Investors in First Capital Real Estate Trust (“First Capital”), a publicly registered, non-traded real estate investment trust (formerly known as United Realty 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 stockbroker or advisor.
First Capital has a checkered history, most recently having faced litigation brought by the Securities and Exchange Commission (“SEC”) alleging violations of the federal securities laws. On July 13, 2021, the United States District Court for the Southern District of New York entered consent judgments against former First Capital officer Suneet Singal (“Singal”) and his entities, First Capital Real Estate Investments, LLC and First Capital Real Estate Advisors LP, as well as against First Capital Real Estate Trust Inc. SEC also barred Singal from the securities industry.
The federal judgment provides for Singal and First Capital Real Estate Investments, LLC and Singal to be jointly liable to pay $3.2 million in disgorgement and $676,400 in interest. Under the judgment, Singal is also solely liable to pay a monetary penalty of $3.2 million and agreed to be barred from serving as an officer or director of a publicly traded company for ten years.
As previously reported on this blog, the SEC’s complaint, filed on December 13, 2019, alleged that Singal and his entities engaged in two separate frauds relating to two public companies, First Capital Real Estate Trust Inc. (the REIT), which was also charged in the complaint, and a business development company (BDC).
According to the SEC’s complaint, Singal and the REIT made material misrepresentations and omissions concerning the REIT’s ownership of 12 hotels in several Forms 8-K. As to the BDC, the SEC’s complaint alleged that Singal acquired an interest in the BDC’s external adviser and then caused the BDC to make two $1.5 million loans to an entity that he controlled, which he then used for his own purposes.
First Capital REIT’s public offering was active between August 2012 and April 2016, although it has not file a quarterly financial report since the second quarter of 2015, nor has it filed an annual report since 2014. First Capital shares (and formerly United Realty Trust shares) were reportedly sold to retain customers by various smaller broker-dealers, including broker-dealers in New York. On August 15, 2012, First Capital commenced its initial public offering on a “best efforts” basis and offered for sale up to 100,000,000 Common Shares. On August 14, 2015, First Capital filed a registration statement on Form S-11 to register an additional 2,877,698 Common Shares. The dealer manager for these offerings was Cabot Lodge Securities, LLC, a broker-dealer registered with FINRA which does business under the name United Realty Securities. The dealer manager also is one of the broker-dealers that solicited subscriptions for First Capital’s Common Shares. Other broker-dealers reportedly sold First Capital shares under soliciting dealer agreements.
Broker dealers are required to perform adequate due diligence on any investment they recommend. They must ensure that all recommendations are suitable for the investor. Recommendations should be in line with the investor’s age, risk tolerance, net worth, and investment experience. If brokerage firms fail to adequately disclose risks or make unsuitable investment recommendations can be held liable for investment losses.
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%.
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, 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).