HTI, a publicly registered, non-traded real estate investment trust or “REIT”, recently announced that it intends to transition to self-management in anticipation of a potential future listing of its common stock on a national securities exchange. The REIT expects the internalization to close no later than the fourth quarter of 2024.

HTI reportedly acquires, owns, and manages a diversified portfolio of healthcare-related real estate, focused on medical office and other healthcare-related buildings, and senior housing operating properties. As of March 31, 2024, the company reportedly owned 208 properties located in 33 states and comprised of 9.1 million rentable square feet. Its total assets were approximately $2.13 billion, about a 1.68% decrease from the previous year’s approximate $2.17 billion.

HTI’s management has stated that its estimated net asset value (or “NAV”) per share is $14.00, which is significantly lower than the initial offering price of $25.00/share. However, bids and offers in the very limited online secondary market show that shares have changed hands for as little as $2.50 a share, suggesting that investor losses may be far higher than the REIT has acknowledged to date.

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 upon the recommendation of a broker or money manager. HTI began offering shares to the public in 2013 and reportedly raised of $2 billion via sales of stock.

Non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment through redemption directly with the sponsor on a limited basis, and often at a disadvantageous price, or through sales in a limited secondary market.

If HTI lists its shares on a stock exchange, investors’ ability to sell their shares will be enhanced. However, past history of direct listings of non-traded REITs on stock exchanges suggests that the REIT’s shares will likely trade at a substantial discount to their net asset value or “NAV”. Investors may be in for a surprise if they are relying on the reported NAV of $14.00 as reflecting the value that they can realize when they sell shares.

Investors who wish to discuss a possible claim concerning HTI or another alternative investment may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net 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). This article is intended as ATTORNEY ADVERTISING and is not an official announcement.

Investors in Strategic Realty Trust, Inc. (“SRT” or the “Company” — formerly known as TNP Strategic Retail Trust, Inc.), a REIT based in San Mateo, California, may face principal losses if they attempt to sell their shares in the illiquid and fragmented secondary market. SRT invests in and manages a portfolio of income-producing properties, including various shopping centers, primarily in Western U.S. locations. Structured as a Maryland corporation that qualifies as a REIT, SRT was formed in September 2008. By August 2009, the Company had initiated its public offering at $10 per share for up to $1 billion in investor equity.

Retail investors commonly are solicited by financial advisors or stockbrokers to invest in non-traded REITs like SRT, which typically are sold by independent broker-dealer firms. Unfortunately, customers who purchased shares through SRT’s IPO upon the recommendation of a broker may, in certain instances, have been solicited via misleading sales presentations that failed to adequately disclose the complex nature of the investment, its negative features, and its risks. Risks associated with non-traded REITs include high up-front commissions (as high as 7-10%), high due diligence and administrative expenses, risk of loss of principal, and illiquidity.

Investors in non-traded REITs including SRT may come to find out too late that their shares are illiquid, and their options to exit the investment are limited. Briefly, investors seeking liquidity may: (i) seek to redeem their shares directly with the sponsor (SRT suspended its redemption program altogether from January 15, 2013 – April 1, 2015), (ii) be presented with limited, market-driven opportunities to tender their shares to a third party investment firm (typically at a disadvantageous price), or (iii) sell their shares on a limited and fragmented secondary market specializing in creating a trading platform for illiquid securities.

Any investment program recommended by a broker which includes any significant concentration of illiquid investments, including non-traded REITs, business development companies (BDCs), or private placement offerings, may be unsuitable for the average, retail investor. Recently, shares of SRT were reportedly trading on the limited secondary market at prices of $4.61 – $4.67 per share. For investors who acquired their shares though the IPO at $10 per share, such disadvantageous pricing suggests investors seeking immediate liquidity on a secondary market may suffer losses in excess of 50% on their investment, excluding distributions.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and BDCs. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and 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).

Based on publicly available information, including recent SEC filings, shares of Summit Healthcare REIT, Inc. (“Summit” or the “Company”) may have a value of less than $2.00 a shares – far below the initial offering price of $8.00 share and also less than the $2.80 NAV provided by Summit.

Headquartered in Lake Forest, CA, Summit is structured as a Maryland corporation that qualifies as a real estate investment trust (“REIT”) for tax purposes. Formed in 2004, Summit was formerly known as Cornerstone Core Properties REIT, Inc. Following a strategic repositioning of the Company’s property portfolio to focus on healthcare real estate and related assets, the name change was formally adopted in October 2013.

On June 21, 2018, a third party known as MacKenzie Realty Capital, Inc. reportedly closed on a tender offer, purchasing some 41,566 shares of Summit at a price of $1.56 per share. As of December 31, 2017, Summit reported a net asset value (NAV) of $2.80 per share.

Further, investors seeking near-term liquidity on their Summit shares may elect to sell their shares on a fragmented and relatively inefficient secondary market. Recent price quotes for Summit shares on a secondary platform suggest Summit investors may sell their shares for a price of approximately $1.67-$1.87 per share. This pricing suggests that Summit investors seeking near-term liquidity have sold at a discount of approximately 40% to NAV. Of course, Summit’s current NAV ($2.80) itself represents a significant loss of approximately 65% on the initial offering price of $8 per share, excluding any distributions paid to date.

