Arbitration

Published on: November 16, 2012

FINRA Decision: David Lerner Associates to Pay $12 Million in Restitution to Customers for Unsuitable Sales of Apple REIT Ten

According to a news release on October 22, 2012, the Financial Industry Regulatory Authority has sanctioned David Lerner Associates Inc. and ordered the company to pay approximately $12 million to customers. The affected customers purchased Apple REIT Ten shares, which is a non-traded Real Estate Investment Trust sold by David Lerner Associates. Some customers who will be receiving restitution were also charged excessive markups. Investment fraud lawyers are still investigating potential claims on behalf of investors who purchased Apple REITs from David Lerner Associates.

FINRA Decision: David Lerner Associates to Pay $12 Million in Restitution to Customers for Unsuitable Sales of Apple REIT Ten

David Lerner Associates is the sole distributor of Apple REITs, including the $2 billion Apple REIT Ten. According to the press release, David Lerner Associates “solicited thousands of customers, targeting unsophisticated investors and the elderly, selling the illiquid REIT without performing adequate due diligence to determine whether it was suitable for investors.” According to securities arbitration lawyers, selling non-traded REITs to customers for whom the investment is unsuitable is one of the biggest problems with non-traded REITs. Furthermore, misleading marketing materials were used in order to sell the REIT. These materials presented performance results but did not disclose that the REIT’s income was insufficient for supporting owners’ distributions.

In addition to the $12 million in restitution, David Lerner Associates was fined over $2.3 million for supervisory violations and charging unfair prices on collateralized mortgage obligations (CMOs) and municipal bonds. These unfair prices occurred over a 30-month period. According to investment fraud lawyers, victims of CMO and municipal bond fraud can also recover their losses through FINRA arbitration.

Published on: November 15, 2012

Recovery of Whitestone REIT Losses

by InvestorLawyers

Investors of Whitestone REIT are attempting to recover their REIT losses through Financial Industry Regulatory Authority securities arbitration. First offered in 2004 as a public, non-traded REIT under the name Hartman Commercial Properties REIT, shares of the investment were offered at a per share price valuation of $10. Until a statement in 2009, which informed investors that the value of Whitestone REIT had declined to a per share price of only $5.15, investors were unaware of any problems with the REIT.

Recovery of Whitestone REIT Losses

On May 1, 2009, Jack L. Mahaffey, Independent Trustee, Chairman of Compensation Committee and Chairman of Special Committee for Whitestone REIT, issued a letter to shareholders. This statement revealed the $5.15 valuation was considered by Western Reserve Partners, a real estate investment banking firm which was engaged to review Whitestone’s internal management analysis, to be “on the high side of the range of reasonableness for current valuation.”

The letter to shareholders also addressed the question of why investors’ dividends had been reduced despite the fact that they were led to expect a dividend of 7 percent. In addressing this question, Mahaffey stated that “Whitestone had established a pattern of making cash distributions in excess of its FFO and available cash flow, a practice generally avoided by listed REITs.”

Published on: November 14, 2012

SEC Charges Ray Lucia and Investment Firm RJL With Allegedly Misleading Investors

by InvestorLawyers

Raymond J. Lucia Sr., an investment advisor who hosts a nationally syndicated radio talk show, has been accused of misleading investors with claims that his “Buckets of Money” strategy helps retirees “generate inflation-adjusted income for life.” The Securities and Exchange Commission (“SEC”) accused the San Diego radio personality of misleading investors by misleadingly exaggerating the historic returns and claiming that his “Buckets of Money” strategy helps retirees “generate inflation-adjusted income for life.”

Lucia, whose radio program is broadcast daily in most of the nation’s top markets, promotes his investment program at seminars held at upscale resorts throughout the country. Some of those seminars are reportedly co-hosted by financial columnist and actor Ben Stein, who has called Lucia “the best wealth manager I know.”

The SEC proceeding (Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company act of 1940 (Exchange Act Release No. 67781, Administrative Proceeding File No. 3-15006 (“Order”)) alleges that Raymond J. Lucia Companies, Inc. (“RJL”) and Lucia presented materially misleading information at a series of investment seminars RJL and Lucia hosted for potential clients.

Published on: November 14, 2012

Recovery of KBS REIT Losses

by InvestorLawyers

Many investors who suffered significant REIT losses in KBS REIT I and KBS REIT II are exploring their options for loss recovery through a Financial Industry Regulatory Authority arbitration claim. KBS REIT I is a non-traded real estate investment trust with a focus on commercial real estate. It has raised around $1.7 billion from investors. Current estimations indicate that investors’ interests in KBS REIT I are worth $5.16 per share. The last change in valuation occurred in late 2009, at which time the investment was valued at $7.32 per share; the new valuation represents a 29 percent decline from that value and a drop of almost 50 percent from the investment’s initial offering price of $10 per share.

