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The Wolper Law Firm Has Filed An Arbitration Claim Against Investors Capital Corp. And Cetera Advisors, LLC, Based On Alleged Sales Practice Misconduct Committed By Former Financial Advisor, Robert Ginsberg

In February 2019, the Wolper Law Firm, P.A. filed an arbitration claim against Investors Capital Corp. and Cetera Advisors, LLC before the Financial Industry Regulatory Authority (FINRA).  The arbitration relates to alleged sales practice misconduct committed by former Investors Capital Corp. Financial Advisor, Robert Ginsberg, who was located in its Wallingford, Connecticut branch office.  The Statement of Claim seeks damages of more than $500,000 and relates to the unsuitable recommendation that the client sell shares of Microsoft common stock earned through an employee stock option plan and reinvest the proceeds in illiquid non-traded real estate investment trusts.

The Statement of Claim alleges:

This case is about the unsuitable recommendation by Financial Advisor, Robert Ginsberg, that Claimant sell 6,077 shares of Microsoft Corp. common stock that he earned through his employment at Microsoft and reinvest the proceeds into speculative and illiquid non-traded real estate investment trusts (“Non-Traded REITs”) and privately held Business Development Companies (“BDCs”) [1] that Mr. Ginsberg falsely represented were safe.    

At the time of the recommendation, Claimant was physically disabled and on work leave due to impaired vision and degenerative spinal cord damage.  To compound an already weakened physical state, in 2014, after Claimant opened an account with Mr. Ginsberg, Claimant suffered a brain injury during a car accident and was also diagnosed with cancer.  Claimant was looking for someone to provide sound financial advice at a time when he needed it most.  Unfortunately, that did not occur.

Mr. Ginsberg recommended that Claimant invest in approximately fourteen Non-Traded REITs, BDCs and publicly traded REITs that, per prospectus, were speculative and carried a “high degree of risk.”  Mr. Ginsberg touted these investments as “safe” and assured Claimant that he could outperform the stock and bond markets without taking meaningful risk. 

In the ensuing years, the Non-Traded REIT portfolio has done nothing but decline and cannot be sold because the securities are illiquid.  On the other hand, the Microsoft common stock has appreciated significantly from the sale price of $32 per share and is now trading at $108 per share.  Had Claimant maintained his Microsoft stock, it would be worth more than $650,000 today.  Instead, Claimant is literally stuck with devalued or worthless Non-Traded REITs, many of which no longer pay dividends.  In addition, two of the Non-Traded REIT issuers, United Development Funding and American Capital, have been the subject of regulatory scrutiny, Securities and Exchange Commission enforcement actions and class actions, resulting in multi-million-dollar settlements. 

In the aftermath of this failed strategy, Claimant realized losses of more than $500,000.  In 2017, Mr. Ginsberg joined Woodbury Financial Services, where he remains today. 

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. 

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.

[1] Business Development Companies, or BDCs, are closed-end investment companies that help small companies meet their capital needs.  The BDCs make loans to small businesses and finance those loans through capital raised from investors. 

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