Mr. Tracy R. Turner of Turner Financial Group Sued by Securities Regulator for Allegedly Improper Securities Sales
Posted on Feb 11th, 2017 to Common Misconduct, False Advertising, Investment Firms, Outside Business Ventures, Private Securities, Real Estate Investment Trusts (REITS), Risky Investments, Turner Financial Group
Investors who invested in 1031 exchanges through Tracy Turner and Turner Financial Group of Carlsbad, California may be regretting that decision.
According to a complaint filed against Mr. Turner by the Financial Industry Regulatory Authority (FINRA), Mr. Turner entered into over $4.1 million in improper securities offerings, and that was just for one type of security, over the relatively short time frame of September 2013-April 2014.  Before we dive into FINRA’s allegations, we need to understand the types of investments Mr. Turner offered investors.
Mr. Turner and his firm, Turner Financial Group, claim expertise in 1031 exchanges. A 1031 exchange is a way of deferring paying capital gains tax on the sale of real estate. If you’ve held property for a long time, there is a good chance that property has appreciated, so you may have a large profit when you sell it. Through a 1031 exchange you can take the proceeds of a sale and put it into another property; it is possible to avoid taxes.
But there are big risks with 1031 exchanges, especially when you invest in securitized real estate, REITs or other slices or real estate that are managed by a third party. These investments can be risky for several reasons:
1) These investments typically are highly leveraged, meaning that the property is collateral for large loans, which may even come close to being 100% of the value of the underlying property. If anything goes wrong with the property, such as a tenant who fails to make lease payments, the property could be foreclosed and you could lose your entire investment. Saving money on taxes doesn’t count for much when you lose your investment!
2) It can be even more difficult to sell real estate securities than it is to sell real estate. While it can be difficult to find a buyer for exotic or unusual pieces of real estate, it can be even harder to sell a slice of a company that manages real estate.
3) 1031 exchanges must be completed in a matter of weeks. This creates a sense of urgency that can lead investors into bad investments. It’s like the timer in an infomercial, counting down to when a “deal” will expire. And no one has ever bought a product from an infomercial in a rush and been delighted with their decision-making!
4) Financial advisors and brokers get paid a lot of money to sell non-traded REITs and other forms of illiquid real estate securities. If you think a 6% commission for real estate is high (which usually must be shared between two real estate brokers and their brokerage firms), then you might be surprise to learn that commissions for the sale of non-traded REITs can routinely run in the range of 7-11% (which all goes to one firm). The financial advisors and brokers who sell these products are paid by the companies that create these, products, not investors. That means that these financial advisors are highly incentivized to sell these products, even when they are poor quality or a bad fit for a particular investor.
With all of these risks, it is critical that the sale of these securities be properly supervised, and this is exactly what FINRA alleges Tracy Turner failed to do. According to FINRA, Mr. Turner sold these investments without getting prior permission from his broker-dealer (Colorado Financial Service Group), or even telling his broker-dealer that he was selling these products.
Mr. Turner sold fractional interests in saltwater disposal facilities in Midland, Texas, for managing wastewater used in fracking. According to FINRA, he promised 25% returns, but lacked a sound basis for making these promises, and all without his supervisor knowing what he was doing, much less reviewing and approving of these products and sales. FINRA’s complaint also alleges that Mr. Turner structured these deals to rake in ongoing “management” fees in addition to his already high commissions.
In a video on the Turner Financial Group’s website, Tracy Turner says, “We’re advisors for our clients. We’re not salesmen. And if we ever lose sight of that, then we should stop doing what we do.” Perhaps Mr. Turner should follow his own advice.
If you have questions about investment losses, the securities litigation attorneys at Investor Defense Law LLP may be able to help, and offer free consultations. Investor Defense Law LLP is a law firm dedicated to helping investors in California, Georgia, and Washington State recover investment losses. We understand investment fraud and know how to sue investment advisors, brokerage firms, and financial advisors. To learn more, contact an investment fraud attorney at 800.487.4660.
 Just in case we forget to add “allegedly” in a sentence, let’s be clear: these are allegations, not adjudicated facts. FINRA does not usually make these allegations without evidence but, nevertheless, these allegations have not yet been proven.