The Wolper Law Firm Has Filed An Arbitration Claim Against FSC Securities Corp. Regarding The Improper Sale Of Non-Traded Real Estate Investment Trusts
In March 2019, the Wolper Law Firm, P.A. filed an arbitration claim against FSC Securities Corp. before the Financial Industry Regulatory Authority (FINRA). The arbitration relates to alleged sales practice misconduct committed by FSC Securities Corp. Financial Advisors, Allen McKell and Ryan McKell, who are located in the FSC Securities Corp. branch office in Valencia, California. The Statement of Claim seeks damages of more than $100,000 and relates to the unsuitable recommendation that the client, who was recently widowed, invest in a series of non-traded real estate investment trusts (“Non-Traded REIT”).
Non-Traded REITs are securities that do not trade on a public securities exchange. For this reason, Non-Traded REITs can be illiquid, meaning investors may be unable to sell their investments on demand. The underlying collateral of the REITs consists of income producing residential or commercial real estate. Typically, the commissions generated on Non-Traded REITs are higher than industry norm (approx. 7%) and the investments themselves 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 client did not fall into this category.
The Statement of Claim alleges:
This case is about the sale of speculative and illiquid non-traded real estate investment trusts (“Non-Traded REITs”), to a 66 year-old widow and retired part-time teacher, who was looking to preserve capital after her husband passed away in 2012. Claimant is unsophisticated in investment matters and relied exclusively on the advice and guidance of her Financial Advisors, Allen McKell and his son, Ryan McKell (the “Brokers”). Claimant had no means to recoup investment losses and made clear to her Brokers that she did not want to subject her assets to principal loss.
The Brokers disregarded Claimant’s objectives and recommended illiquid Non-Traded REITs that, per prospectus, are classified as “speculative” investments. Had the Brokers accurately explained the risks of the Non-Traded REITs, instead of downplaying them, Claimant never would have invested in the first instance. The Brokers made these recommendations because they paid higher commissions as compared to more traditional investments. Importantly, the Brokers represented that Claimant would never pay him any fees for his services, instead stating that they got paid “from their brokerage firm.” This was a false representation intended to induce Claimant to establish accounts with them.
As a direct and proximate cause of the Brokers’ misconduct, between principal losses and egregiously high commissions, Claimant has been damaged by more than $100,000 and is forced to hold illiquid securities for an indefinite period of time.
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 firstname.lastname@example.org.