Because Summit is a publicly registered, non-traded REIT, many unsophisticated retail investors may have participated in the Company’s initial offering, with shares sold pursuant to an initial offering at $8 per share. Unfortunately, in certain instances, investors may have been steered into Summit without first being fully informed of the investment’s risks, including but not limited to its high commission, the potential for principal losses, and the lack of a liquid public market for the sale of shares. With regard to Summit’s fees, investors were charged a hefty sales commission of 7% on their initial investment, in addition to another 3% in the form of dealer manager fees.

Investors in Summit have limited options at their disposal in the event that they wish to exit their investment. While many non-traded REITs do have share redemption programs in place that allow investors to sell their shares back to the sponsor, such programs are often restricted, both as to timing (many programs only allow for investors to redeem their shares on a quarterly basis) and their scope (many programs limit the number of shares that investors may redeem, typically pursuant to a formula). Moreover, some non-traded REITs, including Summit, have elected to suspend their redemption program altogether. As set forth in Summit’s most recent 10-K for fiscal 2017: “Effective December 2010, we suspended redemptions under our stock repurchase program and we suspended our distribution reinvestment plan.”

In light of Summit’s lack of internal liquidity, investors seeking cash through sales of their Summit shares are left with limited options. Briefly, these options include partaking in a tender offer from an institutional, third-party investor, or alternatively, selling shares on a limited and fragmented secondary market. On June 21, 2018, MacKenzie Realty Capital, Inc. (“MacKenzie”) closed on a tender offer for some 41,566 shares of Summit at a price of $1.56 per share. As of December 31, 2017, Summit reported a net asset value (NAV) of $2.80 per share.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and 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).

Headquartered in Newport Beach, CA, KBS Real Estate Investment Trust II, Inc. (“KBS II”) was formed as a Maryland REIT in July 2007. Pursuant to its public offering, KBS II offered 280 million shares of common stock, of which 200 million shares were registered in its primary offering, and an additional 80 million common shares were registered under the non-traded REIT’s dividend reinvestment plan. KBS II’s initial offering closed on December 31, 2010, with 182,681,633 shares sold, thus raising gross offering proceeds of $1.8 billion.

Many KBS II investors may have been steered into this complex investment by a financial advisor or stockbroker. Unfortunately, KBS II investors may have been uninformed as to the illiquid nature of their investment (as a non-traded REIT, KBS II shares do not trade on a national securities exchange), and now have limited options if they seek liquidity on their investment.

In January 2016, KBS II’s board of directors formed a Special Committee for the purpose of exploring “the availability of strategic alternatives.” Subsequently, the Special Committee determined that it was in the best interest of KBS II stockholders to market some of the non-traded REIT’s assets, and depending on the scope of the asset sales, “thereafter adopt a plan of liquidation that would involve the sale” of remaining KBS II assets.

While KBS II has partially pared down its portfolio of real estate assets in the past 12 months, the non-traded REIT has yet to realize any liquidity event. Indeed, pursuant to its charter, KBS II was required to seek stockholder approval for liquidation in the event that its common shares had not listed on a national securities exchange by March 31, 2018. However, on March 7, 2018, KBS II’s conflicts committee unanimously determined to postpone the approval on any liquidation while the Special Committee continues to explore strategic alternatives.

Unfortunately, for shareholders seeking to exit their KBS II investment position, liquidity options are very limited and disadvantageous. To begin, KBS II has suspended its share redemption program, only allowing for redemption of shares in certain instances, including “upon a stockholder’s death, ‘disqualifying disability’ or ‘determination of incompetence’” (as defined in the share redemption program document).

Furthermore, shareholders may seek immediate liquidity on a limited and fragmented secondary market. Recent secondary market pricing for KBS II shares suggests that investors seeking to sell now may only receive $4.00 – $4.08 per share, thus incurring substantial losses in excess of 50% on their initial investment at $10 per share through the offering, excluding any distributions.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and 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).

On 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.

Under the terms of the contemplated merger, MCC shareholders will receive 0.8050 shares of Sierra stock for each existing share they currently hold. Further, MDLY shareholders will receive 0.386 shares of Sierra stock for each Medley Class A share, in addition to $3.44 of additional cash compensation and a special cash dividend of $0.65 per MDLY share. Current Sierra shareholders will continue to hold their shares of Sierra stock, but in a publicly traded BDC. The contemplated merger is cross conditioned on approval by Sierra, MCC, and MDLY shareholders, regulatory review, and other customary closing conditions. It is anticipated that the transaction will close in early 2019.

Investors who participated in Sierra’s offering acquired shares at $10 per share. Moreover, as set forth in Sierra’s initial prospectus, investors who participated in the offering were subject to considerable up-front fees and commissions of nearly 10%, including a “selling commission” of 7.00%, in addition to a “dealer-manager fee” of 2.75%. While the contemplated merger has yet to garner shareholder approval, Sierra investors are cautioned to monitor the situation as it develops. In particular, MCC’s share price has dramatically underperformed broad market indices over the past 3-5 years (e.g., from a high of approx. $16 per share in March 2013, MCC currently trades at less than $4 per share), including its market cap decreasing from more than $800 million to less than $200 million as of today.

