The US Securities & Exchange Commission filed its lawsuit against Aequitas about six months ago, so now seems to be a good time to evaluate what we know about the Aequitas lawsuit, the receivership, and, most importantly, how investors will recover their investment losses.
A. There is still so much we don’t know about the receivership’s finances, but none of the information we do have is good news for investors.
As investors who have read our prior articles will recall, the SEC sought and eventually received a court order establishing a receivership to manage the orderly sale of Aequitas assets, maximizing recovery for investors.
Aequitas Lawsuit Offers Clues to What Caused Investment Losses: Should Financial Advisors Have Foreseen the Aequitas Implosion in 2012?
Late to the party, the U.S. Securities & Exchange Commission finally filed suit against Aequitas on March 10, 2016.
The SEC complaint provides a fascinating—albeit incomplete—perspective on Aequitas.
According to the SEC, at least as early as 2014, Aequitas became “a scheme to defraud and misuse client assets.” Aequitas claimed it was taking investor money to make investments, but was really using the money to make Ponzi-like payments to exiting investors, and to fund the private jet and other lavish corporate benefits and salaries Aequitas employees enjoyed.
If you’re reading this article, there is a good chance you invested in or through an entity that is now in receivership, and you probably have a lot of questions! The purpose of this article is to give you a general overview of how receiverships work so you know what to expect. Every receivership is different, but every receivership goes through four overlapping stages: 1) stabilization; 2) investigation; 3) litigation; and 4) distribution.
These four stages all support the overarching goal of every receivership—the orderly winding down of a business in a manner that maximizes value for investors.
We will come back to these four stages in a minute, but first it is important to understand the background context that gives rise to a receivership.
Some investor claims are easy to see, such as when money is simply missing from an account or a financial advisor has been arrested for securities fraud. In other cases, a financial advisor has been negligent. The financial advisor did not commit fraud, but he did make mistakes that caused investment losses. These cases are more difficult for an investor to spot. Here are the three things we see in most of the investor claims we file against financial advisors for malpractice or negligence.
Financial advisors love to sell variable annuities. The reason is simple—commissions of up to 8%. If a financial advisor can sell you a $200,000 variable annuity, that means commissions of up to $16,000. Not bad for a day’s work!
Unfortunately, commissions are just about the only thing that is simple about variable annuities.
The one reason why variable annuities are almost always a bad idea is that they are too complicated for ordinary investors (and normal people in general) to understand. Seriously, have you ever tried to read a variable annuity policy? Here is just one example from an actual policy. Try to stay awake through this, because there is a lot more you urgently need to know about variable annuities:
If your financial advisor has caused investment losses, you may want to sue your financial advisor. For better or for worse, you may instead be forced out of court and into a FINRA arbitration. This post explains why securities litigation frequently ends up in FINRA arbitration, and what you can expect from the FINRA arbitration process.