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Investors in Hospitality Investors Trust (“HIT”), formerly known as American Realty Capital Hospitality Trust or ARC Hospitality, 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_REIT-640x401-2-300x188 Money_REIT-640x401-3-300x188

HIT, a public, non-traded real estate investment trust (“REIT”) with a focus on hospitality properties in the United States, declared bankruptcy earlier this year.   Originally sold for $25/share, HIT seen a decline in share price over the last few years.  In March 2021, secondary market service Central Trade & Transfer (CTT) reported trades in HIT for prices as low as 46 cents a share. In May 2021, Hospitality Investors Trust Operating Partnership, LP filed for Chapter 11 bankruptcy protection.   HIT investors later learned that under the bankruptcy plan, their stocks will be canceled and they would be getting contingent cash payments of no more than $6/share.  In July 2021, a bankruptcy court in Delaware approved the Chapter 11 restructuring plan.

HIT had previously announced a decrease in its estimated net asset value (“NAV”) to $8.35 a share, down from $9.21 per share.  As a publicly registered non-traded REIT, HIT 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.  Original investors of HIT could purchase shares at $25.00 per share.

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The United States Securities and Exchange Commission(“SEC”) has accused a Georgia investment adviser of operating a Ponzi scheme that the SEC alleges in its legal Complaint (accessible here SEC Complaint) filed in federal court has defrauded over 400 investors nationwide.   The SEC Complaint alleges that investment advisers at a company called Livingston Group Asset Management Company, which does business as Southport Capital, persuaded investors to lend money to a company known as Horizon Private Equity, III, LLC (“Horizon PE”).   The SEC alleges that investors in Horizon PE collectively are allegedly owed over $110 million in principal.

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“Investors trusted Woods and the Southport investment advisers working at his direction, and they stand to lose significant portions of their retirement savings when the Ponzi scheme inevitably collapses.  The longer the scheme continues, the larger the losses will be for those left holding the bag,” the SEC Complaint states.

According to the SEC Complaint, advisers soliciting investments in Horizon PE allegedly told clients that they would receive returns of 6% to 7% interest, guaranteed for two to three years, and that their money would be used for nonspecific investments such as government bonds, stocks, or small real estate projects.  According to the SEC Complaint, clients were not told that their money would be used to pay returns to earlier investors.  The SEC also alleges that investors were told they could receive their principal investment back without penalty subject to a 30-day or 90-day waiting period.  The SEC alleges that because Horizon did not follow any traditional record-keeping practices, millions of dollars’ worth of investor funds are currently unaccounted for.

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Investors in Lordstown Motors Corp. (NASDAQ: RIDE, “Lordstown” or the “Company”) may have legal claims arising from conduct by the Company that has given rise to a class action lawsuit (discussed below).

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The electric vehicle startup recently said in a regulatory filing with the Securities and Exchange Commission (“SEC”) that orders for its Endurance pickup are non-binding, sending its share price tumbling.  Lordstown’s stock dropped as much as 7% after the Company clarified statements by company President Rich Schmidt on June 15, 2021 to the effect that the Company had a large book of binding orders.  The Company stated: “Although these vehicle purchase agreements provide us with a significant indicator of demand for the Endurance, these agreements do not represent binding purchase orders or other firm purchase commitments.”

Previously, Company founder and former CEO Steve Burns left Lordstown after the board reportedly determined that he had overstated orders for the Endurance truck with claims of 100,000 pre-orders.  This controversy is the subject of a class action lawsuit that has been filed in the United States District Court for the Northern District of Ohio on behalf of investors who purchased or otherwise acquired securities between August 3, 2020 and March 24, 2021, inclusive.

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Investors in Sila Realty Trust Inc. (“Sila”), a publicly registered, non-traded real estate investment trust (formerly known as Carter Validus Mission Critical 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.

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Sila recently sent a letter to shareholders recommending they reject an unsolicited tender offer by CMG Partners and its affiliates, CMG Income Fund II LLC, CMG Liquidity Fund LLC and Blue River Capital LLC.  Under the tender offer, CMG is offering to buy up to300,000 shares of Sila stock for $3.57 each.  This price is approximately 59 percent less than the REIT’s most recent net asset value per share of $8.69, announced in December 2020. CMG’s offer expires on July 15, 2021, unless extended.  As well as being much lower than Sila’s estimated NAV per share, CMG’s offer price is also lower than certain reported secondary market transactions, which have reportedly taken place at prices over $6.00 a share during 2021.

Sila  merged with another REIT known as with Carter Validus Mission Critical REIT Inc. in late 2019.  Sila recently announced plans to sell its 29-property data center portfolio to subsidiaries of Mapletree Industrial Trust, a REIT listed on the Singapore Exchange, for more than $1.3 billion. The transaction is expected to be completed in one or more closings during the third quarter of 2021.  As of March 31, 2021, Sila reportedly owned 153 real estate properties, consisting of 29 data centers and 124 healthcare properties located in 70 markets across the United States with a total purchase price of approximately $3.2 billion, including capital expenditures on development properties placed into service.

