The average stockbroker has no customer complaints or disciplinary actins on his or her record. A few have one or two complaints. And then there is Bambi Holzer. Her securities “rap sheet” is an astonishing 114 pages long. Finally, in late December the Financial Industry Regulatory Authority (FINRA) barred her from the securities industry.
Her story is unique in that she counted some very high profile celebrities as her clients. She is also unique to have lasted 30 years in the securities industry after racking up 72 disclosure events. A disclosable event is a regulatory sanction or suspension, customer complaint, judgment or lien. Bambi had them all.
We sometimes see stockbrokers that work at “bucket shops” or “boiler rooms” that run up frequent complaints selling garbage penny stocks. (A good example is the character “Jordon Belfort” in the movie Wolf of Wall Street.) Holzer is unique in that she was selling nontraded REITs to wealthy customers.
One of the REITs that lead to her downfall was Behringer Harvard Holdings. That particular REIT family was one of the largest before the financial meltdown in 2008.
In the Department of Enforcement disciplinary proceeding against Holzer, FINRA claimed that she knowingly placed clients who needed access to their money in highly illiquid investments including the Behringer Harvard Holdings REIT. As a non-traded REIT, the Behringer product couldn’t be readily sold.
FINRA and many clients claim that Holzer made unsuitable recommendations. Holzer countered, however, that she placed her own mother in a Behringer REIT.
Ultimately Holzer elected to settle with FINRA rather than fight. Her previous employers are still on the hook for any pending claims or new claims that may surface. According to InvestmentNews, one former employer, UBS Paine Webber, has already paid out $11.4 million dollars to settle dozens of investor claims against Holzer.
If you find yourself stuck in an illiquid investment or non-traded REIT, you may have a claim against both the broker that recommended the investment and the brokerage firm. Illiquid investments such as TICs (tenant-in-common) and certain REITs are generally not suitable for older investors, those nearing retirement and those who may need ready access to their case. With many REITs, investors must hold on to the investment for at least 8 years. Some REITs are also quite risky and are not suitable for risk adverse investors seeking preservation of capital.
Unfortunately, some brokers favored these investments simply because they paid higher commissions. That means more money for the broker but higher risks and more heartache for investors.