According to stock fraud lawyers, the Financial Industry Regulatory Authority has and will continue to relentlessly target non-traded real estate investment trusts, or REITs. Specifically, the regulatory authority is focusing on how broker-dealers sell these investments and potential shortcomings in their strategies. According to the Executive Vice President of Member Regulation Sales Practices at FINRA, Susan Axelrod, examiners at FINRA have been scrutinizing “numerous retail sellers of non-traded REITs.” Axelrod also stated that, “In several instances, FINRA examiners have found that firms selling these products failed to conduct reasonable diligence before selling a product and failed to make a determination that the product was suitable for investors.”
Investment fraud lawyers note that independent broker-dealers have a responsibility to perform adequate due diligence when selling any investment, especially complex, illiquid products. Since the 2008 market collapse, FINRA has been aggressive with broker-dealers who failed to do so. Axelrod stated to the Securities Industry and Financial Markets Association’s Complex Products Forum that, “FINRA examiners have noted that in the instances of REITs that have experienced financial difficulties, red flags existed and should have been considered by firms prior to the product being offered to firm clients.”
Another problem with non-traded REITs, according to Axelrod, is that “non-traded REITs may also borrow funds to make distributions if operating cash flow is insufficient, and excessive borrowing may increase the risk of default or devaluation. In addition, non-traded-REIT distributions may actually be a return on principal.”
Some of the non-traded REITs currently being investigated by the stock fraud lawyers at Christopher J. Gray are Inland Western, Inland American, KBS REIT, Cornerstone Healthcare REIT, Behringer Harvard REIT, Paladin Realty Income Properties REIT, Wells REIT, Apple REIT, Desert Capital REIT, TNP Strategic Retail Trust, Dividend Capital REIT, Whitestone REIT, ArciTerra National REIT and CNL Lifestyle Properties REIT.
If you suffered significant losses as a result of your investment in a non-traded REIT, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.