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Robert W Pearce
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Mr. Pearce has tried, arbitrated and mediated numerous disputes involving complex securities, commodities, administrative, contract, commercial, business tort and employment law issues for over 30 years. He has represented hundreds of clients in Federal and state courts (trial and appellate) as... More
My company:
The Law Offices of Robert Wayne Pearce, P.A.
My blog:
The Investor's Rights Law Blog
  • STATE FARM VP MANAGEMENT CORP. FINED FOR FAILURE TO DELIVER PROSPECTUSES TO INVESTORS

    State Farm VP Management Corp. (State Farm) has been fined by the Financial Industry Regulatory Authority (FINRA) for violation of securities industry rules and regulations relating to the protection of investors. State Farm failed to implement and maintain adequate supervisory systems and procedures to monitor and ensure the timely delivery of mutual fund prospectuses as required by Section 5 of the Securities Act of 1933 (the "Securities Act"), NASD Conduct Rule 3010 and FINRA Rule 2010. FINRA investigators discovered that State Farm failed to provide prospectuses to its customers who purchased mutual funds and other securities products during the period of its investigation - 2009 through 2011 (the "relevant period"). FINRA estimated that State Farm may have failed to deliver at least 150,000 prospectuses to its customers in a timely manner during that period. Further, FINRA investigators found that State Farm failed to send updated prospectuses, which is also required under the law and industry rules to thousands of investors from 2001 through 2012.

    The federal and state securities laws require the delivery of a prospectus to investors because it provides them with important information about the product being purchased. Our federal and state securities laws require disclosure of the details of the enterprise in which an investor's putting money so that he can be fully apprised and can intelligently appraise the risks involved in his or her particular investment. Not only has State Farm violated Section 5 of the Securities Act but it has also violated Section 10 (b) of the Securities Exchange Acts of 1934 (the "Exchange Act"), which states the time a prospectus must be delivered. A prospectus is required to be delivered by securities broker-dealer before the transaction is complete on the settlement date of the transaction, which in the case of mutual fund transactions and most stock transactions is no later than 3 business days after the order is placed.

    The failure to deliver prospectuses in a timely manner is an extremely serious violation. It is not only a violation that can result in sanctions by securities regulators such as FINRA, but it can also give rise to a civil action or arbitration claim by an investor for rescission (to unwind the transaction) under both federal and state securities laws. Alternatively, an investor may recover damages for losses suffered in connection with an investment he or she made through State Farm if that investor did not receive a prospectus in a timely manner.

    Have you suffered losses resulting from a State Farm stockbroker's failure to deliver a prospectus relating to an investment made through that brokerage firm? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

    Jan 25 12:00 PM | Link | Comment!
  • WAS THE DESERT CAPITAL REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?

    Many investors have been calling my office and asking whether Desert Capital Real Estate Investment Trust was an unsuitable investment for them. Desert Capital Real Estate Investment Trust is a non-traded Real Estate Investment Trust (REIT). For most investors, liquidity, income and risk tolerance are a concern but if you are elderly and retired they are paramount! If you have limited resources and no ability to generate income from other sources to meet your liquidity and income needs then a non-traded REIT is an unsuitable investment. Likewise, if you cannot afford a total risk of loss, then speculative non-traded REITs are unsuitable investments. The suitability problem is compounded when any investors' portfolio is concentrated in non-traded REIT investments. A rule of thumb is that no more than 10% of anyone's investment portfolio should be concentrated in real estate investments, including REIT investments, and that percentage should be far less as a person reaches retirement and advances in age, perhaps zero!

    Every brokerage firm has the responsibility of "knowing the customer" and making a customer specific "suitability" determination for every investment recommendation. The "Suitability Rule," Financial Industry Regulatory Authority (FINRA) Rule 2111, requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile." This is a new rule but it contains the core features of the previous National Association of Securities Dealers ("NASD") and New York Stock Exchange ("NYSE") suitability rules and codifies well-settled interpretations of those rules. Brokerage firms and their associated persons have always had the responsibility to make suitable recommendations in light of individuals in stating investment objectives and financial condition, tax status, and other relevant factors. According to FINRA, some non-traded Real Estate Investment Trust investments ("REITs") aren't suitable for anyone based on the offering terms, misrepresentations and unreasonable projections by the promoters (see FINRA News Release "FINRA Issues Investor Alert on Public Non-Traded REITs").

