Alternative Investments

Alternative investments are often marketed as opportunities for higher yield, diversification, or tax benefits. In reality, many of these products are illiquid, high-risk, and riddled with conflicts of interest. When brokers misrepresent or fail to disclose the true risks, investors are left with losses they never should have suffered.

At Altamirano PLLC, we represent investors nationwide in FINRA arbitration who were misled into purchasing unsuitable or fraudulent alternative investments. We pursue claims against brokers and brokerage firms for misrepresentation, omissions, broker negligence, breach of fiduciary duty, and failure to supervise. If you believe you suffered losses because of broker misconduct or fraud regarding alternative investments, a investment loss lawyer from our firm can help.

What Are Alternative Investments?

“Alternative investments” is a broad label covering non-traditional securities outside the usual stocks, bonds, and mutual funds. Common examples include:

• Non-traded Real Estate Investment Trusts (REITs)
• Business Development Companies (BDCs)
• Private Placements and Regulation D Offerings
• Hedge Funds and Private Equity
• Structured Notes and Market-Linked CDs
• Interval Funds
• Oil, Gas, and Energy Partnerships
• Variable Annuities with Complex Riders

While these products may have a place in certain sophisticated portfolios, they are often sold to retail investors with a conservative or conservative-to-moderate risk tolerance who are not told the full story.

Why Alternative Investments Are Risky

Alternative investments share common red flags that brokers often downplay or conceal:

• Lack of liquidity, leaving investors unable to sell or cash out without steep penalties
• High upfront fees and commissions that erode returns
• Complex structures that obscure risk
• Concentration in volatile sectors such as energy, real estate, or private equity
• Valuations that are opaque, stale, or easily manipulated
• Conflicts of interest when firms push proprietary products

When investors hear “income,” “safe,” or “guaranteed,” but are sold illiquid, speculative products, that violates FINRA’s requirement that communications be fair and balanced.

Private Placements and Regulation D Offerings

Private placements, also known as Regulation D offerings, are one of the riskiest corners of the alternative investment market. They are exempt from SEC registration, which means less transparency and fewer protections for investors. Only a small percentage of investors in private placements are afforded the protections of FINRA rules and broker-dealer regulations that apply when a member firm is involved.

FINRA has repeatedly warned brokerage firms about abuses in this area. In Regulatory Notice 10-22, FINRA reminded broker-dealers that:

• Private placements are not exempt from federal antifraud rules.
• A firm recommending a private placement must conduct a reasonable investigation into the issuer and the securities it is selling. That means verifying claims about the issuer’s business, assets, and prospects, not blindly relying on the issuer’s own materials.
• Suitability rules still apply. Even if an investor meets the technical definition of “accredited,” the broker must still determine that the product is suitable for that specific client. Net worth alone is not enough.
• Red flags matter. When documents are incomplete, vague, or inconsistent, a broker has a duty to dig deeper before making a recommendation. Ignoring warning signs is itself a violation.

When brokers skip these steps, the result is predictable: investors are left in the dark about the true risks, conflicts, or weaknesses of the offering. Many private placements collapse entirely, leaving investors with illiquid and often worthless securities.

Real Example: GWG L Bonds Sold to Unsuitable Investors

GWG Holdings issued speculative, illiquid bonds known as L Bonds. Offering documents disclosed that they were only suitable for investors with substantial resources and no need for liquidity. Despite this, broker-dealers recommended L Bonds to seniors, retirees, and even a non-profit with moderate investment objectives and little experience in alternative investments. These sales were neither in the best interest of retail customers nor suitable for non-retail clients. Investors were left exposed to significant risk in complex securities they did not understand.

Real Example: Non-Traded REITs Misrepresented as Safe Income

Brokers sold non-traded REITs to retirees as steady, bond-like investments. In reality, these products carried high fees, no ready secondary market, and were concentrated in volatile real estate sectors. When distributions were cut and values collapsed, investors were left with substantial losses.

Real Example: Private Placements and Omitted Risks

A firm marketed private placements as exclusive opportunities with limited risk. Investors were never told about the issuer’s financial instability or the firm’s own undisclosed compensation arrangements. The products failed, wiping out millions in client assets.

Real Example: Structured Notes Marketed as Principal Protected

Investors were sold structured notes labeled “principal protected.” The fine print revealed that protection depended on the credit of the issuing bank and came with exposure to equity market swings. When markets fell and the issuer’s credit weakened, investors lost much of their investment.

How Alternative Investments Harm Investors

Alternative investments can inflict lasting damage, including:

• Locking retirement savings into illiquid products that cannot be accessed when needed
• Loss of principal due to speculative or concentrated positions
• Erosion of returns from hidden fees and commissions
• Exposure to undisclosed risks or conflicts of interest
• Missed opportunities to invest in safer, transparent alternatives

The harm is compounded because these products are often marketed as conservative, income-producing investments, leaving investors blindsided when losses mount.

Legal Standards That Apply

Brokers and firms have a duty to present investments honestly and recommend only those that are suitable for the customer’s profile. Key rules include:

• FINRA Rule 2111 (Suitability) – Requires a reasonable basis to believe a recommendation is suitable. See Unsuitable Investments.
• Regulation Best Interest (Reg BI) – Requires brokers to act in the best interest of retail customers when making recommendations.
• FINRA Rule 2020 – Prohibits manipulative or deceptive devices. See Fraud or Misrepresentation.
• FINRA Rule 2010 – Requires high standards of commercial honor and just and equitable principles of trade.
• FINRA Rule 3110 (Supervision) – Obligates firms to supervise recommendations and sales of complex products. See Failure to Supervise.

Violating these rules by misrepresenting, omitting, or failing to supervise alternative investments gives investors the right to seek recovery in FINRA arbitration. An attorney from Altamirano PLLC may be able to help.

Our Approach to Alternative Investment Cases

At Altamirano PLLC, we analyze how alternative investments were marketed and sold. We trace the sales process from the offering documents to the broker’s pitch to identify where risks were downplayed, disclosures were incomplete, or features were misrepresented. We pursue claims for:

• Misrepresentation of risk, safety, or liquidity
• Omissions of conflicts, fees, or commissions
• Unsuitable recommendations to conservative or income-focused investors
• Breach of fiduciary duty
• Negligent supervision of brokers and sales practices

Our goal is straightforward: hold brokerage firms accountable and recover the money our clients lost.

Contact an Alternative Investment Attorney in New York

If you were misled into alternative investments that caused losses, Altamirano PLLC can help. We represent investors nationwide in FINRA arbitration against brokerage firms that misrepresented or improperly sold these products.

At Altamirano PLLC, we help investors recover the money they lost. Call us at (212) 220-6556 or contact us to discuss your options with a New York FINRA arbitration lawyer. We handle cases on a contingency fee basis, which means you do not owe us a legal fee unless we recover for you.