Investment Fraud Blog

Miami readers of this blog have heard about several recent instances of misrepresentation or non-disclosure of material information involving particular securities. In some cases, the underlying security was a scam, as in the case of a Ponzi scheme. In other situations, a stockbroker may have been dishonest or negligent in profiling a security to a client. Either way, consumers have a right to know all publicly available information that may impact their purchase of a security, and stockbrokers or brokerage firms have a duty to disclose that information.

However, today’s story adds a twist to the usual allegations of stockbroker misconduct. According to authorities, employees at a Miami brokerage firm entered into a $66 million kickback scheme with an offshore banking official in Venezuela. The official allegedly agreed to share in the proceeds of any new business she directed to the brokers.

Miami readers of this blog have learned of many instances of stockbroker misconduct or misrepresentations. In such cases, an investment professional may have breached his or her fiduciary duty by failing to inform potential investors of all the risks associated with various investment options. Today’s posting offers a unique twist on that paradigm. Instead of private sector financial advisors, the alleged wrongdoer is a municipality.

Many American cities raise revenue by selling municipal bonds. Such transactions are subject to applicable securities laws, and will also require disclosure statements to be filed with the U.S. Securities and Exchange Commission. In fact, the SEC has a separate unit devoted to oversight of such municipal securities activity.

Dimond Kaplan & Rothstein, P.A. is investigating sales of the Hennessey Financial Monthly Income Fund, LP n/k/a Capital Solutions (the "Hennessey Fund" or "Capital Solutions"). Capital Solutions was a purported mezzanine real estate lender. Stockbrokers Andrew Rosenberg and Stuart Horowitz sold investments in Capital Solutions to customers through Andrew Stuart Asset Management and the brokerage firm NFP Securities, Inc. in Coral Springs, Florida. We understand that the brokers may have represented to investors that Capital Solutions was a safe investment that paid annual returns of greater than 10%. We further understand that brokers Rosenberg and Horowitz made other misrepresentations to investors about the relative safety of Capital Solutions. In truth, Capital Solutions appears to have been engaging in securities fraud.

Many small business that own commercial property may face trouble in the coming years. The problem is that banks generally re-evaluate commercial mortgages every five to 10 years. In doing do, banks can choose to renew the loans or ask business owners to pay them off.

With that in mind, after getting burned by billions of dollars in defaulted real estate loans in 2008, 2009, and 2010, lenders are a lot less willing to renew loans that may not be good credit risks. And many businesses appear to be less creditworthy after the 2008 financial crisis, which caused years of lagging revenues as the U.S. economy has taken years to dig itself out of that financial crisis. As a result, many small businesses that own their commercial property may have difficulty finding a lender to renew their loans. Those that cannot find a lender likely will face the loss of their property through foreclosure.