Category Archives: Mortgage Backed Securities

Old Security Financial Group of Spring, Texas, Fined $100,000 by Securities Regulators

October 2016- Spring, Texas

The Texas State Securities Board (TSSB) sanctioned  Old Security Financial Group, Inc. of Spring, Texas,  fining the company $100,000 for selling unregistered investments in a mortgage note program that was supposedly backed by commercial real estate. The subject investments were First Position Commercial Note Program issued by the Woodbridge Mortgage Investment Fund 3 LLC, which lists offices in California and Florida.

 

The fine was also assessed against owner and president Donald A. MacKenzie and vice president Robert S. Davis, Jr. , both of Pflugerville, Texas. The TSSB ordered that they cease selling interests in the note program until it is properly registered in Texas or sold from an exemption from registration.

According to the TSSB order, neither MacKenzie, Davis, nor Old Security Financial Group was registered to sell securities in Texas.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870

Several Recent FINRA Arbitration Awards in Favor of Individuals Seeking Damages for Investment Losses

Investors who have lost money as a result of the negligence of a stockbroker or a stock brokerage firm generally seek recovery of damages by filing an arbitration with FINRA, the Financial Industry Regulatory Authority. FINRA arbitrations are designed to permit much quicker resolution of the dispute, generally about a year, and at much less cost than litigation pursued in court.  In many instances securities lawyers will pursue cases on a contingent fee basis.

The following is a summary of several recent arbitration awards in favor of investors:

Frey, Rambling River Ranches vs. AIG Financial Advisors, Sagepoint Financial, et al, Case #13-1039, Las Vegas, NV–Investors brought FINRA arbitration against AIG and Sagepoint in connection with Braintree Park Mortgage and Guaranty Agreements. AIG  and Sagepoint FInancial were found jointly and severally liable for compensatory damages of $731,000, plus attorney fees.

Malone vs. Securities America, Case #13-3696– An investor brought arbitration vs. Securities America for unsuitability and violations of Minnesota Securities Act in connection with the purchase of Behringer Harvard REIT I, a non publicly traded real estate investment trust and was awarded damages of over $11,000.

Alberts Trust of 1997 vs. Wells Fargo Advisors Financial Network, LLC, Case #13-138, Milwaukee, WI–Investor filed a FINRA arbitration against Wells Fargo alleging fraud, misrepresentation and breach of fiduciary duty alleging that Wells Fargo placed the entire portfolio in volatile risky in-house bonds that had sub-prime exposure. The arbitration panel awarded $195,000 to the investor.

PR Liquidating Trust vs. Workman Securities, Case #13-3108,Dallas TX-Investor brought action for negligence and violation of securities laws in connection with the purchase of a private placement, Reg D offering in an oil and gas investment managed by Provident Royalties, LLC.  Claimant’s motion for default was granted and damages of $11.5 million were awarded.  According to FINRA records Workman has not been registered with FINRA for a number of years, so this victory may prove hollow, since there may be no source of payment for the winning party.

If you have suffered losses in your brokerage account, call to discuss your legal options with an experienced securities attorney.

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870

VSR Financial Fined $550,000 For Sale of Alternative Investments

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms doing business in the United States. FINRA’s chief role is to protect investors by maintaining the fairness of the U.S. capital markets.

All stockbrokers and broker dealers (brokerage firms) are required to be licensed by and subject to the rules and regulations of FINRA. Each month FINRA publishes disciplinary actions against brokers and broker dealers. Discipline can range from monetary fines and suspensions, or in extreme cases, revocation of licensing and a bar from the securities industry.

See the FINRA website for current and historical disciplinary actions.

July 2013

Note: Alternative investments include non publicly traded real estate investment trusts (REITS) , hedge funds, real estate, commodities and derivatives contracts and, managed futures. It may also include art, wine, antiques, coins or stamps. These investments tend to be complex, illiquid, nontransparent, hard to value and expensive.

