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1st-Global-Capital-1As we have discussed in several recent blog posts, on July 27, 2018, 1 Global Capital (a/k/a 1st Global Capital) (hereinafter, “1GC”) filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of Florida.  Formed about 5 years ago, 1GC was purportedly in the business of making short term merchant cash advances to a range of small businesses.  In exchange for investor money, 1GC issued so-called “memorandums of indebtedness,” sometimes referred to as First Global Capital Notes (“Notes”), to numerous retail investors through a nationwide network of advisors and sales agents.  Investors were promised a high-return, low-risk investment in supposedly safe, short-term deals.

Prior to 1GC’s bankruptcy filing, the SEC had “opened an investigation into the company’s activities related to alleged possible securities laws violations, including the alleged offer and sale of unregistered securities, the alleged sale of securities by unregistered brokers, and by the alleged commission of fraud in connection with the offer, purchase and sale of securities.”  In the weeks following 1GC’s $283 million Chapter 11 filing, it has become apparent that numerous investors nationwide have been negatively impacted.  As alleged by the SEC, 1GC “used a network of barred brokers, registered and unregistered advisers, and other sales agents – to whom they paid millions in commissions – to offer and sell unregistered securities to investors in no fewer than 25 states.”

Publicly available information indicates that numerous investors in the greater Kansas City, KS area have sustained losses in connection with investing in 1GC Notes.  In particular, publicly available information suggests that Overland Park-based investment group Pinnacle Plus Wealth Management (a/k/a Pinnacle Financial) (“Pinnacle”), through its principal and Pinnacle employees / agents, may have recommended investments in 1GC Notes to retail investors.  In fact, court records indicate that approximately 160 1GC accounts involved Kansas City area addresses, and moreover, it appears many investors committed their retirement funds to 1GC investments through their retirement accounts.

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Airliner
The expensive insurance that consumers are prompted to opt in or out of when they book online travel on popular websites is big business- and, according to lawsuits and a U.S Senator, airlines and others may be illegally profiting from travel insurance by receiving a portion of the premiums paid by consumers for the insurance.  The practice of sharing insurance premiums may violate some state laws, and customers of airlines and online travel booking websites may have viable legal claims as a result.

Two major airlines, Delta and JetBlue – are named as defendants in class action lawsuits alleging that that the companies are not disclosing to their customers that they profit by receiving a portion of the premiums from the sales of travel cancellation insurance policies endorsed on their websites.  In addition, according to court records, American Airlines appears to have entered into a settlement in a case involving the receipt of a portion of travel insurance premiums paid by customers. .

These lawsuits follow allegations by U.S. Senator Edward J. Markey of Massachusetts that online website and travel agencies induce consumers to buy travel insurance with minimal coverage and numerous exclusions by requiring them to affirmatively accept or reject travel insurance before completing a purchase of a plane ticket.  In addition to JetBlue and Delta, the following airlines reportedly sell travel insurance:

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Hospitality Investors Trust Inc. (“HIT”, formerly known as ARC Hospitality Trust, Inc.) has announced that it is buying back shares for $9.00 a share, which is a discount of approximately 35% to what it the company claims is the shares’ net asset value (NAV) of $13.87 a share.  It is also a far cry from the $25.00 a share price at which most investors initially acquired shares.

Building Demolished
HIT is a non-traded real estate investment trust (REIT) focused on ownership of hotels and other lodging properties in the United States.  As a publicly registered non-traded REIT, Hospitality Investors Trust was permitted to sell shares to the investing public at large, oftentimes upon the recommendation of a broker or financial advisor.  The REIT sold shares to the public for $25.00/share.  Some investors may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

HIT’s board has adopted the share repurchase program, effective October 1, 2018, for shareholders who desire immediate liquidity, and recommends that investors do not sell their shares unless they need immediate liquidity because (according to HIT) the initial repurchase price is well below the current and potential long-term value of the shares.  Shares bought at any time are eligible for repurchase under the program, and the first repurchase date under the to the program is scheduled for December 31, 2018.

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On September 18, 2018, the SEC initiated a civil action (the “Complaint”) against Defendants World Tree Financial, LLC (“World Tree”), Wesley Kyle Perkins (“Perkins”), and Priscilla Gilmore Perkins (“Gilmore”).  The Complaint alleges that Perkins and Gilmore, husband and wife owners of World Tree, engaged in a purported “cherry-picking” scheme.  Specifically, the SEC has alleged that World Tree would routinely allocate winning trades to themselves or favored clients at the conclusion of the trading day, to the detriment of disfavored clients who received the losing trades.  As alleged in the Complaint, this practice, referred to in the securities industry as “cherry-picking”, amounts to an impermissible allocation of trades in violation of various securities laws, including Sections 209(d), 209(e)(1), and 214 of the Investment Advisers Act of 1940 (“Advisers Act”).

