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How does an investor limit the risk of possible investment losses in unregistered securities? The Securities Act of 1933 requires that securities offered or sold to the public in the US must be registered by filing a registration statement with the SEC. The Securities Act was created to protect investors from the fraudulent buying and selling of securities, manipulation and misrepresentation. There are, however, numerous exemptions to the rule requiring registration of securities with the SEC prior to being offered for sale. Three such exemptions to SEC registration are contained in Regulation D. The exemptions are somewhat complex, but qualifying as an “accredited investor” is important to all three. Generally, to qualify as an accredited investor you must be “a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person.” Such investors are generally considered under the exemptions to have the ability and insight to determine the risk involved, evaluate the consequences and be able to endure greater financial risk than the average investor.
Private placements are one investment opportunity often sold to accredited investors. A private placement is a private non-public offering of a company’s securities. These placements are usually illiquid as they are not publicly traded, and can therefore be difficult to sell if necessary. To sell securities as a private placement there must be a formal document (private placement memorandum) that explains the investment opportunity and the risks of possible investment loss along with limited information concerning the issuer and management. It may be difficult to predict how the private placement will fare over time because many of these private placement securities are issued by companies that are not obligated to file financial reports.
Limited partnerships are another investment product often sold to accredited investors under Regulation D exemptions to SEC registration. In a limited partnership there are both general and limited partners. Limited partners are generally involved only as investors. Limited partners share in both the profits and losses; however they do not participate in the daily running of the business. The liability for the partnership’s debt is contingent on the amount of capital or property contributed to the partnership. If the company is sued or files bankruptcy, limited partners are not responsible for the debts or liabilities.
When considering investing as an accredited investor in a limited partnership or private placement you must take into consideration that your money may be tied up for a long period of time and that fraud and sales abuses involving inaccurate statements are not uncommon. Also you should discuss with your financial advisor, and confirm in writing, the exit options from these types of investments, the level of risk involved, exactly how they operate under the agreements, as they can differ greatly, and if the investment risk is suitable for you considering your total investments. Your financial advisor should be knowledgeable and have read the issued information on the investment. However, you must still consider that investing in unregistered securities is risky and you could lose some or even all of your money.
If you feel you’ve been a victim investment fraud or negligence, contact Carlson Law Firm at 619-544-9300 or find us on the web at www.securities-fraud-attorney-san-diego.com
Tags: accredited investor, financial loss, Investment Fraud, investment loss, investment recovery lawyer, Limited partnership, Private placement, Regulation D, Securities Act of 1933
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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.
Tags: breach of fiduciary duty, Broker Fraud, financial loss, investment loss, Negligent Misrepresentation
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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.
Tags: breach of fiduciary duty, financial loss, Investment Fraud, Ray Lucia, Securities Fraud Attorney San Diego, U.S. Securities and Exchange Commission
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Annabel McClellan, the wife of Arnold McClellan, who was formerly the head of Deloitte Tax LP’s Mergers and Acquisitions, has settled a lawsuit
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alleging that she provided confidential information regarding mergers to family members. If the judge accepts Annabel’s $1M settlement, the Securities and Exchange Commission (SEC) has agreed to drop comparable charges against her husband.
According to the Commission, Annabel gave confidential insider information to her sister, Miranda Sanders, and Miranda’s husband James, on at least seven occasions. The Sanders used the information to make trades that earned them millions of dollars. The SEC claims that James Sanders, who is the proprietor of a financial firm, not only used the tips for his own advantage but also to the benefit of his partners and customers, who also made millions. The SEC further alleges that James took positions with companies in the U.S. that Annabel told him were targeted for acquisition. According to Annabel, her husband was unaware that she was providing confidential information to her sister and brother-in-law.
By settling the lawsuit, Annabel is neither admitting nor denying the charges against her. However, she has pled guilty to lying to the SEC during their investigation of the insider trading scam.
Annabel and Arnold McClellan were first charged by the SEC in 2010 after investigations were conducted simultaneously by the SEC, the Department of Justice (DOJ), the Federal Bureau of Investigation (FBI), and the Financial Services Authority (FSA).
Insider trading is breach of fiduciary duty on the part of a financial officer.
As such, it negatively affects the stock market in various ways. Most obviously, it hurts investor confidence. When a company’s confidential information is used for the benefit of a few, it may also harm the company, ultimately causing financial loss. When insider trader occurs, who is held responsible for this breach of trust? All of the parties involved. That includes the individual who passes the tip along and the person who receives it, as well as anyone who trades based upon illegally obtained insider information.
Are you are aware of an insider trading situation that has been detrimental to your financial welfare? If you feel that you are, contact a securities litigation attorney immediately. For a free consultation, contact security lawyer Dan Carlson of Carlson Law in San Diego today.
Tags: breach of fiduciary duty, Dan Carlson, financial loss, insider trading, Lawsuit, scam, SEC, Securities Fraud Attorney San Diego, Securities Litigation, Security Lawyer
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In October 2011, a former Agent for Hartford and Nationwide Life Insurance companies pled guilty to charges of theft and received a 10-year prison sentence. By Matthew J. Ryan’s own admission, he exploited weaknesses in the insurance companies’ practices and procedures in order to steal from the variable annuity contracts Hartford and Nationwide issued to his clients.
