On February 10, 2013, the New York Times published an article entitled Complex Investments Prove Risky as Savers Chase Bigger Payoff which detailed how regulators across the country are still seeing an increase in losses and fraud cases revolving around complex yield producing products.
Since traditional income-producing like, CDs, currently offer low interest rates crisis, many retirement investors have been targets for investments that purportedly pay above average interest with little to no risk. These alternative investments that hold out the promise of higher returns while supposedly being immune to the volatility of stock markets. Massachusetts Secretary echoed this stating “Since the crisis, we’ve seen more and more people reaching out into different types of exotic investments that are a big concern to us.” State and federal securities regulations have stated, “those alternative investments have now had time to go sour in big numbers…and are making up a majority of complaints and prosecutions.”
Given this low interest rate environment this trend is unlikely to change. The article states “Regulators are warning investors that the dangers are unlikely to recede, given the Federal Reserve’s pledge to keep interest rates near zero and the push among financial firms to earn more revenue from so-called alternative investments marketed to retail investors.”
The money that retail investors have in alternative investments in the US more than doubled from 2008 to 2012, to $712 billion from $312 billion. Two of the more popular, and dangerous, alternative investment products have been private placements and non-traded REITs.
Private placements, once only available to wealthy and sophisticated investors, are now being marketed to retirement savers. The article states “Several loopholes, including relaxed procedures for verifying wealth, have allowed them to end up in the portfolios of less sophisticated retirement savers.”
Non-traded REITs are also heavily marketed to unsophisticated retirement savers because they have fewer rules about who can buy them. Non-traded REITs are risky investments that are bought and sold in private transactions. Sale of non-traded REITs grew to $65 billion last year, up from $43 billion in 2009.
Financial advisors market the private nature of these investments as safe investment because the investments are less likely to fluctuate with the stock market. In reality, these products are illiquid and extremely difficult for investors to accurately value.
The newest alternative investment product that will likely be mis-sold to investors are, Business Development Companies. These products invest in the debt of small companies. Sales of these investments grew to $4.5 billion last year, up from $8 million in 2008.
The Doss Firm, LLC represents investors nationwide who have lost money as a result of investment fraud or due to faulty investment advice. If you believe that you may be a victim of investment fraud and would like to speak with us, please call our firm for a free consultation.
Jason Doss is the owner of The Doss Firm, LLC, an Atlanta-based law firm devoted to representing consumers across the country in a variety of areas including investment disputes and consumer class action litigation. Mr. Doss earned his J.D. from Florida State University in 2002 and his B.A. from the University of Florida in 1997.