National Planning Holdings Inc. Temporarily Halts Sales of American Realty Capital Properties Inc., REITs

On Thursday, October 30, National Planning Holdings Inc. (NPH), a group of four broker-dealers, informed their nearly 4,000 registered representatives and advisers that it is putting a temporary halt on sales of non-traded REITs (real estate investment trusts) connected to Nicholas Schorsch’s American Realty Capital Properties (ARCP) and its affiliates. This announcement came on the heels of ARCP’s revelation last Wednesday that some $23 million in accounting discrepancies from the first half of the year had been uncovered. ARCP has removed its chief financial and chief accounting officers in response to these errors which, according to the company, were purposely not corrected.

The announcement came in the form of a memo from Steve Dowden, president and chief executive of INVEST Financial Corp., one of the four broker-dealers in NPH. The memo stated that the decision to halt sales of non-traded REITs only affects the Phillips Edison — ARC Grocery Center REIT II, a relatively small REIT with $207 million in assets. In addition, NPH requested that Realty Capital Securities, the wholesaling broker-dealer for ARC, not process new business and return unprocessed sales orders. Furthermore, the memo instructed brokers to no longer solicit trades in ARCP and three other companies connected to Mr. Schorsch. The restriction will be in effect until NPH fully assesses the situation to its satisfaction. Finally, NPH asked ARC to cease reinvesting dividends on the ARC non-traded REITs affected by the new policy, and also indicated that NPH would take a second look at the restriction on trading of ARC related stocks.

The Stock Market Reacts, the FBI Announces an Investigation

In the wake of last week’s news, shares of ARCP stocks fell 36% by week’s end, and continued to fall on Monday after RCS Capital Corp. announced its decision to terminate a $700 million deal to purchase Cole Capital Advisors Inc. from American Realty Capital. Furthermore, the FBI announced on Monday that it has opened a criminal probe of ARCP. This is in addition to an investigation planned by the Securities and Exchange Commission into the accounting errors and apparent cover-up.

Vernon Litigation Group Fights for Defrauded Investors

If you are a shareholder of American Realty Capital Properties or in any way suspect you may have lost money as a result of these recent revelations, the team of securities litigation attorneys at Vernon Litigation Group is here to assist you in recovering whatever losses you may have incurred. Call us toll-free at 1 (877) 649-5394 or email us at schedule a free consultation with one of our experienced securities fraud lawyers.

The Problems at Strategic Realty Trust, Inc. Go Beyond the Recently Announced Share Re-price

Strategic Realty Trust Inc., formerly known as TNP Strategic Realty Trust Inc., recently informed its investors that the values of their shares (which were originally bought at $10 per share) were being re-priced to $7.11.   The new per share valuation of this non-traded REIT resulted, among several other factors, from Strategic Realty Trust’s troubles in negotiating extensions to pay its loans.

For example, according to its quarterly report filed with the SEC filing on May 12, 2014, last year Strategic Realty defaulted on a credit facility loan that it has with KeyBank.   After the non-traded REIT’s default, Strategic Realty Trust was forced to stop all distributions to investors.  Subsequently, Strategic Realty Trust negotiated a forbearance agreement that allowed for a capped distribution to investors.  As a result, the REIT began paying distributions again.  And while this should normally be seen as good news to investors, once a number of other factors get analyzed, the picture actually looks rather grim.

The Unfortunate Truth for Strategic Realty Trust Investors

According to the documents filed with the SEC, part of the forbearance agreement requires Strategic Realty Trust to pay the entire outstanding balance of the loan (in excess of $4 million) along with the imputed interest on or before July 31, 2014.  If Strategic Realty Trust fails to pay off the entire loan, the lenders will be entitled to “enforce, without further notice of any kind, any and all rights and remedies available to them as creditors at law, in equity, or pursuant to the Credit Facility or any other agreement as a result of the Existing Events of Default or any additional events of default which occur or come to light following the date of the Forbearance Agreement.”