    The primary cause of the increased number of telephone calls to our office over the last five years is many elderly and retired investors have been steered into non-traded REIT investments as the yields on other income producing investments have steadily declined. According to many investors, the REITS were recommended as safe, secure, and steady income producing investments which sounded to be exactly what many seniors wanted and needed. But these products offer little liquidity for investors who at this stage of their life are likely to need to dip into their investment savings to support their lifestyle or for medical and other emergencies. There is no public market, early redemption of shares in REITs is often very limited, and the fees associated with the sales of these products can be high and erode the total return, if they can be sold at all. Further, many of these investments do not truly generate income but make distributions with borrowed money, with newly raised capital, or by a return of principal rather than a return on investment which can stop at any time. Although non-traded REITs may offer some diversification benefits as part of a balanced portfolio, they all have underlying risk characteristics that make them unsuitable for certain investors, particularly the elderly retired investor with limited financial resources.

    When any Desert Capital Real Estate Investment Trust investor calls our office, we will make a customer specific suitability determination after we learn the "essential facts" concerning that investor. We will ask, just as their stockbroker should have asked, about their age, investment experience, time horizon liquidity needs (length of time they could hold the investment without need for the principal), risk tolerance, other holdings, and financial situation in terms of liquid total net worth, tax status and investment objectives. All of these factors are relevant to suitability and determination and most weigh against the ownership of REIT investments by elderly retired investors. If we believe a brokerage firm or its representatives made an unsuitable recommendation that any person invest in a non-traded REIT, we recommend that they file a FINRA arbitration claim and attempt to recover their losses!

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

    Jan 25 11:55 AM | Link | Comment!
  • INVESTORS IN FLORIDA BEWARE OF HIGHLY LEVERAGED PRECIOUS METALS DEALERS

    Florida has recently been faced with a resurgence of boiler room type operations pushing highly leveraged precious metals. Historically, boiler rooms were associated with securities and commodities futures trading, and they have had a presence in South Florida for many years. Today, they consist of salespeople who use high-pressure sales tactics to market speculative, and even fraudulent, investments. The salespeople use calls lists (aka sucker lists) and scripts to pitch securities and commodities to potential investors. Most of the salespeople have no formal market training and oftentimes make up facts to close a sale.

    Florida does not require highly leveraged precious metals dealers to apply for and maintain a license in order to act as an introducing broker or a clearing/counter party firm. However, they are required to apply to the Florida Department of Agriculture for a telemarketing license. They are also required to file the scripts that are to be used when contacting potential investors. Many of these scripts are never filed with the Department - they are usually buried in other marketing materials distributed for internal use by brokers. Although regulators have actively sought to shut down dealers of such type due to violations, Florida still remains a hotbed for highly leveraged precious metals dealers. As for investors, it is oftentimes too late for them to hedge against the risk of losing their life savings once a dealer has gone bust.

    A precious metal is a rare and natural metallic element of high economic value. Historically, precious metals were important as currency but are now regarded mainly as investment commodities. Gold, silver, platinum, and palladium are among the most popularly traded precious metals. The demand for precious metals is driven not only by their practical use but also by their role as hedges against market risk. Leverage is a technique used in finance to multiply gains by borrowing money, which increases purchasing power. The most obvious risk associated with leverage is that it can multiply losses. Since precious metals markets are extremely volatile and unpredictable, the use of leverage can dramatically increase the risk of losing all of one's principal if prices were to swing in the opposite direction.

    Have you suffered losses in highly leveraged precious metals? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

    Jan 25 11:43 AM | Link | Comment!
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