Kovack Securities Sued Over Investment Losses

Elderly Investor Alleges Unsuitable Investment Recommendations Caused REIT Losses

An Oklahoma retiree is seeking up to $500K in damages for investment losses she suffered while working with Kovack Securities broker, Susan Penney.

The claimant contends that Penney and the broker-dealer misled her and made unsuitable recommendations when they persuaded her to invest a huge portion of her portfolio in non-public Real Estate Investment Trusts (REITs) and other risky investments that an inexperienced investor like her should never have been involved in.

Our REIT fraud lawyers at Shepherd Smith Edwards and Kantas (SSEK Law Firm) are representing this investor in her Financial Industry Regulatory Authority (FINRA) arbitration claim against Kovack Securities and Susan Penney. The hearing will take place in Dallas, Texas.

REITs, ETFs, and Other Risky Investments Should Have Never Been in This Retiree’s Portfolio

The claimant, who had a small pension but no investing experience, entrusted her Individual Retirement Account (IRA) to Penney. Despite making it clear to the Kovack Securities broker that she didn’t want to take on unnecessary risks, Penney proceeded to overconcentrate her portfolio in private placement REITs and other risky stocks including:

Hines Global
Bluerock Residential
Preferred Apartment Communities
Gold investments
Exchange-traded funds (ETFs)

Many of these investments were clearly unsuitable for this retiree from the get-go. Not only that, but she was led to believe that these investments were low risk. Also, there was clearly a gross lack of supervision of Susan Penney by Kovack Securities.

With 37 years in the industry, Susan Penney has been a Kovack Securities broker since 2012. Before that, the other broker-dealers that she worked for were LPL Financial, Wells Fargo Advisors, Prudential Securities, Merrill Lynch, Pierce, Fenner, and Smith, Princor Financial Services Corp., and First Investors Corp.

Even though Penney’s CRD notes that she was fired by Wells Fargo in 2010 after she was accused of discretionary trading and suspended by FINRA two years later, she neglected to disclose any of this to the claimant.

Misrepresentations and Omissions: Alleged Inadequate Supervision Led To Investment Losses

This retiree’s IRA assets should never have been exposed to unproven and illiquid investments and she suffered significant losses as a result. Now, she is making a number of allegations in her stockbroker fraud case, including:

Unsuitable investment recommendations
Misrepresentations and omissions
Breach of contract and warranties
Vicarious liability
Failure to supervise

As Penney’s broker-dealer of record, Kovack Securities had a duty to properly supervise this registered representative and identify any signs of fraud or negligence, as well as prevent or stop either from happening.

Study Identified Kovack Securities As A Firm With “Red Flag” Brokers

Unfortunately, this is not the first time that Kovack Securities has come under scrutiny over the actions of one of its registered representatives. In addition to being named in other broker fraud claims and regulator sanctions, there was a Reuters-commissioned study conducted with the help of Columbia University Law School in 2017.

After analyzing FINRA data, the study included Kovack Securities on its list of brokerage firms that have hired a significant number of registered representatives with a history of disclosures and red flags including regulatory actions, customer disputes, arbitrations, terminations, bankruptcies, civil actions, and other alleged wrongdoing.

Broker Fraud Lawyers

If you sustained significant investment losses while working with Kovack Securities broker Susan Penney or any other registered representative from that firm, contact SSEK Law Firm today for your free, no-obligation case consultation using our online contact form or calling us at 716-261-3529.

We can help you determine whether you have grounds for an investor claim. For 30 years, our stockbroker fraud attorneys have been fighting for investors nationwide and we have recovered many millions of dollars on our clients’ behalf.