Erez Law recently filed a FINRA arbitration against Raymond James & Associates, Inc. alleging losses due to unsuitable investment recommendations in Uniti Group Inc. real estate investment trust (REIT).
Uniti is a REIT that focuses on the acquisition and construction of mission-critical communications infrastructure such as fiber, wireless towers and ground leases. According to Uniti’s website, “We work with customers in a wide variety of situations, including monetizing existing assets through a sale-leaseback transaction, financing of greenfield infrastructure development, and merger and acquisition support for complementary companies. Our REIT structure provides customers with a flexible source of permanent capital for strategic initiatives, enabling them to strengthen and expand the critical communications infrastructure that unifies businesses, consumers and communities across the country.”
The customers were clients of John Troy Howard (CRD #2264121), who has been registered with Raymond James & Associates, Inc. in Birmingham, Alabama since 2013.
The Erez Law clients, who are an elderly married couple, allege the following in the newly filed FINRA claim:
As clients of Howard’s for over two decades, the couple had a high degree of trust and confidence in Howard and Raymond James & Associates, Inc.
The vast majority of their account was intentionally allocated to high quality municipal bonds in order to meet their known primary objective of generating consistent tax-free income and preservation of their retirement savings. It is alleged that Howard understood that the couple was of advanced age, retired and interested in high quality fixed income investments.
In 2018, a bond in the couple’s account was called and the cash from the bond redemption was available in their account. It is alleged that Howard recommended investing the proceeds from the bond redemption in Uniti Group Inc. REIT. It is alleged that Howard represented to the couple that Uniti was paying an 11% yield and was a high quality company.
Unbeknownst to the couple, Uniti’s former parent and most important customer was mired in litigation that significantly jeopardized the company’s operations and value. As such, Uniti was in fact a risky and unsuitable investment. In February 2019, Uniti stock declined 50% from the customers’ purchase price of $20.83 to less than $10 a share.
Windstream Holdings, a telecom service provider, is the former parent company of Uniti. Uniti was formed in 2015 to separate Windstream’s network infrastructure holdings. Uniti’s rapid stock decline was due to a negative ruling in a federal court case against Windstream Holdings Inc., Uniti’s largest customer and a spin-off from Windstream. Immediately thereafter, Windstream filed for bankruptcy.
Windstream Holdings was sued by Aurelius Capital Management LP over whether Windstream defaulted on its bonds by spinning off Uniti in 2015. The bankruptcy filing blurred the status of Uniti which owned the network Windstream used to serve its customers.
Uniti derived more than two-thirds of its revenue from Windstream and had a master lease giving Windstream the exclusive right to use Uniti’s network. The bankruptcy put the $650 million a year lease in jeopardy.
Uniti saw a high of $19.98 on February 15 and down to $12.51 on February 19 and $9.53 on February 22. As of September 22, 2019, the stock trades at $7.91, according to MarketWatch.
The risk of dividend cut is now high, which may cause a devastating blow to Uniti investors relying on those payments. The stock is now rated as a “sell” from a “spec buy” rating.
Brokers such as Howard are required to make suitable recommendations and to provide balanced presentations of the attendant risks and rewards of an investment along with full disclosure of all important information. Erez Law alleges that Howard failed to meet his obligation in this regard. Howard failed to disclose the pending litigation against Windstream at the time of the recommendation and even mention Windstream at all.
As a retired trial attorney, the husband shunned investments with such litigation risk. By concealing this important information, it is alleged that Howard failed to permit the couple from making an informed investment.
According to the claim, in March 2019, the couple met with Howard to discuss their serious concerns over his recommendation to invest in Uniti. During this meeting, Howard reluctantly admitted that he knew about the pending litigation against Windstream when he recommended Uniti but that he failed to disclose the litigation and its attendant risks.
The couple had also come to learn that the dividends paid by Uniti were not qualified and therefore not entitled to preferential tax treatment. Howard admitted that he also failed to disclose this important fact about Uniti at the time of his recommendation.
Uniti is priced at approximately $8 a share and the couple has sustained more than $160,000 in losses in Uniti.
The case alleges breach of fiduciary duty, negligence, fraud, breach of contract, Violation of The Alabama Securities Act, Violation of Sections 10(B) of The Securities Exchange Act, and Rule 10B-5 of The Securities and Exchange Commission.
In addition to the case above, Howard was the subject of two additional customer complaints in 2008 and 2005, one of which was settled and the other was awarded in favor of the client, according to his CRD report:
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If 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.