Persons who have sustained losses in Sierra (or another non-traded investment) may be able to recover damages in FINRA arbitration. Investors may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and 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).

Investors 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).

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 like HTI generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

Furthermore, non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment through redemption directly with the sponsor, and then on a limited basis, and often at a disadvantageous price.

In some circumstances, as here, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares at a disadvantageous price. If you have invested in HTI, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration.

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 newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in numerous non-traded REITs and real estate limited partnerships may have recently encountered difficulty in exiting their investment position through redemption of shares with the sponsor. As we have highlighted in several previous blog posts, non-traded REITs and similar limited partnership investments (often sold via private placement), are extremely complex and risky investments.

Unlike exchange traded REITs that trade on deep and liquid national securities exchanges, publicly registered non-traded REITs are sold through an offering or successive offerings to the retail investing public, often over the course of several years. Once the offering has closed, investors may find that their ability to redeem shares with the sponsor is severely restricted, or in some instances, outright suspended. This is particularly problematic for retail investors who quite often were steered into the investment by a financial advisor who, in some instances, may have failed to fully disclose the nature of the investment, including its illiquid nature.

In the same vein, investments in real estate limited partnerships are often conducted via a private placement, pursuant to Regulation D as promulgated by the SEC. As a general rule, a private placement investment in real estate carries with it many of the same risks embedded in investing in non-traded REITs. These risks include: (1) high fees and commissions, (2) a general lack of transparency concerning the investment (while publicly registered non-traded REITs will typically provide more information than a private placement, the fact remains that many non-traded REITs are structured as blind pools, and accordingly an investor will not be able to readily ascertain the nature of the underlying property portfolio), and (3) difficulty exiting an illiquid investment position.

Investors in the following non-traded REITs and real estate limited partnerships may have recently discovered that their ability to exit their investment and redeem shares has been restricted (perhaps as to timing and amount), or altogether suspended:

• American Finance Trust
• ARC Healthcare Trust III
• ARC New York City REIT
• Behringer Harvard Opportunity REIT I
• Highlands REIT
• Hospitality Investors Trust (formerly known as ARC Hospitality)
• InvenTrust Properties
• KBS Legacy Partners Apartment REIT
• KBS REIT II
• Rancon Realty Fund IV
• Strategic Realty Trust
• Summit Healthcare REIT (formerly Cornerstone Core REIT)
• Uniprop MHC Income Trust II
• United Development Funding III

Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Hard Rock Exploration, Inc. (“Hard Rock”) of Charleston, West Virginia and certain of its affiliate entities, including Blue Jacket Gathering LLC, Blue Jacket Partnership, Caraline Energy Company, and Brothers Realty, LLC (“Hard Rock Affiliates”), are independent oil and gas development companies.

On September 5, 2017, Hard Rock and Hard Rock Affiliates filed for bankruptcy protection in the Southern District of West Virginia Bankruptcy Court (2:17-bk-20459). Shortly after filing for Chapter 11 bankruptcy, Hard Rock reported a monthly cash flow shortage of $325,000. According to Hard Rock’s lender, Huntington National Bank, “rehabilitation of the Debtors’ business is impossible” due to their ongoing hemorrhaging of cash.

Hard Rock and Hard Rock Affiliates operate approximately 390 well sites in the Appalachian Basin. In addition, Caraline Energy Co. owns and maintains approximately 365 miles of pipeline developed to support natural gas collection.

Included among Hard Rock’s offerings are private placement investments such as Hard Rock Partners 2011-A L.P. Structured as a limited partnership, such an investment is very complicated and risky. To begin, private placements often carry considerable up-front commissions and fees, which serve as an immediate “drag” on any investment. Further, private placements are illiquid investments; thus, once an investor buys in, it is often difficult to readily exit the investment position.

Brokerage firms that market private placements must first conduct due diligence on the investment. The due diligence rule stems from FINRA Rule 2111, the so-called suitability rule, which mandates that a brokerage firm have reasonable grounds to believe that an investment recommendation to purchase a security is suitable for a given customer. This principle is further expanded and amplified in FINRA Notice to Members (NTM) 03-71, which states that a brokerage firm must perform significant due diligence before recommending a private placement investment to a customer. By recommending an investment to a customer, the brokerage firm is essentially representing that a reasonable investigation of the merits of the investment has been conducted.

Additionally, through NTM 10-22, FINRA has provided further guidance to brokerage firms and their registered representatives with regard to the degree and scope of due diligence required when vetting oil and gas investments. Specifically, FINRA has advised the brokerage industry that due diligence on an oil and gas investment may include: “visiting and inspecting a sample of the issuer’s assets and facilities,” in addition to “carefully examining any geological, land use, engineering or other reports by third-party experts…”, and “obtaining, with respect to energy development and exploration programs, expert opinions from engineers, geologists and others…” as necessary to determine the suitability of the investment.

