Tag Archives: UDF

Kris Etter of IMS Securities

If you have suffered investment losses with Kris Etter of IMS Securities, particularly if you suffered losses in UDF, please call 1-866-817-0201 for a free consultation with an attorney.  We have suit filed against IMS and are currently investigating whether other claims may exist.

It is believed that Etter had an undisclosed conflict of interest in his recommendations of UDF.  Upon information and belief, Mr. Kris Etter sold a substantial amount of UDF to his clients and is the son of Todd Etter.  Todd Etter is the Chairman of UDF IV, one of the top officers of the company.  Mr. Todd Etter also serves as Chairman of the general partner of UDF I and UDF II and Executive Vice President of the general partner of UDF III.  This creates a substantial conflict of interest in UDF recommendations by Kris Etter.

Kris Etter and IMS also failed to properly investigate UDF before recommending it, likely because of the Etter conflict and the heightened commission paid by UDF.  IMS is one of the top four leading sellers of UDF IV in the United States.

The bottom fell out for UDF when it was revealed in December 2015 to be a Ponzi scheme. The offices were raided by the FBI, received a Wells notice, unable to release quarterly reports and was ultimately delisted for a time. Reasonable investigation into the investment of other financial firms revealed that the illegitimacy of the investment. Had IMS done sufficient due diligence it would have likewise discovered that the investment was not suitable for any investor. Instead, IMS and Etter turned a blind eye to the problems of UDF and instead focused on the profits that it was receiving from this high commission product.

The individual ultimately in charge of all IMS offices is the CEO of IMS, Jackie Wadsworth.  Ms. Wadsworth has seven customer complaints naming her for insufficient supervision of representatives under her oversight. These complaints largely concern the inappropriate recommendation by her representatives of unsuitable variable annuity and REIT investments, just like the investments sold clients of Kris Etter and IMS.

As reported in Investmentnews.com in August 2016, the balance sheet of IMS is tilted heavily toward high-commission products like variable annuities and non-traded REITs. Approximately 86% of its revenue of IMS in 2015 came from commissions from such products.

Steepener Note Losses, Investors Capital or Trident Partners

FINRAInvestors Capital Corp., a Cetera subsidiary, agreed to pay $1.1 million to settle Finra charges that it recommended unsuitable short-term trades in complex products to clients including steepener notes.  Trident has agreed to pay a $50,000 fine.  We currently have suit filed against ICI for Steepener note sales and other actions of James “Jim” Ignatowich.

For more information, call 1-866-817-0201.  Initial consultation with an attorney is free and confidential.

Letters are currently being sent to investors asking them to settle for a small amount of money.  Investors should speak to an attorney before doing this action because the amount may be too small and the accepting of the settlement may waive rights for additional funds.

Financial advisers are required to sell only suitable investments to their investors.  A suitable investment is not only one that is consistent with the objectives and risk tolerance of an investor, but is also investments that are not so complex that the investor cannot appreciate the risk.

Finra’s complaint against Investors Capital revolved around recommendations for unsuitable investment trusts and steepener notes in the accounts of 74 clients.

Two Investors Capital representatives recommended short-term unit investment trust transactions with upfront sales charges ranging from 250 to 350 basis points in the customers’ accounts, according to a Finra letter of acceptance released on Monday.

Finra also charged that Investors Capital lacked adequate supervisory policies.  Brokerage firms are required to have supervisory procedures to ensure the sale of only suitable investments.  However, at Investors Capital the representatives’ behavior as to the recommendation of only suitable investments went unchecked from June 2010 to September 2015.

The clients involved in unsuitable UIT trading lost more than $240,000, according to Finra.

Finra notes that one 58-year-old client with a long-term growth account objective purchased and sold nearly 65 of the unit investment trusts, almost all of which had two-year maturity dates, in a 2.5 year period with an average holding period of three months. On at least 58 occasions, proceeds of the sale of one unit investment trust in this client’s account were used to purchase another, resulting in a loss of $50,728 in that client’s account.

Between April 2011 and December 2012, FINRA alleges that Investors Capital representatives also recommended short-term trades of “steepener” notes, which are long-term bets on the shape of the yield curve, in an unsuitable manner. The recommendations led to 63 customers suffering about $126,000 in losses.

Details of this settlement were described in the October 6, 2016 edition of Financial Adviser Magazine.

