Articles Posted in FINRA Arbitration

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Funds offered by GPB Capital Holdings LLC (“GPB”) have shown signs of distress for some time now.  First, it was reported that the U.S. Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (known as “FINRA”), the FBI, the State of Massachusetts, and the New York Business Integrity Commission are investigating GPB Capital Holdings LLC (“GPB”) for financial misconduct. Then one of GPB’s business partners, Prime Automotive Group in Massachusetts, accused GPB of serious financial misconduct and running a “Ponzi-like scheme”.

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Now, these problems have apparently come home to roost in the form of investor losses, as it was recently reported that GPB issued revised, lower valuations for two of its funds, GPB Holdings Fund II and GPB Automotive Fund.  The funds purportedly lost 25.4% and 39% of their value respectively.  Investors are left to guess whether this is the end of the losse, or whether GPB’s other funds including GPB Holdings LP, GPB Holdings III, GPB Waste Management, LP, and GPB NYC Development LP – will also lose value.

GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending.   An issuer of private placements, GPB has raised $1.8 billion from accredited investors in funds that in turn invest in auto dealerships and the waste management industry.  Stockbrokers and advisors from dozens of brokerage and financial advisory firms sold the high risk, high-commission private placements, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP.   According to SEC filings approximately 60 brokerage firms sold clients investments in various GPB Capital Funds.  However, the primary sellers of these toxic funds appear to have been Royal Alliance, FSC Securities, SagePoint Financial, and Woodbury Financial Services.

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Hospitality Investors Trust Inc. (“HIT”), previously known as American Realty Capital Hospitality Trust, recently announced a net asset value (NAV) of $9.21/share, representing a 33.6% decrease from the last announced NAV of $13.87/share.  The Board of HIT stated that this decrease in NAV was due to lower estimates of occupancy, increase in competition, and increase in costs.

money blowing in wind
As we previously reported, back in October 2018, the company, a public, non-traded real estate investment (REIT) with a focus on hospitality properties in the United States, announced a share repurchase program at $9.00/share effective December 31, 2018.  At the time, $9.00/share was an approximate 35% discount to the REIT’s then most recent NAV of $13.87/share. When HIT’s board announced the buyback program in October, they recommended that only those investors that required immediate liquidity should sell their shares, as the $9.00/share price was a significant decrease in the current market value. The buyback program only lasted until February 2019.

HIT shares were originally offered at $25.00 a share, leaving investors at the initial offering price with principal losses of about 60% (not accounting for distributions).

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As discussed in previous posts on this blog, the U.S. Securities and Exchange Commission (SEC), the FBI, and the New York Business Integrity Commission are reportedly investigating GPB Capital Holdings LLC (“GPB”).  Now David Rosenberg, a principal of a private company and one of GPB’s business partners, Prime Automotive Group in Massachusetts, is also reportedly accusing GPB in publicly-available court papers of financial misconduct and running a “Ponzi-like scheme”.

Piggy Bank in a Cage
GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending.   An issuer of private placements, GPB has raised $1.8 billion from accredited investors in funds that in turn invest in auto dealerships and the waste management industry.  Stockbrokers and advisors from dozens of brokerage and financial advisory firms sold the high risk, high-commission private placements, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP.

David Rosenberg, the former CEO of Prime Automotive Group, is reportedly a former partner of GPB who sold his majority state in 2017 and is now publicly accusing GPB of engaging in a “Ponzi-like scheme.”  Mr. Rosenberg claims in his lawsuit that GPB used money from investors to prop up the performance of various auto dealerships and to finance payments to other investors.  Law Office of Christopher J. Gray, P.C. has not independently confirmed these allegations, and is merely reporting what Mr. Rosenberg has alleged in his publicly-available court papers.

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Investors in Lightstone Real Estate Income Trust, Inc. (“Lightstone REIT”) 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 stockbroker or advisor.

Money Maze
Lightstone REIT was incorporated on September 9, 2014 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, Lightstone REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  Lightstone REIT began offering securities in February 2015 and terminated its offering in March 2017 after raising approximately $85.6 million in investor equity.  Lightstone REIT originates, acquires, and manages a diverse set of real estate properties across the United States.

The Board of Lightstone REIT recently approved a 50% decrease in monthly distributions from an annual rate of 8.0 percent to 4.0 percent. The stated purpose of this reduction is due to liquidity and operating costs concerns as well as a belief that the original 8% was no longer sustainable based upon the funds available from operations.

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Customers of barred broker or “financial advisor” Gabriel “Gabe” Block of Red Bank, New Jersey may have arbitration claims if Block caused the customers losses by recommending over-concentration of the customer’s accounts in stocks, excessive use of margin loans and/or trading in microcap stocks.

Piggybank in a Cage
According to BrokerCheck records kept by the Financial Industry Regulatory Authority (FINRA), Block has been subject to at least 12 customer complaints and five regulatory actions during his career.  Block is currently barred from the industry but was formerly employed by First Standard Financial Company LLC, National Securities Corp., and Oppenheimer & Company, among other brokerage firms.  Several of the customer complaints against Block concern allegations of high frequency trading activity also referred to as churning.

