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Articles Tagged with investment attorney

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Money WhirlpoolOn November 6, 2018, Sierra Income Corporation (“Sierra”) filed a Registration Statement (on Form N-14) with the SEC, notifying Sierra investors and the public at large of a proposed merger transaction.  Specifically, Sierra’s board of directors is seeking shareholder approval on a series of related transactions designed to effectuate a merger between and among Sierra, a publicly registered non-traded business development company (BDC), as well as Medley Capital Corporation (“MCC”), a publicly traded BDC, and Medley Management Inc. (“MDLY”), a publicly traded asset management firm.

MDLY is the parent company of both MCC’s and Sierra’s investment adviser, and the same portfolio management team and officers are responsible for both MCC’s and Sierra’s operations.  While a date for a special shareholder meeting has yet to be set, Sierra’s board of directors is seeking shareholder approval on the contemplated merger, a transaction which will reportedly create the second largest internally managed and seventh largest publicly traded BDC.

Sierra is currently externally managed by SIC Advisors LLC, which in turn, is affiliated with MDLY.  MDLY operates a national direct origination franchise through which it seeks to market its financial products, including Sierra.  As of December 31, 2016, Sierra reported that it had raised in excess of $900 million in connection with its equity capital raise.  As of July 31, 2018, Sierra had closed its public offering.  Most recently, shares of Sierra have been assigned a NAV of $7.27 per share by management, and has reported approximately $1.1 billion in total assets.

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Building DemolishedInvestors in American Finance Trust (“AFIN”) may have arbitration claims to be pursued before FINRA, if their AFIN 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.  AFIN was initially structured as a publicly registered, non-traded real estate investment trust (REIT).  As such, many unsophisticated retail investors participated in the AFIN IPO upon the recommendation of a financial advisor at a price of $25 per share.

In the wake of AFIN’s listing as a publicly-traded stock, AFIN’s stock price has languished at far below the $25 a share price that many investors paid for AFIN stock at the recommendation of stockbrokers or advisors.  As of October 18, 2018, AFIN shares closed at $14.26 a share.

Earlier this year — as we have discussed in several recent blog posts — the board of directors of AFIN announced the approval of a plan to list the REIT’s common stock on the Nasdaq Global Select Market (“NasdaqGS”), under the symbol ‘AFIN’.  In connection with this planned “liquidity event,” AFIN’s board also approved a phased liquidity plan, pursuant to which certain amendments were made to AFIN’s corporate charter:

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Money in WastebasketAs recently reported, the Massachusetts Securities Division (the “Division”) has commenced an investigation into the sales practices of some 63 independent broker-dealers who offered private placements sponsored by alternative asset manager GPB Capital Holdings, LLC (“GPB”).  Specifically, the Division has intimated that it began an investigation into GPB following a recent tip concerning the firm’s sales practices which allegedly occurred not long after GPB announced that it was temporarily halting any new capital raising efforts, as well as suspending any redemptions.

According to the Division’s head, Mr. William Galvin, the investigation is in its “very nascent stages.”  At this time, Massachusetts securities regulators have requested information about GPB from more than 60 broker-dealers, including HighTower Securities, Advisor Group’s four independent broker-dealers, as well as Ladenburg Thalmann’s Triad Advisors.

In August 2018, GPB – the sponsor of certain limited partnership offerings including GPB Automotive Portfolio and GPB Holdings II – announced that it was not accepting any new capital.  According to filings with the SEC, sales of the two aforementioned GPB private placements allegedly netted the broker-dealers marketing these investment products some $100 million in commissions, at a rate of about 8%, since 2013.

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Building DemolishedInvestors in AR Global’s Healthcare Trust, Inc. (“HTI”), 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 stock broker.  AR Global’s HTI was incorporated on October 15, 2012, as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT).  HTI invests in multi-tenant medical office buildings and, as of year-end 2017, owned a portfolio consisting of 8.4 million-square-feet including 164 properties, with a total purchase price of $2.3 billion.

As a publicly registered non-traded REIT, HTI was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager.  HTI terminated its offering in November 2014 after raising approximately $2.2 billion in investor equity.

Recently, third party real estate investment firm MacKenzie Realty Capital, LP (“MacKenzie”) initiated an unsolicited mini-tender offer to purchase up to 1 million shares of HTI for $10.99 per share.  Accordingly, investors who acquired HTI shares through the offering at $25 per share will incur substantial losses on their initial investment of approximately 55% (exclusive of commissions paid and distributions received to date).

