REIT Attorneys - Helping Investors with non-traded REIT losses and frozen investments

Retiree loses much of $1.2 million nest egg on Behringer Harvard REITs, Vernon Healy Claim Asserts

A financial advisor looking to line his own pockets with high commissions rather than protecting the hard-earned $1.2 million nest egg of his Illinois businessman client improperly sold high risk Behringer Harvard REITs and other unsuitable investments to the man’s Trust, according to a claim filed today by Vernon Healy, the investor rights law firm. 

The non-traded REIT investments, which are now illiquid and worth far less than when the financial advisor sold them to the man, have robbed him of a secure retirement and left him wondering if he must now return to work, the claim asserts.

The man, who now lives in Florida, chose a financial advisor who he believed understood his need for protecting his nest egg for his upcoming retirement. 

The advisor recommended that the best course for his $1.2 million from the sale of his business was diversification in secure financial vehicles with the intention of wealth protection and growth, according to the claim. But the advisor failed to follow his own recommendations, instead concentrating more and more of the man’s Trust in ultra-high commission, high-risk, non-traded REITs, specifically in only one company – Behringer Harvard, according to the claim.

The financial consulting relationship that began with plans for diversification and wealth protection ended in 2007 with more than $830,000 of the $1.2 million nest egg invested in high risk Behringer Harvard REITs, the claim states. These REITs have suspended distributions and redemptions and are currently worth roughly 25 cents on the dollar on the limited secondary market. As well another $85,000 was also invested in Ridgewood Energy, another illiquid and in appropriate investment for the Trust, according to the claim.

As it now stands, the Trust that was put in place to provide a secure retirement for Vernon Healy’s client will be insolvent by 2012 due to the advisor’s investment recommendations, according to the claim.

The Vernon Healy Law Firm is conducting ongoing investigations into the sales of non-traded REITS, including Behringer Harvard, Cole REITs, Inland REITs and Apple REITs offered by David Lerner & Associates, to clients who need stability and wealth protection. Vernon Healy believes its investigations have revealed that non-traded REITs are one of the most defectively designed investment products on the market.

The Financial Industry Regulatory Authority (FINRA) filed a complaint Tuesday against David Lerner & Associates and charged the firm with selling shares in Apple REIT Ten, a $2 billion non-traded REIT, to elderly and unsophisticated investors without investigating whether it was suitable for them. The firm was also charged with giving misleading information about Apple REIT Ten distributions.

Vernon Healy has found that some non-traded REITs are financial engineering schemes that falsely entice new, often conservative investors with the promise of owning a piece of real estate that they would never otherwise be able to own while receiving a stream of income for years. Such sales pitches are bolstered by claims that these investments are not affected by stock market volatility. 

Part of the enticement comes from the robust returns that investors initially see. What they don’t know is that the distributions are often actually coming from more recent investors. Some REITs are actually borrowing to provide returns rather than generating them from the REIT’s operations.

In carrying out this operation of paying old investors with new investors’ money, Behringer Harvard was creating a false yield simply to make investing in its REITs more attractive to the investor seeking income from his investments, according to the claim.

Chris Vernon, founder of Vernon Healy, has spoken to and warned regulators in several states regarding the sale of these high-risk, ultra-high commission investments that unscrupulous financial advisors are pushing on traditionally risk averse clients, many of them retirees with irreplaceable nest eggs.

Vernon Healy is a Naples, Florida law firm that represents investors nationwide who are victims of stock fraud and stock losses due to broker fraud and brokerage firm fraud and misconduct.

Vernon Healy’s investment fraud attorneys were among the first to caution investors about the dangers of non-traded REITs. The firm’s REIT attorneys have written about the dangers of these products in numerous articles. They are currently representing investors who have collectively suffered millions of dollars in REIT losses, and they have warned regulators about them.

CONTACT:  Vernon Healy
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law
(239) 649-5390
Toll Free: (877) 649-5394
info@vernonhealy.com
http://www.vernonhealy.com
http://www.reitattorneys.com
http://www.protectinginvestors.com

Lawyers at Vernon Healy have fought for decades on behalf of investors in non-traded REITs

With a revived popularity and a renewed sales pitch, non-traded REITs are once again in the spotlight and brokers continue to target investors looking for a good yield, low risk investment.   The attorneys at Vernon Healy have been on the forefront of the fight against the broker-dealers who have been promoting and selling these defective products for more than a decade.

Sadly, in the midst of the recent financial crisis, non-traded REITs have now caught a second wind and are more popular than ever. Based on Vernon Healy’s past and present experience, many non-traded REITs continue to show fatal flaws, massive conflicts of interest, and excessive fees and commissions that, in the long run, expose investors to unnecessary risks and expenses in light of the likely returns.

If you are an investor considering non-traded REITs, we strongly urge you to seek a second opinion before investing in a non-traded REIT.

For investors who have already purchased non-traded REITs, the securities attorneys at Vernon Healy can help you evaluate a potential claim. What follows is one example of many showing how the law firm of Vernon Healy assisted an investor client with a non-traded REIT claim. In 1998,  securities attorney Chris Vernon exposed the flaws of non-traded REITs through multiple FINRA arbitration cases (formerly NASD arbitration).  Vernon successfully recovered losses suffered by retirees as a consequence of their investments in the defunct Inland Monthly Income Fund III REIT.

In one of the cases, a Florida retired couple, looking for a source of steady income that would fit their conservative approach, contacted a lower-tier broker-dealer. The brokerage firm recommended the retired couple invest in the Inland REIT, which, unbeknownst to the couple, charged very high commissions — of up to 8 percent — in connection with the sale.

