What You Need to Know About the Investment Game

With the stock market crash of 2008-2009 fading out of view in the rear view mirror, many new investors may be wondering how safe the investment game truly is in the slowly recovering American economy.

In these calmer financial times, it’s especially important to weigh to carefully assess the risks of a potential illiquid investment before committing. This is because embedded risks often rise as visible danger subsides. It is during these times that some investors unwittingly take too much risk, only to realize that risks after purchase; when the next financial storm hits.

Risk of Loss of Principal Should Always be Carefully Considered When Looking for Returns

Before committing to an investment or handing any money over to a financial advisor or firm, keep the following in mind:

Carefully vet financial advisors. Take the time to thoroughly investigate any potential business partners. Make sure they’re properly licensed and registered, have legitimate financial designations or education, and are free or regulatory, investor, or financial problems. Choosing a financial adviser who is trustworthy, professional, and skilled is often more important than attempting to vet everything you buy from the professional (due to the complexity of the financial markets and financial products).

Get everything in writing. And, as a corollary, don’t rely on representations from your advisor that are different or inconsistent with the written representations . Your financial adviser should be able and willing to provide a hard copy of any representations made regarding the proposed investment. If they don’t act consistent with their written representations, end the relationship.

Once you have carefully selected your financial advisor, remain vigilant and keep in mind that most investment professionals use the following general investment touchstones:

Asset Allocation and Diversification within Asset Classes

A concentrated portfolio is usually a risky one. You typically don’t want to invest everything into one industry or one market. When considering this, consider what assets or job you may have outside of your securities portfolio. For example, if you make a living in the real estate business and also own real estate that you rent out for income, then don’t let a financial advisor recommend you have “exposure” to real estate investments such as REITs when you are already heavily exposed to real estate risks outside of your investment portfolio. Many financial advisors fail to consider your total financial picture when recommending a securities portfolio. If you are overconcentrated in a market that takes a downturn, or another overtakes it, you might suddenly find yourself at a significant loss and, depending on the nature of the investment, you may not be able to sell the investment and limit your losses. The concepts of asset allocation and diversification are essentially a fancy way of saying “don’t put all your eggs in one basket.”

Accept Losses and Move on Rather than Holding the Losers

There are many fancy-sounding measures to protect you from a declining stock position. For example, you can set “hard stops” on your stocks in which you set a price at which your stock will automatically sell. You can also set up what are known as “trailing stops,” which aim to protect your gains and simultaneously guard against losses. However, more importantly than these specific techniques is a mindset that involves discipline to accept an investment mistake and make a good business decision as to whether to hold or sell an existing investment. Failure to have this discipline can result in much larger losses and missed opportunities on how the investment funds can be redeployed.

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Energy Related Master Limited Partnerships are a Disaster for Investors

Energy related “Master Limited Partnerships” (MLPs) and other Oil and Gas investments are complex investments that have been wildly oversold to conservative retail investors over the last several years. Some of the financial institutions that have pushed the sale of these products include Morgan Stanley and UBS, as well as many other smaller purported investment advisors. Unfortunately, many of the investors that purchased these products have suffered losses that have far exceeded the losses being incurred in broader markets.


An “MLP,” known as a “publicly traded partnership” by the IRS, is a combination of a traditional limited partnership with a traded security and its associated liquidity. Unlike typical securities where investors buy shares of stock in corporations and collect dividends, an MLP is not associated with a corporation. Legally, an MLP is a partnership, not a corporation.

In terms of taxes, this distinction is significant. Unlike corporate-based investments, which are taxed first at the level of the corporation and then at the level of the shareholder, in an MLP, only the individual partners pay taxes on their share or “units” of the profits.

Another way that an MLP is unlike a traditional partnership is that shares or units of an MLP are traded on a stock exchange. If you own a share in an MLP, you are considered a limited partner. As an owner of a share, you have no participation in the partnership’s management, which is in the hands of the general partners.

The MLP makes payments to the limited partners, and any additional payments that might exceed the partnership’s income aren’t classified as dividends – they are treated as a “return of capital.”