VSR Financial Services, Inc.  Overland Park, Kansas and Donald Joseph Beary, Registered Principal, Lenexa, Kansas) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $550,000. Beary was fined $10,000 and suspended from association with any FINRA member in any principal capacity for 45 days. Without admitting or denying the findings, the firm and Beary consented to the described sanctions and to the entry of findings that the firm failed to establish, maintain and enforce a reasonable supervisory system regarding the sale of non-conventional investments.

The findings stated that the firm’s WSPs provided that no more than 40 percent to 50 percent of a client’s exclusive net worth could be invested cumulatively in alternative investments unless there was a substantial reason to exceed the guidelines and that justification was well documented. Supplemental to these
procedures, the firm, through Beary, created additional procedures that applied a discount to certain non-conventional instruments, reducing the percentage of a customer’s liquid net worth invested. The findings also stated that as the direct participation principal, Beary had responsibility for the implementation and supervision of the discount program.

The Securities and Exchange Commission (SEC) identified as a deficiency, in a letter to the firm, that it did not have adequate written procedures relating to the discount program. The SEC made the same finding two years later regarding the lack of WSPs relating to the discount program. Despite these warnings from the SEC, Beary did not take reasonable steps to implement WSPs or to otherwise discontinue the use of the discount program.

The findings also included that in addition to the 40 percent to 50 percent concentration limit stated in the firm’s WSPs, the firm’s new account form asked each client to specify the percentage of liquid net worth that the client would be comfortable investing in various risk categories. Most alternative investment program sponsors identified their products involving, at a minimum, a high degree of risk. The firm also assigned a risk category to each alternative investment it sold. Rather than assign a risk category based upon the risk level identified by the sponsor in the alternative investment offering documents, the firm routinely assigned lower risk categories. In several instances, the firm lowered its internal risk rating subsequent to the firm’s acceptance of the product.

In spite of the firm’s efforts to increase sales of alternative investments through the use of discounts and risk rating reductions, customer investments still exceeded the 40 percent concentration guideline, but the firm did not document the existence of a substantial reason to exceed the concentration guidelines as required by its WSPs.

FINRA found that the firm failed to establish, maintain and enforce a reasonable supervisory system regarding the use of consolidated reports. The firm’s WSPs regarding consolidated statements were limited to a few memoranda issued to registered representatives prior to the issuance of FINRA Regulatory Notice 10-19. In practice, for six years, the firm’s registered representatives used a number of consolidated reporting systems. The firm did not require pre-approval of the consolidated reports to determine whether accurate pricing and disclosures were being used.

The firm did not have a system for prompt review of the consolidated reports after the reports were sent to customers. Given the fact that the firm allowed its registered representatives to enter valuations manually, the firm’s lack of supervision of the consolidated reports was unreasonable. FINRA also found that the firm, acting through a registered representative, recommended and effected the sale of high-risk private placements to customers. While these products may have been suitable for certain customers, they were not suitable for these customers given their financial circumstances and condition.

The firm earned approximately $35,950 in commissions on the transactions. The firm, through another registered representative, made recommendations to customers that were not suitable given their moderate risk tolerance and specifications, and the firm earned commissions on the transactions of approximately $483,077.38. In addition, FINRA determined that the firm failed to reasonably supervise its representatives with respect to the unsuitable transactions. One of several firm principals reviewed and approved the transactions of one of these representatives, and each of the principals failed to detect or investigate “red flags” regarding the transactions. This representative falsified the account documentation for customers, but the firm did not detect or investigate any of the representatives’ falsification of documents or other red flags. Detection and investigation of any of these red flags might have prevented the representative’s unsuitable recommendations and the resulting loss of the customers’ funds.

Moreover, FINRA found that the firm allowed its registered representatives to send consolidated statements to their customers but never reviewed the consolidated statements a representative sent to some customers to determine whether he was following the firm’s procedures regarding pricing. Because of the inaccurate pricing the representative used, and the firm’s lack of supervision, these customers received statements with erroneous pricing information.

