Will Stock Brokerage Firms Be Required to Help Investors Learn About A StockBroker’s Past?


January 2013

Actually it seems strange that is even still a question.

It is my guess that it would be hard to find an investor who wouldn’t want to know if the broker he is considering handing his nest egg over to manage has filed for bankruptcy or has a string of customer complaints.

The Financial Industry Regulatory Authority (FINRA) has for many years maintained the historical data regarding a stockbrokers educational, employment, regulatory, and  disciplinary history. This report, called a CRD (Central Registration Depository) also contains information about any customer complaints, arbitrations and lawsuits involving that broker as well as whether that broker has ever filed for bankruptcy or had tax liens filed against him.
This information has been considered “public information” for many years however there has been little attempt until recently to let the public know about its existence. Until FINRA added the BrokerCheck service to their website a few years ago, the path to obtaining this public information was not well known.

In a regulatory notice filed January 25th, 2013, FINRA is proposing that all firms include a description and a direct link to the information on the broker or firm on the BrokerCheck website. This proposal is open for public comment  for 45 days from the January 25th publication in the Federal Register.

For more about what is included on a stockbroker’s CRD visit here.

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.

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Rex Securities Law

TollFree: 877-224-3199

Florida-561 391 1900 



FBI Arrests Former Morgan Stanley Broker Kevin Dowd

In a press release issued  by the Federal Bureau of Investigation on January 25, 2013, Kevin Dowd of Boca Raton FL was arrested and charged in a criminal complaint with conspiracy to commit securities fraud.

According to the complaint, Dowd, who is 37 years old and who ,until just last month, was a vice president/financial advisor  in Morgan Stanley Smith Barney’s Aventura, FL office, tipped off a childhood friend about the impending acquisition of Pharmasset pharmaceutical company. That friend  passed the stock tip along to one of his friends. Both then proceeded to amass large positions in Pharmasset stock and options which generated over $700,000 in illegal profit in less than two weeks. On November 21, 2011, the day of the public announcement Pharmasset stock skyrocketed 84%, closing at over $134.

A member of Pharmasset’s board of directors was the Aventura branch’s largest customer had informed his advisors at the branch of the impending acquisition.  The supervisor of the Aventura branch told Dowd to refrain from trading in or recommending Pharmasset.

When confronted by the FBI in July 2012, Dowd falsely stated that he had never received information about the Pharmasset acquisition. Dowd faces charges punishable by a maximum of five years in prison and $250,000 fine.

As payment for passing on the information, the SEC alleges Dowd received a jet ski dock and a $35,000 cashiers check which he used to upgrade a pool at his home.

Link to SEC complaint.

Rex Securities Law has been helping investors recover investment losses on non traded REITs, annuities, variable life insurance, unsuitable investments and as a result of securities fraud for 25 years.

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Rex Securities Law

561 391 1900

LPL Financial REIT Problem Triggers Compliance Changes

Update 2/7/2013: LPL settled the case over the improper sale of REITs for a $500,000 fine and restitution of $2 million. More details on that settlement here.

As we previously reported, in December 2012, Massachusetts securities regulators sued LPL Financial over charges that LPL failed to supervise its brokers who sold nontraded real estate investment trusts and permitted the brokers to make sales that violate company rules and state rules.

Here is the complaint, see page 7 for the various allegations.

NonTraded REITs that have declined in value substantially since their issue date include:

  • Cole Credit Property Trust II & III
  • Cole Credit Property 1031 Exchange
  • CNL Lifestyle Properties
  • Behringer Harvard
  • Dividend Capital Total Realty
  • Hines
  • Inland American
  • Retail Properties of America
  • Wells REIT
  • W.P. Carey Corporate Property Assoc. 17

In their complaint, the Massachusetts regulators charge LPL with dishonest and unethical business practices in connection with the sale of $28 million in these illiquid REITs to 600 citizens of that state  between 2006 and 2009. Massachusetts has a rule, as do other states, setting a maximum concentration limit for investments like nontraded REITs.