Many of the investments were sold by .  He has recently come under regulatory scrutiny, and was banned from the industry, for securities law violations whereby he was attempting to sell investments with disregard suitability, misleading investors, and violations of the “do not call” list.

Jeffrey Pederson is a private attorney who represents investors in suits concerning securities brokers and securities brokerage firms.

UDF Losses

If you invested in UDF, you have rights and should call 1-866-817-0201 for a free consultation with a lawyer.

The FBI on Thursday, February 18, 2016 raided the Grapevine, TX, in suburban Dallas, offices of large real estate investment trust, United Development Funding IV (“UDF”).  Allegations have circulated that investors have suffered losses at UDF as the result of Ponzi activity.  Shares of UDF on that day toppled 54% before trading was stopped.

FBI

As of October 16, 2016,  United Development Funding IV (“UDF IV” or the “Trust”) released more bad news.  It announced in a press release that it received a written notification letter from NASDAQ indicating that the Nasdaq Hearings Panel (“Panel”) had determined to delist the shares of UDF iV from Nasdaq.  The Trust has not filed its Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”) and its Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2016 (the “2016 Forms 10-Q” and collectively with the 2015 Form 10-K, the “Reports”) by October 17, 2016, the deadline by which the Trust was to file all Reports in order to regain compliance with Nasdaq Listing Rule 5250(c)(1).  This despite repeated assurances by the Trust to its investors that it would file such documents.

A disproportionate number of investors come from a small number of independent brokerages.  This could mean that the sale of the investment was influenced by inappropriate means, such as heightened commissions.  Many of the recommendations were also unsuitable, a fraudulent activity of recommending a security when the security is in contradiction to the wants and needs of the investor.

The brokerage firms we believe sold

Accordingly, the trade halt that has been in place since February 2016 will be converted to a trading suspension effective at the open of business on October 19, 2016.  While this suspension will occur at the open of business on October 19, 2016, the Trust currently plans to appeal the Panel’s determination to delist the Trust’s shares, although no assurance can be given regarding whether the Panel will grant the appeal or whether the appeal will ultimately be successful in preventing the delisting of the Trust’s shares.  As stated in the notification letter from Nasdaq, following the suspension of trading of the Trust’s shares on Nasdaq, the Trust’s shares may trade on the over-the-counter market.

On October 13, 2016, the Trust informed Nasdaq that it would be unable to meet the previously granted extended deadline of October 17, 2016 for filing the 2015 Form 10-K and the 2016 Forms 10-Q, as a result of the Trust’s auditors requiring more time to complete the audit.  In addition, the Trust informed Nasdaq that the Trust has received a “Wells Notice” from the staff (the “Staff”) of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Enforcement stating that the Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Trust alleging violations of certain provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

Certain individuals associated with the Trust and its advisor also received similar Wells Notices.  A Wells notice is a notice from SEC regulators indicating that a preliminary investigation of UDF IV has recommended a likely enforcement action for violation of securities laws.

UDF has seen its stock price fall 81% in the months after a hedge fund alleged it was operating for years like a Ponzi scheme.

“The FBI is lawfully present and conducting law enforcement activity” at the UDF offices, said FBI spokeswoman Allison Mahan.

UDF has previously defended itself saying that the Ponzi charges are untrue and that it is the victim of individuals spreading rumors in hopes of shorting the REIT.   Claiming in a filing with the Securities and Exchange Commission that the REIT was the victim of this type of securities trading scheme known as a “short and distort.”  However, UDF also disclosed in December that it had been the subject of a fact-finding investigation by the SEC since April 2014.

The FBI’s presence at UDF headquarters further decimated the company’s share price, which fell  Thursday, February 18, to $3.20 per share after the FBI activity at company headquarters was reported. As recently as two months ago, UDF shares were trading at $17.20.

UDF IV had total assets of $684 million, the vast majority of which, $513.2 million, were notes receivable, according to its quarterly report from November. Notes receivable for related parties was $69.6 million, according to the report.

Earlier this month, hedge fund manager Kyle Bass revealed that he was shorting UDF. “UDF is using new investor money to pay existing investors,” he wrote. “UDF Management is misleading investors and is preying on ‘Mom and Pop’ retail investors.”

UDF investors should speak with an attorney to know their rights.

 

Sources for this report include Investmentnews.com and Wsj.com.