Oakes & Fosher is investigating potential claims on behalf of investors that were sold shares of the private placement known as the Vertical U.S. Recovery Fund. Oakes & Fosher has already filed claims on behalf of two investors in this private placement.  The claims allege that our clients received unsuitable recommendations from the securities broker, Troy Tremblay, to purchase multiple shares of this private placement.

What Is The Vertical U.S. Recovery Fund?

The Vertical U.S. Recovery Fund was established in 2008 and was designed to raise capital for investments in mortgages. It established itself as a regulation D private placement. Private placements differ from publicly traded securities in that fact that they are not traded on public securities exchanges. Instead, these securities are sold through direct recommendations made by securities brokers to potential investors.

Private Placements

Private placements like the Vertical U.S. Recovery Fund have many drawbacks. One is that they are highly risky and speculative investments. This is in part due to the lack of transparency that accompanies all privately traded securities. There is much less accountability with privately traded securities and it definitely plays a part in how successful the investment ends up being.

Another drawback of private placements are the commissions charged. Private placements, such as Vertical Recovery, pay the selling brokers a commission ranging from 7 -10% of the amount invested. This commission is often compounded with other upfront fees that raise this percentage even higher. These fees come directly out of the customer’s investment and dilutes the amount that is actually placed into the investment. Not only is this a drawback of private placements, but it is actually one of the reasons they are recommended to investors in the first place. These commissions, and the other selling fees, are very harmful to investors. When such a large portion of the principle investment is put toward expenses and fees, the amount that can grow capital is significantly lessened. This greatly diminishes the chance of investors to actually make money when purchasing private placements like the Vertical U.S. Recovery Fund.

Securities brokers also use the private nature of these investments to their advantage when attempting to sell them to potential investors. Without the monitoring and regulation associated with publicly traded securities, less sophisticated investors are more likely to fall for securities broker’s hard pressure sales techniques. For instance, brokers can highlight the exclusivity of the product. Under federal securities law, private placements are only allowed to offer a limited number of shares. If an investor is offered one of these limited shares, it can make them feel like their current financial status is much greater than it actually is. Another sales tactic is highlighting the limited amount of time given to invest. Private placements almost always have an offering period with a set start and end date. Brokers have the ability to make investors feel as though they will miss their chance to get in on the ground floor of something huge if they don’t invest.

Accredited Investors

There are multiple types of alternative investments sold outside the scope of most securities firms. Many of these are in fact fully registered with the Securities and Exchange Commission. However, when those managing a security do not wish to fully register, they can file for an exemption as a Regulation D private offering. This is what makes private placements different than other types of private alternative investments. In order to comply with the exemption, brokers are only allowed to recommend private placements to what are known as accredited investors. An accredited investor is an individual with a minimum net worth of $1 million (excluding their primary residence), or a consistent annual income of $200,000. This number jumps to $300,000 for a joint income. Brokers who recommended the Vertical U.S. Recovery Fund to investors who did not qualify as accredited under these guidelines violated the terms of the investment’s exemption. However, this does not mean that any investor who qualifies as “accredited” is financially suited for this type of investment. There are always other factors at play that include the investor’s liquidity needs, risk tolerance, and investment objectives.

Oakes & Fosher Can Help

Private placements, like Vertical U.S. Recovery Fund are illiquid, risky, and speculative products. Securities brokers have a legal obligation to only recommend investments to customers for which they are suited for based on financial situation, risk tolerance, and investment objectives. If you, or someone you know, believes that they were unsuitably sold shares of the Vertical U.S. Recovery Fund, 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.