As regulators continue to drag their feet about concentration limits and better disclosures for certain REIT products, several more people have apparently been victimized by an overly aggressive stockbroker selling high risk private placements and nontraded REITs. According to an article in InvestmentNews, the Financial Industry Regulatory Authority (FINRA) filed a complaint against a “broker who invested the portfolios of three clients with unfathomable and dangerous levels of alternative products.”
FINRA says that between 2006 and 2009, Steven Stahler made unsuitable recommendations to 4 clients aged between 60 and 77. Stahler was employed by VSR Financial Services at the time. According to the InvestmentNews story, Stahler’s clients had “invested perilously high amounts” of their new worth in alternative investments and nontraded REITS.
The total amount invested was $2.5 million. For his “expert” advice, Stahler allegedly received $165,000 in commissions, about 6.6%. Readers of this website know that we have warned that non traded REITs carry commissions far in excess of normal. In addition, these investments also carry higher than average fees and administrative expenses.
How did Stahler’s clients fare? FINRA says they have sustained unrealized losses of $1.32 million, more than half of their portfolio. Had they invested in a simple lpw commission S&P 500 fund their portfolio would have increased by about 50%!
Stahler denies the charges. Published reports claim his attorney feels he will be vindicated once the facts are fully known.
Obviously, there are two sides to every story but we are skeptical about Shaler’s innocence. Most retired folks or those nearing retirement have no business being invested in illiquid alternatives such as nontraded REITs. We think many brokers recommend them simply in the hopes of receiving a fatter commission check.
Stahler is no longer selling securities according to FINRA. That didn’t stop him from racking up 10 disclosure events including the current complaint and several customer complaints. It is unclear if some of the customer complaints involve the same folks that are the basis for FINRA’s regulatory action. One thing is clear, VSR Financial Services has been writing big checks to settle Stahler’s complaints.
VSR is no stranger to controversy either. It was censured and paid a $550,000 last year by FINRA for inadequate supervision of brokers relating to sales of alternative investments such as nontraded REITs.
The bottom line? Whether Stahker is guilty or not of the charges levied against him by regulators, brokerage firms are responsible when their agents make unsuitable recommendations. Nontraded REITs are unsuitable for most investors.
In addition to carrying high fees and commissions, these investments can also be fairly risky and illiquid meaning you could stuck holding the investment for a decade or more before being able to sell.
Risk appears to be a factor in this case. The sales materials for the private placements and REITs allegedly sold by Stahler carried appropriate risk warnings. FINRA, however, says that Stahler failed to properly explain those risk and minimized them when speaking to clients.
If you lost money in a non-traded REIT, private placement or any type of alternative investment, call us. We are one of he few law firms that concentrate in REIT losses. Most cases can be handled on a contingent or “success” fee meaning we don’t get paid unless we recover money for you.