If you are a unit holder in an MLP, your initial tax basis is the amount you pay for the units. Your basis is then decreased for each distribution and increased with each allocation of income. Some of the distribution can qualify as returns on the investment capital, which reduces the unit holder’s taxable basis.

Bottom line? MLPs aren’t subject to income tax, which means that there is more cash available for distributions than if the company were incorporated. This means that MLP units are worth more than similar shares of a corporation.


Financial professionals who laud their potential for high return on investment often push MLPs. However, these are not conservative investments. As retail investors are learning, the truth is that MLPs are highly risky investments subject to profound and swift decreases in value. This is due to several factors, including:

MLP’s are seriously affected by market changes, using debt to maintain the required levels of cash. Economic instability has a significant impact on an MLP’s value.

Any decline in commodity prices, whether due to government regulation or market changes can significantly impact MLPs, as they underpin the infrastructure associated with the energy sector.

The recent drop in energy prices (and the resulting market decline and volatility) has painfully revealed and highlighted both of the above-mentioned risks, which we suspect was not highlighted for investors at the time of purchase (by the allegedly trusted investment advisor). We suspect some investors may have claims for damages for the incompetent or conflicted advice that was given to them.

If you have incurred significant losses as the result of MLP investments or other energy-related investments, you should contact the Vernon Litigation Group to determine whether your losses were caused by the malpractice of your trusted financial institution.


Financial professionals in the United States consistently over-concentrate and inappropriately recommend MLPs and Oil and Gas investments by downplaying, ignoring, or concealing the risks involved. And, in doing so, many financial advisors working for Wall Street firms such as Morgan Stanley and UBS provide incompetent advice or advice driven by irreconcilable conflicts of interests. For example, the risks and volatility of some of these energy-related products make them unsuitable for many investors. This is especially the case where high concentrations of these products exist in a portfolio purportedly designed for safety and income.

Below is a list of investments that our firm is currently investigating:

SDRL Seadrill
CIE Cobalt International Energy, Inc.
MLPL UBS leveraged MLP fund
ERX Leveraged Oil ETF
DIG Leveraged Oil ETF
USO United States Oil ETF
XLE Leveraged Energy ETF
UNG US Natural Gas ETF
NRP Natural Resources Partnership
EVEP EV Energy Partners
LNCO Linn Co.
RIG Transocean
SLB Schlumberger
GBSN Great Basin
SD Sandridge Energy


Vernon Litigation Group represents clients in courtroom litigation, mediations and arbitrations throughout the United States. Our lawyers have collectively represented thousands of investors in FINRA and other securities arbitration and litigation claims nationwide and recovered millions of dollars from financial institutions, both large and small. Please contact us to discuss your rights if you have suffered significant losses in energy investments recommended by your investment professional. Our initial consultation regarding your possibility of recovery of your losses is confidential and free. For more information, visit our website at vernonlitigation.com or contact Vernon Litigation Group by phone at 1-877-649-5394 or by e-mail at info@vernonlitigation.com to speak with an attorney at Vernon Litigation Group.

Wall Street Continues to Fight Requirement to Act in Client’s Best Interest

Amazingly,  Wall Street continues to fight any requirement that it act in the best interest of its own clients

It is amazing that Wall Street assumes retirees will continue to trust it given its horrible history of mistreating retirees combined with its current effort to do everything in its power to avoid following a rule that would require it to act in the best interest of its clients.   Retirement savers lose $17 billion annually due to brokers selling them high-fee products and Wall Street does not want that gravy train to stop.   According to today’s Investment News story on this issue,  Wall Street claims that the funds they sell “have delivered returns higher than their Morningstar Inc. averages” that support its claim that savers would lose more if Wall Street had to act in the best interest of clients.

In other words,  Wall Street is suggesting that they will recommend lesser funds if they had higher duties.  Think about that one.    We believe that, in the near future, there will be a tipping point where investors run from Wall Street firms towards someone who actually has their best interest at heart and are free from the massive conflicts of interests that plague Wall Street.   We look forward to that day.