Investors in private placement investments may have arbitration claims if the broker or investment advisor who recommended the investment lacked a reasonable basis to make the recommendation, or failed to disclose the risks associated with such an investment. Investors may contact attorneys at Law Office of Christopher J. Gray, P.C. by telephone at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in NorthStar Healthcare Income, Inc. (“NHI REIT”) are likely facing substantial principal losses based on recently reported transactions. Although liquidity is limited, NHI REIT investors may be able to sell shares through a limited and fragmented secondary market. Recently, NHI REIT shares were listed for sale on a secondary platform at $6.70 per share. Thus, for investors who bought in through the IPO at $10 per share, it would appear that they have sustained losses of roughly 1/3 on their initial capital outlay (these losses are exclusive of distribution income received to date).

NHI REIT investors also may have arbitration claims to be pursued before FINRA, 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. According to its prospectus, NHI REIT was formed as a Maryland corporation in October 2010 for the purpose of acquiring, originating and managing a “[d]iversified portfolio of equity and debt investments in healthcare real estate, with a focus on the mid-acuity senior housing sector.”

Headquartered in New York, New York, NHI REIT is a publicly registered non-traded real estate investment trust. As of November 2015, NHI REIT’s portfolio consisted of 20 investments, including 16 equity investments with a total cost of $942.7 million, and 4 debt investments with a principal amount of $145.9 million. Pursuant to its offering, which closed December 17, 2015, NHI REIT offered up to $500,000,000 in shares of its common stock at a price of $10.20 per share, in addition to $200,000,000 in shares offered under the REIT’s amended and restated distribution reinvestment plan, at a price of $9.69 per share.

Non-traded REITs like NHI REIT pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors recommending these relatively obscure investments. To begin, non-traded REITs are typically characterized by very high fees and up-front commissions (as high as 15% in some instances). For example, as set forth in its prospectus, NHI REIT charges a selling commission of up to 7% of gross offering proceeds (except on shares acquired through reinvestment), a dealer-manager fee of up to 3%, an acquisition fee of 2.25% for properties acquired by the REIT, as well as additional organizational and offering fees.

Aside from their high fee structure, non-traded REITs are illiquid in nature, and under most circumstances cannot readily be sold for a number of years after purchase. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a deep and liquid national securities exchange. Therefore, many investors in non-traded REITs come to learn too late that their ability to exit their investment position is limited. For instance, non-traded REIT investors typically can only redeem shares directly with the sponsor on a limited basis, and even then, often at a disadvantageous price.

Investors with questions about an investment in NHI REIT, or similar non-traded investment products, may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

On April 2, 2018, EV Energy Partners, L.P. (“EVEP”) filed for Chapter 11 bankruptcy in the District of Delaware (Case No. 18-10814 (CIS)). While EVEP continues to operate its business, it now seeks to implement a prepackaged plan of reorganization, under which equity investors who purchased EVEP Units will likely sustain significant losses.

Investors who bought into EVEP upon a recommendation by their broker or financial advisor may be able to recover their losses in FINRA arbitration, in the event the recommendation to invest lacked a reasonable basis, or if the investment was solicited through a misleading sales presentation. EVEP is a publicly traded master limited partnership (“MLP”) specializing in the acquisition and operation and development of onshore oil and gas properties in the continental United States. EVEP’s holdings include oil and gas properties in the Barnett Shale, the San Juan Basin, the Appalachian Basin, as well as the Permian Basin.

As most recently reported, under the currently proposed plan of reorganization, EVEP Unitholders will receive 5% of the new entity (post-bankruptcy), with 5-year warrants to buy up to 8% of the reorganized company’s new equity.

MLPs like EVEP operate in what is known as the upstream of the oil and gas sector, meaning that segment of the market that focuses on energy exploration and production (E&P), as opposed to the more well-known midstream MLPs that primarily transport oil and natural gas by pipeline, barge, etc. Due in part to the risks associated with locating productive reserves and the cost-intensive nature of oil and gas exploration, the upstream market is very risky. Based upon publicly available information, of the 13 companies doing business as upstream MLPs in recent years (post-2008 crisis), 11 of the 13 are now defunct or reorganized due to mergers, bankruptcies, or changed business models.

When recommending an oil and gas investment to a customer, a brokerage firm — and by extension the broker — has a duty to first conduct due diligence on the investment. In addition, an oil and gas investment is unique and carries certain risks associated with the volatile nature of the underlying commodity. Further, the financial advisor recommending such an investment has a duty to determine if the investment is suitable in light of the investor’s profile and stated investment objectives. In instances where an investor’s account becomes over-concentrated in oil and gas investments, or a broker fails to disclose the risks associated with such an investment or investment strategy, the broker and his or her firm may well be liable for losses on the investment.

The attorneys at Law Office of Christopher J. Gray, P.C. have experience in representing investors in oil and gas investments, including investors in futures and options, oil and gas private placements, drilling funds, and other energy-related investment products. Investors may contact a securities arbitration lawyer at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Sierra Income Corporation (“SIC”) recently extended a tender offer to its shareholders, which terminated on December 22, 2017, offering to purchase shares for $7.89 a share. SIC is a publicly registered, non-traded business-development company (“BDC”). This non-traded BDC invests primarily in first lien senior secured debt, second lien secured debt, and certain subordinated debt of middle market companies with annual revenue between $50 million and $1 billion. Investors who participated in the tender offer likely sustained losses on their initial capital investment at $10 per share (exclusive of fees, commissions and any distribution income received). According to publicly available information, a total of 4,923,026 shares were validly tendered.

