Securities Arbitration Lawyers BlogBroker Mercer Hicks Subject Of FINRA Disciplinary Hearing Over REITS
Mercer Hicks III (CRD#: 245170, a/k/a “Mercer Hicks,” “Toby Mercer Hicks III,” or “Toby Hicks III”) is a currently registered broker and formerly registered investment advisor currently employed with Southeast Investments, N.C., INC. (CRD#: 43035) of Charlotte, NC. His previous employers include Capital Investment Group, Inc. (CRD#:14752) and Cantella & Co., Inc. (CRD#:13905), both of Pinehurst, NC, and American Investment Services, Inc. (CRD#:21111, expelled by FINRA in 2003) of Oklahoma City, OK. He has been in the industry since 1972.
Hicks is the subject of nine disclosures, including three employment terminations and four liens dating back to 2008. The most recent disclosure, filed on 12/20/2019, is a regulatory action by FINRA. The case involves unsuitable recommendations made to five senior investors that suggested they invest in speculative non-traded REITs and BDCs. Additionally, Hicks failed to do due diligence on these alternative investments, and did not understand the risks that these investors would face by investing in them.
The five customers ranged in age from 73 and 87 years old, no longer working, and three were widows. All five sought to preserve their capital or have it appreciate. None of these clients were particularly interested in high-risk speculative investments. The investors experienced difficulty when they attempted to liquidate their investments and use the funds to pay for medical care.
Hicks’ recommendation to these customers to make 18 purchases of non-traded REITs and non-traded BDCs totaled $665,000. As a result, Hicks received a 7% commission from each sale, for a total of approximately $46,550. He made these recommendations in light of the fact that these investments were highly unsuitable considering their investment objectives, experience with investments, financial situations and needs, as well as risk tolerances and ages.
Mercer Hicks also failed in due diligence before recommending these alternative investments to the elderly clients, and did not have a “reasonable basis” to recommend them.
Cold Calling For Customers
Hicks used a number of local club directories available in his North Carolina community to cold-call potential investors. His target customers are retired senior citizens who have limited experience and knowledge with investing and limited financial resources.
Many of these customers had been with Hicks for more than 10 years. One of them, aged 92, is a dementia patient living in a nursing home. Another client died in August of 2018 at the age of 86, and was a customer for the 8 years prior to her death.
Prior to convincing investors to put money into REITs, he also recommended to four of these elderly clients that they invest in variable annuities which came with guaranteed income riders. But sometime in 2014, he began recommending that these investors liquidate the annuities in order to put monies into the REITs and BDCs. In order to meet the minimum income threshold that North Carolina requires for investment in these securities, Hicks inflated the net worths of at least two of the investors, because they did not meet the amount for income requirements for suitability of these investments as described in the prospectus.
At the time of these recommendations, Hicks admittedly did not understand the difference between REITs and BDCs. He admitted in testimony that he only glanced at each company’s prospectus, and left the due diligence up to the compliance department people of each firm that he worked for. While relying on the firm’s due diligence, he had no idea how much due diligence was performed by his firm, Southeast. Despite the high risk involved in these investments, Hicks believed them to be low-risk, and he “trusted them more than [he] did the stock market.”
In the action, FINRA is requesting disgorgement and restitution, and that Hicks pay for all the costs associated with the proceeding.
Because this complaint was so recently filed, this regulatory action is currently listed as “pending.”
Silver Law Group represents investors who allege they were sold unsuitable illiquid REITS, annuities, and other investments. The REITS include GPB, Hospitality Investor Trust, and others.
What Is A REIT?
Real Estate Investment Trusts (REIT) are a way for average investors to invest in real estate without actually owning any. It’s investing in a company that owns, finances and operates real estate that produces income. When stocks go down, REITs frequently go up, so they can balance out stocks in a diversified portfolio. But like stocks, they are not risk free, nor are returns guaranteed, especially with non-traded stocks, so it’s important to read and understand everything before considering a REIT.
About 87 million Americans are invested in REITS through their 401(k) and other retirements and investments. REIT is a long-term investment, and only recommended for individuals who have the ability to lose their entire investment without losing all of their money. These accounts are not for investors who seek short-term gain or easy liquidity, which was one issue with these clients. Additionally, trading and investing in REITS may involve high transaction and management fees, as well as dividends taxed as regular income.
As with any investment consideration, it’s important to thoroughly research them on your own, ask questions, and not rely entirely on what a broker or investment advisor tells you.
Business Development Companies
When a small- to medium-sized business needs a loan or other financing, especially newer ones, chances are they will be turned down by the banks and loan companies that are primarily interested in larger customers. Their next option is to work with a Business Development Company (BDC), a closed-end investment company that offers small business assistance with capital and debt financing so that they can grow. Many of these BDCs are publicly traded companies that can offer investors high dividend yields.
While double-digit returns are possible with some BDCs, they are not without risks. Many BDCs are not traded, and sales commissions can top 10%. When times are good, returns are generous, but when a company’s net asset value decreases, the fees become obvious.
High fees, low liquidity and little-to-no transparency make BDC’s an unattractive addition to an investor’s portfolio. However, recent changes to BDCs including lowered fees and a move to a more flexible interval fund structure may bring them back in favor with investors.
Did You Invest Money With Mercer Hicks?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today and let us know how we can help.