The suspension is in effect from June 3, 2013, through July 17, 2013. (FINRA Case #2010022963602)

Rex Securities Law , with offices in Boca Raton, FL,  and  Austin, TX,   provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.

Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Nationwide Representation

Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 

Texas-512-329-2870

FINRA Concerned About–Non-Traded REITs, BDCs, ETFs

Each year the Financial Industry Regulatory Authority (FINRA) publishes a letter highlighting the areas of significance to its regulatory endeavor. This year, the letter discusses concern regarding whether or not complex investment products are suitable.

The specific products enumerated in the letter are not new to any of us. Most have been around, and in some cases, causing problems for retirees attempting to live on fixed income, for quite a while.  The products considered complex and potentially unsuitable are:

Business Development Companies (BDCs)-typically closed end investment companies. Some invest in the corporate debt and equity of private companies and may offer high yields through leverage related risk. FS Investment Corp, Corporate Capital Trust, FS Energy Power Fund, Business Development Corp. of America, VII Peaks, Sierra Income Fund and HMS Income Fund are some of the largest BDCs.

Leveraged Loan Products– these are adjustable-rate loans offered by finanical institutions. They have low credit quality and a high debt to equity ratio. According to FINRA, since August 2012, the funds have taken in more than $5 billion.

Commercial Mortgage-Backed Securities (MBS)- FINRA has a heightened concern about the sale of these fixed-income instruments to retail investors (mom and pop). FINRA’s concern is that the selling companies are not doing enough to apprise buyers of the potential risks.

High Yield Debt Instruments– In September 2012 investors put nearly $9 billion into high yield bond funds.

Exchange Traded Funds and Notes– (ETFs and ETNs) FINRA is concerned retail investors may not understand the differences among exchange-traded index products and that selling brokers may have some confusion as well.

Non-Traded REITs– Investors have been alerted to the problems with these investments, which include REITs like, Behringer Harvard, KBS. Dividend Captial, CNL Lifestyle, Wells, Hines, Inland American & Inland Western for quite a while now. FINRA is concerned purchasers may not fully understand sales costs charged and that distributions may come from principal (ie; your own money) rather than income.

The letter also expresses concern about the sale of Closed-End Funds, Municipal Securities and Variable Annuities. With regard to annuities, the concern is whether the investment is suitable, whether the broker himself understands the product, the liquidity needs of the purchaser and the adequacy of risk disclosure.

If you have questions about losses in your brokerage account, please do not hesitate to contact us. We have been helping investors recover stock market losses for 25 years.

Nationwide representation.

Free consultation.

Rex Securities Law

561 391 1900

Brookstreet- Risky CMO’s Lead to $10MM Fine

The SEC’s case against the former CEO of Brookstreet Securities Corp., Stanley C. Brooks, has led to a fine of 10 million dollars. A federal judge recently entered this penalty, which was the maximum allowable, for selling risky mortgage-backed securities to investors whose goals were conservative.

Rex Securities Law represented a number of these victims. Most were retirees, living on fixed income who could ill afford to take the risks associated with these products. Unfortunately the brokers told the customers that the products were safe and secure and that they would provide steady income, at rates substantially higher than more traditional investments.

This is another case of If It Looks Too Good to be True, It Probably Is.

When the economy faltered, these illiquid & risky investments plummeted in value, millions were lost and the lives of thousands of retirees were altered drastically as they came to grips with the fact that they could no longer afford their living expenses.

Further misfortune ensued, when unable to provide restitution to the victims, the company collapsed.

Tragedy continued when Clifford Popper, one of Brookstreet’s local salesmen who was being sued by the SEC for his participation, committed suicide in 2011.

Moral of the story is to question any investment that is paying a return inordinately higher than the other conservative investments. Wall Street will continue to pump out these products despite regulatory attempts to stop it.

Currently we are seeing potential similar issues with REITs (Real Estate Investment Trusts) and CLO’s (collateralized loan obligations).

Rex Securities Law , located in Boca Raton, FL, provides representation to  investors  nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Rex Securities Law

561 391 1900