Did You Lose Money in an Alternative Investment? Our Lawyers May Be Able to Recover Your Losses
Alternative investments are attractive because they offer the potential for significant returns. However, this potential reward comes at a cost: These investments are labeled as “alternative” for a reason, and it is because they carry risks that are not suitable for most individual investors.
Alternative Investments Generate High Commissions and Fees, and This Makes Them Attractive to Brokers
These investments are also attractive to brokers, but for an entirely different reason: Since alternative investments are harder to sell, brokers earn higher commissions and fees when they sell them. So, even if an alternative investment is not a good option for an individual investor, the broker may still push the investment because it is in the broker’s best interests to do so.
With this in mind, if you have lost money in an alternative investment, you should speak with a lawyer about your options. If your broker misled you into a high-risk investment, you may be entitled to recover your losses through arbitration with the Financial Industry Regulatory Authority (FINRA). An alternative investment lawyer at Zamansky LLC can provide an in-depth assessment of your legal rights, and if you are entitled to recover your losses, we can pursue a claim against your broker in FINRA arbitration on your behalf.
Do You Have a Claim Against Your Broker for Alternative Investment Fraud?
Under federal securities laws and FINRA regulations, brokers owe several duties to their customers. Among them, brokers must perform adequate due diligence before recommending investments, and they must make investment recommendations that are suitable to their customers’ individual risk profiles and investment objectives.
Brokers also have a duty to disclose all material facts. This includes disclosing the risks that an investment entails. It also includes disclosing any conflicts of interest (i.e., substantially higher commissions and fees than brokers can earn by selling more traditional securities). If a broker violates any of these duties, then the broker can—and should—be held accountable when an alternative investment leads to unrecoverable losses.
As a result, relying on brokers to recommend alternative investments presents two distinct sets of risks for investors (along with the inherent risk of purchasing a speculative investment). Both of these risks can potentially give rise to broker negligence or misconduct claims in FINRA arbitration:
- Broker Negligence – In some cases, brokers will negligently recommend alternative investments to retail investors. If a broker does not understand how an alternative investment works or the risks it entails, the broker cannot provide an informed investment recommendation.
- Broker Misconduct – In other cases, brokers will intentionally withhold information about investment risks or misrepresent the risks associated with an alternative investment product. Typically, brokers do this because they want their customers to make investments that trigger substantial fees and commissions.
Both of these are considered forms of broker fraud,which our investment fraud lawyers handle, under federal securities laws and FINRA’s rules. Whether your broker was negligent or intentionally misled you, you have the same rights in FINRA arbitration. You can hire an alternative investment lawyer to assert your rights at no out-of-pocket cost, and you can work with your lawyer to prove that you would not have made the investment had you had the opportunity to make an informed decision. This applies to all types of alternative investments, including:
- Business Development Companies
- Conservation Easements
- Delaware Statutory Trusts (DSTs)
- Energy Sector Investments
- Exchange-Traded Funds (ETFs)
- Junk and High-Yield Bonds
- Life Insurance
- Market-Limited Notes
- Market-Linked Certificates of Deposit (CDs)
- Private Placements
- Penny Stocks
- Real Estate Investment Trusts (REITs)
- Structured Products
- Unit Investment Trusts (UITs)
- Variable Annuities
What Investors Really Need to Know about Alternative Investments
If you have lost money in an alternative investment, the simple truth is that your broker probably didn’t tell you everything you needed to know. At best, your broker was being careless. At worst, your broker was willing to profit at your expense. Here is what investors really need to know about alternative investments:
1. Alternative Investments are Not Suitable for Most Retail Investors
Due to the substantial risks involved, alternative investments are not suitable for most retail investors. As a result, most upstanding brokers will not even present these investments as options to their customers. Generally, when well-heeled investors put money into alternative investments, they invest an extremely small percentage of their funds as part of a broader diversification strategy.
2. Alternative Investments are Exempt from Registration with the SEC
Under Regulation D, many types of alternative investments are exempt from registration with the U.S. Securities and Exchange Commission (SEC). This means that issuers are not required to adhere to the requirements for selling on public exchanges, and they do not have to provide financial transparency to their investors. But, this does not give brokers an excuse to make uninformed recommendations.
3. Returns on Alternative Investments are Notoriously Difficult to Predict
While brokers often pitch alternative investments as offering the potential for significant returns, the reality is that returns on alternative investments are notoriously difficult to predict. Let’s look at the example of a real estate investment trust (REIT).
When you invest in an REIT, your gain or loss is contingent upon the investment strategies and management capabilities of a few individuals who have little, if any, accountability. Additionally, if you invest in a non-traded REIT, selling your investment and salvaging whatever principal you have left could be almost impossible. Contrast this with investing in a portfolio of blue chip companies, where the companies’ executives are accountable to their shareholders, where the companies are required to maintain financial transparency, and where you can sell your shares on the open market at a moment’s notice.
Speak with an Investment Fraud Attorney About Your Alternative Investment
If you have lost money in an alternative investment and would like to know more about filing to recover your losses through FINRA arbitration, we encourage you to contact us promptly for a free, no-obligation consultation. To discuss your broker fraud claim with an investment fraud attorney at Zamansky LLC in confidence, call 212-742-1414 or request an appointment online today.