On top of the very high fees and commissions, the Non-traded REIT was packed with conflicts of interest. For example, 7 percent of the gross offering proceeds were paid to the advisor of the company, Inland Real Estate Advisory Services Inc., which is a wholly-owned subsidiary of Inland Real Estate Investment Corp., the issuer of this investment. Regrettably, the investigation conducted by Vernon revealed disconcerting transactions and dealings that occurred within the Inland REIT sold to the retired couple, and most of these problems continue to occur inside many non-traded REITs today.

With respect to the investment described above, two of the Inland REIT properties were lost through foreclosure. Four of the 38 Inland sponsored partnerships, which in turn were owned by 21 other Inland-sponsored partnerships, gave up their properties by providing the mortgage holders deeds in lieu of foreclosure. The possibility of cash-flow distributions to limited partners in those 21 partnerships was precluded. In addition to the 38 partnerships, other Inland partnerships experienced problems and much of the property owned by the limited partnerships was lost to first mortgage lenders who seized control of the property. Despite the distressing events cited above, the Inland REIT continued to offer unsustainable distributions that exceeded its net income, as its 1996 annual statement showed.

The brokerage firm alleged that the Florida retired couple —despite having a profile and investment objectives of “fixed income” and “long term growth” — received written materials that fully disclosed the risks involved in purchasing this type of investment and that any losses were caused by unforeseeable events.  

During the course of the arbitration, Chris Vernon was able to demonstrate to the panel that these types of investments should not be pitched to, or sold to retirees because of the high risk involved. At the end of a five day arbitration hearing, the panel sided with the retired couple and rendered an award not only against the brokerage firm, but also against the branch manager and the owner of the brokerage firm.

For more information, contact Vernon Healy about how the firm may be able to help you with a non-traded REIT claim.

Vernon Healy is a Naples, Florida law firm that represents investors nationwide who are victims of stock fraud and stock losses due to broker fraud and brokerage firm fraud and misconduct. Vernon Healy's investment fraud attorneys are experienced in arbitration and litigation, and the firm assists clients in attempting to recover losses caused by all manner of financial fraud and negligence. It focuses its practice on complex financial litigation and arbitration as well as other complex business litigation and arbitration.

Vernon Healy claim: nontraded REITs, Medical Capital Notes, oil & gas programs and other bogus “alternative investments” decimate retired couple’s $1 million nest egg

A reckless stockbroker with CapWest Securities Inc. negligently urged a retired couple to plunge more than $1 million of their nest egg into so-called income producing “alternative investments” that turned out to be bogus Ponzi schemes and highly speculative real estate investments, according to a claim filed today by the Vernon Healy law firm. 

The Florida couple now faces foreclosure on their home. A retired small businessman and homemaker, they have seen their monthly retirement income from these investments drop from $8,000 to $600 per month.
 
The couple’s financial devastation is the result of following the plan devised by their CapWest Securities Inc. “retirement planning specialist” who claimed to have special expertise in working with retirees on safe investments and income producing “alternative investments,” the claim states. 

The non-traded REITs, or private REITs, and real estate partnership deals the couple invested in have to a large extent shut down redemptions and suspended distributions, thus essentially depriving the couple of access to almost half of their retirement savings.  The nontraded REITs include Desert Capital, Inland REIT, KBS REIT, and the IMH Secured Loan Fund.  In addition, the couple was sold two private real estate LLC programs: Clovis Senior Living LLC, which was shut down by Oregon regulators, and Blue Rock 1355 First Ave. LLC. 

The couple’s CapWest Securities stockbroker pledged that both he and his employer conducted due diligence on the investments, according to the claim. But three of the investments have now been shut down as Ponzi schemes by the SEC and one of the real estate investments has been shut down by Oregon state regulators.

The three Ponzi schemes in which the couple were urged to invest were Medical Capital Notes, Provident Royalties’ Shale Oil Royalties program, and Striker Petroleum.       

“Ponzi schemes like Medical Capital fed brokers ultra-high commissions so they could sell these alternative investments to the public and collect a steady stream of money from new investor victims,” said investor rights attorney Chris Vernon. “Reckless and greedy firms like CapWest Securities should be held accountable for creating a pipeline for these products and then pushing them on financially vulnerable retirees.”     

Basic due diligence by CapWest Securities and its stockbroker would have called into question Medical Capital’s business practices: Medical Capital’s CEO had been sued for fraud in the 1990s and he had his insurance license revoked by California regulators; Medical Capital’s financial statements had never been audited; and Medical Capital loaned $90 million of investors’ money for hospital purchases to a company called IHHI whose CEO had been sued for fraud and embezzlement at a previous job, according to the claim.

On the private REITs, the CapWest stockbroker never advised the couple that the REIT could suspend redemptions and monthly distributions — thereby locking up the retirees’ money — according to the claim.

The arbitration claim filed today before FINRA, the Financial Industry Regulatory Authority, accuses CapWest of breach of fiduciary duty, common law fraud and misrepresentation, and violations of the Florida Securities and Investor Protection Act and seeks recovery of the couple’s actual $1 million in damages, costs, attorneys fees and punitive damages. 

Vernon Healy is a Naples, Florida law firm that represents investors nationwide who are victims of stock fraud and stock losses due to broker fraud and brokerage firm fraud and misconduct. Vernon Healy securities attorneys are experienced in arbitration and litigation and the firm assists clients in attempting to recover losses caused by all manner of financial fraud and negligence. It focuses its practice on complex financial litigation and arbitration as well as other complex business litigation and arbitration.

For more information contact,
Chris Vernon, attorney at law

Vernon Healy
Naples, Florida
www.vernonhealy.com
239-649-5390
Toll Free: 1-877-649-5394