Current Investigations

REIT Investors Suffer Major Losses

Published on: June 25, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Trouble is brewing with a number of nontraded real estate investment trusts (REITs) and now, investors are filing claims for their losses. One of the REITs, NorthStar Healthcare Income, Inc., suspended distributions to investors on February 1.

Closed to new subscriptions since December 2015, the publicly registered REIT was set up to acquire, originate, and oversee securities in the healthcare industry. Northstar told investors that challenges involving performance and operations had resulted in a reduced estimated value/share in 2018 compared to 2017—from an $8.50 NAV/share at the end of June 2017 to $7.10 NAV/share in December 2018.

The nontraded REIT’s board cited a number of reasons for the decrease: a cash flow affected by the senior housing market, labor costs related to the investments that have impacted the REIT’s portfolio, more cash flow issues—this one impacting the skilled nursing industry—and assets’ income losses.

Ex-Cetera Financial Group Adviser Named in 27 Customer Disputes

Published on: June 24, 2019 | by Shepherd Smith Edwards & Kantas, LLP

After failing to cooperate in a probe into allegations of securities violations, George Merhoff, a former ex-Cetera Financial Group adviser, has been barred by the Financial Industry Regulatory Authority (FINRA). He was fired by the brokerage firm in April for allegedly issuing an undisclosed payment to a firm customer.

With over 21 years working in the brokerage industry, Merhoff was a registered Cetera broker for seven years. Before that, he was registered with Pacific West Securities, where he worked for 13 years, and at AAG Securities for less than a year.

Merhoff’s BrokerCheck record shows 27 customer disputes filed since December 2015 that have either been settled or are pending. Allegations include the following:

Newbridge Securities Corporation in Financial Trouble

Published on: May 28, 2019 | by Shepherd Smith Edwards & Kantas, LLP

In March 2019, Newbridge Securities Corporation (“Newbridge”) filed its Form X-17A-5, commonly called a firm’s Focus Report, with the Securities & Exchange Commission (“SEC”). The Focus Report showed that in 2018, Newbridge had almost $33 million in revenues, yet reported only about $108,000 in net profits.

The accounting firm that audited Newbridge disclosed in its “Opinion on the Financial Statements” that “there is substantial doubt about [Newbridge’s] ability to continue as a going concern.” This means that the finding from the CPA firm of Newbridge in financial trouble means investors that hold accounts with the firm should be concerned.

Newbridge is a Boca Raton, Florida based brokerage and financial services firm. Although the firm claims to have “over 80 locations in the US”, its website only lists offices in Boca Raton, Ft. Lauderdale, Scottsdale, Chicago and a few locations in New York.

SSEK Investigates Harvest Volatility Management Strategies

Published on: May 27, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Shepherd, Smith, Edwards & Kantas Investigating Firms Selling Harvest Volatility Management Strategies’ Collateral Yield Enhancement Strategy

The law firm of Shepherd, Smith, Edwards & Kantas (“SSEK Law Firm”) is investigating several firms that have been selling Harvest Volatility Management Strategies as a safe way for customers to earn extra income from their investment portfolio. The long period of historically low interest rates that have existed since at least 2008 has resulted in the creation of a number of brokerage firm products that are meant to combat the low return investors receive in traditional income investments, such as money markets or CDs, but provide similar safety.

One such investment product that has become popular, but proven to be far riskier than represented to investors, is the so-called “Yield Enhancement Strategy”, or the “YES” investment. We have previously written on the UBS Yield Enhancement Strategy and the number of investors who lost significant money with that investment when the real risk of the product was revealed in February 2018.

Ex-Business Partner Accuses GPB Capital Holdings of Ponzi Scheme

Published on: May 14, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Patrick Dibre, a former business partner of GPB Capital Holdings, is accusing the asset management firm of operating a Ponzi Scam. Dibre made his claims in his counter-suit filed against GPB after the company sued him.

GPB Capital is at the center of a growing controversy surrounding brokerage firms that sold its private placements, raising $1.8B in the process. The asset management company, which invests primarily in auto dealerships and waste management companies, has been under fire since late last year when it suspended its sale of the private placements, as well as redemptions to investors. It also is under investigation by the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), state regulators, and the Federal Bureau of Investigation (FBI).

The following GPB funds are under investigation:

Puerto Rico Retiree Plan Accuses UBS and Others of Bond Price Rigging

Published on: April 29, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Puerto Rico Government Employees and Judiciary Retirement Systems Administration, a pension plan for retirees of the U.S. territory’s government, has filed a proposed securities class action in federal court against Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Barclays Capital, Inc. (BARC), BNP Paribas Securities Corp., Bank of America Securities, Credit Suisse Securities, FTN Financial Securities, Deutsche Bank Securities, JP Morgan Securities, Morgan Stanley (MS), Merrill Lynch, Pierce, Fenner & Smith, and UBS Securities. The retirement fund is accusing the defendants of rigging bond prices to keep the prices up on Freddie Mac and Fannie Mae bonds.

Freddie and Fannie, both U.S. government-sponsored entities (GSEs), offer bonds to raise money for loans. According to the Puerto Rico pension plan’s bond fraud case, the trading desks of the various banks worked together to artificially raise the prices of the GSE bonds when the market took a hit after the 2008 financial crisis and Fannie and Freddie started reducing the number of bonds issued for sale. This decrease led to a loss in profits for those underwriting and trading in Fannie Mae and Freddie Mac bonds. The plaintiff contends that instead of the banks opting to lower the difference between their purchasing and selling prices and competing for clients, they worked together to fix the bond prices so they could “maximize” their profits at the expense of customers.