The above is even more troublesome by the fact that, according to its own quarterly report, Strategic Realty Trust has approximately $124 million in loan balances accruing interest ranging from 4.5% to an astounding 15%.  The REIT has also experienced an overall decrease in net income of 15.3% for the quarter ending in March of 2014, compared to the quarter ending in March of 2013.  The occupancy of the REIT’s properties is also down from last year to approximately 87%.  Finally, the REIT appears to have some geographic concentration concerns.  Out of the approximately 1.5 million rentable square feet the REIT owns, approximately 46% is located in just three states (California, Texas, and Illinois).

Investors in Strategic Realty Trust have been unable to sell or redeem their shares for approximately a year and a half.  This is even in cases of death or disability (which are normally grounds for redemption of shares for most other non-traded REITs).  To this effect, Strategic Realty Trust discloses the following statement:
Effective January 15, 2013, the Company suspended its share redemption program, including redemptions upon death and disability, and the Company did not redeem any common shares under its share redemption program during the three months ended March 31, 2014 and 2013.

What Should Investors Do Next

The above developing nightmare to investors is occurring while Strategic Realty Trust continues to pay an overwhelming amount of money in fees (both internally and to related and non-related third parties).  Some of the fees disclosed in Strategic Realty Trust’s most recent quarterly report include: Property Management fees, Acquisition and Origination fees, Asset Management fees, Disposition fees, Leasing Commission fees Legal Leasing fees, Financing Coordination fees, Guarantee fees, and Related Party Loans and Loans fees.

The Vernon Litigation Group’s team of investment fraud attorneys continues to represent investors nationwide who have suffered significant damages from non-traded REITs and other alternative investments such as Icon and Leaf equipment.  Vernon Litigation Group’s investment fraud attorneys are currently representing investors nationwide who have collectively suffered more than $8 million in losses for investing in real estate investment trusts. If you need help, or advice on what to do next, call us now.

Once Again REIT Investments Show Their True Colors

The Wall Street Journal recently highlighted investments of ongoing concern to Attorney Chris Vernon. Describing them as dangerous for retail investors,  identified Non-Traded REITs among the investments that retail investors should be wary of, here. As fixed income investors seek better returns in this low interest rate environment,  many are successfully pitched dangerous investments that pose as alternatives to traditional fixed income. 

In reality,  these products often carry far more risks that traditional fixed income investments and, to make mattes worse, investors are often not fully compensated for the high risks imbedded in these alternative products.  

As summarized by the Wall Street Journal,  these products are “hard to understand, lack transparency, are expensive and don’t have proven performance records.”  Some of the products that might fall into this category involve futures, foreign currency, options, liquid alternative mutual funds, non-traded REITs,  Leveraged and Inverse ETFs, Structured Notes, unconstrained bond funds, TICs,  BDCs, hedge funds, private equity and many other products that fall into the alternative investment category.  

According to reit attorney Vernon, who has represented investors nationwide for over two decades,  the sellers of these products generally fail to highlight all the risks involved in these complex products, which may include liquidity risk, credit risk, spread risk, maturity risk, interest rate risk, crisis risk, complexity risk.  

As a result, the perceived notion that you are avoiding market risk by buying these products is not only wrong, but also glosses over other risks imbedded in many of these products.  

Vernon recommends that investors carefully choose the investment professional they deal with and also don’t hesitate to seek second opinions on any alternative product being recommended.

Harmful Results From Severe Liquidity Risks in Alternative Investments

A financial adviser sought out investors through church and faith based relationships, resulting in portfolios filled with illiquid “alternative investments” including non-traded REITs, oil and gas rights, water rights, and a stake in a Ukrainian farming operation.   According to the claims most recently filed by the investor rights law of firms Vernon Litigation Group and Dovin, Malkin, and Ficken against the brokerage firm in charge of supervising the financial adviser in these cases, two retired couples suffered dramatic losses. Collectively, the investors lost over a million dollars on these investments as a result of being sold these speculative and illiquid investments that were pitched as conservative income producing investments.

The adviser, Paul Larsen, met these retirees through church connections and used their faith connection to gain the couples’ trust.   During the initial consultation with one of the couples who recently filed a claim, financial adviser Larsen learned that the couple was conservatively invested in a series of mutual funds, and that aside from a part-time job, relied on their investment income to fund their retirement. This is a typical scenario in these types of cases.

