Florida Securities Fraud Lawyer Blog
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We have received several inquiries recently about investments in master limited partnerships (MLPs).  It seems that, although the popularity of MLPs is growing, many investors still don’t understand exactly what an MLP is or the risks involved in investing in one.

An MLP is a kind of limited partnership that is publicly traded on an exchange. It is similar to any other limited partnership, in that, 1) the limited partners provide the capital to the entity in return for periodic distributions of income; and 2) it is run by a general partner who receives compensation in return for management services rendered.

What are some risks of MLPs?

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As many readers may know, “crowdfunding” is a modern innovation for raising money.  Typically using internet sites like Indiegogo, Kickstarter, or GoFundMe, a person can set up a website to raise money to develop a product or initiate some kind of project.  Projects funded through crowdfunding range the gamut from feature films to video games to new styles of clothing.  Virtually any project can be funded through crowdfunding.  In return, “investors” will get some small benefit, like early access to the feature film.

As of this week, new SEC regulations have been put in place to allow the sale of securities in small business through crowdfunding.  This securities crowdfunding will be overseen and regulated by FINRA.

According to FINRA, anyone can invest in crowdfunded securities, but the amount one can invest depends on an individual’s income and net worth.  For instance, if your annual income or your net worth is less than $100,000, then you can invest a maximum of $2,000, or 5% of either your income or net worth (whichever is greater).  If, however, your annual income and your net worth are both over $100,000, then you can invest up to 10% of your annual income or net worth (whichever is greater).  The total amount invested in crowdfunded securities can never exceed $100,000.

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Here’s something you probably don’t think about when you hire an investment advisor: who will I be able to sue if this person steals my money?

Maybe you should think about it.

If you’re dealing with a major brokerage firm like Merrill Lynch, Morgan Stanley, UBS or Charles Schwab, the answer is simple.   You can sue one of those giant companies and, if you win, the odds or pretty good the giant, multi-national corporation will have the money to pay you.  (They will also have the money to fight you tooth and nail before paying you a dime).

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According to the Financial Industry Regulatory Authority (FINRA), it has fined MetLife Securities, Inc. (MetLife) $20 million and ordered it to pay $5 million in restitution for misrepresenting and omitting material information in connection with variable annuity switches.

FINRA found that, during the period 2009 to 2014, MetLife misrepresented the costs and guarantees of its customers’ existing variable annuity contracts in a whopping 72 percent of the 35,500 replacement annuity contract samples reviewed by FINRA. According to FINRA, MetLife made the replacement annuities sound more beneficial for the customers even though the replacement annuities usually cost more than the customers’ existing annuities.  Annuity switches generated around $152 million in gross dealer commission for MetLife over a six-year period.

Some of the examples of misconduct cited by FINRA in its news release include:

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The SEC has issued an Investor Alert regarding fraudsters attempting to profit by exploiting the dangers associated with the Zika virus.  For those not following the news, Zika is a tropical disease transmitted by mosquitoes.  Outbreaks have been reported in South America, with cases popping up in the United States.  Zika infections in pregnant mothers have recently been linked to microcephaly in babies, i.e., babies born with heads much smaller than expected, leading to significant public health concerns.

According to the SEC, fraudsters are attempting to sell investments in companies supposedly developing treatments or other products for Zika.  Scams could include so-called “pump-and-dump” schemes, whereby fraudsters encourage investors to buy shares in a company or a fund by spreading rumors that the company is involved in developing a treatment or cure for Zika.  The rumors prompt investors to buy the shares, thus driving up the price.  The fraudsters then sell their shares while the price is high but before the truth is revealed.  Penny stocks are particularly susceptible to this kind of fraud.  As always, be wary before sinking a significant sum of money in penny stocks.

The SEC recommends that investors use common sense before putting money in a Zika-related investment.  Specifically, before making any investment – especially one tied to Zika – an investor should do the following:

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In our law firm, we frequently represent elderly clients in claims against brokerage firms and financial advisors.  These claims usually include allegations that the broker took advantage of the elderly client, or recommended improper investments that benefited the broker more than the client.

Why and how do the elderly become so vulnerable to stockbroker abuse?  Some of the answers may surprise you.

Isolation and Loneliness  We have seen, over and over, elderly clients who are isolated and lonely.  We practice in South Florida, a haven for elderly retirees.  Many times, our clients’ families and loved ones live thousands of miles away.  On a day-to-day basis, these clients have very few friends or social interactions.

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As the investing population ages, it becomes more and more likely that investors will suffer failing physical and/or mental health.  Your permanent – or even temporary – incapacity could make managing your own investment accounts impossible.  One potential preemptive solution is for you to give a power of attorney (POA) to a family member or trusted friend for your investment accounts before you become incapacitated.

A POA is a legal document that permits the person you name to make decisions on your behalf.   The person who is named in your POA is called your “attorney-in-fact.”  Giving someone else control over your finances shouldn’t be done lightly. Yet, it can be vital if you unexpectedly become incapacitated because of a stroke, auto accident, or other unforeseen event.

Here are a few things to consider before you grant someone else power over your investments:

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Last spring, FINRA launched a Securities Helpline for Seniors – known as HELPS – as a resource for senior investors with questions and concerns.  With the country’s growing population of senior citizens, who are often targeted in fraudulent and deceptive investment schemes, the HELPS line is just another resource in FINRA’s recent push to protect our aging population.

The HELPS line launched on April 20, 2015, and through December 2015, more than 2,500 calls had been placed through the hotline.  The average age of the caller was 70 (though the actual age range was 22 to 100), and the calls lasted an average of 25 minutes each.  In 2015, HELPS staff assisted callers in recovering $750,000 in voluntary reimbursements from securities firms.

FINRA is also using data collected during calls to assist it with its regulatory goals.  By tracking trends in the calls placed to the hotline, FINRA can more readily issue Investor Alerts on topics of current interest.  For instance, after a spate of calls about transfer on death accounts, FINRA issued an Investor Alert about that specific topic.

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Starting May 16, 2016, companies can use crowdfunding to offer securities to John Q. Public.  Crowdfunding generally refers to obtaining small individual investments from a large number of people to finance a particular project. Here are some helpful tips to see if making a crowdfunding investment may be right for you.

Who uses crowdfunding?

Startups and early-stage ventures may use crowdfunding to seek financing for the development of a new product or service.  Prior to the approval of crowdfunding regulations, this type of “ground-floor” investing was typically unavailable to the mom and pop investor.

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Securities arbitration is the legal process by which most disputes between customers and brokerage firms are resolved.  Arbitration is an alternative to traditional litigation, which takes place in a courthouse before a judge and jury.

When a person goes to arbitration, he or she is giving up, or surrendering, the right to have a dispute heard by normal court or jury. For this reason, arbitration can only happen by agreement of the parties, usually by way of a signed arbitration agreement.

Many businesses today insert an arbitration clause into the boilerplate language of their agreements with customers. The brokerage firm industry is no exception. The new account paperwork for almost every brokerage firm in the United States contains a mandatory arbitration clause.