A financial advisor seeking high commissions for himself instead of the financial well being of his widowed school teacher client improperly sold her high-risk non-traded REITs and other unsuitable investments that caused significant losses and locked up her retirement nest egg, according to a claim filed today by Vernon Litigation Group, the investor rights law firm.
Despite the investor’s aim of reasonable income from conservative investments, the financial advisor steered the widow toward high-risk non-traded REITs and other real estate-related and alternative investments, the claim seeking FINRA arbitration states.
Following the death of her husband, the woman found herself for the first time handling the family investments, including a brokerage account. Not having the expertise to invest in individual stocks, the woman had the majority of her funds invested in mutual funds and municipal bonds. She then sought an expert to help protect her irreplaceable assets while investing them to gain a retirement income. Instead, the financial advisor failed to put his client’s interests above his own, steering her to high commission, alternative investments that caused significant losses and essentially froze her assets.
Between 2006 and 2009, the financial advisor converted almost $700,000 of the woman’s liquid investments into high-risk non-traded REITs and other real estate-related investments and alternative investments, which by 2009 accounted for nearly 60 percent of the woman’s assets. Those investments robbed the woman of liquid assets and left her with illiquid investments that, while steadily losing value, she may not be able to sell – other than at a huge discount – to meet upcoming minimum distribution requirements of her IRA.
The high commission investments that this advisor used to line his own pockets at the expense of his school teacher client include AmREIT, NetREIT, Inland REIT, KBS REIT, and Behringer Harvard REIT, all of which have either severely curtailed or suspended investor redemptions. As well, the advisor recommended other alternative investments such as venture capital schemes and oil and gas investments that will not be liquid for 15 to 20 years. These investments weren’t suitable for the client in violation of industry rules because the woman clearly needed access to her funds sooner.
“This woman was led to believe that her portfolio was well diversified and safer than being exposed to market risk,” said Chris Vernon, founder of Vernon Litigation Group. “In truth, the majority of her portfolio was exposed to significant risk, was largely concentrated in real estate-related investments, and was illiquid.”
Vernon Litigation Group is a Naples, Florida law firm that represents investors nationwide who are victims of stock fraud and stock losses due to broker fraud and brokerage firm fraud and misconduct. Vernon Litigation Group’s investment fraud attorneys are experienced in arbitration and litigation, and the firm assists clients in attempting to recover losses caused by all manner of financial fraud and negligence. It focuses its practice on complex financial litigation and arbitration as well as other complex business litigation and arbitration.
CONTACT: Vernon Litigation Group
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law