Recovery of KBS REIT Losses

In addition, investors of both KBS REIT I and KBS REIT II have been informed that they would not receive any more distributions. Prior to this announcement, KBS REIT I investors were receiving annual distributions of 5.3 percent. Reportedly, KBS REIT I has also suspended redemptions. This means that investors who hold shares in this investment may have trouble selling their investment or could face serious losses by selling on the secondary market. Secondary market buyers are very unlikely to pay for shares of KBS REIT I at the appraised value.

Typically, REITs carry a high commission, which motivates some brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15% percent. Non-traded REITs carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. Arbitration claims have already been filed, or are in the process of being filed, against Ameriprise on behalf of KBS REIT investors who were allegedly led to believe that the REIT was safe, similar to investing in a bond, could be liquidated, provided guaranteed monthly distributions, and that the value of the investment would not fall below the initial purchase price of $10 per share.

Published on: November 12, 2012

Recovery of Desert Capital REIT Losses

by InvestorLawyers

Recovery of Desert Capital REIT Losses

INVESTORLAWYER_6Q17_2012-11-12_Mon_Recovery of Desert Capital REIT Losses

Many investors who purchased Desert Capital REIT, a non-traded REIT, are consulting securities fraud attorneys in order to recover their REIT losses. Claims by investors include unsuitable recommendations and misrepresentations of Desert Capital REIT. In addition, many investors suffered losses as a result of overconcentration of funds in Desert Capital REIT.

Typically, REITs carry a high commission which motivates some brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. The most common complaints regarding the recommendation of Desert Capital REIT mention valuations, prospects, performance, liquidity, redemption and distribution of the investment. Many investors assert that they were not aware of the truth regarding these aspects and their decision to invest would have been affected if they’d had all of this information.

Published on: November 9, 2012

Recovery of Wells REIT Losses

by InvestorLawyers

Individuals who suffered significant REIT losses in Wells Timberland REIT and Wells REIT II could recover their losses through securities arbitration. In the latter part of 2011, the Financial Industry Regulatory Authority fined an affiliate of Wells Real Estate Funds, Wells Investment Securities Incorporated, for the use of misleading marketing materials. The $300,000 fine was related to the sales practices of the firm in relation to Wells Timberland REIT from May 2007 until September 2009. According to FINRA, 116 “improper, unwarranted or exaggerated statements” were included in the advertising literature. Some of these statements were about the distributions, redemption and diversification of the non-traded REIT. As a result, many of the individuals who invested in this REIT were investing in a product that was unsuitable for them, given their age, risk tolerance and investment objectives.

Recovery of Wells REIT Losses

Furthermore, in June of 2011, Wells REIT II was allegedly offered as a “safe, income-producing” investment. But by November of that year, it had reportedly lost over 25 percent of its initial value with its estimated per share value dropping from $10 to $7.47. Reportedly, this decline occurred even though the REIT’s properties are “some of the most prestigious office addresses and tenant corporations in the U.S.,” according to Wells officials, and despite the fact that these properties had an occupancy rate of 94.3 percent.

The 2010 annual report filed with the SEC for Wells REIT II stated that during that year, distributions to investors totaled approximately $313.8 million. This number includes monies paid to investors who decided to redeem their shares. However, Wells REIT II reported a net income of just over $23 million and total cash from operations of $270.1 million. With distributions exceeding cash from operations by nearly $44 million, investors should be asking themselves where the financing for distributions is coming from. According to the investment’s third quarterly report for 2011, Wells REIT II has paid over $1.1 billion in excess of earnings for cumulative distributions since its beginnings in 2004.

Published on: November 8, 2012

Recovery of CNL Lifestyle Properties REIT I Losses

by InvestorLawyers

Since the August announcement that CNL Lifestyle Properties REIT I’s value significantly dropped, investors of this product have been seeking avenues for recovering their REIT losses. In many cases, the answer may be Financial Industry Regulatory Authority securities arbitration. The $7.31 adjusted price per share, which is down from the original $10 per share price, represents a decline of over 25 percent of the investment’s value. The REIT had raised around $3.2 billion at the time the public offering was closed, so the decline in value represents investor losses of more than $870 million.

Recovery of CNL Lifestyle Properties REIT I Losses

According to a letter to CNL Lifestyle Properties shareholders, James Seneff, the CHL Lifestyle Properties Chairman, and Stephen Mauldin, CEO, indicated that the loss in value was primarily a result of their “discontinued mezzanine program” and a $2.3 million reduction of income in their “golf and lodging portfolios.” This reduction in income is reportedly a result of a lower operating net income and lease modifications. However, a press release filed with the Securities and Exchange Commission indicates that the value decline was also a result of a $1.9 million increase in asset management fees and general administrative expenses, a $0.5 million increase in bad debt expenses, a $2.6 million increase in depreciation expenses and a $1 million increase in loan costs amortizations and interest expenses. Reportedly, these increases are due to the increase in the number of properties.