Tenants-in-Common (TICS) and Rogue Brokers Seem To Go Hand In Hand

Tony Thompson, the one-time leading vendor of private real estate assets known as “tenancies in common” transactions has been barred from the securities industry.

As it turns out, Mr. Thompson “made material misrepresentations and omissions in the sale of private placement securities to investors” and therefore violated security industry rules, according to the Financial Industry Regulatory Authority (FINRA).

FINRA claimed in 2013 that Mr. Thompson deceived and defrauded investors who borrowed $50-million from the broker-dealer he owned, TNP Securities. The notes were never repaid and went into default.

FINRA demanded Mr. Thompson to cover $36.2 million in restitution to clients. In accordance with an administrative order, FINRA also asserted that investment losses were caused by significant omissions and misrepresentations that wound up getting both Thompson and TNP Securities kicked out of the securities industry.

It now appears that TNP Securities was the middleman for Mr. Thompson’s numerous products, such as the private offerings at the core of FINRA’s decision to bar him from the industry. The FINRA decision also stated that TNP did not disclose the negative-equity for $18-million in the private placement documents.

As part of his defense before FINRA, Mr. Thompson argued that he could not be held liable for deficiencies in the note programs because he, along with his broker-dealer, relied on a group of purportedly qualified experts, including legal counsel. These experts, he claimed, had been the driving force in deciding what needed to be included in the private placement offering documents.

Mr. Thompson did admit that as chief executive of TNP, he was the person ultimately responsible for the information incorporated and/or overlooked from the offering materials. Thompson nevertheless maintained that the misrepresentations came from his good faith reliance on data and advice he obtained from others, specifically his accountants and his counsel.

That notion was batted away by FINRA. They claimed the e-mail communications showed Thompson’s broad knowledge of the specifics related to the offering materials; his famous executive model; and even his ability to deny, rather than rely upon, the assistance of his advisors.
Thompson’s and TNP Securities’ misrepresentations in the sale of TIC’s are all too common among those who sell these types of investments to individual investors looking for safe, secure investments.

Rogue Broker Focused More on Dance Club Than his Clients’ Best Interests

There are certain standards and practices that most financial institutions and their representatives are required to adhere to. For instance, advisors are generally prohibited from engaging in private securities transactions not approved by their firm. Another major restriction is that advisors are not allowed to either loan money to their clients or receive loans from clients. Unfortunately, there are a number of brokers around the country who constantly violate some of these standards. According to FINRA, the case of Aaron Parthemer is another example of a broker who has gone rogue.

The Violations

On April 23, 2015, the Financial Industry Regulatory Authority (FINRA) banned Aaron Parthemer—a Miami-based Wells Fargo Advisors financial advisor—permanently from the securities industry. According to the FINRA settlement, Mr. Parthemer conducted a number of outside business activities that he did not disclose to his former employers Morgan Stanley or Wells Fargo, such as the part ownership of dance club in South Beach.

The FINRA settlement establishes that from 2009-2013 Mr. Parthermer failed to disclose his business interests in Club Play; an Internet-based startup company; and a tequila marketing firm. Most concerning, however, is the fact that FINRA alleges Mr. Parthemer made a number of loans to clients, which is a major restriction in the financial industry. Specifically, FINRA indicated that Parthemer allegedly loaned close to $400,000 to three professional athletes who were co-owners at the club. He allegedly did the same for some of his customers at Wells Fargo, in blatant violation of FINRA standards.

Parthemer’s actions appear not to have stopped there. Like many rogue advisors, Mr. Parthemer allegedly advised his clients to invest more than $3 million in the Internet branding start-up “GVC”, which was operated by one of his friends.

Harmful to Investors

Brokers that fall into this kind of behavior greatly harm investors especially because they only look after their own interests. When investors are steered by an advisor towards investments not approved by their firm, they are at a much greater risk of losing their entire investment. This is because most of these investments turn out to be highly speculative and sometimes even schemes.

