features, and the conditions under which the investor would or would not receive a full return of principal.

Given that each reverse convertible is unique, firms have to perform this suitability analysis for each reverse convertible investment that they recommend.

A firm’s consideration of product benefits to a specific customer (like the promise of a certain coupon rate, for example) must consider the risk to the investor. Investment firms and advisors are required to deal fairly with customers when recommending investments or accepting orders for new financial products. Firms must make every effort to communicate clearly to customers any pertinent information regarding these products.

If you think that you have been the victim of investment fraud, related to reverse convertible investments or another form of securities fraud, contact Daniel Carlson at the Carlson Law Firm today for a free consultation at 619-544-9300. Also, be sure to follow my firm on LinkedIn and Twitter.

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“Buckets of Money” Claims Lead To Hefty Fines

July 11th, 2013
English: Certified Financial Planner, author, ...

Certified Financial Planner, author, radio and television personality, and inventor of the Buckets of Money strategy Ray Lucia at Sean Hannity’s Freedom Concert in San Diego, California, August 28, 2010. Photo by Andi Hazelwood. (Photo credit: Wikipedia)

Mr. Raymond Lucia Sr., a financial advice author and syndicated radio personality, has been fined $50,000 related to SEC allegations.  The SEC alleged Mr. Lucia provided investors with misleading information regarding his wealth-management strategy, Buckets of Money (BOM).

Mr. Lucia currently hosts the weekday “Ray Lucia Show” which promotes investment strategies that focus on retirees. The SEC alleged that slideshows and other media used by Mr. Lucia to demonstrate the BOM strategy used misleading data to illustrate how a series of fictional portfolios would have performed during various markets over time.

According to an initial decision issued on Monday of this week by an administrative judge, Mr. Lucia made false claims that this “time-tested” investment strategy—geared towards providing retirees with inflation-adjusted income—had been “backtested” empirically during bear markets. The administrative judge further barred Mr. Lucia from any association with any investment broker or adviser and ordered Mr. Lucia’s San Diego-based law firm, Raymond J. Lucia Companies Inc., to pay $250,000. The firm’s investment adviser registration was also revoked.

Mr. Lucia was initially accused by the SEC last September of promoting the misleading “Buckets of Money” strategy at a series of investment seminars. These seminars were hosted by Mr. Lucia and his company and were put on for potential clients. According to the SEC’s September order instituting administrative and cease-and-desist proceedings, the backtesting on the “Buckets of Money” strategy evidenced by Mr. Lucia was insufficient.  Further, the SEC alleged that Mr. Lucia made misrepresentations and omissions related to investment-adviser fees, returns on real estate investment trusts, and inflation rates.

Presently, Mr. Lucia is reviewing the opinion within the SEC’s case and is considering an appeal according to Wrenn Chais, Mr. Lucia’s attorney with Locke Lorde LLP in Los Angeles. “While we respect the commission and its regulatory processes,” said Wrenn, “we respectfully disagree with the majority of the findings of the opinion and the penalties assessed.”

The Carlson Law Firm is investigating potential claims related to this decision. Please feel free to contact our office if you feel you may have a claim at 619-544-9300.

Daniel Carlson is a lawyer in San Diego focused on securities litigation who specializes in recovering investment losses for his clients.

 

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SEC Brings Investment Fraud Action Against Former LPL Employee

July 9th, 2013
Seal of the U.S. Securities and Exchange Commi...

Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

Daniel Carlson is a San Diego-based attorney focused on securities litigation who specializes in recovering investment losses for his clients.

Recently, accusations have been brought against a financial advisor affiliated with the LPL for committing investment fraud through the misuse of both his position and the trust of his clients in defrauding them.

The Securities and Exchange Commission (SEC) has alleged that Blake Richards, previously registered as a representative with LPL Financial and based in Georgia, misappropriated potentially more than $2 million sourced from no fewer than seven investors over the past five years.

Over the course of the past several years, while employed at LPL, Richards “had little to no commission production and few clients of his own.” Nonetheless, some of the clients that Richards did have were registered under a co-worker’s accounts because Richards himself lacked both insurance and the other licenses required for the legal assistance of his clients’ brokerage and business needs.

