The Securities and Exchange Commission (SEC) has charged Suneet Singal (“Singal”) with fraud relating to First Capital Real Estate Trust Inc. (“First Capital”), a non-traded real estate investment trust formerly known as United Realty Trust. Singal is the CEO and Chairman of First Capital.
Prior to Singal’s involvement, First Capital, then known as United Realty Trust, was reportedly sold to public investors by broker dealers, and held out as a safe income investment that would provide distributions and also return investors’ principal after a period of years. But First Capital was in fact a risky and illiquid non-traded REIT. First Capital paid upfront sales commissions and dealer-manager fees totaling 10% of the REIT’s $11.00 a share offering price. These enormous commissions and fees dwarf the commissions available to brokerages and brokers on the sale of conventional investment products.
While it has publicized a net asset value (NAV) in excess of its offering price, First Capital has not filed public financial reports with the SEC on Forms 10-Q and 10-K since August of 2015, leaving investors to guess as to the true value of their shares.
The SEC’s complaint (accessible here first capital sec complaint) charges that Singal and First Capital allegedly made material misrepresentations and omissions concerning certain hotels in several SEC filings. The SEC claims that, as a result of Singal’s conduct, First Capital reported inflated net asset values and issued common shares to investors at inflated prices. The SEC complaint alleges that Singal’s misconduct has now caused First Capital’s NAV to decline by $15.2 million.
The SEC complaint charges Singal and First Capital with violating various federal securities laws and seeks injunctive relief against all defendants, disgorgement and prejudgment interest, and civil money penalties.
Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments. One significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high fees (perhaps as high as 13-15%) act as an immediate ‘drag’ on any investment and can serve to compound losses.
Moreover, non-traded REITs are generally illiquid investments. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, many investors in non-traded REITs like First Capital, who may well have been uninformed of their liquidity issues, have come to learn too late that their ability to exit their investment position is limited. And, as noted above, even if the shares do become freely tradeable, they may prove to be worth much less than the estimated NAV.
Investors who wish to discuss a possible claim may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at email@example.com for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, New Jersey, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).