Did Your Broker Suggest Naked Puts? Uncovered Puts?

If your broker suggested that you sell put options (also called an ‘uncovered put’) and you lost money, you may have a claim that the strategy was not suitable for you, depending upon your level of financial sophistication.

The seller of an uncovered put (you for example) collects a premium from the buyer and is contractually bound to purchase the underlying stock at a specified price for a given period of time, generally 90 days or so. If the price of the stock goes up or remains unchanged, then the option will not  be exercised (ie: the person who paid you the premium will not force you to buy the stock) and you will have benefited to the extent of the premium you collected.

This all works very well in a bull market, but what about a bear market, or if the particular stock on which you sold the put option falls dramatically? Your losses can be enormous, a fact often misunderstood by unsophisticated investors or overlooked in the explanation from broker.

Here is an example from a recent case involving the sale of put options on S&P 500 Index.

In early August of 2008, at a time when the financial markets did not look particularly stable, Mr. Smith (name used for this example) sold 10 put options on the  Nov 1075 S&P index. On the day of the sale the S&P 500 index was about 1300. Mr. Smith collected $7 per share for a total of $7,000 (each option is for 10 shares). For the $7,000 paid by the buyer, Mr. Smith was obligated to buy 1,000 shares at a price of $1075 at any time up to the expiration date of the options (third friday in November 2008).

Since, at the time of the sale, the index was 125 points above the exercise price of 1075, one might think this was a nice way to make an easy profit. That is not the case. The index dropped and rebounded over the rest of August and early September and in late September fell below 1075. Ultimately the position was closed out when the index was 899, at a price of $166 per share.

Net result was a loss of $159,000 on this transaction that lasted just 60 days. The total upside of this transaction was the $7,000 premium collected on the sale of the option.

We have consulted with a number of clients who were encouraged by their brokers to write uncovered puts who were never made aware of the huge potential downside risk associated with such a strategy. If you experienced losses on an option strategy suggested by your broker that you did not fully understand, you may have legal rights that could result in the recovery of losses.

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

 

Despite Prior Problems Non-Traded REITs Are Hot Products

According to a recent report from Robert A. Stanger & Company the first quarter of 2012 saw a stampede of investors to non-traded REITs and other direct participation investments, including Business Development Companies (BDCs) and Direct Participation Programs (DPPs) which include limited partnerships, general partnerships and limited liability companies. Investors poured approximately $3.3 billion in REITs, BDCs and DPPs during the first three months of the year.

Stanger’s report reveals that $2.6 billion was invested in non-traded REITs  and the balance in various BDCs.

The top fund raisers were:

  • Cole Real Estate                                     $805 million
  • Franklin Square Capital                           $541 million
  • American Realty Capital Advisors           $330 million
  • Dividend Capital                                     $242 million
  • W.P. Carey                                             $188 million
  • CBRE Advisors                                      $172 million

This is somewhat suprising given the recent history of many of the non-traded REITs, sold to many with the promise of steady and dependable distributions and a stable market value. In reality many of the non-traded REITs have discontinued distributions, or worse yet funded them with a return of capital or debt financed distributions. Of each dollar invested in a REIT, as much as $.14 goes to pay various costs and fees, leaving only $.86 available for investment. Since they are not traded on any regular exchange, investors have no way to liquidate them if they need cash.

Here is a chart from a prior post in which we highlighted some of the worst performers. Since its publication, Inland Western Retail Real Estate Trust did a reverse merger and went public as Retail Properties of America (RPAI) and the loss to the investor is greater than indicated in the chart.

Name   Offering price, per share    Current estimated value   % decline per share  
Behringer Harvard Opportunity REIT I $10.00 $4.12 -58.80%
Behringer Harvard REIT I $10.00 $4.64 -53.60%
Behringer Harvard Short-Term Opportunity Fund $10.00 $0.40 -96%
Cornerstone Core Properties REIT $8.00 $2.25 -71.88%
Inland Western Retail Real Estate Trust Inc. $10.00 $6.95 -30.50%(see note above)
KBS Real Estate Investment Trust Inc. $10.00 $5.16 -48.40%

 

If you have losses on REIT investments or other stock market losses, you may be able to recover some or all of the losses through FINRA arbitration.