Precautions Investors Should Take

As an investor, you should always verify that the investments being pitched by your financial professional are approved by the financial institution, that fit with your risk tolerance, and are consistent with the investor’s overall financial needs. If at any time you feel that your broker/advisor has acted in a negligent manner, you should seek legal counsel immediately.

The Attorneys of the Vernon Litigation Group represents investors throughout the United States who have suffered considerable losses for negligent and/or fraudulent behavior caused by rogue or negligent brokers.

Contact the Vernon Litigation Group if you are concerned about the circumstances under which any significant investments were offered and sold to you by any financial institution or financial advisor.

Lack Of Full Disclosure Means You May Be Overpaying For Your Bonds

Transparency Issues around Municipal Securities

The biggest problems with municipal securities are centered on the low level of transparency that is provided to company investors. When compared to different elements of U.S. capital markets, municipal securities are less regulated.

This has led to the repeated application of outdated ideas by many in the securities industry regarding the right to overcharge investors for bond purchases. Industry insiders see it as decentralized and less accessible. This, of course, works to the detriment of the individual investor, who gets more significant charges (called “markups”) when compared to other investments. This lack of transparency has allowed “markups” to reach billions of dollars.

Understanding Municipal Securities

The municipal securities market is unique in the sense that it has a direct impact on the daily lives of investors. This is because they are composed of many of the infrastructure essentials (such as utilities or schools), which are financed by municipal securities. Since a strong infrastructure is the foundation for a thriving local economy, these types of Bonds are one of the most popular investments amongst retirees. An added bonus is that these bonds are generally not taxed.
What Are the Solutions to Stop Unnecessary Markups?

Municipal securities are facing new initiatives designed to provide increased transparency and fairness to investors. Consequently, thanks to the Municipal Securities Rulemaking Board’s (MSRB) proposals of new rules, the responsibilities and duties of municipal advisors are beginning to shift.

These new proposed rules dictate that Municipal advisors must disclose reference price information on any principal trades made on a given day. Requirements also call for best practices for those trades made by retail investors.

Another proposed solution calls for the repeal of the Tower Amendment (which prohibits the SEC and Municipal Securities Rule Making Board from directly or indirectly requiring issuers to file municipal securities documents with them before the securities are sold). Proponents of this approach cite the ability to mandate those who are issuing municipal securities to disclose and review the details being offered to investors.

Problems of Price Transparency

There are many problems that exist in the municipal securities market. These have resulted from ongoing issues especially relating to price transparency. The markups and other fees that have continued to develop only hurt investors. These issues also keep investors from performing a proper evaluation of the prices quoted.

As interest rates rise, the risk of on these types of transactions only highlight the need for the SEC to provide better regulation to protect individual investors. Increasing the level of transparency in the municipal securities market and all bond markets is long overdue. If you have more questions or feel like you might have been taken advantage of contact the attorneys at Vernon Litigation Group. We will go over the facts and determine if you have a case.

SEC Files Complaint against Wealth Strategy Partners, LC and Stevens Resource Group, LLC for Alleged Fraud

Last week, the Securities and Exchange Commission (SEC) filed a Complaint in a Florida federal court against Wealth Strategy Partners, LC (based in Sarasota, Florida), Stevens Resource Group, LLC (based in Washington State), and their principals, Harvey Altholtz and George Stevens, for fraudulent conduct in relation to two private funds, the Adamas Fund, LLP and the Stealth Fund, LLP.

According to the SEC, Altholtz established the two private funds in question (Adamas and Stealth) in 2007.  The purpose of these funds was to primarily invest in small publicly-traded companies referred to as “nanocaps.”  The investments in the small companies were usually in the form of promissory notes, convertible notes, or warrants.  It is alleged that for the Adamas Fund, Altholtz and Wealth Strategy raised approximately $18 million from approximately 86 investors between 2007 and 2008.  With regard to the Stealth Fund, Altholtz and Wealth Strategy raised approximately $12.7 million from approximately 57 investors between 2007 and 2009.  The combined amount raised by Altholtz and Wealth Strategy was approximately $30.8 million.