According to publicly available information, SIC is externally managed by SIC Advisors LLC, which in turn, is affiliated with Medley Management (NYSE: MDLY, “Medley”). Medley operates a national direct origination franchise through which it seeks to market its financial products, including SIC. As of December 31, 2016, Sierra reported that it had raised in excess of $900 million in connection with its equity capital raise.

Investors who purchased shares in SIC’s offering acquired shares at $10 per share. Further, as outlined in SIC’s prospectus, investors who participated in the offering were subject to hefty up-front fees and commissions of nearly 10%, including a “selling commission” of 7.00%, in addition to a “dealer-manager fee” of 2.75%.

In January 2017, FINRA — as part of its ongoing efforts to ensure the integrity of financial markets and offer protection to investors — issued the following guidance with respect to certain illiquid non-traded financial products, including non-traded BDC’s:

While these products can be appropriate for some customers, certain non-traded REITs and unlisted BDCs, for example, may have high commissions and fees, be illiquid, have distributions that may include return of principal, have limited operating history, or present material credit risk arising from unrated or below investment grade products. Given these concerns, firms should make sure that they perform and supervise customer specific suitability determinations. More generally, firms should carefully evaluate their supervisory programs in light of the products they offer, the specific features of those products and the investors they serve.

Investors in non-traded BDCs and other illiquid investments such as non-traded REITs and private placement offerings may be able to recover their investment losses through FINRA arbitration, if the 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 financial advisor. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On January 8, 2018, the Financial Industry Regulatory Authority (“FINRA”) published its Annual Regulatory and Examination Priorities Letter (“2018 Letter”). The purpose of this letter is to highlight certain issues of importance to FINRA in the upcoming year, and serves as a useful guidepost for industry professionals and investors, alike. Included among the areas of concern addressed in the 2018 Letter is the increased prevalence of so-called securities backed lines of credit, or SBLOCs.

Given the current bull market that is currently approaching nine (9) years in age, it should come as no surprise that many brokerage firms and their registered representatives have heavily marketed SBLOCs to their clientele. The sales pitch in a rising market such as this is relatively simple: you may tap into the value of your investment portfolio in order to readily access cash in the form of an SBLOC, without the need to sell out of any investment holdings, thereby ensuring continued upside appreciation in the value of your investment portfolio. Such a marketing pitch, while logical, often downplays the risks associated with a SBLOC and its use of leverage against collateral that can rapidly deteriorate in value.

Put simply, SBLOCs are non-purpose in nature, meaning that such loans are not used to purchase more securities, and are thus distinguishable from traditional margin loans. Despite the fact that SBLOCs are non-purpose — and may be utilized for any number of ends, including for example creating liquidity for the purchase of a home, paying tuition, or financing the purchase of a car — FINRA has recently expressed concern over the risks associated with SBLOCs.

Specifically, through its 2018 Letter, FINRA has cautioned that “The use of SBLOCs has increased significantly in the past years, and FINRA will review firms’ compliance with sales practice and operational obligations that apply to SBLOCs.” In addition, “FINRA will assess the adequacy of disclosures firms provide customers regarding the potential risks associated with SBLOCs, including the potential impact of a market downturn….”

When recommending a SBLOC, a financial advisor is under a duty pursuant to FINRA Rule 2111 to ensure that the investment strategy is in keeping with the investor’s profile, including among other factors, his or her age, financial situation and needs, and stated investment objectives. Moreover, a financial advisor, and by extension his or her firm, must seek to ensure when marketing a SBLOC that there exists a “… reasonable basis to believe that the customer has the financial ability to meet such a commitment.”

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have suffered losses due to a range of misconduct, including the unsuitable recommendation by a broker to engage in certain investment strategies. Investors may be able to recover their losses in FINRA arbitration. Investors may contact a securities arbitration attorney at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

As part of its ongoing regulatory focus on variable annuity (“VA”) sales misconduct, the Financial Industry Regulatory Authority (“FINRA”) has recently barred a former Next Financial Group (“Next Financial”) (CRD# 46214) broker. Registered representative JoeAnn Walker (CRD# 2210194) was previously affiliated with Commonwealth Financial Network (1998-2006), LPL Financial LLC (2006-2015), and most recently, NEXT Financial – until her termination by her former employer in October. According to FINRA, it was conducting an inquiry into whether Ms. Walker was engaging in possible unsuitable VA sales practices.

As we have discussed in several recent blog posts, FINRA has ramped up its efforts in recent months to target VA sales practice misconduct. Since handing down a $20 million fine against MetLife Securities, Inc. (“MSI”) in May, 2016 (in addition, FINRA ordered MSI to pay $5 million to customers in connection with allegations of making negligent material misrepresentations and omissions on VA replacement applications), FINRA enforcement has continued to fine numerous member firms and investigate certain financial advisors concerning variable annuity sales practice issues.