Possibly Working Against Investors Goals

Despite the investors’ goals to preserve their capital and create low-risk interest income, Paul Larsen made speculative recommendations which proved fatal to the investors’ life savings, according to the claims filed with FINRA. For example, Mr. Larsen allegedly directed one of the couples to cash out their mutual funds and invest in a Ukrainian farming operation that would “make a great return while helping the economic, social and spiritual development of the Ukrainian villages,” the claim states.

According to one of the investors’ attorneys, Chris Vernon, “these types of investments are alternative in nature; meaning, among other things, that there is no robust secondary market for investors to re-sell or liquidate the investments.”   Vernon added, “not only do alternative investments often lead to investors holding non-income producing investments that can’t be sold or liquidated, but the speculative investments are often deceptively sold and oversold—to fixed income investors—as bond substitutes.”

KBS REIT and Other Real Estate Investment Trusts

Among the assertions in the claims filed in FINRA Arbitration, it is alleged that Mr. Larsen also advised one of the couples to invest in KBS REIT and other similarly illiquid Real Estate Investment Trusts (REITs).   According to attorney Sandy Malkin (also representing the investors), “in cases involving alternative investments such as hedge funds, non-traded REITs, or other alternatives to stocks and bonds, the truly speculative nature of the investment is typically downplayed and often misrepresented.”   As a result, investors’ portfolios often implode years after purchasing these investments (which effectively become permanent fixtures in the investor’s portfolio).   Moreover, when a portfolio is over-concentrated in these alternative investments, the illiquidity itself can lead to catastrophic financial harm from which investors cannot recover.

These recently filed cases involving Paul Larsen’s recommendations and representations to multiple investors also included investment pitches for a speculative water rights company (which was designed to profit from a shortage of water in Colorado and surrounding areas). Mr. Larsen claimed that he too was invested in the Colorado water operation because, according to the claims filed, Larsen’s assessment of a “growing water shortage” [in Colorado], and that cities like Denver would be “forced to buy water from those owning land with water rights.” The claim filed by Vernon Litigation Group and Dovin Malkin and Ficken asserts that not only did Mr. Larsen fail to disclose the associated liquidity risks mentioned above, but also failed to disclose that he was earning compensation from the Colorado entities as an owner/employee in addition to the commissions he was earning from the investors’ funds.

Finally, Mr. Larsen’s investment recommendations to the retired couples also included Ridgewood Energy Q Fund, Yokam Land Holdings LLC, and Breakwater Capital Group, all of which resulted in non-performing assets effectively stuck in the clients’ portfolios.   With respect to Breakwater Capital, the recently filed claims include allegations that Mr. Larsen offered this investment only to a “select group of investors.”

Chris Vernon, founding partner of Vernon Litigation Group, says that “cases like these serve as a clarion call for investors. While advisers may seem trustworthy and come to you based on common affiliations or referrals, investors must proceed with great caution.” More specifically, Vernon noted that approximately 80% of new investment advisory relationships come from referrals, despite the fact that investors should not rely on referrals to select their investment professionals unless the referring source has significant investment expertise and has no connection or financial relationship to the financial professional they are recommending.

Contact An Experienced Attorney

As an investor, you should have as much knowledge about your financial adviser as possible, be sure to use a FINRA broker check, and If you feel like you may have had a similar experience, or want to check out the validity of your claim, contact the experienced REIT attorneys from Vernon Litigation Group today.

Investor Should Beware of Brokers Pushing non-traded REITs

Billions of dollars are pouring into the coffers of non-traded REITs thanks to fat commissions and even kick back schemes offered to the brokers and firms hawking them.

At Vernon Litigation Group, we’ve cautioned investors about the dangers of these high-risk and mostly illiquid investments and reported that securities regulators are increasingly alarmed at the tactics used to sell these products to retail investors. Misrepresentations about these REIT products, which aren’t publicly traded on a regular market exchange, continue to proliferate to the detriment of public investors.

Consider this alarming industry-touted data that shows that the non-traded REIT industry’s aggressive marketing campaign appears to be working: Organizers of the 2009 IMN Non-traded REIT Industry Symposium released information saying that $9 billion flowed into non-traded REITs in 2008, with $2 billion of that pouring in during the fourth quarter alone.

The industry also touts an industry-sponsored survey conducted on behalf of the IPA, a trade group for non-traded REITs, that says almost two thirds of financial advisors who regularly recommend non-traded REITs anticipate increasing sales volume to investors.