According to to a recent article in the Investment News, LPL recently told its 13,000 brokers and advisers that it is cracking down on the sale of risky and problematic products.

Is this crackdown by LPL a mere coincidence ? Probably not, more likely it’s related to the Massachusetts regulator action and what is likely to be fall out with other states as well as investors who are learning that their investments may not be as safe as they were led to believe.

Leveraged and inverse mutual funds are two  products LPL has warned its  brokers about. Both NASAA (the North American Securities Administrators Association) & the SEC included leveraged exchange-traded funds on it top 10 investor trap list several years ago.

If you have losses as a result of investing in nontraded REITs, ETFs, leveraged and inverse mutual funds, you may be able to recover all or a part of those losses through FINRA arbitration. Contact us to discuss your legal rights.

Free consultation

Nationwide representation.

Rex Securities Law

561 391 1900

Wells Real Estate Funds–No More REITs For Now

Leo Wells, head of Wells Real Estate Funds, the biggest player in the nontraded REIT industry,  announced in January 2013 that they will not be selling any new nontraded REIT products for the current time.

Wells cites a “lack of clarity” from the Financial Industry Regulatory Authority (FINRA) on the regulation of these illiquid investments . Apparently his decision was inspired by FINRA Notice to Members 09-09 which establishes rules  related to establishing values for these investments that do not trade on a national exchange and addresses requirements related to the expected dividend distributions of the products.

Of the $11 billion raised by Wells for real estate projects since 1984, most has been raised through nontraded REITs. In the past few years regulators have been taking a hard look at the product’s fees (which are high compared to conventional investments) , valuation methods and how the value appears on client statements. Prior to NTM 09-09, most companies carried the value at the original purchase price. Since  the investments  are not traded on a national exchange there is no traditional way to determine fair market value.

Wells Timberland Reit was launched in 2006 priced at $10 per share. The promised cash distributions have not been made and most company redemption plans are cancelled. While the company has provided an estimated value of $6.65 per share, private secondary market makers, the only place they can be sold, is paying only 60-70% of the estimated value.

If you are a retiree trying to live on the distributions you expected to receive from a nontraded REIT, you already know….”Estimated value does  not equal fair market value”. See Retirees Hurt.

I have written more on the secondary market for non traded REITs and Wells’ problems with FINRA over misleading marketing materials utilized in connection with the sale of Timberland REIT here.

Other companies like Inland, Cornerstone, KBS, Behringer Harvard, Retail Properties of America, Hines, Dividend Capital and CNL, have suffered similar problems with values, ceased distributions and illiquidity.

If you were misled as to the nature of a nontraded REIT you purchased, you have valuable legal rights  and may be able to recover all or a portion of those losses. Contact us for a no charge consultation.

Nationwide representation.

Rex Securities Law

561 391 1900

Rex Securities Law Investigates Wells Fargo Broker David Paul Mills In Connection with Sale of Dividend Capital NonTraded REIT

Rex Securities Law, a national securities arbitration & litigation firm located in Boca Raton, FL, is investigating David Paul Mills, a broker with Wells Fargo Advisors, LLC, in League City Texas, for a client who was sold a large position in Dividend Capital Total Realty Trust, a non traded REIT.

In July of 2012, the company announced a change and the investment’s name was changed to Dividend Capital Diversified Property Fund Class E. In addition to the name change, the company announced a share redemption plan purportedly to create liquidity for this otherwise illiquid investment. However, there are significant restrictions and limitations making it
unlikely that Class E investors can redeem all their shares very quickly.

Our client believes he was misled as to the nature of the risk and the liquidity issues of this investment. In addition, the amount invested in this REIT represented what appears to be an inordinately high percentage of the client’s net worth, making it unsuitable.

Dividend Capital Total Realty Trust was originally offered at about $10 per share in 2008. The company’s currently  published net asset value is about $6.70, however the lack of ability to freely trade the investment make its current fair market value less, perhaps far less. 

For more on non traded REITs see here.

If you have information related to this investigation, please contact us.

Rex Securities Law

561 391 1900