In particular, FINRA has targeted brokers recommending unsuitable VAs, in the first instance, as well as recommending the sale of one VA for another in order to generate commissions (a practice akin to churning, and commonly referred to as “switching”). According to publicly available information through FINRA, Ms. Walker has three prior customer complaints, each of which resulted in a settlement. Most recently, in March 2016, a customer initiated a dispute against Ms. Walker, alleging “… unauthorized sales of various stocks, unauthorized and unsuitable purchases of variable annuities and unauthorized mutual fund switches between June 2014 and June 2015.” That FINRA proceeding alleged damages of $208,764 and ultimately settled for $175,000.

VAs are very complex financial products that typically charge significant commissions and fees. When a financial advisor sells a VA, they will usually receive a sizeable commission, ranging anywhere from 3-7%. Additionally, the VA contract carries various fees, such as a mortality expense (in connection with the contract’s death benefit), investment expenses associated with the sub-accounts holding securities, and administrative expenses on the hybrid security / insurance product.

Before recommending an investment product, applicable rules and regulations mandate that a financial advisor must first conduct a suitability analysis in order to determine whether the product best meets the investor’s stated objectives and profile. Moreover, under applicable industry rules and regulations, brokerage firms like NEXT Financial and Commonwealth Financial are charged with supervising their registered representatives.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have suffered losses due to a range of misconduct, including cases involving variable annuities. Investors may be able to recover their losses in FINRA arbitration. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On November 15, 2017, H.R. Bill 4267 (the “Bill”), entitled the Small Business Credit Availability Act (the “Act”), passed the House Financial Services Committee by an overwhelming 58-2 vote. This Bill seeks to amend the Investment Company Act of 1940 (’40 Act), specifically the regulations currently governing business development companies (“BDCs”). In recent years, financial advisors have increasingly recommended BDCs, allowing for Mom and Pop retail investors to participate in private-equity-type investing. Many income-oriented investors are attracted to BDCs because of their characteristic enhanced dividend yield.

As an investment vehicle, BDCs were first made available pursuant to the Small Business Investment Incentive Act of 1980, as a result of a perceived crisis in the capital markets. At that time, small businesses were encountering severe difficulties in accessing credit through traditional means. BDCs are a special type of closed-end fund designed to provide small, growing companies with access to capital.

BDCs are structured as hybrid between an operating company and an investment company under the ’40 Act. Regulated as an investment company, BDCs are required to file periodic reports under the Securities Exchange Act, and further, are subject to a number of regulatory requirements. Three of the most notable regulations currently governing BDCs are as follows:

• Character of Investments – a BDC must generally invest at least 70% of its assets in “qualifying assets” pursuant to Section 55(a) of the ’40 Act;
  • The qualifying assets requirement means that BDCs must typically invest in “eligible portfolio companies,” which are private U.S. companies with a market cap of no greater than $250 million;
• Adviser Compensation – Investment Advisers to BDCs are able to receive capital gains incentive fees in an amount not to exceed 20% of realized capital gains;
  • Investment advisers to other investment companies are generally prohibited from receiving capital gains incentive fees;
• Leverage – a BDC must maintain at least a 200% asset coverage ratio. This means that for every dollar invested in the BDC, only one dollar can be borrowed for additional investment purposes (1:1 ratio).

If the proposed Bill passes the House and Senate, then the current 1:1 leverage requirement imposed on BDCs will no longer apply. If enacted, the Bill will allow BDCs to leverage 2:1 against their investment dollars. Proponents of the bill argued that asset coverage rules for BDCs are far more restrictive than for other lending vehicles, including traditional banks, as well as Collateralized Loan Obligation (“CLO”) funds. Further, proponents of the Bill have reasoned that with increased leverage, BDCs will be better positioned to focus on investing in senior debt that is less inherently risky than junior, or even junk, debt.

If the Bill passes, investors in BDCs — particularly non-traded BDCs — should be aware of the significant risk associated with allowing their investment vehicle, and its manager(s), to further leverage their investment dollars. As our office has discussed in previous blog posts, non-traded BDCs should rightly be regarded as risky, complex and illiquid investment products. As their name implies, non-traded BDCs do not trade on a national securities exchange, and are therefore difficult to exit. Typically, investors can only sell their shares through redemption with the issuer, or through a fragmented and inefficient secondary market.

In addition, non-traded BDCs have high up-front fees (typically as high as 10%), which are paid to the financial advisor selling the product, his or her broker-dealer, and the wholesale broker or manager. These high fees may create an incentive for some financial advisors to recommend a non-traded BDC, without first conducting the necessary due diligence on the investment, or performing a meaningful suitability analysis to determine if the investment meets the customer’s stated objectives and risk profile.

If the Bill passes, investors in non-traded BDCs will not only face the risks associated with illiquidity and high fees, but they will also be encountering the risk associated with additional leverage, particularly on an investment vehicle that also permits its managers to earn considerable performance fees of up to 20% of capital gains. Thus, the risk becomes whether some BDC managers will consciously (or subconsciously) make riskier investments (with leveraged capital) on the hopes of netting outsized returns and performance fees. Under the ’40 Act, other traditional lending vehicles do not permit such outsized performance fees.