On August 28, 2015, The State of Delaware’s Investor Protection Unit filed an administrative complaint against Block, with the following allegations: churning, excessive trading, unsuitable investment recommendations, and narcotics use.  Block denied the Delaware allegations, but consented to a cease and desist order, and relinquished his right in the future to apply to be a broker or investment advisor in the state of Delaware.

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Investors in American Realty Capital New York City REIT (“ARC NYC REIT”), may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their ARC NYC REIT 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 broker or financial advisor.  According to its website, ARC NYC REIT is structured to provide its investors with a combination of current income and capital appreciation through strategic investments in high-quality commercial real estate located throughout the five boroughs of New York City.

Money Whirlpool
Recently a Tel Aviv, Israel based private real estate investment fund, Comrit Investments 1 LP (“Comrit”) — launched an unsolicited tender offer to purchase up to 1.6 million shares of ARC NYC REIT for $13.61 a share.  This is lower than a previous $14.68 per share tender offer, since expired, that Comrit made in early 2018

A publicly registered non-traded real estate investment trust (“REIT”), ARC NYC REIT was incorporated in December 2013 as a Maryland REIT and is registered with the SEC.  Accordingly, ARC NYC REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.

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Investors in Carter Validus Mission Critical REIT Inc. (“CVMC REIT I”) and/or Carter Validus Mission Critical REIT II Inc. (“CVMC REIT II”) 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 stockbroker or advisor.

money whirlpool
CVMC REIT I was incorporated on December 16, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, CVMC REIT I was permitted to sell securities to the investing public at large, including unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  CVMC REIT I began offering securities in December 2010 and terminated its offering in June 2014 after raising approximately $1.7 billion in investor equity.  CVMC REIT I invests in purpose-built facilities and owns a portfolio of 61 properties, as of the March 2019.

CVMC REIT II was incorporated on January 11, 2013 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  As a publicly registered non-traded REIT, CVMC REIT II was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager.  CVMC REIT II began offering securities in May 2014, and after raising $1.2 billion in investor equity in its initial primary offering, CVMC REIT II launched a follow-on offering that terminated in November 2018 after raising an additional $86.9 million.  CVMC REIT II invests in net leased data centers and healthcare assets and owned a portfolio of 85 properties as of March 2019.

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Money MazeEarlier this month, a tender offer to purchase shares of Carey Watermark Investors Inc. (“Carey Watermark”), a publicly registered non-traded real estate investment trust managed by W.P. Carey Inc. (NYSE: WPC), was reportedly completed by a private investor known as Everest REIT Investors I LLC (“Everest”).

According to public SEC filings, the unsolicited offer to purchase up to 7.02 million shares of common stock, or roughly 5 percent of the outstanding shares of Carey Watermark, resulted in Everest’s  purchase of 48,831 shares for $7.50 each in its tender offer that expired on March 29, 2019.

Carey Watermark shares originally sold for $10.00 each and have an estimated net asset value  (NAV) of $10.41 as of December 31, 2017.

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The share price of American Finance Trust (“AFIN”), a REIT that published an estimated net asset value (NAV) of $23.56 a share before listing its shares on the Nasdaq Global Select Market (“Nasdaq”) in the summer of 2018, has continued to languish, reaching a market price as low as $10.08 in trading on April 12, 2019.

money whirlpool
As previously reported, on June 29, 2018, the board of directors of AFIN, formerly known as American Realty Capital Trust V, Inc., announced the approval of a plan to list AFIN common stock on the Nasdaq, and listed its shares effective July 19, 2018. Although most investors paid $25.00 a share for AFIN shares in the Company’s offerings, AFIN shares have consistently traded well below that price level since the Nasdaq listing.

Last year, a third party known as MacKenzie Realty Capital Inc. made two unsolicited tender offers to purchase AFIN shares for as much as $15.00 per Class A share- offers that AFIN’s board recommended shareholders reject.

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Investors in 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 stockbroker or advisor.

Money Maze
HTI was incorporated on October 15, 2012, as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  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 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.  HTI invests in multi-tenant medical office buildings and owned a portfolio of 191 properties, as of the fourth quarter of 2018.

The Board of HTI has approved a $17.50 net asset value per share of the company’s common stock as of December 31, 2018, representing a decrease of nearly 13.6 percent compared with HTI’s December 31, 2017 estimated NAV per share of $20.25.   HTI originally sold shares to the public for $25.00 each.   HTI attributed the drop in its reported NAV to the effect of paying distributions to the company’s stockholders that net exceeded cash flows from operations and a $30.5 million decrease in the estimated value of its real estate assets compared to last year.  While this lower $17.50 estimated NAV is bad news for investors, the worse news may be that transactions in the limited secondary market have reportedly taken place at $12.75 to $13.00 a share- suggesting that HTI shares may be worth even less than the estimated NAV.