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Investors in Phillips Edison & Company, Inc. (“PECO”) 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.

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PECO, an internally managed real estate investment trust focused on grocery-anchored shopping centers,  recently released the preliminary results of its tender offer to purchase up to 17.4 million shares of common stock from public shareholders at a price of $5.75 per share. Shareholders reportedly tendered approximately 13.5 million shares, and PECO reportedly expects to purchase 100 percent of the tendered shares for approximately $77.7 million beginning on or about January 7, 2021.

PECO also has announced a one-for-four reverse stock split, which reportedly is expected to take place around March 9, 2021, and as a result, every four shares of issued and outstanding common stock will be automatically combined and converted into one share of common stock. A corresponding reverse split of the outstanding OP units will also be effective at that time.

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Investors in Phillips Edison & Company, Inc. (“PECO”) 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.

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PECO was formed in Maryland in October 2009 as a non-traded real estate investment trust (or “REIT”), to acquire grocery-anchored shopping centers. In November 2018, PECO officially merged with Phillips Edison Grocery Center REIT II (“Phillips Edison II), a move that caused significant loss to its investors. Investors who purchased shares in PECO at the initial offering acquired shares at $10.00 per share, and while PECO’s sponsor has said that it currently has an estimated net asset value (“NAV”) of $8.75 per share, shares on the limited private secondary market have reportedly traded between $4.50 and $5.50 per share in recent months.

Making matters worse, in March 2020 PECO announced that it would suspended monthly distributions, as well as share repurchases or redemptions, albeit indicating that these  suspensions will be temporary.  As measures to guard against liquidity issues, PECO also reportedly borrowed $200 million from a revolving credit facility and announced plans to reduce expenses.

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Investors in Hospitality Investors Trust Inc. (“HIT”), a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality Trust, 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 broker or financial advisor.

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HIT owns a portfolio of hotel properties throughout North America, including various Hilton-, Marriott- and Hyatt- branded hotels, within the select service and full-service markets.  As of December 31, 2018, HIT reportedly owned 144 hotels.  The REIT’s offering was declared effective in January 2014 and suspended sales activities in November 2015 after raising $903 million in investor equity, according to Summit Investment Research.

In April 2017, HIT changed its name from American Realty Capital Hospitality Trust to HIT after restructuring to become a standalone self-managed REIT as well as a partnership with Brookfield Strategic Real Estate Partners II.  Prior to the restructure and name change, HIT had an agreement with American Realty Capital Hospitality Advisors LLC, and affiliate of AR Global Trust II.

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Investors in Griffin-American Healthcare REIT III (“GAH REIT III”), 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 broker or financial advisor.

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GAH REIT III recently announced that it will cut its annual distribution rate in half to $0.30 a share, from $0.60 a share, citing the possible impact of the COVID 19 epidemic on its operations  GAH REIT III also suspended its share repurchase plan.

GAH REIT III is a publicly registered non-traded real estate investment trust (“REIT”) incorporated in January 2013 as a Maryland REIT and is registered with the SEC.  As such. GAH REIT III was permitted to sell securities to the investing public at large, including retail investors who bought shares on the recommendation of a broker or money manager.

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James T. Booth, a former LPL Financial broker, has been arrested and charged by U.S. authorities with securities and wire fraud in connection with his alleged operation of a Ponzi scheme.  The scheme allegedly defrauded more than three dozen retail investors, including senior citizens saving for retirement, of nearly $4 million in assets.

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According to the indictment, accessible here u.s._v._james_booth_indictment,  Booth, 74,  solicited money from over 40 clients of his wealth management business known as Booth Financial and falsely promised to invest their money in securities offered outside of their ordinary advisory and brokerage accounts.  The indictment alleges that, rather than investing the funds as represented,  Booth instead misappropriated nearly $5 million to pay his own personal and business expenses.  According to the indictment, from 2013 through 2019, Booth purportedly directed some of his clients to write checks or wire money to an entity named “Insurance Trends, Inc.”   Booth then allegedly used the funds to pay personal and business expenses.

Under the federal indictment, Booth, of Norwalk, Connecticut, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison, one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of investment adviser fraud, which carries a maximum sentence of five years in prison, according to the Department of Justice press announcement.

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Customers of Voya Financial Advisors, Inc. (“Voya Financial”) may have arbitration claims if they worked with Broker James T. Flynn between 2013 and 2017 or with IFS Securities, Inc. (“IFS Securities”) if they worked with Flynn between 2017 and 2018, and if Mr. Flynn recommended unsuitable securities transactions or made a misleading sales presentation to them.  Voya Financial has reportedly paid over $900,000 to date to settle claims brought by Mr. Flynn’s customers.

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Flynn (CRD#: 3082615), formerly of Voya Financial and most recently with IFS Securities, has been barred by FINRA and has faced dozens of complaints related to his placement of their funds in variable annuities and non-traded real estate investments (REITs).

Non-traded REITs pose many risks that are often not readily apparent to retail investors, and may not be adequately explained by the financial advisors and stockbrokers who recommend these complex investments.  One significant risk associated with non-traded REITs concerns 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%.

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