Investor Lawyers Blog

Published on: May 21, 2012

Inland American REIT Under SEC Investigation; Investors Could Recover Losses in Securities Arbitration

Securities arbitration lawyers are currently investigating possible claims on behalf of investors who suffered losses as a result of their purchases of Inland American Real Estate Trust Inc. through a full-service brokerage firm. Inland American is the largest non-traded REIT in the industry. Recently, it has been reported that Inland American is under investigation by the U.S. Securities and Exchange Commission (SEC). The SEC is investigating whether there were violations of federal securities laws regarding Inland American’s fees and administration.

Inland America REIT Under SEC Investigation, Investors Could Recover Losses in Securities Arbitration

Inland American’s quarterly report stated that the company “has learned that the SEC is conducting a nonpublic, formal fact-finding investigation to determine whether there have been violations of certain provisions of the federal securities laws.” The potential violations mentioned in the report pertain to “the business manager fees, property management fees, transactions with affiliates, timing and amount of distributions paid to investors, determination of property impairments, and any decision regarding whether the company might become a self-administered REIT.”

As a public non-traded REIT, sales of Inland American may have carried a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as Inland American, carry a relatively high dividend or high interest, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors, according to stock fraud lawyers.

Published on: May 16, 2012

Investors Could Recover Losses from Inverse ETF, ETN Investments

by InvestorLawyers

ETFs (exchange traded funds) and ETNs (exchange traded notes) have recently gained a significant amount of attention in the securities industry. Securities fraud attorneys have been filing arbitration claims on behalf of investors who were unsuitably recommended ETFs or ETNs and suffered significant losses as a result. The Financial Industry Regulatory Authority (FINRA) has started to increase its efforts in regulating inverse ETFs and ETNs, hoping to ensure that unsophisticated investors are not being sold these complicated products.

Investors Could Recover Losses from their Inverse ETF and ETN Investments

In connection with FINRA’s efforts, UBS Financial Services, Morgan Stanley, Wells Fargo and Citigroup Global Markets Inc. have agreed to pay $7.3 million in fines and $1.8 million in restitution, totaling $9.1 million. This will settle allegations that they sold inverse and leveraged ETFs to clients for which the investment was unsuitable. According to FINRA, these four firms did not have a “reasonable basis” for the recommendation of the securities to certain clients and also failed to provide adequate supervision. For more than a year, from January 2008 through June 2009, $27 billion in inverse ETFs were bought and sold by the firms.

With ETFs and ETNs now being recognized as a significant problem, we are likely to see more sanctions leveled by FINRA. According to stock fraud lawyers, the SEC ceased approving applications for ETFs in March 2010, when those ETFs used derivatives. Furthermore, the SEC indicated that it wanted to determine if leveraged and inverse ETFs warranted additional investor protection. There is concern, from both FINRA and the SEC, that inverse and leveraged ETFs are being confused with traditional, less risky ETFs.

Published on: May 14, 2012

The Problem with Non-traded REITs

by InvestorLawyers

Lately, there has been a lot of buzz amongst securities arbitration lawyers about non-traded REITs. Investors who have suffered losses as a result of these investments have been encouraged to come forward to attempt to recover their losses through FINRA arbitration. But what exactly is the problem with these investments?

The Problem with Non-Traded REITs

Generally, a problem with these investments arises when a financial advisor fails to adequately disclose to the customer the risks and illiquidity of the investment. Often, the motivation for the broker/adviser’s failure to disclose when recommending the product is the high commission he or she will earn on the investment.

Valuation problems of these investments are another major issue with non-traded REITs, according to investment fraud lawyers. Currently, FINRA rules only mandate that the sponsors of the investments establish an estimated per-share valuation no longer than 18 months after the investment stops raising investor funds. This is an issue because fund raising can, and often does, last for years. As a result, the per-share valuation can go for years without being updated. Furthermore, there is an obvious conflict of interest when it is the non-traded REIT’s sponsor that establishes the valuation.