At Vernon Litigation Group, we are increasingly hearing horror stories from investors who are now shocked to discover that their money is locked-up in an illiquid product because non-traded REIT fund managers have frozen redemptions.

Brokers and brokerage firms have turned to selling high-commission products like non-traded REITs. These high commissions paid by non-traded or unlisted REITs serve as a powerful motivator for brokers and brokerage firms to sell these products – especially in this economy. This creates a significant conflict of interest: Brokers and brokerage firms may shy away from objectively recommending products and strategies that are more appropriate and suitable — and instead push their clients to high-commission investment products.

If you are concerned about your non-traded REIT assets and the circumstances under which they were sold to you, please call Vernon Litigation Group at (239) 649-5390.

Securities Regulators Scrutinize Potentially Unethical Commissions

Anyone contemplating an investment in a private or unlisted Real Estate Investment Trust, or REIT, should consider the motivations of the broker and brokerage firm hawking it.

Unlisted REITs are investments that aren’t traded on the New York Stock Exchange or Nasdaq market. As such, they can be difficult for investors to sell and difficult for investors to value. To overcome marketplace concerns, the managers and operators of private REITs have offered brokers and brokerage firms high commissions to sell these products to retail investors.

At this point in history, most brokerage firms and brokers have seen revenues drop significantly from just a few years ago. Looking to fill the void, brokers and brokerage firms have turned to selling high-commission products such as unlisted REITs to maintain their incomes. High commissions paid by unlisted REITs serve as a powerful motivator for brokers and brokerage firms to sell these products.

This creates a significant conflict of interest: Brokers and brokerage firms may shy away from objectively recommending products and strategies that are more appropriate and suitable — but less lucrative than high-commission unlisted REITs for the broker and brokerage firm to sell.

This strong commission-based motivation to sell unlisted REITs has not gone unnoticed by regulators.  In March 2009, the Financial Industry Regulatory Authority (FINRA), began questioning multiple brokerage firms about their sales and promotion practices related to private or non-traded REITs.

Some unlisted REITS are registered with the Securities and Exchange Commission (SEC) and some are sold using an exemption to registration. FINRA is questioning what investors were led to believe by the brokerage firms and brokers who sold them these private REITs.

Among FINRA’s questions to brokerage firms selling unlisted REITs: Which REITs did the firm promote? How many shares were sold? How many customers of the firms were sold these products? What were the ages of the customers who bought these products? How much were brokers to sell these unlisted REITs? What documentation was obtained from the customer in connection with these sales? What compliance and supervision procedures were employed to monitor these sales to customers in terms of risks and activity in general?

As a precursor to questioning brokerage firms, FINRA issued a regulatory notice (09-09) in February 2009 regarding additional concerns about post-sale representations surrounding private and unlisted REITs. In the regulatory notice, FINRA reminded brokers and brokerage firms of some of their obligations to investors: Specifically, once unlisted REIT customers have owned their investment for a while, their monthly statements should begin to contain a reasonably current estimated per share value of the unlisted REIT investment.

Specifically, brokers and brokerage firms are prohibited from using a per share estimated value that’s based on data that’s more than 18 months old compared to the customer’s account statement date.  According to FINRA, “ … firms must not use par value in a customer account statement more than 18 months following the conclusion of an offering, unless an appraisal of the program’s assets and operations yields the same value.”

The staleness of data used to value these unlisted REITs is particularly important due to the illiquid nature of these investments.

In the current economic environment, the NASD Rule allowing an 18-month window is inadequate: With data that old, how can a broker or broker-dealer actually carry out their duties and obligations to the customer?  Additionally, even prompt data reporting without an 18-month lag time is suspect without a transparent and liquid market for trading the unlisted REIT shares.

Vernon Litigation Group is currently investigating claims on behalf of investors surrounding misrepresentations about the safety and liquidity of unlisted REITs and the suitability of marketing of these products to certain investors, including older, risk-averse investors. For more information, contact Vernon Litigation Group by phone at 239-649-5390 or by e-mail at

Private and Unlisted REITs: Are They Safe

As attorneys who regularly represent investors, we believe the unique problems and risks associated with unlisted REITs are now coming home to roost. Although unlisted REITs may tout the fact they have outperformed public REITs, we believe these products have added risks relating to valuation and redemption rights.