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World Tree was co-founded in 2009 by Perkins and Gilmore and is structured as a Louisiana corporation with its principal place of business in Lafayette, LA.  Until June 15, 2012, World Tree was registered with the SEC as a registered investment advisor (“RIA”), at which time it withdrew its registration.  Currently, Word Tree remains registered in the State of Louisiana as an investment advisor.

As alleged by the SEC, World Tree manages all of its clients’ assets on a discretionary basis, meaning that it has authorization to trade securities on behalf of its clients.  According to the Complaint, from December 2009 – October 2015, World Tree conducted all of its trades through an omnibus account at a third-party registered broker-dealer.  As alleged in the Complaint: “In general, an omnibus trading account allows an investment advisor to buy and sell securities on behalf of multiple clients simultaneously, without identifying to the broker in advance the specific accounts for which a trade is intended.”

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Money Whirlpool
As discussed in a prior blog post, on June 29, 2018, the board of directors of American Finance Trust, Inc. (“AFIN” or the “Company”), formerly known as American Realty Capital Trust V, Inc., announced the approval of a plan to list AFIN common stock on the Nasdaq Global Select Market (“NasdaqGS”), under the symbol ‘AFIN’.  Pursuant to that plan, half of AFIN’s shares — AFIN Class A shares — were recently listed on NasdaqGS.  Specifically, since July 16, 2018, shares of AFIN have been publicly traded and are currently priced around $17.50 per share.  Therefore, investors who participated in the IPO and paid $25 per AFIN share and continue to hold their position have incurred substantial unrealized losses on their investment of approximately 30% (exclusive of commissions, as well as distributions paid, to date).

Most recently, the AFIN board of directors announced that in connection with their public listing, the former non-traded REIT now intends to convert its Class B-1 shares, which represent approximately 25% of AFIN shares outstanding, into Class A shares one week earlier than previously planned, on October 10, 2018.  At this time, Class B-2 shares are still scheduled to convert to AFIN Class A shares on January 15, 2019, as previously planned.

AFIN shareholders have expressed concern that the Company’s plan to list its shares on NasdaqGS in such an incremental, phased manner will likely serve to dilute the value of the AFIN Class A shares, thus creating downward selling pressure on a stock that has already suffered considerable decline from its IPO pricing.  In addition, some shareholders have expressed concern over the fact that AFIN recently cut its dividend from approximately $1.30 to $1.10, effective July 1, 2018.  This amounts to a reduction in distribution of approximately 15% and is of particular concern to the many retail investors who initially purchased AFIN shares for their income component.

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Piggy Bank in a Cage
On September 14, 2018, the SEC initiated a civil action (the “Complaint”) in federal court in the Southern District of Indiana against Ms. Tamara Rae Steele (CRD# 3227494) (“Steele”), as well as her eponymous investment advisory firm, Steele Financial, Inc. (“Steele Financial”), alleging that Ms. Steele had defrauded a number of her advisory clients through recommendations to invest in certain high-risk securities issued by Behavioral Recognition Systems, Inc. (“BRS”), in a scheme that purportedly generated $2.5 million in commissions for Ms. Steele’s benefit.  According to publicly available information through FINRA, Ms. Steele, a former middle school math teacher, first began working as a financial in or around 1999.  Most recently, she was affiliated with broker-dealer Comprehensive Asset Management and Servicing, Inc. (CRD# 43814) (“CAMAS”) from January 2009 – July 2017.  Ms. Steele’s CRD record showing her employment history and customer claims filed with FINRA is accessible below.

tamara rae steele

As alleged by the SEC in its Complaint, Ms. Steele was terminated by her former employer, CAMAS, when the “broker-dealer learned that [she] was selling BRS securities outside the scope of her employment with the firm and without the firm’s knowledge and approval, a practice called ‘selling away’ from the firm.”  Specifically, the SEC has alleged that Ms. Steele fraudulently recommended “over $13 million in extremely risky securities issued by a private company, Behavioral Recognition Systems, Inc. (‘BRS’).”  Further, the SEC has alleged that Ms. Steele violated her fiduciary duty to her clients — many of whom were unaccredited retail investors who were either current or former teachers and public-school employees — by purportedly failing to disclose that she was earning “[c]omissions ranging from 8% to 18% of the funds raised for BRS.”  The SEC Complaint is accessible below:

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Numerous advisors around the country, including reportedly advisors working at Goldstone Financial Group in Oakbrook Terrace, Illinois, may have sold retail investors interests in the now-bankrupt 1st Global group of companies.