If you have invested in any of the following non-traded BDCs, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring losses), you may have legal claims to be pursued through FINRA arbitration:

• FS Investment Corporation II (FSIC II);
• FS Investment Corporation III (FSIC III);
• FS Investment Corporation IV (FSIC IV);
• FS Energy and Power Fund (FSEP);
• FS Global Credit Opportunities;
• CNL Corporate Capital Trust II;
• CION Investment Corporation (offered by ICON Investments);
• Business Development Corporation of America (BDCA);
• Business Development Corporation of America II (BDCA II).

To find out more about your rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by their broker or money manager based on the investment’s income-producing potential. Unfortunately, many investors were not informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees and illiquid nature. Currently, investors who wish to sell their shares of SRT may only do so through direct redemption with the issuer or by selling shares on an illiquid secondary market, such as Central Trade & Transfer.

In November 2008, SRT filed a Form S-11 with the Securities and Exchange Commission (“SEC”) in order to raise capital for its IPO. By August 2009, SRT initiated its IPO at $10 per share for up to $ 1 billion in investor capital. Unfortunately for SRT investors who purchased shares at $10, the secondary market now lists SRT shares at a deep discount. For example, Central Trade & Transfer has recently listed shares of SRT with a bid-ask spread of $4.60 – $4.50 per share.

The recent pricing in SRT suggests that investors in this non-traded REIT may well have suffered considerable investment losses of approximately 55% on their initial investment of $10.00 per share.

If you have invested in SRT, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Publicly registered non-exchange traded REITs like American Finance Trust and Lightstone Value Plus REIT V are complex investment vehicles that carry substantial risk, including significant fees and lack of liquidity (often making redemption difficult for a shareholder seeking to exit an investment). Many retail investors are steered into purchasing non-traded REITs upon the recommendation of their broker or financial advisor who will typically tout the investment’s income component to their clients seeking an income stream. Unfortunately, many investors who purchase shares in non-traded REITs are not fully informed of the many complexities and risks associated with such an investment.

American Finance Trust (“AFT”) is a non-traded REIT that was formed in January 2013 and subsequently launched by American Financial Advisors, LLC. More recently, in February 2017, AFT (with $2.1 billion in assets) and American Realty Capital-Retail Centers of America (with $1.25 billion in assets) announced shareholder approval for a merger of the two non-traded REITs.

AFT was initially priced at $25 per share when it commenced its public offering in 2013. Currently, investors seeking to redeem their shares may do so through a limited secondary market. For example, Central Trade and Transfer — a secondary market for private placements and certain alternative investments — has recently listed AFT shares for $15.50 per share. Thus, AFT investors wishing to sell some or all of their position will be forced to sustain a substantial loss in order to exit their illiquid investment in AFT.

The Lightstone Value Plus REIT V (“Lightstone”) is another non-traded REIT. In July 2017, Behringer Harvard Opportunity REIT II Inc. (“Behringer II”) rebranded and changed its name to Lightstone. Many retail investors bought into Behringer II, which commenced its offering to investors in January 2008 and closed its offering in March 2012, after raising approx. $265 million in capital from investors.

Behringer II (now Lightstone) shares were initially sold to investors at $10 per share. According to Central Trade and Transfer, Lightstone shares are now listed for only $5.75 per share.

With respect to both AFT and Lightstone, many retail investors may have bought into these non-traded REITs without first being fully informed of the risks associated with these complex and illiquid investments. As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile.

If you have invested in AFT or Lightstone, or another non-traded REIT, and you have suffered losses in connection with your investment, you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

When the client expressed his concern about his declining account, he was told “even a skinny cow could give milk.” The arbitration panel wrote that the investor’s portfolio was “clearly unsuitable” and provided a lengthy explanation for their award, which pointed the finger at UBS’s sales practices and alleged that brokers were under pressure to sell the closed-end funds and keep clients in them. The arbitration panel wrote that “Claimant’s lifetime pattern has been one of frugality, saving and employment of resulting capital and his own labor in business opportunities that he understands can earn a good return.”

UBS was ordered to pay $400,000 to buy back the investor’s portfolio and pay $600,000 in compensatory damages. The investor’s request for $1 million in punitive damages was reportedly denied by the arbitration panel. The FINRA award is accessible here ubs puerto rico.

Many investors report that UBS and other brokerage firms in Puerto Rico sold these funds to investors as safe fixed-income investments. Of course, they have proved to be anything but safe, and many investors have lost much or even all of their retirement savings. Adding more danger, many investors who needed to withdraw money from their accounts for personal reasons (such as to purchase a home or fund a child’s education) have reportedly been advised to borrow money from UBS and other brokerage firms instead of selling shares in UBS Puerto Rico funds. This was very dangerous advice, because if the funds lost value, the investor’s losses would be even greater than they otherwise would have been due to the borrowings. Now that the funds have lost value, some investors have lost almost all of their investments, or even ended up owing the brokerage firms money!

Many advisors told investors that the UBS closed-ends were safe because they were invested in safe bonds backed by the government. But Puerto Rico municipal bonds have been anything but secure of late. Since 2000, the Commonwealth has experienced an imbalance between recurring government revenues and total expenditures. In 2009, the deficit reached a record $3.306 billion. Further, as of June 2010, the unfunded public employees’ retirement accounts reportedly had an actuarial shortfall totaling approximately $25 billion. As a result of these poor fundamentals, investors are concerned about the creditworthiness of the Puerto Rico government and as a result the prices of some Puerto Rico government bonds have dropped. UBS closed-end funds have lost significant value due to their leveraged exposure to the underlying municipal bonds as well as selling pressure in the market for the funds. Shares that steadily paid dividends and appeared to maintain their value for several years have suddenly collapsed in value by 50% or more. Some investors who borrowed money from credit lines offered by brokerage firms have reportedly received margin calls and even had their UBS Puerto Rico fund shares liquidated.