Because CNL Lifestyle Properties is managed and advised by CNL Lifestyle Advisor, its own affiliate, management fees, advisory fees and other administrative expenses are paid to another CNL entity. In fact, an annual report stated that in 2011, $74.1 million was paid to CNL Lifestyle Advisor in asset management fees, acquisition fees and other expenses. Meanwhile, net income losses were reported for three years in a row.

Published on: November 7, 2012

Recovery of Behringer Harvard REIT I Losses

by InvestorLawyers

Many investors are seeking avenues for recovery of REIT losses sustained in Behringer Harvard REIT I. This is only one of the Behringer Harvard REIT investments currently under investigation by stock fraud lawyers. Retired investors in particular have suffered unnecessary losses due to the unsuitability of this investment.

Recovery of Behringer Harvard REIT I Losses

Recently Behringer Harvard itself discovered it was being sued when an investor filed a class action in the U.S. District Court for the Northern District of Texas in September. The investor, Lillian Hohenstein, purchased 1,275 shares between 2004 and 2008. The case alleges breach of fiduciary duty and negligence by the trust, members of its board and its executives. In addition to the class action, many brokerage firms who sold the investment are facing arbitration panels for their unsuitable recommendation of Behringer Harvard REIT I.

The main problem with Behringer Harvard REIT I is that many investors were led to believe the investment was safe and similar to high quality, fixed income securities and chose to invest because they believed it was a low-risk, income-producing investment. However, these investors were not aware of the high risks and illiquidity associated with non-traded REIT investments. Many investors also did not realize that they were not guaranteed distributions and some of the distributions that were made before distributions ceased came from loans, and not cash flows generate by the REIT. Furthermore, many retired individuals were overconcentrated in this investment because of its perceived income-producing feature. As a result, many investors have suffered significant REIT losses.

Published on: November 5, 2012

Recovery of Inland American REIT Losses

by InvestorLawyers

Many investors are currently seeking recovery of their Inland American REIT losses through Financial Industry Regulatory Authority securities arbitration. Following Inland American’s 10Q Securities and Exchange Commission Q1 filing, investors were made aware of a current investigation being conducted by the SEC. According to this 2012 quarterly report, which was issued in May, Inland American had “learned that the SEC is conducting a non-public, formal, fact-finding investigation to determine whether there have been violations of certain provisions of the federal securities laws regarding our business manager fees, property management fees, transactions with our affiliates, timing and amount of distributions paid to our investors, determination of property impairments, and any decision regarding whether we might become a self-administered REIT.”

Recovery of Inland American REIT Losses

Inland American’s prospectus, initially filed in August 2005, shows fees and commissions including a .5 percent due diligence expense allowance, a 2.5 percent marketing contribution and a 7.5 percent selling commission. Furthermore, Inland American’s 2011 annual report indicates that a $40 million business management fee and a $1.6 million investment advisory fee to be paid to its business manager.

Other concerns related to the Inland American REIT that investors should be aware of include the fact that even though it was recognized as the largest non-traded REIT, with real estate assets totaling over $11 billion, nearly 30 percent of the REIT’s properties are located in only four cities. The quarterly report cited above states that “Geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in the real estate markets of those areas or natural disasters in those areas.” Furthermore, the report discloses the fact that around 16 percent of the properties owned by the REIT are leased by SunTrust Bank and AT&T.

Published on: November 2, 2012

Recovery of Dividend Capital REIT Losses

by InvestorLawyers

Many investors are exploring the possibility of recovering their Dividend Capital REIT losses through securities arbitration. Dividend Capital Total Realty Trust Inc. is, according to its Securities and Exchange Commission filing, a Maryland corporation, formed on April 11, 2005, and located in Denver, Colorado. Its goal is to invest in a portfolio of real estate-related and real property investments. It has targeted investments that include direct investments that consist of high-quality industrial, office, mutli-family, and retail real properties, located primarily in North America. The corporation also invests in securities like mortgage loans, and securities issued by separate real estate companies.

Recovery of Dividend Capital REIT Losses

Many firms have offered to buy shares of Dividend Capital from investors at a price that has been significantly reduced from what they initially paid include. Some of these firms include MPF Income Fund 26 LLC, MPF Northstar Fund LP, MPF Flaship Fund 14 LLC, MPF Platinum Fund LP, MPF Flagship Fund 15 LLC, and Coastal Realty Business Trust.

Recently, a Financial Industry Regulatory Authority arbitration statement of claim related to Dividend Capital REIT was filed against Wells Fargo Investments LLC. If the claim is successful, investors hope to recover around $200,000 in REIT losses. The Claimant is a retired Iowa farmer. Allegations include breach of fiduciary duty, negligence, common law fraud and negligent supervision. Furthermore, the allegations state that Wells Fargo’s investment of the client’s funds was unsuitable because of an over-concentration of assets in the illiquid, high-risk, non-traded REIT.