The SEC Complaint Details

The SEC Complaint alleges that in 2008 Altholtz recruited Stevens and his company to serve as the investment adviser for the Adamas and Stealth Funds.  Offering materials given to the investors disclosed that Wealth Strategy and Stevens Resource would be paid a management fee of 2.5% monthly based on the Funds’ month-end net asset value.  In addition, both Wealth Strategy and Stevens Resource were entitled to collect an incentive fee of 30% of the Funds’ quarterly net profit.  The SEC alleges that both Stevens and Altholtz received most, if not all, of those fees.

The most concerning fact, however, is the allegation in the SEC Complaint that Altholtz and Stevens used investor funds to guarantee (and payoff) loans generated by Altholtz’s family trusts made to two companies that both Altholtz and Stevens controlled.  All in all, it appears that investor funds were used to guarantee (and eventually pay) notes (with interest rates ranging from 12% to 18%) to Stevens and Altholtz’s companies for millions of dollars.  This is in addition to the management and incentive fees generated by Altholtz and Stevens.

Misleading Neewsletters Lead Investors Astray

The Complaint filed last week also alleges that both Altholtz and Stevens prepared and approved a number of newsletters sent to investors on a quarterly (and later bi-annually) basis which contained seriously misleading representations.  More alarmingly, it appears that a number of new investors decided to invest in the Adamas and Stealth Funds based on the newsletters’ misrepresentations.  According to the SEC, some of the inaccuracies contained in the newsletters included:

  • Disclosures that an energy drink company was generating profitability to the Funds, when in reality that company was generating losses in excess of one million for that quarter.
  • Disclosures that a healthcare management company held a substantial amount of cash ($4 million), when in reality that cash position matched the amount the Stealth Fund had recently invested in that company.
  • Disclosures that a company—in which both Altholtz and Stevens had an interest—had no issue to repay the “Notes” because of its profitability.  This is despite the fact that financial statements for that company showed that it did not have enough cash to repay the $1.4 million in Notes owed to the Stealth Fund.  It appears that both Altholtz and Stevens also later alleged in the newsletter that this company would generate over $12 million in revenue, when in reality it had generated only $60,000.

It appears that this is not the first time Mr. Altholtz has been in trouble with regulators.  For example, in March of 2008, the Colorado Securities Commission issued a cease-and-desist order against Mr. Altholtz and Wealth Strategy for the unregistered sale of securities in that state.  Mr. Altholtz ceased to be registered with the Financial Industry Regulatory Authority (FINRA) back in 2006.  According to our investigation, Mr. Stevens was never registered with FINRA or the SEC.

Do Not Let Yourself be a Victim

If you invested in the Adamas Fund or in the Stealth Fund, contact the experienced securities lawyers of Vernon Litigation Group.  Our attorneys are currently investigating potential additional wrongdoings by Altholtz, Stevens, Wealth Strategy LC, and the Stevens Resource Group, LCC.  We have successfully represented thousands of investors for wrongdoings such as this and are prepared to do so again on behalf of any investor who has fallen victim to investment misconduct.  To schedule a free consultation, please call Vernon Litigation Group toll-free at 1 (877) 649-5394 or by email at: info@vernonhealy.com.

Wall Street Journal Announces Problems in Connection with Indexed Universal Life Insurance

Today, the Wall Street Journal reported on problems surfacing in connection with the sale of wildly popular Indexed Universal Life (IUL) insurance.  According to the Journal,  New York regulators have disclosed concerns about the sales practices of agents selling this type of insurance.   Among other things,  the regulators are concerned that the insurance industry’s commission based sales force is using projections about future policy returns and performance that are misleading.   Sadly,  this is nothing new for the insurance industry that has a history of using flawed projections to make lucrative sales.

These Indexed Universal Life policies – similar to Equity Index Annuities – entice investors with the promise of participation in the stock market plue downside protection.  The pitch is alluring, but from our perspective, investors need to stay focused on three things: 1. The insurance policy is actually a contract between you and multi billion dollar financial institution;  2. The insurance company has designed the contract so that it will profit from the money you pay it as part of the contract;  and 3.  The representative of the insurance company you are speaking with only gets paid if you enter into the contract with the insurance company.

