Erez Law recently filed a FINRA arbitration against Cetera Advisors, LLC. The former Cetera Advisors, LLC customer alleges that the Mansfield, Texas-based firm recommended a reckless and unsuitable strategy of dangerously concentrating the client’s irreplaceable retirement savings in a small number of speculative and unsuitable investments with devastating results. The Glendora, California resident was a customer of former Cetera Advisors, LLC financial advisor James Hayne (CRD# 3257845).
The Erez Law client is a retired grandmother who was a relatively inexperienced and unsophisticated investor and had very little meaningful investment experience prior to investing with Hayne. The Erez Law client was a longtime customer of Hayne and entrusted him with virtually all of her irreplaceable principal.
The filed claim alleges that Hayne recommended the client invest in a single high risk and unsuitable biopharmaceutical stock of a company called Mannkind Corp. At the time Hayne recommended the client invest approximately 30% of her retirement nest-egg in Mannkind stock, the biopharmaceutical company’s stock price had declined by approximately 50% in less than nine months. By the end of 2015, Mannkind’s stock declined by approximately 75%.
It is alleged that Hayne recommended the client invest 20% of her portfolio in the stock of a heavily indebted and financially distressed shipping company called DryShips, Inc. Dryships was a high risk and unsuitable investment for the client, who could not afford to lose her irreplaceable principal. As of December 2014, Dryships share price had already declined approximately 69% during the previous year. In 2015, Dryships’ stock price declined by approximately 87%, as the company continued to be surrounded by rumors of potential bankruptcy filing.
By recklessly recommending that the client concentrate her irreplaceable retirement savings in just a few highly volatile stocks, Hayne significantly increased the level of risk to which the client was unknowingly exposed. This concentrated investment strategy was completely unwarranted and unsuitable. Hayne failed to recommend an adequately diversified portfolio, and needlessly exposed the client to the risk that a further decline in the share price of one or both of these stocks could have a devastating and disproportionate impact on her portfolio. Hayne failed to adequately disclose the significant risks associated with the speculative and unsuitable strategy he recommended. Additionally, Hayne recklessly ignored the basic investment principles of diversification and asset allocation.
The claim filed by Erez Law claims that Hayne recommended the client invest in the unsuitable Cornerstone Progressive Return Fund, which employed a fatally flawed investment strategy whereby investors purportedly received exorbitant “dividends”, which were largely nothing more than a return of capital. Hayne failed to disclose to the client that the “dividends” the client received from the Cornerstone Progressive Return Fund would largely be nothing more than a return of her own capital.
Hayne recommended the client continue with the speculative and unsuitable investment strategy he recommended to her, despite her expressing concern about the decline in value of her investments. It is alleged that Hayne recommended the customer invest in the following unsuitable investments:
- Resource Capital Corp.
- Cornerstone Progressive Return Fund
- Westmoreland Resources, LP
As a result of Hayne’s recommendations, the client’s irreplaceable retirement savings have been decimated.
Hayne was registered with Cetera Advisors, LLC in Mansfield, Texas from 2014 to 2017. Hayne’s employment with Cetera Advisors, LLC was recently terminated after Hayne was the subject of multiple customer complaints. In addition to the case above, Hayne has been the subject of eight customer complaints between 2015 and 2016, three of which were denied and one was closed without action, according to his CRD report:
- December 2016. “Claimants allege that, from 2008 to 2016, Claimants’ investment advisor recommended unsuitable investments, which performed poorly. Claimants generally allege breach of fiduciary duty, misrepresentations, and failure to supervise.” The customer sought $90,000 in damages and the case was settled for $125,000.
- December 2016. “Portfolio decline.” The customer sought $200,000 in damages and the case was settled for $10,000.
- February 2016. “Alleged failure to execute, breach of fiduciary duty, negligence, breach of contract, fraud, misrepresentation, failure to supervise, negligent hiring, violations of state securities laws, NYSE and FINRA rules in the trading activity in an individual account from 09/24/2013 – 06/03/2014.” The customer sought $200,000 in damages and the case was settled for $10,000.
- October 2015. “Claimant alleges that, between 2008 and 2013, excessive trading occurred in Claimant’s family trust account. Claimant alleges the investments were unsuitable given his age, health condition, and investment objectives. On the basis of these allegations, claimant alleges breach of fiduciary duty, fraud, breach of contract, negligence and failure to supervise.” The customer sought $750,000 in damages and the case was settled for $36,000.
If you were a client of Cetera Advisors, LLC or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.