A FINRA claim has been filed by an investment fraud law firm on behalf of a resident of Kansas. It alleges unsuitable client investments made by Lincoln Financial Advisors Corp. in Cole Credit Property Trust IV (now known as CIM Real Estate Finance Trust) and Atlas Resources Series 34-2014 LP.
The claim is seeking damages between $100K and $500K has been submitted to the Dispute Resolution Unit of FINRA (Financial Industry Regulatory Authority) for violations that include negligence, breach of fiduciary duty, negligent supervision, and common law fraud.
What is FINRA Dispute Resolution? It is a venue made available by the self-regulating organization FINRA for investors with grievances against their broker-dealer and/ or advisor to file a complaint and seek redressal. For investors, it is an alternative to the usually much more lengthy and expensive litigation process through the judicial route and provides investors an opportunity to attempt to recover their investment losses if they believe they occurred through broker misconduct.
Brokerage companies are required to monitor their advisors in order to ensure compliance with FINRA rules. If it is proven that the financial advisor has violated FINRA rules, and the employer failed to supervise him properly, the brokerage firms can be held liable for any resulting losses in a FINRA arbitration case.
A broker-dealer has a fiduciary duty towards its clients to ensure that due diligence has been performed on the investment being recommended to determine that it meets the investment goals of the customer, as well as ensuring the disclosure of risks attendant in the investment. It has been alleged that the broker-dealer failed to carry out this responsibility and still recommended the investment.
FINRA claims involving these products often involve allegations of regulatory rule violations, negligence, negligent supervision, and misrepresentation. It is not unusual to hear of violations of FINRA Rules 2010 and 2111. FINRA Rule 2111 states that the firm or an associate person must have a reasonable basis for believing that a transaction or investment strategy recommended is appropriate for the customer based upon information obtained through reasonable diligence.
Sometimes these alternative investments are recommended or sold on the basis of the promised income stream or incomplete, inaccurate, and sometimes non-existent, risk disclosures to investors. This explanation often comes under the pretense of increasing income, yield, or diversification. It may seem innocent enough, especially when equity valuations are high and interest rates are low. But, everything is not always what it seems with these investments. Even worse, many investors who bought these investments solely for income reasons did not know the potential risks or that they could lose their distributions.