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If you invested in what are commonly referred to as future income payments (FIPs, or structured cash flows), through Future Income Payments, LLC (“FIP LLC”), you may be able to recover your losses through securities arbitration before FINRA, or in litigation, based on your particular circumstances.  FIPs, or structured cash flows, are a type of investment product that are primarily sold as a growth and income product by insurance agents, as well as through independent marketing organizations.

Formed in April 2011, FIP LLC is structured as a Delaware limited liability company, with its principal place of business in Irvine, CA.  Formerly, FIP LLC conducted business as Pensions, Annuities & Settlements, LLC.  Additionally, FIP LLC has business relationships with the following marketing affiliates: Cash Flow Investment Partners, LLC, BuySellAnnuity, Inc. and Pension Advance, LLC.

FIP LLC’s business model is predicated on soliciting pensioners through the websites of its marketing affiliates to enter into certain contracts, pursuant to which the pensioner receives a lump sum of money in exchange for some or all of the respective pensioner’s monthly pension payments, for a fixed period of time (typically, 5-10 years).  In addition, FIP LLC enters into contracts with investors (primarily retail investors), through which the investors provide money for the lump sum cash payments and subsequently receive some or all of the pensioner’s monthly payments.

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Building DemolishedInvestors in Strategic Storage Growth Trust, Inc. (“Strategic Storage” or the “Company”) may have arbitration claims to be pursued before FINRA, in the event that 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.  As recently reported, Strategic Storage’s board of directors has elected to suspend its distribution reinvestment plan, as well as its share redemption program, as it seeks to shore up its finances and explore potential liquidity options.  Given the fact that one of the Company’s stated primary investment objectives is to “grow net cash flow from operations in order to provide sustainable cash distributions… over the long-term” many retail investors who invested because of the Company’s income component are now faced with the prospect of holding an illiquid, non-traded investment that no longer provides valuable monthly income.

According to publicly available documents filed with the SEC, Strategic Storage was formed on March 12, 2013 as a Maryland corporation for the “[p]urpose of engaging in the business of investing in self storage facilities and related self storage real estate investments.”  The Company’s portfolio currently consists of 26 operating self storage facilities, in addition to two properties in development.  Strategic Storage launched its offering in January 2015, in the process raising approximately $193 million through issuance of Class A shares and approximately $79 million through issuance of Class T shares.

Strategic Storage is structured as an operating business, but qualifies as a REIT for federal income tax purposes.  For many investors, their primary motivation to invest in a REIT is to capture an enhanced income stream from the tax-advantaged REIT structure.  Importantly, however, Strategic Storage is a non-traded REIT, meaning that the investment is illiquid in nature and not easily sold (typically, many non-traded REIT’s offer a share redemption program, but these programs are often limited both as to when an investor may redeem and the amount of shares available for actual redemption).

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Money in WastebasketOn July 27, 2018, two affiliated small business lenders — 1 Global Capital (a/k/a 1st Global Capital, and 1 West Capital (collectively, “1GC”) — filed for Chapter 11 protection in Bankruptcy Court in the Southern District of Florida.  Based in Hallandale Beach, FL, the two affiliated lenders are under the same common ownership and are in the business of purportedly providing small business loans known as “direct merchant cash advances,” to various clientele.  In connection with the bankruptcy filing, 1GC’s two primary executives, Messrs. Carl Ruderman and Steven A. Schwartz, relinquished their control over the company and tendered their resignations.

As reported, 1GC had around 1,000 individual unsecured creditors prior to filing for bankruptcy.  These creditors had loaned 1GC money with the understanding that these funds would then be invested in direct merchant cash advances.  Creditors received monthly statements which demonstrated how their investments had supposedly been allocated, in addition to being provided with an online portal to track their investments.

In total, 1GC has reported more than $283 million in unsecured lender claims.  Of the 20 largest creditors, all of them are individuals or retirement accounts.  Prior to the bankruptcy filing, the SEC had opened an investigation into whether 1GC was engaging in “[p]ossible securities laws violations, including the alleged offer and sale of unregistered securities by unregistered brokers, and by the alleged commission of fraud in connection with the offer, purchase and sale of securities.”  At this stage, both the SEC and the U.S. Attorney’s Office for the Southern District of Florida, which recently commenced a parallel criminal investigation, are investigating allegations of possible wrongdoing or malfeasance at 1GC.

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stock market chartInvestors in speculative microcap and nanocap securities may have arbitration claims to be pursued before FINRA, in the event that the recommendation to invest lacked a reasonable basis, or if the nature of the investment, including its risk components, was misrepresented to the investor.  Both FINRA and the SEC have issued ample guidance with regard to the numerous risks associated with investing in speculative microcap (or “penny”) stocks, including the potential for fraudulent schemes and market manipulation due to the lack of public information concerning the companies’ underlying business and management, as well as verifiable financials.

