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Did Former Hilltop Securities Financial Advisor, Walter Valenzuela, Actively Trade Unit Investment Trusts In Your Brokerage Account?

The Wolper Law Firm has filed an arbitration claim against Hilltop Securities based on the alleged excessive and unsuitable trading of Unit Investment Trusts (“UITs”), non-traded real estate investment trusts (“Non-Traded REITs”), Business Development Companies (“BDCs”) and “junk bonds” and energy driven master limited partnerships by Walter Valenzuela in the account of an elderly customer. The arbitration claim seeks damages of more than $1 million.

Walter Valenzuela (CRD # 2280224) is a Financial Advisor at Kestra Investment Services in San Diego, California. Walter Valenzuela previously worked for Hilltop Securities in Del Mar, California. His employment with Hilltop Securities, where he was registered since 2008, abruptly ended in April 2020.

A Unit Investment Trust is a closed-end investment company typically issues redeemable securities (or “units”), like a mutual fund, which means that the UIT will buy back an investor’s “units,” at the investor’s request, at their approximate net asset value (NAV). A UIT typically will make a one-time “public offering” of only a specific, fixed number of units (like closed-end funds). Many UIT sponsors, however, will maintain a secondary market, which allows owners of UIT units to sell them back to the sponsors and allows other investors to buy UIT units from the sponsors.

A UIT will have a termination date that is established when the UIT is created, although it may be in the distant future. In the case of a UIT investing in bonds, for example, the termination date may be determined by the maturity date of the bond investments. When a UIT terminates, any remaining investment portfolio securities are sold and the proceeds are paid to the investors.

A UIT does not actively trade its investment portfolio. That is, a UIT buys a relatively fixed portfolio of securities (for example, five, ten, or twenty specific stocks or bonds), and holds them with little or no change for the life of the UIT. Because the investment portfolio of a UIT generally is fixed, investors know more or less what they are investing in for the duration of their investment. Investors will find the portfolio securities held by the UIT listed in its prospectus.

The commissions paid to brokers who sold UITs can be as high as 4%. It is alleged that Walter Valenzuela was selling UITs prior to maturity and purchasing new UITs, unnecessarily increasing the sales charges to the client and diminishing the investment returns. The Financial Industry Regulatory Authority (“FINRA”) has sanctioned more than one dozen brokerage firms between 2018-2020 for sales practice violations in connection with UIT sales.

Similarly, Non-traded REITs do not trade a public securities exchange. For this reason, non-traded REITs can be illiquid, meaning investors may be unable to sell their investments on demand. Typically, the commissions generated on non-traded REITs are higher than industry norm and may be subject to extreme volatility due to associated risk factors. Non-traded REITs are only suitable for investors with a long-term investment horizon who are willing to accept higher levels of risk in their investments. The commissions for Non-traded REITs average between 4.5%-7.5%.

According to publicly available records released by the FINRA, Walter Valenzuela has eight (8) customer complaint disclosures reflected on his CRD, in which customers have alleged sales
• December 2019—”Customer alleges losses of $50,000.00 and requests settlement compensation.” The complaint was denied.
• July 2018—”Unsuitable recommendations, misrepresentation, excessive trading.” The matter was settled for $100,000.
• August 2017—”Customer alleges that the representatives misrepresented two UIT investments by failing to provide full disclosure regarding the fees and risks of the investments. Customer requests all losses be reimbursed.”
• August 2017—”Claimant alleges through attorney unsuitable recommendations, unsuitable use of margin, churning, financial exploitation, elder abuse and excessive mark-up/mark-down with respect to municipal bond and UIT trades executed in the account. Also alleges that the representative failed to obtain proper breakpoint discounts for UIT purchases. Subsequent arbitration Statement of Claim filed on November 8, 2017 alleges unsuitable investments, breach of fiduciary duty, excessive trading, misrepresentation and elder abuse.” The alleged damages are $9.5 million and the matter remains pending.
• February 2013—”CLAIMANT ALLEGES MISREPRESENTATION, UNSUITABLE RECOMMENDATION, BREACH OF FIDUCIARY DUTY WITH RESPECT TO THE RECOMMENTATION TO INVEST IN MUNICIPAL SECURITIES.” The matter was settled for $35,000

For a copy of Walter Valenzuela’s CRD, click https://brokercheck.finra.org/individual/summary/2280224#disclosuresSection

Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com.

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