Erez Law recently filed a $310,00 FINRA arbitration against The GMS Group, LLC for losses sustained from investments in Puerto Rico bonds. The customers alleges that Glen Rosenberg (CRD# 2705889), who has been a registered representative of in Boca Raton, Florida since 2009.
Erez Law represents a group of people who knew each other socially in this case. Erez Law alleges that Rosenberg solicited an elderly man to open an account with him. The Erez Law client informed Rosenberg that he was retired and seeking to generate income from his investments while preserving his principal. The client was not interested in high-risk investments or strategies and the couple could not afford to lose their irreplaceable retirement savings. Rosenberg assured the client that he would recommend low-risk investments that would generate income and preserve their principal.
After opening accounts with Rosenberg, the couple introduced Rosenberg to a group of their friends who also opened accounts with the broker. The claimants informed Rosenberg that they were retired and were not interested in high risk or speculative investments or strategies. Regrettably, despite the clients’ advanced age, retirement status, aversion to high risk investments or strategies and inability to replace lost capital, Rosenberg recommended the clients invest in speculative and unsuitable Puerto Rico bonds that produced unacceptable results.
Puerto Rico suffers from long-term financial and economic deficiencies that rendered its credit increasingly more speculative. The deterioration of Puerto Rico’s financial condition culminated in its debt being downgraded to junk status or speculative (below investment grade). For the past several years, Puerto Rico has been struggling with compounding debt and economic decline. As a result, the value of Puerto Rico’s municipal tax-free bonds has considerably fallen. Since September 2013, when the steep decline in Puerto Rico bond values began, investors holding these bonds have suffered massive losses. In May 2017, Puerto Rico filed for bankruptcy protection from creditors in what is being described as the largest municipal bankruptcy filing in history.
It is alleged that Rosenberg recommended a reckless and unsuitable strategy of dangerously concentrating the clients’ portfolios in speculative Puerto Rico bonds, including General Obligation (GO) bonds and revenue bonds such as Puerto Rico Sales Tax and Financing Corp (COFINA) bonds, as well as Puerto Rico Commonwealth Aqueduct & Sewer Authority and Puerto Rico Commonwealth Infrastructure Financing Authority. Rosenberg assured his clients that Puerto Rico bonds were safe investments and represented that the clients would not lose any of their money they invested in the Puerto Rico bonds that he recommended. It is alleged that Rosenberg assured the clients that the Puerto Rico bonds he recommended were low risk investments because, amongst other things, the Puerto Rico revenue bonds’ interest payments were funded from a dedicated revenue stream and held in escrow.
Erez Law alleges that Rosenberg failed to recommend an adequately diversified portfolio and needlessly exposed his clients to the credit risk of a single financially troubled territory. Rosenberg failed to adequately disclose the enormous risks associated with the Puerto Rico bonds he recommended. Rosenberg also failed to disclose the significant risks associated with the concentrated investment strategy he recommended. Rosenberg and GMS recommended the clients continue to invest their irreplaceable retirement savings in Puerto Rico bonds, even as they continued declining in value.
Based on Rosenberg and GMS’ recommendations and continuous reassurances, the clients agreed to buy and continue to hold their unsuitable and increasingly speculative Puerto Rico bonds, causing them to suffer additional losses.
It is also alleged that Rosenberg recommended his former clients invest in speculative and high risk investments from the volatile energy sector, including:
- Goldman Sachs MLP
- Oppenheimer Steelpath MLP
- Transocean
- FirstEnergy Solutions Corp.
Over the past few years, oil prices have significantly declined. A supply glut in 2014 and 2015 led to some of the lowest prices the market has seen in recent years. In turn, securities values also dropped. The volatile energy sector experienced significant turmoil, and many energy companies were negatively impacted when global crude oil prices fell below $40 per barrel at the end of 2015. This was the lowest level since early 2009, as supply was in excess of global demand. Oil and gas companies experienced a spike in bankruptcies, which have left many investors reeling.
It is alleged that Rosenberg recommended his clients continue to hold their unsuitable energy sector investments and on numerous occasions recommended the clients invest additional funds in the unsuitable energy sector investments. The speculative and unsuitable energy sector investments Rosenberg recommended and sold to his former clients are now worth just a fraction of their former value. Rosenberg’s reckless and unsuitable investment strategy has caused the Erez Law clients to suffer significant losses to their irreplaceable retirement savings.
Rosenberg failed to adequately disclose the risks associated with the Puerto Rico bonds and energy sector investments he recommended to his former clients.
In particular, he failed to adequately disclose that the clients were at risk of losing the majority of their principal. He also failed to disclose the risks of concentrating a significant portion of their portfolio in speculative Puerto Rico debt and energy sector investments.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, The GMS Group, LLC may be liable for investment or other losses suffered by Rosenberg’s customers.
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.
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