Austin R. Dutton, Jr., at least until August 2017, was a stockbroker or registered representative of Newbridge Securities Corporation allowed to conduct business under the name Bridge Valley Financial Services at 171 South Main Street in Doylestown, Pennsylvania 18901.
On August 10, 2017, Dutton and Newbridge Securities parted ways. Weeks earlier, on July 24, 2017, Dutton was charged by the Commonwealth of Pennsylvania, Department of Banking and Securities with the violation of Section 305(a)(ix) of the Pennsylvania Securities Act, and Regulation 305.019, as promulgated thereunder, for engaging in “dishonest or unethical practices in the securities business by recommending to a customer the purchase, sale, or exchange of a security without reasonable grounds to believe that the transaction or recommendation was suitable for the customer based upon reasonable inquiry concerning the customer’s investment objectives, financial situation and needs and other relevant information known by the agent.” Commonwealth v. Dutton, 17-0046 (July 24, 2017).
Newbridge Securities is a registered broker-dealer with its principal place of business at 5200 Town Center Circle, Tower I, Suite 306, Boca Raton, Florida 33486. On On July 18, 2017, in a separate proceeding, Newbridge enteredinto a Consent Order with the Commonwealth of Pennsylvania, Department of Banking and Securities and agreed to pay a fine of $499,000 for the failure to maintain a reasonable system, the failure to apply and enforce written procedures pertaining to their sales of structured products by one agent in Pennsylvania to certain of his clients who were residents of Pennsylvania. Commonwealth v. Newbridge Securities Corporation, Docket No. 17-00043 (July 18, 2017).
According to the Wall Street Journal:
Newbridge Securities Corp., in Boca Raton, Fla., for instance, was the biggest outlier among firms with more than 100 brokers, the Journal found: Investors have a one in four chance of getting a broker there with at least three red flags. Regulators sanctioned the firm 20 times—an average of twice a year—over the past decade, with fines of $1.75 million.
Newbridge is responsible for Dutton’s conduct and the supervision of his business activities to reasonably detect and prevent the misconduct complained of herein. Newbridge also had the opportunity and ability to control Dutton’s activities and the activities conducted at its branch offices, and is therefore liable to Claimants under common law agency principles, and as a “control person” pursuant to Section 20(a) of the Exchange Act of 1934, 15 U.S.C. §78(t) and Section 401 of the Pennsylvania Securities Act of 1972, 70 Pa. C.S. § 401.
Philadelphia DROP Recipients
In addition to the basic pension plan available to retirees, the City of Philadelphia also offers a Deferred Retirement Option Plan (“DROP”). Under this voluntary program, employees who are eligible to retire can select a date to retire for pension purposes. During the period of DROP participation, employees continue to receive wages and non-pension benefits in the same manner as all other employees. For pension purposes, however, they are considered retired, and at the time of separation from City service, the amount in the account, plus interest, is paid to the employee as a “lump sum.”
During the course of his association with Newbridge, Dutton actively solicited many hundred retirees of the Philadelphia Fraternal Order of Police, and the Philadelphia Firefighters and Paramedics Union in connection with the provision of “retirement advice.” Supposedly, among other things, Dutton is an expert in retirement planning for public employees.
In fact, Dutton and his broker-dealer would host “free dinners” and retirement investment seminars specifically targeting retirees of the City of Philadelphia.
Following their “free dinner,” retirees were solicited to meet with Dutton. At these meetings, Duttton extolled the virtues of real estate related investments, which according to Dutton, were “safer than stock or bonds,” and would generate “greater income” than stocks or bonds.
Dutton is alleged to have assured these investors that he and his company had performed substantial due diligence with respect to these securities, and that he had recommended them to his other customers, public retirees, seeking a safe source of income.
Dutton however is believed to have failed to disclose these REIT investments were in substantial part not marketable, or were illiquid, meaning the investors could not sell them, and among other things, were also subject to significant investment risk.
Real Estate Investment Trusts
Real Estate Investment Trusts or REITs as the name suggests is an investment vehicle in that invests in real estate. A REIT may invest in any form of real estate including undeveloped land, commercial space, office buildings, shopping centers, medical centers, apartments, agricultural property, or any other form of real estate.
There are generally two types of REITs that are sold to the investing public: Publicly traded REITs and non-publicly traded REITs. Publicly generally traded REITs trade on an exchange much like the shares of any other public company.
As their name implies, non-publicly traded REITs have no public trading market. Instead of being able to sell these shares on an exchange, investors in non-publicly traded REITs, generally have to wait until the REIT is dissolved, usually within a finite period, to get their money back.
Some REITs do however directly offer investors some form of redemption directly from the REIT, but these redemption provisions generally can be withdrawn or discontinued at any time, or may be subject or conditioned on other special circumstances.
Stockbrokers like non-publicly traded REITs because the front-end fees can be as much as 15%, and in some cases stockbrokers and their firms are provided additional annual compensation often as long as their customers do not attempt to redeem these securities. Stockbrokers also like REITs because they are an easy sell to investors seeking income, in a low interest rate environment, and because they may appear conservative offering the security associated with the ownership of real estate. No surprise that last year stockbrokers sold investors $20 billion of non-publicly traded REITs.
