Skip to Content

Do You have Losses from Alternative Investments?

December 8, 2022 Alternative Investment Lawyer

Alternative investments are investments that are not publicly traded stocks, bonds, mutual funds, exchange-traded funds or other traditional investments. They are any investment that is not publicly-traded or listed on an exchange like the NYSE or NASDAQ.

The alternative investment may take the form of a bond, stock or fund. Hedge funds and real estate investment trusts (REITs) are the most common form of alternative investments. Private equity funds and oil, gas, leasing or other partnerships are also most often alternative investments. Regulation D (“Reg D”) offerings also called private placements are alternative investments.

Wall Street is Pushing Alternative Investments

Until recently, alternative investments were sold only to high-net-worth investors. Now, most of the major brokerage firms like UBS Financial Services, Merrill Lynch, Morgan Stanley, Goldman Sachs, Oppenheimer and others, are all recommending that their customers allocate a portion of their portfolio to alternative investments. In addition, many independent financial planners and advisors are also recommending alternative investments.

Alternative Investments Have High “Hidden Fees”

Alternative investments often carry upfront very high fees or commissions that are built-into the offering price, so that the cost is not readily transparent to the investor. For many REITs or Reg D offerings, the fees may be as high as 8% or more of the purchase price, and there are ongoing management fees each year. Your financial advisor may be paid based on these fees. This may be the reason that they have become so popular among financial advisors.

Alternative Investments Are Not Suitable for Retirees or Conservative Investors

Retirees, conservative and risk-averse investors should avoid alternative investments because they are higher risk investments than traditional investments. Yet, these investors may be misguided into alternative investments because of the mistaken belief that they provide stable income, or that they are “safe” because their value is not subject to market volatility or that they provide “diversification” because their value is not correlated with the markets.

Alternative Investments Have Their Own Serious Risks

  • In truth, alternative investments have these potentially serious downside risks which may far exceed their benefit:
  • Illiquidity or restrictions on sale
  • Lack of reliable information on their finances or performance
  • Questionable valuation
  • High “hidden” sales commissions or fees
  • Conflicts of interest

Losses From Alternative Investors May Be Recovered

In many instances, alternative investments have caused huge losses for investors. Although market volatility or unforeseen events can effect an alternative investment, broker fraud or negligence occurs frequently. Most famously, the Bernie Maddoff Ponzi scheme is an example of alternative investment causing losses of $17 billion.

If you have a loss in an alternative investment, you may have a legal claim to recover your loss. Broker-dealers and investment advisors have a duty to do due diligence before selling you an investment. If they do not disclose the material risks, misrepresent the material risks or sell you an unsuitable investment, you may have a claim to recover your loss.

What You Can Do

If you believe that may have loss in an alternative investment, you can contact our firm for a review of the investment without obligation or cost to you. We are experienced alternative investment fraud attorneys. Please contact our firm by email at jake@zamansky.com or call (212) 742-1414.

Client Reviews

View More