The Puerto Rico retirement plan’s complaint comes weeks after another proposed class action was brought by two other pension funds also accusing banks of rigging the price of GSE bonds. The pension fund plaintiffs in that fraud case are the Trust and Sheet Metal Workers’ Local 19 Pension Fund and the Dallas Area Rapid Transit Employees’ Defined Benefit Retirement Plan. The defendants are Bank of America NA, Barclays Capital, Wells Fargo Securities, LLC, Citigroup Global Markets, Inc., BNP Paribas Securities Corp., Deutsche Bank Securities, JPMorgan Securities, HSBS Bank Plc, HSBC Securities, JP Morgan Chase Bank, TD Securities, Nomura Securities International Inc., and Merrill Lynch, Pierce, Fenner & Smith.

The FBI and NY Regulators Raid GPB Capital Holdings’ Trash Hauling Company

Published on: March 26, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Just days after InvestmentNews reported that the Federal Bureau of Investigation (FBI) is now investigating alternative investment management firm GPB Capital Holdings, ProPublica is reporting that the FBI and regulators from New York City’s Business Integrity Commission (BIC) have raided the corporate offices of GPB Waste NY, which is the private trash hauling company once known as Five Star Carting that GPB Capital Holdings acquired in 2017. The raid reportedly involved a search warrant from the US Attorney’s Office to gather materials.

Aside from the FBI, GPB Capital Holdings is already under investigation by the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the New Jersey Bureau of Securities, and Massachusetts Secretary of the Commonwealth William Galvin, who is investigating more than 60 brokerage firms that sold GPB Capital Holdings-related private placements to investors. However, public filings submitted to the SEC note that there were about 80 brokerage firms in the US at least authorized to sell investments to clients on behalf of GPB.

GPB Capital Holdings primarily invests in auto dealerships. However, it also purchases private trash hauling companies. NYC’s BIC is responsible for looking into possible misconduct or corruption involving the private trash industry in the city. Five Star, according to ProPublica, had previously dealt with a “troubled labor and safety record,” including government inspections that found that the company used unsafe trucks.

NorthStar Healthcare REIT Investors Suffer Losses as Income Distributions Are Suspended

Published on: March 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

If you are an investor in NorthStar Healthcare Income, you very likely received a letter last month notifying you that monthly distributions from this investment have been suspended. According to NorthStar’s board, the publicly registered nontraded real estate investment trust’s (nontraded REIT) portfolio has been undergoing “operational and performance challenges” that as of the end of June 2017 has resulted in a “lower estimated value/share” of the NorthStar Healthcare’s common stock. The nontraded REIT has since determined that in order to protect both capital and its financial state, suspension of these distribution payments is necessary.

The NorthStar Healthcare Inc. nontraded REIT was set up to originate, acquire, and oversee healthcare industry-related investments, including debt, equity, and securities investments involving healthcare real estate. Sources note that between 2013 and 2018, it raised about $2B and set up a portfolio involving more than 650 properties.

However, NorthStar Healthcare Income began reducing distribution rates in December 2017. By October of last year, it had notified investors that it would only buy back shares from an investor if qualifying disability or death were factors. In December 2018, the nontraded REIT reduced its net asset value from $8.50/share to $7.10/share. Now, with the distribution suspension, some investors are standing to lose not just their monthly distributions, but also they could see a substantial decline in value on their principal that they originally invested.

Wedbush Securities To Pay $250K Over Inadequate Supervision of Ex-Broker Accused of Fraud

Published on: March 15, 2019 | by Shepherd Smith Edwards & Kantas, LLP

According to the US Securities and Exchange Commission (SEC), Wedbush Securities has settled allegations accusing the brokerage firm of failing to supervise one of its former registered representatives, Timary Delorme, who is accused of engaging in a pump-and-dump fraud that harmed retail investors. As part of the settlement, Wedbush consented to a censure and will pay a $250K penalty.

The SEC filed this civil securities case against Wedbush a year ago, accusing the broker-dealer of not properly investigating red flags indicating that Delorme might have been defrauding investors. The former Wedbush broker is accused of, from 2008 to 2014, receiving payments, which were issued to her husband, in exchange for recommending to investors that they make certain trades that were then used in the pump-and-dump fraud.

The regulator said that Wedbush even disregarded an email from a customer reporting the fraud, as well as a number of Financial Industry Regulatory Authority (FINRA) arbitrations claims and inquiries over Delorme’s trading activities involving penny stocks. Instead, contends the Commission, Wedbush performed two inadequate probes into the allegations against its former broker but didn’t take proper action.

Former Alexander Capital Broker Accused of Churning Must Pay Over $302K

Published on: March 12, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has secured a final judgment against ex-Alexander Capital broker William Gennity, who is accused of excessive churning in clients’ brokerage accounts. Gennity, whom the Financial Industry Regulatory Authority (FINRA) had earlier suspended, will pay nearly $128K in disgorgement, nearly $15K in prejudgment interest, and a $160K civil penalty.

The SEC’s complaint accused Gennity of recommending costly, “in-and-out trading” to four clients between 7/2012 and 8/2014 without having any reasonable grounds for thinking that doing so would cause them to make money. Instead, they lost money as a result, while Gennity made money. The alleged churning purportedly took place while he was an Alexander Capital broker.

Churning typically involves a broker engaging in trades in order to earn more commissions.