Articles Posted in FINRA Arbitration

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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.

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The United States Securities and Exchange Commission (“SEC”) has filed charges Cardinal Energy Group, Inc. (“Cardinal”), a Texas-based oil and gas company, as well as and its former CEO Timothy W. Crawford (“Crawford”).  The SEC charges defendants with fraudulently concealing the loss of Cardinal’s major source of revenue.

Oil Drilling Rigs
In mid-2017, Cardinal reportedly lost control of its interest in two oil-and-gas leases that accounted for nearly all (approximately 90%) of the company’s revenue, according to the SEC’s complaint.  However, according to the SEC complaint, instead of revealing these issues, Cardinal and Crawford filed quarterly reports with the SEC that misrepresented to investors that the leases were still expected to be part of the company’s future business plans.

During this period, while allegedly concealing the setback to the business, Cardinal also allegedly raised additional money from investors, misreported stock ownership, and failed to make the required disclosures that its Crawford had sold millions of shares of Cardinal stock.

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Investors in Steadfast Apartment REIT, a publicly registered non-traded real estate investment trust or REIT, have an opportunity to sell their shares- but at a price far below the REIT’s estimated per-share value of $15.84 a share, or its initial $15.00 a share offering price.

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According to Securities and Exchange Commission filings, Comrit Investments I, a Tel Aviv-based investment fund, has commenced an unsolicited tender offer.  Comrit has offered to purchase up to 337,268 shares of Steadfast Apartment REIT Inc. stock at a price of $11.86 per share in cash. The offer expires on March 28, 2019.

Steadfast Apartment REIT, a publicly listed non-traded REIT, invests in “multifamily properties” throughout the United States.  The REIT closed its public offering in March 2016 and has reportedly raised $788 million in investor equity, as of December 31, 2018. The REIT closed its public offering on March 24, 2016.  Steadfast Apartment REIT marketed itself as focused on purchasing established, stable apartment communities with operating histories that demonstrated consistently high occupancy and income levels across market cycles.  Despite its characteristic high offering fees and expenses, Steadfast Apartment REIT is purportedly worth slightly more than its offering price of $15.00 a share, with management estimating its NAV at $15.84 a share.  However, shares have reportedly recently traded in a limited secondary market at prices as low as $12.70 a share.

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A UBS Financial Services options trading program marketed as a “Yield Enhancement” strategy to brokerage customers of UBS, reportedly including risk averse investors with substantial bond portfolios, suffered substantial losses approaching 20% of the capital committed in late 2018 and early 2019, although customers to whom the strategy was sold had reportedly been under the impression that the maximum loss they faced in a given month was  1-2%.

Iron Condor Basics
This impression of minimal risk was borne out by UBS’s marketing materials for YES, which at least strongly suggested that the central trading strategy of YES- the Iron Condor– exposed the client to finite or limited risk.  For example, one UBS marketing presentation touted historic returns that featured very few months with losses, and many months with gains.  UBS marketing materials also characterized YES’s central strategy as follows: “selling short term out-of-the-money European style puts and calls on the S&P 500 Index.  To help mitigate downside and upside market exposure, short term below-market and above-market call options are purchased with the same duration as the puts and calls sold.”

Other UBS marketing materials summarize the strategy as follows:

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As we previously reported, the U.S. Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (known as “FINRA”), the FBI, and the State of Massachusetts are investigating GPB Capital Holdings LLC (“GPB”)  With all the recent news regarding GPB, one investigative authority has fallen under the radar – The New York City Business Integrity Commission.

Money Whirlpool
If you’ve never heard of the Business Integrity Commission, or BIC, you’re not alone.  In fact, unless you worked for the City of New York in the Sanitation Department, you would most likely never have heard of BIC.  That is because BIC is charged with investigating and rooting out corruption in the private garbage hauling industry in New York.

Waste management was once an area controlled by organized crime, but now is partially run by investment companies like GPB.  In 2017, GPB acquired the private waste management company Five Star Carting and renamed it GPB Waste NY.  The current director of waste strategy for GBP Capital is Rob Porto, a familiar name as he was the former President and COO of Waste Management until he was fired in 1999, charged with insider trading by the SEC, and paid a $3.7 million, and banned from serving as an officer or director of a publicly traded company for five years.

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Hospital Investors Trust Inc. (known as “HIT”), previously known as American Realty Capital Hospitality Trust, announced on February 28, 2019 that it was suspending a share repurchase program under which the REIT had repurchased some shares from investors at $9.00 a share.  HIT framed the program as an accommodation for investors who needed liquidity and recommended that investors not sell their shares.

Money Maze
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 the buyback program of $9.00/share effective December 31, 2018. $9.00/share was an approximate 35% discount to the REIT’s most recent net asset value (NAV) per share of $13.87 and significantly less than the $25.00/share price at which most investors purchased shares.  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.

Non-traded REITs are risky investments for investors, but lucrative for financial advisors and brokerages. Many investors have reportedly been pressured into investing in non-traded REITs by their financial advisors or brokers, without ever receiving the proper explanation as to the risk and complexity of non-traded REITS.  Further, once invested, investors, are often forced to rely upon the REIT’s own estimate of its value, since non-traded REIT shares do not trade in a liquid public market like shares of stock.

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As we previously reported, the U.S. Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (known as “FINRA”), the FBI, and the State of Massachusetts are investigating GPB Capital Holdings LLC (“GPB”) in probes reportedly concerning the accuracy of GPB’s disclosures of financial information to their investors.  GPB, a New York asset management firm, focused on private placement investments, has reportedly been under investigation by Massachusetts since September 2018.

Building Demolished
According to public documents filed with the SEC, there are approximately 80 broker-dealers that may have sold, or were authorized to sell investments for GPB.  As registered broker-dealers, any firms who actually sold GPB securities were required to conduct adequate due diligence in investigating potential investments and also to ensure their clients understood the risks associated with any GPB potential investment.

The broker-dealers who appear in the SEC filings for GPB offerings are listed below.  It is important to note that none of these broker-dealers has been found to have engaged in any wrongdoing.