Illiquid Investments

Most investments purchased by customers can be easily sold with just a phone call. Stocks, bonds and mutual funds trade on transparent exchanges where brokerage firms are obligated to get the best price for their customers.

But some investments don’t trade on an exchange, leaving investors at the mercy of the companies’ redemption program, or third party auction houses.

Over the past ten years many advisors pitched non traded real estate investment trusts, or REITs, promissory note type investments, oil and gas private placements, equipment leasing deals and a variety of other non-traded, illiquid investments. These were often described as income generating investments, not subject to stock market risk.

These private placement investments typically have a two – five year holding periods, during which time they will be illiquid. Oftentimes there is a representation that when the company goes public or refinances, it will buy back the shares, at which time the investor will be able to sell the investment for a substantial profit.

Illiquid investments like these are typically used by small startup companies to raise cash. It is not uncommon for investors to be offered interest payments substantially higher than existing market rates. Which begs the question; why would the company pay higher than market rates instead of using traditional bank financing? Is it because of some fundamental flaw with the business plan? Or does the investment entail significant risk?

Particular care should be taken when considering investing in illiquid investments. Be sure to review the private placement memorandum in detail, including the financial projections and the source of funds that the company will use to repay investors. Many of these deals crumble under the scrutiny of this kind of investigation. Ten minutes of numbers crunching could save you years of worry and aggravation.


The Law Office of David Liebrader practices exclusively in the field of investment loss recovery and our securities attorneys have successfully resolved over 1000 investment loss cases over the past 20 years. Recoveries for clients top $40 million. The types of claims we have successfully handled include those involving unsuitable investments (suitability claims), excessive trading or “churning”, misrepresentations and omissions, unauthorized trading, over-concentration of illiquid or overly risky investments, pump and dump scams involving “penny stocks”, direct participation programs (private placements) involving real estate investment trusts (REITS), oil and gas exploration programs, leasing equipment deals and receivable financing, promissory notes whether sold through a broker dealer or as part of the outside business activities of a registered representative, ponzi scheme losses, failure on the part of the broker dealer to perform due diligence, state securities law (blue sky) violations and failure to supervise.

Investment losses can be recovered through a process known as FINRA arbitration. FINRA regulates broker dealers that sell investments, and provides an arbitration forum to resolve investor disputes. Investors can pursue claims against their brokerage firms in the FINRA arbitration forum. Common claims in the forum are those for suitability, breach of fiduciary duty, misrepresentations and omissions, negligence, violation of FINRA rules, state and federal securities laws violations, elder abuse, breach of contract and failure to supervise. On average, the recovery process takes approximately a year, from start to finish.

FINRA’s rules require that all investment recommendations made by licensed financial advisors be suitable in light of a customer’s needs, objectives and risk tolerance. In addition, all registered representatives are required to be properly supervised, with periodic inspections and reviews by qualified supervisors, whose job it is to vigorously investigate suspicions of wrongdoing (red flags).

If you have suffered investment losses please call The Law Office of David Liebrader at (702) 380-3131 for a free, confidential consultation

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