Which Funds Are Affected?: Clients who invested in the following funds may wish to consider attempting to recover their losses through the FINRA arbitration process: Tax-Free Puerto Rico Fund, Tax-Free Puerto Rico Fund II, Tax-Free Puerto Rico Target Maturity Fund, Puerto Rico AAA Portfolio Target Maturity Fund, Inc., Puerto Rico AAA Portfolio Bond Fund, Puerto Rico AAA Portfolio Bond Fund II, Puerto Rico GNMA & U.S. Government Target Maturity Fund, Puerto Rico Mortgage-Backed & U.S. Government Securities Fund, Puerto Rico Fixed Income Fund, Puerto Rico Fixed Income Fund II, Puerto Rico Fixed Income Fund III, Puerto Rico Fixed Income Fund IV, Puerto Rico Fixed Income Fund V, Puerto Rico Fixed Income Fund VI, Puerto Rico Short Term Investment Fund, Multi-Select Securities Puerto Rico Fund, UBS IRA Select Growth & Income Puerto Rico Fund, Puerto Rico Investors Family of Funds, Puerto Rico Investors Tax-Free Fund, Puerto Rico Investors Tax-Free Fund II, Puerto Rico Investors Tax-Free Fund III, Puerto Rico Investors Tax-Free Fund IV, Puerto Rico Investors Tax-Free Fund V, Puerto Rico Investors Tax-Free Fund VI, Puerto Rico Tax-Free Target Maturity Fund, Puerto Rico Tax-Free Target Maturity Fund II, Inc., Puerto Rico Investors Bond Fund I.

Attorneys are available to review possible cases involving UBS Puerto Rico closed-end funds. Investors who were not told the truth about these funds may have a claim against UBS or the firm that sold them the funds. In addition, investors who could not afford to take the risk of losing money in these funds may also have claims. Investors may fill out the form on this page to arrange to discuss their possible case. Investors may also contact the Christopher Gray firm in New York at (866) 966-9598 or newcases@investorlawyers.net for a confidential, no-obligation consultation.

Brokers, and brokerage firms, have a fiduciary duty to their clients. They must research an investment prior to making a recommendation to an investor, to establish that the investment is suitable. It must be appropriate for each individual investor, taking into consideration the investor’s investment objectives, investment experience, net worth and age. The Financial Industry Regulatory Authority has a dispute resolution form where investors can settle disputes with their brokerage firms relating to unsuitability and other forms of stock broker fraud.

Brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market, or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market may or may not be a conservative trading strategy. This depends on the sector of the market and assets in the account relative to the investment’s concentration level.

Broker misconduct has occurred if the broker in charge of the account made an unsuitable recommendation or took an unnecessarily risky position in the ETN or ETF. If you suffered significant financial losses as a result of the unnecessary risks of your broker, you may have a valid securities arbitration claim. 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.

Luckily, investors who suffered significant losses may have a valid securities arbitration claim.

Brokers, and brokerage firms, have a fiduciary duty to their clients. They must research an investment prior to making a recommendation to an investor in order to establish that the investment is suitable. It must be appropriate for each individual investor, taking into consideration the investor’s investment objectives, investment experience, net worth and age. The Financial Industry Regulatory Authority has a dispute resolution form where investors can settle disputes with their brokerage firms relating to unsuitability and other forms of stock broker fraud.

Brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market may or may not be a conservative trading strategy. This depends on the sector of the market and assets in the account relative to the investment’s concentration level.

Broker misconduct has occurred if the broker in charge of the account made an unsuitable recommendation or took an unnecessarily risky position in the ETN or ETF.

If you suffered significant financial losses as a result of the unnecessary risks of your broker, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Securities that are backed by underlying pools of loans or bonds are CDOs, or collateralized debt obligations. While these investments are inherently risky, they are relatively common among “qualified investors.” Currently, stock fraud lawyers are also investigating if Merrill Lynch properly disclosed the CDO risks to investors in the sale of Mars CDO I. Furthermore, the value of Mars CDO I may have been inflated and over-stated by Merrill Lynch. Many investment attorneys believe that Merrill Lynch either knew or should have known the 2007 CDO deals were bad in the existing mortgage market conditions, given the poor performance of the CDOs.

On January 31, 2012, a Financial Industry Regulatory Authority Arbitration Panel awarded $1.38 million to Bobby Hayes, an investor who purchased Collateralized Debt Obligations from Merrill Lynch in 2007. For more on this case, see the previous blog post, “After Securities Arbitration, Merrill Lynch Must Pay $1.4 Million to Investor Over CDO Loss.”

Numerous securities arbitrations have already been filed on behalf of CDO investors who suffered significant losses. If you believe you may have a valid claim, find out more about your legal rights and options by contacting an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.