Investors however are often unaware that these non-publicly traded REITs are often highly leveraged with debt and that while they may produce significant income for investors, at least initially, they are making these distributions by borrowing or are simply giving investors their money back. Moreover, these distributions are not guaranteed and in most cases are merely discretionary.
Most importantly, the lack of a public trading market creates illiquidity and valuation complexities. Early redemption is often restrictive and very expensive. Most public non-traded REIT offerings place limits on the amount of shares that can be redeemed prior to liquidation. The redemption price is generally lower than the purchase price, or even the valuation price sometimes by as much as 10 percent.
The Legal Claims
Persons conducting business with Newbridge Securities or Austin Dutton are required to arbitrate their claims before the Financial Industry Regulatory Authority or FINRA.
Several customer initiated, investment related claims, seeking monetary damages have been fied against Newbridge Securities based upon Dutton’s conduct for the violation of the federal securities laws, the Pennsylvania Securities Act, the Pennsylvania Unfair Trade Practices and Consumer Protection Act, and for the sale of unsuitable securities, negligence, common law fraud, breach of fiduciary duty, and the failure to supervise.
FINRA issued Regulatory Notice 10-22, reminding its members that broker-dealers also must be satisfied that the customer “fully understands the risks involved and is…able…to take those risks.” The failure to comply with this duty can constitute a violation of the antifraud provisions of the federal securities laws and, particularly, Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. It also can constitute a violation of FINRA Rule 2010, requiring adherence to just and equitable principles of trade, and FINRA Rule 2020, prohibiting manipulative and fraudulent devices.
Here, the misstatements and omissions of material fact are alleged to include:
a) the failure to disclose that REIT investments are not conservative investments but instead present a high degree of risk;
b) these securities were non-saleable, non-marketable, and only suitable for investors “prepared to hold their units for at least nine to ten years,” and “should not be purchased” unless the investor has “no need for the funds invested;”
c) Dutton’s REIT investment recommendations were not supported by any research or other due diligence, but instead were designed to generate commissions and fees for himself at the investor’s expense; and that
d) investors could suffer substantial losses by relying upon Dutton’s tainted investment advice.
Section 204 of the Pennsylvania Securities Act of 1972 also requires that Pennsylvania investors in REITs must meet a minimum suitability standard set by the REIT/DPP company, for instance, a minimum net worth of at least $250,000, or minimum annual gross income of at least $70,000. Their investment in the REIT may not exceed 10 percent of their liquid net worth, which may be defined as the remaining balance of cash and other assets easily converted to cash after subtracting the investor’s total liabilities from total assets.
In addition to its own failure to supervise, investor claims against Newbridge Securities are based common law agency principles, including respondeat superior and as a “control person” pursuant to Section 20(a) of the Exchange Act of 1934.
Newbridge Securties has an affirmative duty to supervise the sales practices of its registered representatives, and to periodically inspect their customers’ securities accounts for evidence of, and to reasonably prevent, fraud, and the sale of unsuitable investments.
Legal Representation
All claims arising under state or federal law have deadlines, are time sensitive and will be forever barred or lost if not brought within a specified period of time after these events occurred or should have been discovered. Under the federal securities laws, all such claims must be brought within two (2) years from the date of discovery of any such claim, or five (5) years from the date of the occurrence of the events giving rise to the claim(s), whichever is shorter.
Under state law, generally, all claims for common law fraud, breach of fiduciary duty, or other tort claims, must be brought within two (2) years of the date of discovery upon the exercise of reasonable diligence. If you fail to bring your claims within these proscribed times, your claims may be forever lost or time barred.
In fact, as a general matter, time is always of the essence. Broker-dealers fail in business. Errors and Omission Liability Insurance Policies have claim limitations.
We offer our our legal services on contingent fee basis. We advance all costs, and our recovery of any of our costs, or expenses, including our legal fee is contingent upon a successful recovery in your case. If we do not achieve a successful recovery, we do not get paid, and you have no responsibility to us for anything, including our costs.
Each Case is different. The facts and circumstances in each securities related claim are generally different. Every case involves different individuals, different circumstances, different lawyers, and probably most importantly, different Panels, Judges, or Arbitrators.
We would be delighted to investigate any claims that investors may have against Newbridge Securities Corporation, based upon the conduct, and its failure to supervise its registered representative, Austin R. Dutton, Jr.
There is no charge for us to evaluate any claim you may have. All inquires for purposes of seeking representation are confidential.
For more information, contact us at (877) SEC-ATTY.
For more information concerning common claims against stockbrokers and investment professionals, please visit us at securitiesarbitrations.com
To learn more about FINRA Securities Arbitration, and the legal process, please visit us at securitiesarbitrations.com.
The Guiliano Law Group, P.C.
1700 Market Street, Suite 1005
Philadelphia, PA 19103
215) 413-8223 (Telephone)
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(877) SEC-ATTY
Stockbroker Fraud. Securities Arbitration and Investment Fraud Lawyers. National Practice. Contingent Fee. Confidential Free Consultation. (877) SEC-ATTY
The information contained herein has been obtained from reliable sources however may not be accurate and is not guaranteed by us. Readers are encouraged to undertake their own independent investigation and evaluation of the relevant facts. All claims and allegations are subject to adjudication, decisions may be subject to appeal, and no inference is intended, nor should any inference be made from any information contained herein from any source.
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