These risks and concerns call in to question the appropriateness of these products for many investors, especially those with a limited liquid net worth or those with a significant portion of their remaining  net worth already invested in real estate.  We are also concerned about the accuracy and appropriateness of the marketing efforts employed by some “financial professionals” to sell these products to retail investors.

How REITs work

Real Estate Investment Trusts, or REITs, such as those issued by Inland, Wells (now known as Piedmont), and KBS are “pass-through” entities for tax purposes that invest in real estate.  These types of investments offer an equity interest in a pool of real estate assets, including land, buildings, shopping centers, hotels, and office properties.

Essentially, as an investor, you are giving your money to the REIT to go out and buy property that will conceptually generate enough appreciation or income to overcome costs that you might otherwise avoid by directly buying real estate for yourself.

Unlisted REITs include both private REITs and non-traded REITs that are not traded on a public market like the New York Stock Exchange or over the counter through Nasdaq.

Fatter commissions

A Feb. 25, 2009 Wall Street Journal article dubbed unlisted REITs controversial.
The controversy includes criticism by some analysts who point out that unlisted REITs are typically sold by brokers and brokerage firms who receive much higher commissions than they would receive from selling publicly traded REITs.  These higher broker commissions, typically paid by the unlisted REIT from the funds invested in the REIT, significantly reduce the amount available to invest and, by extension, reduce the ability of the REIT to generate returns.

Difficulty Selling

The Wall Street Journal has also noted the increased liquidity risk of unlisted REITs compared to publicly traded REITs.

Due to concerns over the economy or a need for funds because of  current economic conditions, some REIT investors have decided to get out of their REIT investments. To their dismay, selling an unlisted REIT isn’t what many investors expected.  Although selling a publicly traded REIT is like selling a stock —  the sale goes through immediately — this is not so with unlisted REITs.

Financial professionals selling unlisted REITs may have represented that investors could redeem their investment after a holding period, which is typically a year’s time. But despite such representations, attempts to redeem may now be denied. This is because most unlisted REITs reserve the right to suspend redemptions or limit redemptions if too many investors try to redeem at once.

The potential inability to trade and liquidate shares, coupled with likely decreased dividends, places unlisted REIT investors in a precarious financial position.  Assets that are essentially illiquid with decreasing yields in a deteriorating economic environment can hardly be counted on for future financial needs.

Seeking help

In our opinion, investors who believe they were not informed of the true characteristics and risks of unlisted REITs and/or who are in or near retirement with more than a small portion of their liquid assets in nonpublic or private REITs, should have their portfolios independently evaluated.

Vernon Litigation Group represents investors nationwide who have been the victims of negligence or unethical behavior by investment professionals and who have suffered significant investment losses.  For more information about Vernon Litigation Group’s efforts on behalf of investors click here.

Investors Must Avoid These Tax Mistakes

Approximately half of all financial advisers with Series 6 or Series 7 licenses and an insurance license are now recommending variable annuities for his or her clients, according to a new survey on variable annuities by AllianceBernstein and the Insured Retirement Institute (IRI).  Some financial advisers are pitching variable annuities as “guaranteed investments” with great features that include the possibility to get a “guaranteed lifetime withdrawal benefit.”

What You Need to Know

It is true that by investing in a variable annuity all potential gains generated in the “subaccounts” go untaxed —unlike most regular mutual funds. However, the crucial difference is that when investors eventually withdraw any gains from a variable annuity, all gains are taxed as ordinary income, not as long-term capital gains. Long-term capital gains are taxed at 15 percent and ordinary income can be taxed as high as 35 percent depending on the investor’s income.

Contact an Expert

The above is only one of the many flaws found in many variable annuities.  Investors should discuss with their financial adviser whether investing in mutual funds or other relatively safe investments would be more beneficial.

Investor Class Action Notices: What are your options

Unfortunately, for those who must decide whether to participate in a class action, there are no hard and fast rules that apply to every case. However, the following general guidelines should help you to make the right decision:

FIRST:  Do not set the class action notice aside to deal with at a later time. Most class action notices have relatively short deadlines.