No matter how nice your insurance agent appears to be,  he or she is part of a system developed by the insurance industry to push you to buy products that will make money for the insurance company and the insurance salesperson regardless of whether the projections you rely on turn out to be true or not.

Raymond James Broker Claus Foerster Barred from Securities Industry | Investor Alert

Former Raymond James broker, Claus Foerster, has been barred from the securities industry after the Financial Industry Regulatory Authority Inc. (FINRA) accused him of stealing over $3 million from clients since 2000.  Foerster, whose office was based in Greenville, South Carolina, had a large client list and it is likely that many investors may have been affected by his illegal and illicit actions.

Prior to the FINRA action against Foerster, the law firms of Vernon Litigation Group and Dovin Malkin & Ficken filed an arbitration claim against Foerster and Raymond James.  The claim asserts that Foerster, acting as a broker for Raymond James & Associates, mismanaged the funds of an elderly South Carolina woman and made numerous unauthorized trades that benefited Foerster but resulted in significant losses for the customer.

Claus Foerster began his career in 1988 at J.C. Bradford & Co.  He obtained his Series 7 license and Series 63 license in 1989.  Between July of 1997 and June 3, 2014, Foerster was registered with three FINRA member firms—Citigroup, Morgan Keegan & Co., and, most recently, Raymond James & Associates, Inc.  Foerster was a broker for Florida-based Raymond James from February 13, 2013, until June 3, 2014, when the scheme described below was uncovered.

According to FINRA, beginning in 2000, Foerster solicited at least 13 securities customers to invest in an income-oriented entity known as S.G. Investments.  It appears that Foerster instructed customers to transfer funds from their brokerage accounts to their personal bank accounts.  The customers were then instructed to write checks from their personal bank accounts to “S.G. Investments.”  S.G. Investments, as the investigation has revealed, was not an investment fund, but a bank account controlled by Foerster.  In furtherance of his plan, Foerster provided at least some of the customers with fictitious account statements and purported dividend payments.  Through this fraudulent scheme, Foerster converted at least $3 million from customers.

Claus Foerster has signed a letter accepting FINRA’s punishment without admitting to the allegations.  A spokeswoman for Raymond James, Anthea Penrose, has stated that Foerster admitted to misappropriating funds through a private, phantom investment fund he created outside of Raymond James.

Foerster’s association with Raymond James was terminated on June 4, 2014,  Since then, Raymond James has tried to distance itself from Foerster’s actions.  Ms. Penrose publically stated that Foerster’s actions at no time involved Raymond James and that no investments were made directly from Raymond James accounts.  All customers of Claus Foerster are encouraged to closely examine their portfolio and consult with a securities attorney before speaking with Raymond James or signing any sort of release.

If you were a customer of Claus Foerster, contact the experienced securities lawyers of Vernon Litigation Group.  Our attorneys began investigating the potential wrongdoing of broker Claus Foerster well in advance of the official FINRA action.  We have successfully represented investors against Florida firm Raymond James before, and are prepared to do so again on behalf of any investor who has fallen victim of investment misconduct.  To schedule a free consultation, please call Vernon Litigation Group toll-free at 1 (877) 649-5394 or by email at: info@vernonhealy.com.

Investor Alert | Vernon Litigation Group Affinity Fraud Attorney

The SEC just issued an Investor Alert regarding what it calls Affinity Fraud. Investor Rights attorney Chris Vernon says it is all too common and refers to it as “Fraud Among Friends.”  Vernon says “Whether you’re a Rotarian, a Christian, a hard-core tennis pro, or member of any other group,  you let your guard down when you are being pitched investments by a member of your own group.   Your guard drops even further when the referral is from a friend.

According to Vernon,  “ … Even though your friend or fellow member may be well intentioned, your friend may not know ‘Joe’ is a bad guy — Scam artist often go to great lengths to build relationships in the country club, the church, civic association, or charity.”  A more extensive discussion of this topic is part of the 2012 Naples Daily News interview of the lawyers at Vernon Litigation Group.