The Financial Regulatory Authority (FINRA) Department of Enforcement filed a recent complaint against Mercer Hicks III (aka Toby Hicks) a broker in Charlotte, NC with Southeast Investments, N.C., Inc. alleging unsuitable recommendations to five senior customers. Non-traded Real Estate Investment Trust (REIT) and non-traded Business Development Companies (BDCs) are generally considered “high-risk” investments and recommendations of these investments to seniors can be problematic for financial advisors.
Between June 2014 and July 2017, Mr. Hicks recommended that investors buy speculative non-traded REIT and BDC investments according to FINRA allegations. Mr. Hicks also allegedly failed to conduct reasonable due diligence on the REITs and BDCs and failed to understand the risks and features associated with those investments before recommending them to his customers.
FINRA Claim on Southeast Investments for Non-Traded REIT & BDC
According to FINRA, the prospectuses and Subscription Agreements for the investments stated they were not suitable investments for investors who required immediate liquidity, guaranteed income or short-term investments, and they were only appropriate for those investors who can afford a complete loss of their investment. The FINRA allegations further note that none of the five investors were looking for speculative, high-risk investments, they were between ages 73 to 87 years old and none of them were still working. Their account documents indicated they were interested in preserving their capital or trying to let their capital appreciate in value. Finally, the FINRA allegations note that some of the elderly customers had trouble liquidating the investments to obtain funds they needed to pay for medical care.
FINRA alleges these recommendations demonstrated a failure to conduct due diligence on the investments in violation of FINRA Rules 2111 and 2010. FINRA Rule 2111 requires the firm or associated person have a reasonable basis to believe a recommended transaction or investment strategy is suitable for the customer based on the information obtained via reasonable diligence on the part of the firm or associated person to ascertain the customer’s investment profile.
Investors Recover Losses
If you are an investor that purchased non-traded REITs or Non-Traded BDCs and you have incurred losses (or if you are aware of a senor investor who did the same) you should consider your potential options for recovering your investment losses. At least one option for some investors includes a Financial Regulatory Authority (FINRA) customer dispute. The customer dispute process at FINRA is private, and quicker and more efficient that traditional court litigation. In addition, there are typically no depositions, as it is almost entirely paper-based discovery. You should contact experienced attorneys who might be able to assist you with these types of disputes.
According to Palm Beach, Florida investment fraud lawyer Matthew Thibaut, Esq. this could be viewed as a message that FINRA is sending that the regulators are not content to simply give a firm or associated person a pass on these investment products just because the customer was convinced by the broker to sign paperwork, but, on the other hand, it could also be in part an issue related to Mr. Hicks, who has a total of nine disclosures on his FINRA Brokercheck report including 5 judgment/lien disclosures, the above mentioned FINRA investigation, along with three different employment separation disclosures.
Haselkorn and Thibaut (InvestmentFraudLawyers.com) is a nationwide law firm specializing in handling investment fraud and securities arbitration cases. The law firm has offices in Palm Beach, Florida, on Park Avenue in New York, as well as Phoenix, Arizona and Cary, North Carolina. The two founding partners have nearly 45 years of legal experience and offering to review any investor claims for free by calling 1-888-628-5590 or visiting their website.
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