After more than 40 years of marriage and running a business together, a Florida couple sold their business and earned proceeds of $500,000. It was May 2008 and the economy was cracking.
For years, the couple, now in their late 60s, had primarily reinvested in their business rather than the markets. As a result, they sought assistance from a brokerage firm, and their broker assured them their portfolio would be invested in safe, low-risk products.
The broker proceeded to invest 60 percent of their portfolio in two non-traded REITs, KBS Real Estate Investment Trust I and KBS Real Estate Investment Trust II.
The result: Today the couple is without the income they need from their investments and they are locked out from withdrawing their money.
KBS announced that they have prohibited investors from withdrawing their money for the rest of the year from the two non-traded REITs the couple purchased.
At Vernon Healy, we’re preparing to file an arbitration claim on the couple’s behalf based on the misconduct of the broker and the brokerage firm’s failure to supervise its broker in violation of SEC regulations, industry rules and applicable state and federal laws.
We’re seeing more and more investors in this horrible predicament. Our investigation shows that many brokers have been paid high commissions to sell non-traded REITs to their clients.
Commissions to brokers can be up to seven times the commissions paid on other types of investments, our investigation shows. In many cases, additional incentives such as trips have been offered to promote the sale of private REITs.
You can see how this conflict of interest can affect investors. Is your broker motivated by the high commission, or is your broker helping you find a product to suit your needs?
REITs are complicated products. REITs often invest in commercial real estate, a sector that was already on the brink of significant problems by 2008. Non-traded, or private REITs, are illiquid investments because they aren’t traded on any stock market or exchange. This makes them a riskier product than publicly traded REITs.
Securities regulators, alarmed by soaring sales of non-traded REITs, issued a warning to brokerage firms earlier this year cautioning firms to refrain from misconduct involving non-traded REITs, or private REITs.
If you are concerned about your non-traded REIT assets and the circumstances under which they were sold to you, please call Vernon Healy at (239) 649-5390.
