Formed during the pandemic, it was a limited partnership that was only sold as an illiquid, high-risk investment that bought interests in Burger King, Pizza Hut, and other fast-food chains on the East Coast. Perhaps because of its food-based focus, brokers sold Tasty Brands to their clients as a safe investment with a stable income when it was anything but. Investors believed they were investing in funds that would provide a stable income for them and that their value would appreciate.
Investors were not investing in the physical restaurants. The investment was in limited partnership shares used to purchase interests in the corporate entities involved in buying and owning the fast-food establishments. The company used loans to buy shares, and the substantial interest payments interfered with Tasty Brands’ ability to make dividend payments.
The company itself even stated that it may make interest payments from investor capital rather than revenue. Despite these red flags, broker-dealers focused on the 8% to 10% rate of return when pitching it to investors.
These investments were primarily sold during 2020 and 2021, during the height of the pandemic, when many restaurants were either closed or experienced a drop in foot traffic. Increases in food and labor costs have further eroded any revenue from daily operations, leading to the pause in payments.
Stocks vs. Private Placements
Many people think of trading stocks as an investment, which are regulated and registered with the SEC. Any securities traded in the stock market must be registered. One exception is anything that falls under Regulation D, a series of exemptions for selling securities off the stock market.
As a private placement, Tasty Brands, LP, fell under Regulation D. Therefore, Tasty Brands was not traded on the stock market and was less regulated. Because there was no secondary market for these investments, they are considered “illiquid” and have much higher risk for failure.
Why Would A Broker Market Tasty Brands To A Retail Customer?
Investments like these are generally intended for institutional and more sophisticated accredited investors who can absorb the higher risks involved. But lucrative financial incentives can lead brokers and broker-dealers to sell them to unsuspecting retail customers, especially investors without considerable investment experience.
Selling risky investments like Tasty Brands may violate Regulation Best Interest (“Reg BI”). Reg BI requires brokers to conduct due diligence to make suitable recommendations based on the customer’s investment profile and risk tolerance. Clearly, these were unsuitable for retired investors seeking an additional form of income, especially those needing it for their living expenses.
Brokers and broker-dealers are facing scrutiny for misrepresenting Tasty Brands as a safe and stable investment to more conservative investors. Investors who have lost some or all of their funds may be eligible to file a FINRA arbitration action against the broker and broker-dealer who recommended Tasty Brands, LP, for at least a partial recovery.
Did You Invest With Tasty Brands?
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 at (800) 975-4345 and let us know how we can help.