Published on: May 11, 2012

News: Lawsuit Against Morgan Keegan Regarding Auction Rate Securities Reinstated

by InvestorLawyers

Recently, it has been reported that the SEC lawsuit against Morgan Keegan & Co. has been reinstated by the U.S. Court of Appeals in Atlanta. According to stock fraud lawyers, Morgan Keegan allegedly mislead investors regarding its auction-rate securities liquidity risk. According to the federal appeals court, a trial judge previously incorrectly sided with Morgan Keegan that the verbal comments made by brokers to four Morgan Keegan customers were not “material” omissions or misrepresentations that would, under U.S. Securities law, make the company liable.

News: Lawsuit Against Morgan Keegan Regarding Auction Rate Securities Reinstated

Morgan Keegan’s office based in Memphis, Tennessee, was accused of securities fraud and sued by the SEC in 2009. According to securities fraud attorneys, the SEC alleged that from late 2007 through the ARS market collapse in February 2008, Morgan Keegan brokers told customers the auction-rate securities “were as good as cash” in an effort to increase sales.

Stock fraud lawyers know that auction-rate securities are tax-exempt, long-term and taxable bonds and their interest rates are connected to the short-term market. Through ARS, issuers can acquire lower short-term rates on long-term financing. Auction-rate securities were marketed as liquid cash alternatives and considered safe before the global credit crunch severely affected the market. As a result, many investors were left with securities that couldn’t be sold.

Published on: May 10, 2012

Investors of Lehman Return Optimization Security Note, Maluhia Eight Could Recover Losses Through Securities Arbitration

by InvestorLawyers

Securities arbitration lawyers are currently investigating potential claims on behalf of investors who suffered losses as a result of their investments in Lehman Return Optimization Security Note and Maluhia Eight LLC.

Investors of Lehman Return Optimization Security Note, Maluhia Eight Could Recover Losses Through Securities Arbitration

Lehman Return Optimization Security Notes were allegedly marketed by brokers as investments designed to guarantee safety much like the safety associated with “capital preservation.” Furthermore, they were marketed as “low-risk investment,” according to investment fraud lawyers. However, the investment’s safety was actually dependent upon the solvency of Lehman Brothers, which acted as the issuer of the note. Following Lehman Brother’s September 2008 declaration of bankruptcy, investments such as this one that were backed by Lehman Brothers suffered disastrous losses. The potential liability of brokerage firms that sold the note to investors is now being investigated.

Brokerage firm liability for a Hawaii real estate deal, Maluhia Eight LLC, is also under investigation by securities arbitration lawyers. Chapter 11 bankruptcy was declared by Maluhia Eight in 2010 in the Northern District of Texas. Many investors have suffered losses as a result of the declaration of bankruptcy, but investors who purchased Maluhia Eight because of an unsuitable recommendation may be able to recover losses.

Published on: May 9, 2012

Ameriprise Financial Investors Filing Claims Over REIT Losses

by InvestorLawyers

Securities arbitration lawyers are currently investigating possible claims on behalf of investors who suffered losses as a result of their purchases of Inland Western Real Estate Investment Trust, which is now known as Retail Properties of America. Many of the investors who suffered losses as a result of Retail Properties of America were purportedly customers of Ameriprise Financial. Some Ameriprise customers have already come forward with potential claims.

Ameriprise Financial Investors Filing Claims Over REIT Losses

In April 2012, Retail Properties of America was converted to a publicly-traded New York Stock Exchange company from a non-traded REIT. Last June, the value of the REIT was reported at $6.95 per share. Some brokers advised investors to remain invested in the REIT, given the decline, and asserted that it should rebound following the IPO. At the IPO, Retail Properties was expected to be offered at $10 to $12, but its actual offering of $8 was well below this expectation. Furthermore, the offering price of $8 resulted from a reverse stock split and the actual value of Retail Properties was around $3.20.

As a public non-traded REIT, the Inland Western REIT may have carried a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as Inland Western REIT, carry a relatively high dividend or high interest, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors, according to stock fraud lawyers. If Ameriprise made unsuitable recommendations to clients to invest in Inland Western, this is a stark contrast to its claim that the company takes the “time to understand your dreams and goals, recommend strategies and product solutions to help you make progress toward those dreams and goals and help you implement these solutions and monitor progress.”