The SEC explains in its complaint that Mr. Richards engaged in investment fraud by telling investors that he was going to place their investment into assets with fixed income and variable annuities, in addition to other kinds of investment products. Allegedly, Mr. Richards’ clients had been told that they should write checks payable to either one of two different companies that he controlled: “BMO Investments” or “Blake Richards Investments.” Then instead of using the money to invest as he had promised, he then misappropriated the funds for himself according to the SEC complaint.

With at least two elderly investors involved, the largest portion of the funds comprised savings for retirement and/or proceeds from life insurance collected on spouses who were deceased. Moreover, it is alleged that Mr. Richards utilized account statements that were fictitious and prepared using letterhead from LPL Financial in order to cover up the scheme. Allegedly, Mr. Richards also misrepresented his title to investors as “Accredited Asset Management Specialist”, a College for Financial Planning professional designation.

In addition to the SEC’s preliminary injunction request, a permanent injunction is also being sought, along with the disgorgement of Richards’ wrongful gains—with interest prior to the judgment—and civil penalties.

If you think that you have been the victim of investment fraud, contact Daniel Carlson at the Carlson Law Firm today for a free consultation at 619-544-9300. Also, be sure to follow my firm on LinkedIn and Twitter.

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Crowdfunding: The Good, The Bad, And The Fraudulent

July 2nd, 2013
Official photographic portrait of US President...

Official photographic portrait of US President Barack Obama (born 4 August 1961; assumed office 20 January 2009) (Photo credit: Wikipedia)

Daniel Carlson is a lawyer in San Diego focused on securities litigation who specializes in recovering investment losses for his clients.

Signed in April 2012 by President Barack Obama, the JOBS Act creates crowd-sourced funding (“crowdfunding”) as an industry.  The act enables small businesses the opportunity to increase their ability to raise venture funds and sell small amounts of stock to many investors on a national level.  Oversimplified, “crowdfunding” allows the sale of small amounts of shares to many investors through many different platforms and social media.  The regulatory framework for this new investment vehicle is in development, and may not provide the same protection the public has been used to receiving.

This new investment sourcing vehicle is designed to help small businesses and startups and effectively removes many SEC rules and regulations in soliciting invest dollars.  In the past many small businesses have felt they were unfairly subjected to SEC rules and regulations that were not applicable to charities and non-profit organizations.  In a nutshell, previous SEC rules for private investing provided 1) strict rules regarding advertising for investors, 2) limited shareholder numbers, and 3) those looking to become potential investors in many non-publically traded businesses were required to have either an annual income larger than $200,000 or liquid net wealth totaling over $1 million.  Since the JOBS Act, small businesses will be allowed to use crowdfunding, selling small amounts of shares to many investors through many different platforms and media with a murky regulatory framework.

The relatively new investment vehicle of crowdfunding allows potential fraudsters the opportunity to take relatively small amounts of money from a large number of people.  Most investments that are crowdfunded do not require a minimum investment.  In addition, the majority of legal requirements to become an investor in such high risk investments have also been removed and the regulatory framework for this investment device going forward is still unclear.

Back in the 1920’s, business ventures would engage the public by offering to sell stakes in new and upcoming ventures, such as transportation infrastructure or newly invented consumer goods. Eventually, the stock crash of 1929 led to new regulations and standards that changed the way business were funded, including the sale of stock. Through his support of this crowdfunding innovation, President Obama has essentially laid the groundwork for anyone and everyone to invest money in startups and small businesses.  This also opens the door to many types of potential investor fraud and abuse.  The SEC will provide details to regulate the debt and equity crowdfunding provisions of the bill, however at this point they are still unclear.  Financial Industry Regulatory Authority (FINRA) is also planning to provide rules for member firms engaged in crowdfunding.  But as usual, the investor needs to beware of deals that sound too good to be true, and be aware of new ways their investment dollars are being sought.

If you think that you have been the victim of investment fraud, via crowdfunding or otherwise, contact Daniel Carlson at the Carlson Law Firm today for a free consultation at 619-544-9300.

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