These are preferred equity and common securities that are not found on any exchange. Non-traded securities also referred to as non-marketable securities, are difficult to buy and sell because they cannot be traded on any major secondary market. These investments can only usually be purchased or sold via the over-the-counter market (through a broker-dealer network) or during private transactions.What are the Risks Involved in Buying or Selling Non-Traded Securities?
Investments that are not traded on any exchange usually do not have to fulfill any listing requirements. There may be a lack of transparency about pricing, trading volume, or liquidity, as well as other details regarding the issuer and the security.
Other risks include likely illiquidity, which can contribute to volatility and make it hard to sell the investment, as well as greater risks of securities fraud and market manipulation.
Non-traded securities are typically unsuitable for most retail and inexperienced investors who cannot handle much volatility or illiquidity. At Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com), our savvy non-traded securities attorneys represent those who have suffered losses because their broker unsuitably recommended these products, made misrepresentations and omissions, or were negligent in other ways. Contact SSEK Law Firm today so that we can help you explore your legal options.Examples of Non-Traded Securities
Non-traded securities include several of the following types of securities and long-term investments:
- Non-traded Real Estate Investment Trusts (REITs)
- Non-traded Business Development Companies (BDCs)
- Non-traded Collateralized Loan Obligations (CLOs)
Falling under these investment categories specifically include the following non-traded securities: private equity funds, hedge funds, equipment leasing programs, and equity crowdfunding.Private Equity Funds
Funds and investors place their money directly in companies or take part in buyouts of companies. Private equity firms charge investors management and performance fees. Most private equity fund investors are institutional investors and accredited investors.Hedge Funds
This type of investment pools capital from rich investors and institutional investors. The money from a hedge fund is then invested in different kinds of assets. Hedge fund managers, who are paid according to performance, tend to use aggressive investing strategies in order to make returns for investors.Equipment Leasing Programs
Investors pool their money to purchase equipment that they then lease out, usually to some of the most known companies in the US.
Equipment leasing investors usually are looking for steady, often tax-deferred income for the life of the equipment, as well as for when it is re-leased or sold. This is usually a “blind pool” offering, which means specific investments are not disclosed at the start. This can make it hard to determine the risks.
Economic turbulence in the future could negatively impact the profits from investing in equipment leasing programs.Equity Crowdfunding
Money is raised from the public through websites, social media, and online forums in exchange for equity in a business venture. This type of venture has a higher risk of failure than businesses funded via more traditional means.
There may not be seasoned professionals in charge of guiding the business to success. A fraudster can easily set up an equity crowdfunding venture scam, which would inevitably lead to investment losses.Non-Traded Securities That SSEK Law Firm is Investigating for Investors
Below is a handful of the non-traded securities that our experienced securities attorneys are currently investigating on behalf of investors:
- DiVall Insured Income Properties 2: This is a limited partnership under the Wisconsin Uniform Limited Partnership Act. It owns and operates a portfolio of commercial real estate properties, which are leased on a triple net basis by restaurant franchises throughout the country. DiVall Insured Income Properties 2 is a non-traded REIT that appears to have been unsuitably sold to many investors with unsuitable investing profiles.
- Terra Secured Income 5: Sponsored by Terra Capital Partners, this is also a non-traded REIT. Terra Secured Income 5 issues loans that are secured by commercial real estate. Interest from the loans is paid to investors.
- TriLinc Global Impact Fund: This non-traded limited liability company helps source, assess, and oversee impact investment opportunities internationally.
Brokerage firms have a duty to conduct the proper due diligence to make sure that an investment is legitimate and safe. Also, they must ensure that any security they sell to a customer is a suitable fit for their investing profile, risk tolerance level, and goals.
Unfortunately, failure to supervise, due diligence failures, negligence, and misconduct by brokers and their firms can cause non-traded securities investors to suffer significant losses.