1st-Global-Capital
As we discussed in recent blog posts, a $283 million Chapter 11 bankruptcy filing on July 27, 2018, by the Hallandale Beach, FL firm 1 Global Capital (a/k/a 1st Global Capital, or 1GC) has negatively impacted investors nationwide.  Unfortunately, many retail investors committed their hard-earned money, in many instances their retirement funds, into so-called 1GC “memorandums of indebtedness” which were also sometimes referred to as First Global Capital Notes (“Notes”).  Publicly available records indicate there are more than 4,000 1GC accounts across the country, sold by many advisors in various states.

Formed approximately 5 years ago, 1GC was purportedly in the business of financing small businesses by providing capital to a range of businesses including restaurants, construction companies, manufacturing operations, and healthcare companies.  1GC issued its Notes to retail investors, often referred to in the contract as “lenders” or in other instances as “creditors.”  In exchange, these lenders or creditors invested in supposedly safe, short-term deals that would pay out around 7% in interest at the end of the term (e.g., 9-month term).

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Brokerage firm SII Investments, Inc. has been ordered by Massachusetts Secretary of the Commonwealth William Galvin to refund money back to clients who were sold non-traded REITs by SII.

money backing hard money real estate deal
Galvin charges that SII failed to adequately supervise the sale of nontraded REITs to customers.  As a result of the settlement, any Massachusetts investor who was identified by Mr. Galvin’s office as having been improperly sold the REITs by SII will be offered their money back.  While this conduct may have occurred in other states, only Massachusetts investors are affected by the action by Galvin’s office (and other investors will not receive a refund as a result of this action).

Of note, the Massachusetts action focused on SII treating clients’ annuities as liquid assets rather than nonliquid assets for purposes of calculating the amount of the client’s assets that could be invested in non-traded REITs: “SII’s suitability and disclosure form for nontraded REITs stated that no more than 10% of an investor’s liquid net worth may be invested in any particular nontraded REIT… While SII’s own internal policies made clear that annuities are illiquid products, SII nevertheless included annuities with substantial pending surrender fees as liquid for nontraded REIT liquid net-worth calculations.”

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As we discussed in a recent blog post, a $283 million Chapter 11 bankruptcy filing on July 27, 2018, by the Hallandale Beach, FL firm 1 Global Capital (a/k/a 1st Global Capital, or 1GC) has negatively impacted investors nationwide.  Unfortunately, many retail investors committed their hard-earned money, in many instances their retirement funds, into so-called 1GC “memorandums of indebtedness” which were also sometimes referred to as First Global Capital Notes (“Notes”).  Publicly available records indicate there are more than 4,000 1GC accounts across the country, sold by many advisors in various states.

1st-Global-Capital
Formed approximately 5 years ago, 1GC was purportedly in the business of financing small business by providing capital to a range of businesses including restaurants, construction companies, manufacturing operations, and healthcare companies.  1GC issued its Notes to retail investors, often referred to in the contract as “lenders” or in other instances as “creditors.”  In exchange, these lenders or creditors invested in supposedly safe, short-term deals that would pay out around 7% in interest at the end of the term (e.g., 9-month term).

Upon information and belief, a number of 1GC investors were steered into these Notes by advisors.   Advisors who have recommended Notes reportedly may include Matthew Walker or others working for his Overland Park, Kansas-based group of Pinnacle Plus companies.

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Building DemolishedInvestors in AR Global’s Healthcare Trust, Inc. (“HTI”), may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stock broker.  AR Global’s HTI was incorporated on October 15, 2012, as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  HTI invests in multi-tenant medical office buildings and, as of year-end 2017, owned a portfolio consisting of 8.4 million-square-feet including 164 properties, with a total purchase price of $2.3 billion.

As a publicly registered non-traded REIT, HTI was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager.  HTI terminated its offering in November 2014 after raising approximately $2.2 billion in investor equity.

Recently, third party real estate investment firm MacKenzie Realty Capital, LP (“MacKenzie”) initiated an unsolicited mini-tender offer to purchase up to 1 million shares of HTI for $10.99 per share.  Accordingly, investors who acquired HTI shares through the offering at $25 per share will incur substantial losses on their initial investment of approximately 55% (exclusive of commissions paid and distributions received to date).