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 Issues April 2012 Disciplinary Actions

The Financial Industry Regulatory Authority (FINRA) issues a report on disciplinary and other actions involving registered brokers, investment advisers and brokerage firms every month. Follow this link to the FINRA website for the entire report for the month of April 2012 as well as earlier time periods.

Here are the Florida related actions for April 2012.

William Edward Herlihy (CRD #4005879, Registered Principal, Deltona, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $50,000 and suspended from association with any FINRA member in any capacity for six months. Herlihy consented to the entry of findings that he effected the sales of stock that was not registered with the SEC, and no exemption from registration applied. The findings stated that the transactions generated proceeds of approximately $386,000 for the customers.

James Calvin Wylie Jr. (CRD #834405, Registered Representative, Ponte Vedra Beach, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for one month. Without admitting or denying the findings, Wylie consented to the described sanctions and to the entry of findings that he engaged in unapproved outside business activities when he provided consulting and analytical services on potential business transactions, outside the scope of his relationship with his member firm and without providing prompt written notice to his firm. The findings stated that Wylie inaccurately
certified on an annual outside business activities questionnaire that he was not involved in any outside business activities.

Glenn Loren Halpryn (CRD #1633028, Registered Principal, Aventura, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was censured and fined $10,000. Without admitting or denying the findings, Halpryn consented to the described sanctions and to the entry of findings that he caused funds raised from a private placement offering to be used for due diligence on an unrelated prospective business venture. Although Halpryn later repaid the funds to the company, he caused them to be used in a manner inconsistent with the terms of the offering.

Clyde Marshall Thornburg (CRD #1065161, Registered Principal, Palmetto, Florida) was named as a respondent in a FINRA complaint alleging that he engaged in a pattern of
recommending and executing, short-term trading and switching of Unit Investment Trusts (UITs), corporate debt, and mutual funds in customer accounts without having
reasonable grounds for believing that such recommendations were suitable in view of the size and frequency of the recommended transactions, and in light of each customer’s
investment objectives, circumstances, financial situations and needs. Thornburg’s clients had losses of $983,000 while he earned commissions of over $300,000, while misleading clients into believing they were not paying any charges. He also exercised discretion in accounts where the customer had not granted such authority to trade. In addition, he supplied false information about customer’s income, liquid net worth, risk tolerance and investment objectives forged client names on documents.

According to FINRA records, since 2005, Thornburg has worked for the following FINRA firms:

  • SII Investments, Inc
  • Next Financial Group, Inc.
  • Woodbury Financial Services, Inc.
  • International Financial Solutions, Inc.

If you had accounts with any of the brokers recently disciplined, you may be able to recover some of  all of those losses.

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

Want to Sell Your Non-Traded REIT?

April 12, 2012

With many of the non-traded REITs ceasing their buy-back programs, dropping in value and no longer making the promised monthly/quarterly distributions, investors who need to liquidate these investments have only the secondary market makers as an option. Non-traded REITs do not trade on any conventional exchange and will only become liquid if the REIT sells out or through reorganization becomes registered and publicly traded.

This recently happened when Inland Western Retail Real Estate, via reverse merger, became Retail Properties of America and is publicly traded. See here for more on Inland Western.

I did a bit of online research today and came up with the following companies who represent themselves as companies who can provide liquidity for non-traded reits and other illiquid securities. Note that I have no experience with any of them and suggest you do some due diligence before entering into any business dealings.

If you own non-traded REITs that have dropped in value, you may be able to recover some or all of your losses through FINRA arbitration.

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

Notice to Investors with Accounts at Northern Trust Securities, Inc.

The Financial Industry Regulatory Authority (FINRA) found that from October 2006 through October 2009, Northern Trust Securities, Inc.  failed to monitor customer accounts for potentially unsuitable levels of concentration in collateralized mortgage obligations (CMOs). FINRA found that from January 2007 to June 2008 over 43% of the firm’s business was excluded from review.