In certain instances, broker-dealers who transact business in the penny stock arena may expose themselves to regulatory scrutiny and related liability.  For example, Aegis Capital Corp. (“Aegis”) (CRD# 15007) has come under considerable regulatory scrutiny by both the SEC and FINRA with respect to its activities concerning low-priced securities transactions.  Formed in 1984 and headquartered in New York, New York, Aegis is a mid-sized, full service retail and institutional broker-dealer.  As of March 2017, Aegis employed approximately 415 brokers in its sixteen branches, with the bulk of its workforce centered in New York City and Melville, NY.

According to FINRA BrokerCheck, Aegis’ regulatory history includes a total of thirty (30) disclosure events, a number of which involve penny stocks.  For instance, in August 2015, Aegis entered into a settlement with FINRA, pursuant to which the broker-dealer agreed to pay $950,000 in sanctions over allegations of improper sales of unregistered shares of penny stocks, as well as certain AML violations.  In connection with that regulatory event, two of Aegis’ compliance officers were suspended for 30 and 60 days, and ordered to pay fines of $5,000 and $10,000, respectively.  On March 28, 2018, the SEC imposed a cease-and-desist order (“Order”) against Aegis for its alleged supervisory failures concerning penny stocks.  Further, the SEC penalized Aegis $750,000 after the brokerage firm admitted that it failed to file required suspicious activity reports (“SAR’s”) on numerous penny stock transactions from “at least late 2012 through early 2014.”

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investing in real estate through a limited partnershipAs recently announced, the board of directors of Hines Real Estate Investment Trust, Inc. (“Hines REIT” or the “Company”) — one of three publicly registered non-traded REITs sponsored by Hines — has unanimously voted for approval of a plan of liquidation and dissolution of the Company (“Liquidation Plan”).  Under the Liquidation Plan, which calls for  shareholder approval, the Company will sell seven of its West Coast office building assets in a cash transaction valued at $1.162 billion to an affiliate of Blackstone Real Estate Partners VIII.  In addition, Hines REIT also seeks to liquidate the remainder of its portfolio, including Chase Tower in Dallas, TX, 321 North Clark in Chicago, and a grocery-anchored retail portfolio located in the Southeastern U.S.

Pursuant to the Liquidation Plan, Hines REIT shareholders will receive $0.08 per share, to be paid on or about July 31, 2018.  Specifically, the Liquidation Plan entails a final distribution of $0.07 per share, as well as an additional $0.01 per share stemming from a recent class action settlement.  The class action settlement involves a lawsuit filed by Baltimore City in the Circuit Court of Maryland, alleging breach of fiduciary duty, waste of corporate assets, and misappropriation of assets surrounding certain payments made in connection with the Liquidation Plan.

Hines REIT shareholders previously approved the Liquidation Plan in November 2016; subsequent to shareholder approval, the Company declared an initial liquidating distribution of $6.20 per share in December 2016, as well as a $0.30 per share liquidating distribution in April 2017.  Following the final distribution of $0.08 per share, Hines REIT investors will have received total special and liquidating distributions of approximately $7.59 per share, in addition to regular annual distributions.  Shares were originally sold for $10 each.

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Money in WastebasketOn July 18, 2018, the SEC filed a lawsuit in the District of Connecticut naming Temenos Advisory, Inc. (“Temenos”) and George L. Taylor (“Taylor”) as Defendants and essentially alleging that Defendants made improper recommendations of certain private placement investments to their investment advisory clients.  A copy of the SEC Complaint is accessible here: SEC v Temenos & Taylor 

Temenos, founded by Taylor, is a Connecticut corporation headquartered in Litchfield, CT, with additional offices located in St. Simons Island, GA and Scottsdale, AZ.  Temenos has been registered with the SEC as a registered investment advisor (RIA) since 1999, and is owned by Mr. Taylor and a trust that was purportedly established for purposes of benefiting Taylor’s former business partner.

As alleged by the SEC, prior to 2014, Temenos’ business was largely focused on the sale of traditional financial products to its clientele, including “[m]utual funds, exchange traded funds, variable annuities, and publicly traded stocks.”  Like many RIAs, Temenos charged an advisory fee to its customers based upon a percentage of assets under management.  However, as alleged in the Complaint, beginning in 2014 Temenos began recommending private placement investments to its clients: “Between 2014 and 2017, Defendants placed more than $19 million in investments by their clients and others in [the securities of] four private issuers … And they did so without ever sufficiently examining the marketing claims, financial statements, or business activities of those companies.”

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