Ryan created fake companies and bogus “transfer forms” which he had his clients sign. The bogus forms gave Ryan the ability to divert funds from his customers’ variable annuities and, ultimately, into his own accounts. Hartford and Nationwide honored thousands of Ryan’s transfer requests, despite the fact that the fraudulent documents were obviously illegitimate. The fraudulent documentation was not detected until 2010. By that time, however, the former
agent had diverted an excess of $3M over a period of five years.
Two additional insurance companies have settled claims made by Ryan’s fixed variable annuity customers. Currently, combined suits of more than $3M against Nationwide and Hartford are pending.
Are you a former client of Mathew J. Ryan? Do you believe that your variable annuity contract assets have been or are being illegally diverted or invested unsuitably? If the answer to any of
these questions is yes, contact investment fraud lawyer Daniel Carlson at Carlson Law in San Diego for a free consultation. As an experienced investment recovery attorney, Mr. Carlson may be able to help you recoup all or part of financial loss.
Tags: Annuity (US financial products), Business, Contract, financial loss, Financial services, fraud, Insurance, investment fraud lawyer, investment recovery attorney, Life annuity, Matthew J. Ryan, San Diego, variable annuities, variable annuity, variable annuity contracts
Posted in Broker Fraud, Fiduciary Duty Breach, Investment Fraud, Securities Arbitration, Securities Fraud, Securities Litigation, Stock Loss | Comments (1)
Ambac Financial Group Inc., as well as several of its banking underwriters and insurers, has agreed to pay a total of $33M in order to settle claims of investment fraud. According to investors who experienced significant financial loss, the parties involved hid risks from investors about the mortgage debt it guaranteed.
The primary claimants in the case are the Arkansas Teachers Retirement System, the Public Employees’ Retirement System of Mississippi and the Public School Teachers’ Pension and Retirement Fund of Chicago. These claimants allege securities fraud in regard to Ambac bonds and stocks purchased from October 25, 2006 to April 22, 2008.
According to the suit, Ambac gave out misleading information regarding the safety of the bonds it insured in order to inflate the value of the securities. Claimants further allege that Ambac, which insured instruments related to high-risk mortgages, hid its involvement in the subprime loan disaster, an involvement that became clear when the housing market collapsed in 2008. According to the suit, Ambac falsely claimed that it insured the “safest” transactions, when in reality it guaranteed billions of high-risk residential mortgage debt and collateralized debt obligations that were high risk in pursuit of big profit.
Once a federal court has approved the settlement proposal, Ambac will pay claimants 2.5M. Citigroup, Goldman Sachs, Merrill Lynch, HSBC Holding and Wachovia (now a part of Wells Fargo) will pay a combined total of $5.9 million. The four insurance companies involved will pay a total of $24.5M.
If you believe that you’ve been a victim of securities fraud, contact an investment recovery lawyer. Like the claimants in the Ambac case, you could recoup some or all of your financial loss through securities arbitration or litigation. Contact Carlson Law today at 619-544-9300 for a free consultation.
Tags: Ambac Financial Group, Citigroup, financial loss, free consultation, Goldman Sachs, Insurance, Investment Fraud, investment recovery lawyer, Merrill Lynch, Plaintiff, Securities Arbitration, Securities Fraud, Securities Fraud Attorney San Diego, Wells Fargo
Posted in Fiduciary Duty Breach, Investment Fraud, Negligent Misrepresentation, Securities Fraud, Securities Law, Securities Litigation | Comments (1)
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High net-worth investors will enjoy lower fees—that is, if the Securities and Exchange Commission’s (SEC’s) proposed changes to performance based fees proceed as planned.
The SEC intends to increase the dollar thresholds investors must meet before financial professional can charge them performance based fees. Currently, the thresholds are determined under two provisos of Rule 205-3 of the Investment Advisers Act: (1) brokers must have a reasonable belief that the client has a net worth of more than $1.5M, or (2) they must manage a minimum of $750,000 worth of investments for the client.
According to investment recovery lawyer Daniel Carlson of Carlson Law Firm, APC the current Act contains inherent risks for the average investor because it could encourage brokers to take big risks in order to make bigger fees: “If a high-risk investment fails, brokers don’t experience the financial consequences personally, but investors, particularly retirees, can end up losing everything.”
The SEC says it will issue an order revising the test for allowing performance fees to (1) a reasonable belief that the investor has $2 million in net worth or (2) $1 million of assets under management. In addition, the SEC order will exclude an investors primary residence from consideration in the 2 million dollars net worth evaluation, add a method for factoring inflation into the dollar amount tests.
If you are a high net-worth investor and have been exposed to unsuitable risk, you may have a claim for recovery of your losses. Contact Carlson Law at 619-544-9300 for a free consultation.
Tags: 1940 Investment Advisers Act, accredited investor, Broker, broker fees, Dodd-Frank, Fee, financial loss, high-risk investment, Investing, Investment, investment recovery lawyer, Investor, Securities Fraud Attorney San Diego, U.S. Securities and Exchange Commission
Posted in Fiduciary Duty Breach, Securities Law, Uncategorized | Comments (1)