In June 2011, Northern Trust was fined $600,000 for deficiencies in supervision of the CMO sales and for failure to have in place adequate systems to monitor high-volume securities trades.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement,
said, “Northern Trust’s deficient systems and procedures allowed more
than 40 percent of its transactions to proceed without review, which in
turn left vulnerable investors exposed to the risk of losing all or a
substantial portion of their principal through potential
over-concentration in CMOs.”

If you had an account with Northern Trust that had transactions involving CMO’s during the applicable time period, you should consult a securities attorney to determine your legal rights. FINRA rules generally limit proceeding with actions  based on events that occurred more than six years prior to filing. Failure to act timely may result in loss of your rights.

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

Ameriprise- REIT Sales History & Hines REIT

 

In July 2009, Ameriprise Financial Services, Inc., an American Express subsidiary, was sanctioned by the Securities & Exchange Commission and ordered to pay over $17 million dollars for their participation in the unlawful sales of Carey REITs and for receiving over $30 million in undisclosed payments on the sales of Carey REITs  ( CPA:10, CPA:12, CPA:14, CPA:15 & CPA:16) and CNL REITs (CNL Hospitality Properties, Inc. , CNL Retirement Properties, Inc., CNL American Properties Fund).

According to the SEC release, Ameriprise sold over $3.5 billion worth of Carey and CNL REITs without disclosing this revenue, which was in addition to commissions, dealer fees, etc.,  to purchasers. As we have previously warned, non-traded REITs often are burdened with very high up front commissions and fees, thereby limiting the net amount available for investment.

On May 19, 2010, Hines Global REIT, Hines Real Estate Investments, Inc. and Hines Global REIT Advisors LP entered into an agreement with Ameriprise who agreed to act as a selected dealer to sell the IPO. For its services, Ameriprise collected the following fees:

  • 7% selling commission
  • 1.5% marketing fee
  • unspecified amount of due diligence expense reimbursement
  • unspecified amount of costs of technology reimbursement

According to their 12/31/2011 Form 10K filed with the SEC, Hines REIT:

  • was formed in 2003 and raised $2.5 billion in three public offerings between June 2004 and December 2010.
  • was 55% leveraged as of 12/31/2011
  • made per share distributions in 2011, 2010 and 2009 of $.50, $.55 and $.62 respectively, which represents a change from 6% to 5%, based on initial offering price of $10.08.
  • had an estimated share value of $7.78
  • a portion of distributions represents a return of invested capital

The company estimated value of $7.78 represents a loss of 23% from the $10.08 purchase price, however, as we have previously reported, since this is a non-traded REIT the only place it can be sold is on a secondary market, which may result in a sales price of 25% less than the estimated value (ie; $5.83) .

If you have losses in Hines REIT or any other non-traded REIT including Behringer Harvard, Cole Credit Property Trust II, Cornerstone Core Properties, Lerner Apple REITs, Healthcare Trust of America, Inland American, Inland Western, KBS REIT I, Retail Properties of America, Wells  or Wells Timberland REIT, please do not hesitate to contact us.

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

 

 

 

How Much is Your Inland Western REIT Worth Now?

Sometimes these things work, sometimes they don’t.

The recent attempt to salvage value by way of a reverse merger of non traded REIT Inland Western Retail Real Estate Trust into publicly traded shares of Retail Properties of America, Inc. (RPAI) did not work…..so far. Perhaps the future will bring an increase in share price, but given the general overall tempo of the economy, I am not optimistic.

Here are the economic of what happened. Inland Western was initially offered at $10 per share. The IPO of RPAI fell somewhat short of the $12 range predicted, coming out at $8. As of the time of this writing, RPAI is trading at $9, which is good, but that equates to just a little over $3 for the original shares of Inland Western. Check out the terms of the offering, not all of the shares can be traded currently.

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

Investment Loss Recovery-Information on recovery of investment losses due to the negligence or fraud of stockbrokers. Nationwide representation.