Articles Tagged with risks

According to a recent InvestmentNews article, Preferred Apartment Communities Inc. began selling an investment known as a Nontraded Preferred Share after 2011.  The article detailed that the investment is redeemable back to Preferred Apartment Communities Inc. after five years, and if the investor needs to redeem it before five years, they must pay a redemption fee that decreases over time.  If the investor seeks to redeem during the first year, the redemption fee is 13%, according to the article.

Nontraded REITs (Real Estate Investment Trusts) have long been an area of concern for securities regulators like the Financial Industry Regulatory Authority (FINRA) because they are generally illiquid investments that pay high upfront commissions to the brokers who sell them.

Nontraded REITs pose suitability concerns for investors.  Brokers who recommend them must make sure the investors are not over-concentrated in the investment, and that they have disclosed all of the risks associated with them, including the investment’s illiquid nature and the high fees earned, leading to questions of whether the investment is in the best interest of the investor.

The Securities and Exchange Commission (SEC) announced this week that two Citigroup Affiliates, Citigroup Global Markets Inc. (CGMI) and Citigroup Alternative Investments LLC (CAI), agreed to pay $180 million to settle charges of defrauding investors with false and misleading claims. According to allegations, these Citigroup affiliates had claimed that their hedge funds, Falcon fund and ASTA/MAT,  were low-risk products safe for traditional bond investors, however, these funds collapsed during the financial crisis.

According to SEC’s investigations, the above mentioned Citigroup affiliates raised almost $3 billion from 4,000 investors by making false and misleading representations for their hedge funds. They are reported as having continued to claim that these funds were low-risk and made false assurances about liquidity even as the funds started collapsing. The investigation also revealed that CAI raised $110 million in additional investments even when the fund was in dire situation and Citigroup employees presented the funds to investors in a manner that was at odds with the fine print in the written and marketing materials provided to investors. The Citigroup affiliates consented to settle without admitting or denying the findings that they willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933, GCMI willfully violated Section 206(2) of the Investment Advisers Act of 1940, and CAI willfully violated Section 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-8. The firms have also consented to censure and will cease and desist from future violations.

Malecki Law takes a proactive and informed approach to national and international financial news of today. This represents a classic case of Securities Fraud where investors are misled into investing in unsuitable products. SEC holds investment firms and brokers accountable for looking out for investors’ best interests and the team at Malecki Law represents and guides investors who have been victimized by false claims, false assurances and misrepresentations. For a comprehensive list of kinds of Securities Fraud please click here and contact us if you feel you have suffered similar losses.

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