Private Placements
The JADDA Secured Senior Mortgage Fund (JADDA) was what is known as a private placement. Private placements are highly speculative and highly illiquid investments sold by third-tier securities firms. They are funds that raise capital by selling securities to a small number of investors. They are not publicly traded; however, investors in private placements can range from banks and insurance companies to individual investors. These securities are poorly regulated as they do not have to be registered with the Securities and Exchange Commission. The sale of these securities does not even require a prospectus, which means that detailed financial information regarding the investment is often not even disclosed to the customer. Because of high fees, internal conflicts of interest, illiquidity, and the potential for abuse, the major wirehouse brokerage firms, like Merrill Lynch, Wells Fargo, and Morgan Stanley do not even allow their brokers to sell private placements.
What Was JADDA?
JADDA was a private placement in speculative high yield mortgages that was owned and operated by two securities brokers registered at Mid-Atlantic Capital Corporation (MACC). These two representatives, David Boydell and James Lunsford, founded and co-owned Bridgeway Capital, the company that owned and managed JADDA. This created an extraordinary conflict of interest as the private placement was being sold to investors who were already customers of Mid-Atlantic. Current arbitrations against MACC allege that Lunsford and Boydell were recommending JADDA to current customers at Mid-Atlantic, even if the customers were not “accredited investors.” An accredited investor is an individual with a minimum net worth of $1 million, excluding their primary residence, or a minimum annual income of $200,000. This number jumps up to $300,000 if the investor is married. These guidelines for accredited investors are what private placements must follow if they choose not to register with the SEC, as JADDA did.
Since private placements such as JADDA are not traded on any public exchange, it was easy for the management of JADDA to continue to report that the investment was worth the price that investors paid, or $1 a share. JADDA continued to report this value, even though it was experiencing numerous problems. Additionally, for investors that reinvested the income supposedly received from JADDA, management made phantom payments that convinced customers that their holdings were actually going up in value. The stable pricing, plus the phantom income actually led investors to believe that their investment was going up in value.
This allowed JADDA and Boydell and Lunsford to continue to earn large management fees on an annual basis. MACC also earned commissions and actually had one of its subsidiaries, Mid Atlantic Properties purchase one of the remaining properties from JADDA. While Mid Atlantic and its brokers were able to profit from this private placement, when JADDA was dissolved, the value of the security was worthless, and investors lost close to 100% of their initial investment.
Oakes & Fosher Can Help
The arbitrations filed by Oakes & Fosher allege that the Mid-Atlantic brokers responsible for JADDA defrauded their customers. They recommended JADDA even though it was a highly speculative and illiquid investment and recommended it without adequately disclosing the risks associated, or even the nature of the investment. Once the customers were invested, the arbitration claim alleges the managers falsified financial information in order generate higher commissions and fees for themselves.
JADDA is currently operating under the name Sonoma Ridge Partners. Oakes & Fosher wants to help those who have been hurt by JADDA, Mid Atlantic Capital Corporation, Sonoma Ridge Partners, David Boydell, and James Lunsford. We dedicate our entire legal practice to helping investors across the nation. If you, or someone you know, have been hurt by any of the aforementioned firms or brokers, please contact Oakes & Fosher for a free and private consultation. Oakes & Fosher handles cases on a contingency basis, which means there are no fees charged unless we collect for you.
