By Bradd Milove
The Financial Industry National Regulatory Authority, or FINRA, recently released a public notice putting investors and brokers in the securities industry on their guard when it comes to so-called
– that is, non-standard investment types including non-traded REITs, mortgage backed securities and real estate TICs. According to federal regulators at both FINRA and the SEC, these products are not only inappropriate for most investors, they are also beyond the comprehension of most brokers as well and thus unsuitable for promotion or sale.
Regulatory Notice 12-03
is the fourth such warning to be issued by FINRA on the subject of these alternative investments, and it serves to reinforce the dangers associated with any products that suffer from limited liquidity and transparency as a result of their private trading context. Unfortunately, however, the opportunity for high commissions has led many firms to market and sell complex products in spite of these facts; and now FINRA is fighting to clarify and uphold regulations throughout the securities industry in order to discourage the oftentimes misleading sale or unsuspecting purchase of such products in the interests of investor protection.
FINRA’s public notice first addresses the fact that all brokerage firms are required to perform due diligence before promoting any investments – a necessity made all the more critical due to the preponderance of lengthy “Private Placement Memorandum” or “Prospectus” materials provided by the issuer that frequently contain a complex assortment of hard-to-decipher legal documents. FINRA demands that brokers comprehend these documents, as well as the complexities of the product at hand and its likely performance given a full range of market conditions, before promoting them to buyers; and because complex products carry risks “beyond the fundamentals of market forces,” regulators also require written confirmation of these steps as a prerequisite to product pitches and sales. But the fact of the matter is that the vast majority of financial advisors and brokers lack the ability to read and understand the full depth of risk involved in such investments; and thus they become wholly dependent on the brokerage firms to vet the pros and cons of each product. When this happens, the investor is left in an incredibly vulnerable position – one that, for many individuals, can result in huge losses and even utter ruin.
Locals recover $1.36 Million in LPL Financial real estate investment fraud case
Investor recourse for fraudulent investments is generally limited to FINRA arbitration; and just this past week, our team at the law firm of Miller & Milove secured an award of $1.36 million on behalf of an elderly San Diego couple fighting back against misleading brokers. The case charged San Diego and Boston based LPL Financial with fraud, breach of fiduciary duty and Elder Abuse arising from TIC investments promoted by NPV/Direct Invest, a former affiliate of Lehman Brothers.
investment and securities attorneys
, we at the firm of Miller & Milove encourage our clients to keep tabs on all FINRA notices and related information concerning investor safety; and we strive to prepare investors with this information in order to protect them from potential securities and investment fraud. Learn more today by visiting
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