By Bradd Milove
FINRA, also known as the Financial Industry Regulatory Authority, released a public notice last month urging caution among investors and securities brokers when solicited to purchase
, which are typically sold as private placement investments. These products include non-traded REITs, real estate TICs, hedge funds and derivatives.
explains the dangerous and unnecessary risks involved in such products and concludes that they are almost always unsuitable for most investors. In the past, FINRA has published several similar notices on the topic of complex investments –mostly pertaining to real estate; and this latest serves to underline the necessity of proper regulatory action and compliance among brokerage firms to maintain investor safety in the face of illiquid, non-transparent and all together speculative products sold for the sake of extravagant commissions at the buyer’s expense.
According to government regulations, all broker dealer firms are expected to perform due diligence before marketing or selling any investment products to the public: and in the case of complex products, this requires the comprehensive review and understanding of legal documents and memoranda pertaining to the product, as well as an exhaustive analysis of the investment’s likely behavior against a full range of market conditions. Because FINRA has deemed complex products to bear risks “beyond the fundamentals of market forces,” this latter step is particularly essential; but the convoluted nature of these investments is such that few brokers are prepared to perform this analysis, and are thus unable to fully understand the products in question. Unfortunately, this hasn’t stopped some sellers lured by incredibly high commissions and fees from marketing complex products to the public. All too often, brokers bypass the requisite due diligence and fail to comply with the virtually impossible comprehension component – resulting in very lucrative sales at the investors’ expense.
Investors recover $1.36 million in LPL Financial real estate fraud case
Generally speaking, investor recourse for fraudulent investments is limited to FINRA arbitration; and in recent years, a scourge of fraudulent real estate deals has generated numerous customer disputes. Just this past week, the law firm of Miller & Milove secured an award of $1.36 million on behalf of an elderly San Diego couple. 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.
At the law offices of Miller & Milove, our experience as long-time
has prompted us to strongly caution against investor involvement in products that are not easily explained or understood. We recommend that individuals use extreme care when presented with non-traditional investment products, and that they research current FINRA warnings and guidelines online at
- FINRA and SEC regulations exist to protect investors and prevent fraud. For additional information, contact us today: