Updates From Robert Banks on August 19, 2016
Class Action Update
I have linked to selected pleadings in the Aequitas class action case, including the amended class action complaint, the motions to dismiss that have been filed by the defendants, and the plaintiffs’ oppositions to those motions.
The court will begin to consider those motions on October 11, 2016. Oral argument has been requested, but the court has not yet decided whether to allow it. I provide more detailed updates to our clients by email but those updates are confidential and protected by the attorney-client privilege. I will continue to post significant court filings on this site.
The best place to get updates on the receiver’s progress is at the receiver’s website. http://www.kccllc.net/aequitasreceivership
Registered Investment Advisory Firm Cases
In addition to the class action lawsuit, we are representing clients who purchased Aequitas investments on the advice and recommendation of registered investment advisors. If you are interested in learning more about those cases, contact
Investors looking for information about their investment funds and private promissory notes issued by one of the Aequitas companies operating out of Lake Oswego, Oregon have come to the right place. Nationally recognized securities attorney Bob Banks is prepared to answer individual and institutional investor questions.We invite you to call our office to speak directly with an attorney and to use this site as a resource for information and investigation updates. News will be posted in the Aequitas Updates section of this site. We invite calls from concerned investors and anyone with information that might assist us in recovering money for aggrieved investors at 800-647-8130. E-mail us at firstname.lastname@example.org
Aequitas Update From Robert Banks on March 20, 2016
As a part of its securities fraud lawsuit against defendants Aequitas, Robert Jesenik, Brian Oliver and Scott Gillis, the SEC and the defendants stipulated (agreed) to the entry of an Interim Order Appointing a Receiver. The Interim Order appoints a receiver to take over the operations and liquidation of Aequitas. And, it stays (stops) any pending or anticipated litigation brought by any parties except the Receiver against the SEC defendants and a host of other entities called the “Receivership Entities.” We are posting a copy of the Interim Order here. The court allowed parties until March 18 to file objections to the Interim Order.
We filed an objection seeking permission to pursue their claims against defendants we believe our responsible for our clients’ losses. Many of them are identified in our objection which is posted here. We have already filed one case against a Registered Investment Advisory Firm and its president. That case is not affected by the Interim Order. Some of the other defendants we intend to bring claims against are currently protected by the Interim Order, however. We argue in our objection that our clients have lost $11 million, and that they should be able to bring their individual claims to recover their losses. Our investigation reveals that there were many people and companies who helped Aequitas to implement its plan to sell high risk promissory notes and funds by misrepresenting that they were safe and secure and our clients want us to hold them accountable. The defendants include law firms, accountants, broker-dealers, custodians of Aequitas notes, and individuals who participated in the scheme. A second part of our objection asks the court to require the Receiver to consider costs when hiring professionals to assist him, because the senior partners at the law firms the Receiver has already selected to help wind down the Aequitas entities have billing rates of higher than $825 per hour. Our objection was filed with the court on March 18, 2016. We are hoping for a decision from the court in the next two or three weeks.
Registered Investment Advisory Firm Update 3-10-16
Investors have reported to us that some of the Registered Investment Advisors continue to contact their clients and refer them to law firms that the investment advisors themselves have selected. Investors should understand that they may have claims against no only their Registered Investment Advisory firms, but also the individual advisor who sold the Aequitas investment, and the owners and control persons of the advisory firm. We are advising our clients NOT to give up any claims that they may have against anyone associated with a Registered Investment Advisory firm that misled them about the Aequitas investments. In our view, those are primary violators. We have refused to make any “deals” or grant any concessions to such firms, and are telling any advisors who contact us that if they refer their clients to us, we may have an obligation to sue them. We are not able to waive the rights of our clients in order to receive referrals from the very firms that we believe broke the law in selling the Aequitas notes and funds.
Aequitas Update on February 28, 2016:
The Aequitas story continues to be reported in the press daily. You can review the articles in our reference materials. Our office has received many calls from concerned investors around the United States and in South America. As a courtesy to concerned investors, I am providing a list of the most common questions I have been asked, and my current thoughts. This is a very fluid situation, and things could change as new information is revealed. And, this should not be taken as legal advice because we cannot give that to anyone without knowing their personal situation. I offer it in hopes that it may be helpful in giving some general guidance.
1. What is going to happen to my investment?
No one knows the answer to that question with certainty. Dividend payments have been suspended. Aequitas is reporting that it has hired a restructuring company to evaluate the situation. To me, that means that Aequitas is considering an orderly liquidation of the company and its assets. Given the recent mass layoffs, the suspension of dividends, the SEC investigation, and the way that the notes were reportedly marketed and sold, my best guess is that Aequitas will end up either in a bankruptcy or some court-supervised liquidation. Hopefully, that will result in a return of at least some of the principal back to investors, but that will depend upon a number of factors, including what assets are available after paying the costs of the liquidation, the number of creditors who may have to be paid before investors, and the number and amount of investor claims out there.
2. What are my options as an investor?
Investors can choose to take no action and wait to see how the entire affair plays out. Or, they can participate in legal actions to recover losses. I will address each one.
a. Taking No Action. It should not be necessary to join in filing a legal action in order to participate in any future distributions that might be made either voluntarily by Aequitas or as a part of a court-ordered liquidation. In other words, if the Aequitas notes are going to return principal or interest payments to investors, investors should be entitled to receive those payments regardless of whether investors file lawsuits or arbitrations.
b. Participate in a lawsuit and/or arbitration. Those investors who believe that they will not receive their principal back from Aequitas should speak with a qualified lawyer about whether they have valid claims that could result in recoveries in addition to whatever Aequitas distributes on the notes. My firm and I are happy to speak with you if you have questions about what is best for you after reading this post.
3. If I choose to be in a lawsuit, which one should I choose?
The good news is that all of the lawyers and law firms who have been reported by the press as representing Aequitas investors are excellent law firms. Based on what we have heard, there are two basic approaches that law firms are taking.
a. Some investors were referred to their lawyers by the same investment advisors that sold them their Aequitas investments. Those law firms will probably not be able to bring claims against the investment advisors who referred the clients to them. They may have some advantage in that they will be representing large numbers of investors in claims against Aequitas officers and directors, accountants and lawyers that may have participated in the sale of the Aequitas investments. The disadvantage to being part of these cases is that investors who sign up with these law firms will likely be prevented from bringing claims against financial advisors who may have sold the Aequitas notes by misrepresenting the risks and characteristics of the notes that they sold.
b. Our firm has taken a different approach. We are evaluating two avenues of recovery for our clients. FIRST, we will be filing claims against the investment advisors that sold Aequitas products to our clients. We will not make any agreements with any investment advisors who sold Aequitas, because we intend to bring claims against investment advisors who breached their fiduciary duties to their clients in selling Aequitas. Not every investor has such a claim. But, investors who were told by their investment advisors that these were safe investments, those who were solicited to make their purchases recently, and those who invested an unsuitable percentage of their retirement money in Aequitas and other “alternative investments” have strong claims against their advisors that ought to be evaluated. Many of those claims will be prosecuted in arbitration (instead of court) because of a provision in the investment advisory agreements. Our firm is limiting the number of clients we can accept against any one investment advisory firm, but we are reviewing claims against several different advisors in a number of states. SECOND, we also intend to pursue additional claims in court for our clients in court against other defendants who participated, aided and controlled the persons who sold the Aequitas investments. This may include officers and directors of Aequitas, its accountants, lawyers, and companies that were involved in the management of client funds held at investment advisory firms that had a connection to Aequitas.
4. How will the lawsuits and arbitrations turn out?
No one can answer that question. I have evaluated claims like these for three decades, and I believe the cases we have accepted so far are very strong cases. But, no lawyer can say for certain how any case will turn out.
Recent Concerns (posted in early February):
In the last two weeks, we have been contacted by investors around the country who were sold investments in the Aequitas Income Opportunity Fund II, LLC in 2015 and into 2016. This was at a time when the Securities and Exchange Commission was investigating Aequitas, when Aequitas was unable to make payments on its private notes to lenders, and when the Consumer Financial Protection Bureau was investigating Aequitas for its lending practices. We are at a loss to understand how professional Registered Investment Advisory firms and their investment advisors would put their clients’ retirement money into the Income Opportunity Fund II (or any Aequitas investment) in 2015 and 2016 in light of those events. We also question how Aequitas and its accountants and legal advisors could offer those investments without amending or supplementing their written disclosures to reflect Aequitas’s list of new problems.
Early Aequitas Warnings.
Investor rights attorney Bob Banks (click here for full biography) has been following Aequitas since 2011, when a high net worth client asked for advice on whether an investment in secured subordinated promissory notes issued by Aequitas Commercial Finance, LLC Fund was a safe investment. After reviewing the prospectus for that investment, Banks strongly advised his client not to make the investment. Among other things, Banks told his client that, contrary to the oral statements that were made to him, the Aequitas fund was not comprised of truly “secured” notes because other creditors would be paid before investors per the subordination agreements tied to the notes. Additionally, Banks noted, the Commercial Finance LLC notes involved loans to companies that were not able to get financing from traditional financial institutions, making them more of a credit risk. The “security” that was touted on some of the loans was equipment whose true value was not disclosed and may have been worth less than the loans they secured. And, the “security” was based on personal guarantees from persons of unknown credit reliability. Finally, Banks advised his client of the levels of fees charged to investors in the Commercial Finance LLC Fund, which is a common denominator running through all of the Aequitas investments Banks has reviewed.
Since then, Mr. Banks, associate attorney Darlene Pasieczny, and others on the team at Samuels Yoelin Kantor have followed Aequitas’s growth and decline.
What Now? Primer On The Laws Governing Investment Advisors and Issuers of Investment Securities.
It is against the law to sell investments by means of misrepresentations of fact or by omitting to state important facts that a reasonable investor would want to know about. The rules governing FINRA-licensed financial advisors requires that the advisor understand any investment he or she recommends, and state that advisors cannot recommend any investment that is not suitable to the investment objectives and risk tolerance levels of the investor. The law also provides that Registered Investment Advisors have a fiduciary duty to their clients. That means, first and foremost, that they must place their clients’ interests ahead of their own interests. In other words, they cannot recommend investments that pay high commissions and fees if it is not in their clients’ best interest. We believe that Aequitas investments were sold in violation of the securities laws and the fiduciary responsibility laws, and that the investors we have agreed to represent are entitled to a refund of their investments, together with interests and their attorney fees. We are preparing to pursue those claims for investors in the Aequitas Income Opportunity Fund II and all other Aequitas investments that were misrepresented to individuals and institutions.