As shown by Mr. Starke’s FINRA Brokercheck report, found here, in the last two years customers have filed seven complaints against Mr. Starke, most involving allegations of the sale of illiquid, unsuitable, and high-risk investments.

Alternative Investments, which include REITs (Real Estate Investment Trusts), are often sold as an alternative to more traditional stocks, bonds, and stock and bond funds. These higher-risk investments are often touted for their high returns, especially in a low interest rate environment, however those high returns are accompanied with corresponding high risk.

In addition to their often high-risk nature, alternative investments may also have significant liquidity risk. Because they are typically not traded on an exchange, investors may not be able to determine the actual value of the investment, and further if the investment experiences problems, investors may not be able to sell or otherwise get out of the problem investment.

Pursuant to the Virginia Securities Act, financial advisors are required to disclose the risks associated with investments that are being recommended, and the Act provides for an award of rescission or losses, interest, and reasonable attorneys fees.

Prior to recommending the purchase of specific investments or a specific investment strategy to a customer, a stockbroker / financial advisor such as Mr. Starke is required to determine that the investments are suitable to that particular investor (or in the “best interest” of the customer after 2020). A suitability determination is based upon many different factors such as age, investment objectives, risk tolerance, employment situation, needs, income, assets, and investment experience. If an advisor’s recommendations of unsuitable investments result in the investor incurring significant losses, that investor may have a suitability, negligence, and breach of contract claim against the broker and his/her firm.

Generally, retirees and those on a fixed income should not have their life savings concentrated in high-risk illiquid investments due to the risk of loss as well as the difficulties of selling the investments.

Greco & Greco’s local Virginia-based lawyers have been representing Virginia residents for decades in claims against their financial advisors and brokerage firms. If you have suffered losses in unsuitable high-risk and illiquid investments and wish to discuss your potential claims with a local lawyer, please contact Scott Greco for a free attorney consultation about your potential case.

Greco & Greco is investigating investor losses in the following alternative investments:

• GWG L Bonds
• Moody National REIT
• Mobile Infrastructure
• Parking REIT
• Necessity Retail REIT
• American Finance Trust
• Silver Star Properties REIT
• First Capital Real Estate Trust
• Priority Income Fund
• American Hospitality Properties Fund
• Phoenix American Hospitality
• Commonwealth Capital
• Hospitality Investors Trust
• American Realty Capital Hospitality Trust

Reg BI, 17 CFR 240-15l-1, specifically describes the “best interest” obligation as follows in section (a)(1):

“A broker, dealer, or a natural person who is an associated person of a broker or dealer, when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, shall act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker, dealer, or natural person who is an associated person of a broker or dealer making the recommendation ahead of the interest of the retail customer.”

Reg BI includes four best interest obligations – the disclosure obligation, the care obligation, the conflict-of-interest obligation, and the compliance obligation.

Although firms may address some conflicts of interest by disclosure to customers, the SEC discussed that certain conflicts cannot simply be disclosed, and must be eliminated. Specifically, the following activities by the Broker-Dealer would violate Reg BI – “sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific securities or specific types of securities within a limited period of time.”

Many cases of investor harm that end up in FINRA Arbitration are a result of financial incentives to the broker which encouraged the wrongful conduct or unsuitable recommendation. This can include churning, but also can involve high risk securities / investments that pay higher fees or compensation to the broker to generate more sales of the product. Issuers of high risk but low reward investments pay high commissions (sometimes at 8% or higher) because otherwise no reasonable broker would sell the investment. This can and does then lead to losses by public customers who were not explained the risk, and trusted their financial advisor. As the SEC makes clear, a Broker-Dealer cannot encourage the sale of certain kinds of high commission products through sales contests or quotas, and must have a compliance system in place to detect and prevent such violations of Reg BI.

If you believe you may have a potential claim against your financial advisor, please contact Scott Greco for a free attorney consultation about your case.