SECOND:  Promptly determine the amount you have personally been damaged by the wrongdoing that is the subject of the class action.  At their best, class actions can provide a financial benefit to each class member and deter or stop unsavory corporate practices. At their worst, however, class actions fail to materially benefit anyone but the class action lawyers.  If your losses due to the wrongdoing are just a few thousand dollars, then it is unlikely you will have a better option than to participate in the class action. However, if you have suffered substantial investment losses, then you may be better off opting out of the class action and working with a lawyer who will represent you individually as discussed below.

THIRD:  Based on the foregoing, determine whether you should pursue your claim individually instead of becoming a member of the class. Individuals who hire experienced counsel and pursue their own claims typically fare better than those participating in a class action because an investor’s recovery in class claims is often very small. On the other hand, if you do not want to go through the stress and expense of pursuing your claim individually or your losses are not large enough to justify pursuing your own claim, and then participation in the class action may be your best course of action.

If you are confused by an investor class action notice and what it means to you, do not ignore it. Your family attorney or an attorney other than class action counsel should be able to advise you or refer you to an attorney who can advise you at no cost to you.

Vernon Litigation Group and Dovin Malkin & Ficken Law Firms File Another Multimillion Dollar Claim in FINRA Arbitration, Including REITs Sold by Paul Larsen, on Behalf of a Physician and His Wife in FINRA Arbitration

NAPLES, Fla., Oct. 4, 2013 — This week, the law firms of Vernon Litigation Group and Dovin Malkin & Ficken filed another multimillion dollar FINRA arbitration relating to the sale of high-commission, high-risk, and illiquid products, including non-traded REITs. These products were sold by financial advisor Paul Larsen. Due to the actions of Larsen—as well as the compliance breakdowns in supervising Larsen—a physician and his wife of more than 50 years are now in a precarious financial position. The supervision and compliance failures are reflected in Mr. Larsen’s FINRA regulatory record, which includes numerous investor complaints, the majority of which have been filed by the law firms of Vernon Litigation Group and Dovin Malkin & Ficken.

Prior to trusting their investments to Larsen and the brokerage firm with which he was employed, the clients invested primarily in large blue chip stocks, mutual funds, and fixed income investments. Larsen liquidated these investments, under the guise of getting away from the risk of the markets, and replaced the stocks, bonds, and funds, with high-risk products that Larsen represented to be safe, income-generating opportunities offered to his best clients. As a result, the clients’ portfolio has been devastated. It is troubling that a physician and his wife must now be concerned about their financial future due to the actions of a rogue broker.

The FINRA arbitration claim alleges damages in excess of $2 million relating to the sale of investments such as Atlas America Public Fund #14, Ridgewood Energy Fund Q, Ridgewood Energy Fund S, KBS REIT, Colorado Water Capital Group LLC, UKAG Group LLC, Issacher Global Management LLC, Puritan/Yokam, Puritan Capital Group LLC, and Platte Water Group I LLC/Yokam.

According to attorney Chris Vernon of Vernon Litigation Group, “many of the less savory financial professionals, such as Larsen, who sell risky and illiquid products that pay high commissions are accessing investors through investment seminars in Florida.”

Eventually, Larsen was fired. However, in the case filed this week, the firm’s representatives did not call the clients to notify them that Larsen was no longer with the firm. In fact, Mr. Larsen continued to be listed as the broker on the clients’ accounts for almost two more years. Larsen was even permanently barred from the securities industry by FINRA before the clients were informed of any problem relating to Larsen.

According to attorney Sandy Malkin of Dovin Malkin & Ficken, “the claims are for compensatory damages in excess of $2 million for Florida Securities and Investor Protection Act violations, breach of fiduciary duty, misrepresentation, and negligence.”

The legal team of Vernon Litigation Group and Dovin Malkin & Ficken continue to represent multiple investors across the country who have collectively suffered more than $10 million in losses from non-traded REITs such as Behringer Harvard, KBS, Wells, InlandCNL, Lightstone, and Cole, among others. If you are concerned about your non-traded REIT investment and the circumstances under which the investment was offered and sold to you, please contact Vernon Litigation Group toll-free at 1-877-649-5394 or by e-mail at