Published on: May 7, 2012

KBS REIT I Investors Could Recover Losses

by InvestorLawyers

Because of the recent decline in value of KBS Real Estate Investment Trust I, investment fraud lawyers are investigating claims on behalf of investors who suffered significant losses as a result of their investments. Full-service brokerage firms who sold this particular REIT could be held responsible for investor losses.

KBS REIT I Investors Could Recover Losses

In April, investors of KBS REIT were informed that the value of KBS REIT had declined to $5.16 per share from $7.32 per share. While this represents a 29 percent decline since the last value cut of the REIT’s shares, it also represents a decline of nearly 50 percent since the original investment offering at $10 per share. The reduction in share price has resulted in significant losses for investors but, according to securities fraud attorneys, investors may be able to recover losses through securities arbitration.

KBS is a non-traded Real Estate Investment Trust (REIT). According to investment fraud lawyers, REITs typically carry a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, such as the KBS REIT, carry a relatively high dividend or high interest, making them attractive to investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. For more information on REITs, see the previous blog post, “FINRA Investor Alert: Public Non-Traded REITs.”

Published on: May 3, 2012

RMC Medstone Capital Promissory Note Investors Could Recover Losses

by InvestorLawyers

RMC Medstone Capital promissory note investors who suffered significant losses may have a valid securities arbitration claim, according to investment fraud lawyers. Investors of RMC Medstone Capital apparently received a Notice of Default in September 2011. The Notice of Default informed investors that their RMC Medstone Capital investment is now worthless.

RMC Medstone Capital Promissory Note Investors Could Recover Losses

According to securities arbitration lawyers, approximately $18 million in promissory notes were issued by RMC Medstone Capital and owners of these promissory notes should be seeking recovery of their losses. Prior to recommending an investment to a client, brokers and firms are required to perform the necessary due diligence to establish whether the investment is suitable for the client given their age, investment objectives and risk tolerance. Brokerage firms and broker-dealers offering the RMC Medstone Capital promissory notes will most likely be unable to demonstrate that the necessary due diligence was performed, based on what attorneys know about the investment.

Specifically, investment fraud lawyers are investigating recovery options for investors who suffered losses in RMC Medstone Capital V and VI promissory notes. Both of these notes were apparently sold under the Regulation D private offerings exemption. This exemption applies to certain private offerings and exempts the investment from normal SEC filing requirements.

Published on: May 2, 2012

Investors Beware of Pre-IPO Fraud, Warns SEC

by InvestorLawyers

The Securities and Exchange Commission (SEC) recently posted an alert on its website which warns investors about scams that offer shares of popular tech companies, like Facebook and Twitter, that have not yet been released to the public. According to investment fraud lawyers, while some pre-IPO shares offerings are legitimate, and are not uncommon, they are typically limited only to sophisticated investors.

Investors Beware of pre-IPO fraud, Warns SEC

According to the SEC, the U.S. security regulator is “aware of a number of complaints and inquiries about these types of frauds, which may be promoted on social media and Internet sites, by telephone, email, in person or by other means.” In recent years, pre-IPO schemes have been a cause for concern, according to the SEC. According to securities arbitration lawyers, investors may be tempted by offerings that capitalize on the popularity of media sites like Facebook.

An order in a bid to stop allegedly fraudulent securities sales of an investment vehicle was issued by the U.S. District Court for the Southern District of Florida in Miami in early April 2012. The investment vehicle claimed to hold pre-IPO shares of Facebook.

Published on: April 30, 2012

REIT Investors: Don’t be Fooled by a New Name

by InvestorLawyers

Recently, several non-traded REITs have attempted name changes in order to put some distance between themselves and the negative news that has been associated with their previous name. A March 2012 letter to investors indicates that Cornerstone Healthcare REIT has done this. Cornerstone REIT is now known as Sentio Healthcare Properties Inc. The funds and REITs sold under Cornerstone Ventures Inc.’s Cornerstone Real Estate Funds have been under investigation by securities fraud attorneys for more than a year.

Title of the Post Goes Here

Sentio Healthcare Properties, or Healthcare REIT, appears to be one of the most troubled Cornerstone REITs. According to securities arbitration lawyers, the REITs value may have suffered a significant decline.

Typically, REITs carry a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs, like the Cornerstone REITs, carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. This becomes a major problem for investors, especially retired individuals, who may need to access their funds when the need arises.