Vernon Healy 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 Healy 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 Healy 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 Healy, “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 Healy 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 Healy toll-free at 1-877-649-5394 or by e-mail at

Vernon Healy and Dovin Malkin Team File Another Claim on Behalf of Florida Retirees Who Were Improperly Sold Non-Traded REITs

Naples, Fla. — Paul Larsen, a former VSR Financial Services financial advisor, violated the law and FINRA regulatory rules in deceptively selling non-traded REITs and other alternative investments to a retired Florida couple living in an assisted living community, according to a claim filed last week by the law firms of Vernon Healy and Dovin Malkin and Ficken.

After meeting VSR financial advisor Paul Larsen at their Fort Myers, FL assisted living community, the retired couple entrusted Mr. Larsen with the bulk of their retirement nest egg asking him to invest in low-risk investments that produced income. Contrary to this, Mr. Larsen placed the retired couple in high-risk, illiquid non-traded REITs and other risky investments.

As result of this wrongdoing, the retired couple’s savings made its way into multiple non-traded REITs, including KBS REIT I, and Inland Western REIT (now known as Retail Properties of America). Unfortunately, these two non-traded REITs have slashed their share price from the original $10 per share down to $5.16 and $6.95 respectively. Distributions have also been reduced or suspended by these REITs.  For example, according to KBS’s latest SEC quarterly report, on March 20, 2012, KBS REIT I suspended all monthly distribution payments indefinitely “in order to manage [its] reduced cash flows from operations and to redirect available funds to reduce [its] debt.” Vernon Healy’s Claim alleges that their clients were not adequately informed of these risks or the possible illiquidity of these non-traded REITs.

The claim alleges that VSR Financial failed to supervise the Naples broker, who recommended multiple, unsuitable investments, and misrepresented the details of the investments he sold    the retired couple. The claim asserts that the actions of VSR’s representative constitute fraud, a breach of fiduciary duty and a violation to the Florida Securities Act. The Claim seeks redress of more than $200,000 on behalf of the retired couple.

“Sadly, this type of behavior occurs regularly. A broker befriends potential clients, wins their trust, even goes visit them at their home, and then places them into unsuitable risky and highly illiquid investments that pay high commissions,” said securities attorney Chris Vernon.

Several other non-traded REITs continue to cause devastating losses to investors. Just over one week ago, CNL Lifestyle Properties, Inc. announced a share price reduction of more than 25% (down from $10 per share to $7.31 per share), causing investors automatic dramatic losses. Likewise, an article published by Forbes last Friday highlights additional concerns on other non-traded REITs, including an investigation conducted by FINRA against David Lerner & Associates – the exclusive vendor for Apple REITs. “The high commissions associated with most non-traded REITs seem to be enticing unqualified and unethical financial advisors to put their own interests in front of the interests of their clients” Vernon added.

Vernon Healy and Dovin Malkin Ficken file $2.3 million in claims on non-traded REITs and alternative investments

Naples, Fla. — A group of brokers registered with VSR Financial fraudulently misrepresented illiquid and speculative non-traded REITs and alternative investments that they sold to three clients, including to a cancer patient who was told the investments were safer than stocks and bonds, according to claims recently filed by the law firms of Vernon Healy and Dovin Malkin and Ficken.

The primary broker from Naples sold two of the retirees speculative “alternative investments” including oil and gas partnerships and private water and land development partnerships, the claims say. The three investors represented by the Vernon Healy and Dovin, Malkin and Ficken law firms are from Naples, Cape Coral, and Minnesota. Collectively they are seeking at least $2.35 million in damages for their losses from VSR Financial.

The Naples broker from VSR sold the investor victims non-traded REITs including KBS, Inland American, Cole and Behringer Harvard. Both KBS and Inland have suspended redemptions, meaning investors can’t withdraw the money they put in, and Cole has only a limited redemption program, the claims state. The broker also failed to disclose the risks and sold the victims partnerships involving high-risk start-up ventures, according to the claims.

VSR Financial fired the Naples broker in September 2010 for selling investments that weren’t approved by VSR Financial and the Financial Industry Regulatory Authority permanently barred the broker from the securities industry in December, according to securities regulators. VSR Financial failed to supervise the Naples broker, who breached his fiduciary duty, recommended unsuitable investments, and misrepresented the risks of the investments he sold, according to the claims.

The broker met one of the investor victims, a retired insurance executive who now lives in Cape Coral, at church, the claim says. The man also had a history of battling cancer when he met the broker.

“The broker knew this man was concerned about having enough money to provide for his wife’s needs in the event he should die. This broker continued to mislead him and placed his savings in illiquid non-traded REITs,” securities attorney Chris Vernon said. “The conduct in these cases is reprehensible and VSR Financial needs to pay for failing to supervise its broker. What’s also despicable is that the broker befriended some of his victims at church.”

The broker had recommended that the 70 year old invest 95 percent of his IRA in illiquid and speculative investments, including non-traded REITs that generate high commissions to the selling brokers, the claim states.

In another case, the Naples broker persuaded a 58-year-old retired manufacturing executive who he met through a mutual friend at church to invest in speculative land and water deals. The Naples retiree had told the broker that he had already lost a significant amount of his savings in a Ponzi scheme in 2002, and that he wanted investments that were safe, liquid and that would provide income, according to the claim filed today. At certain times, the broker misrepresented that the man would be able to get his money back in three to six months, the claim says.

Altogether, the Naples man invested $1.3 million in various speculative, illiquid so called “alternative investments” recommended by the VSR Naples broker, the claim states.

“Tragically, our law firm is seeing numerous retirees who’ve been burned by non-traded REITs and other so-called alternative investments that are pitched as safer alternatives to investing in the stock market,” Vernon says.  “In reality, many of these products are highly risky and illiquid. Retirees are being misled about the risks and not told that their money could be locked up for years or flat out lost entirely.”

For more information, contact:

Chris Vernon
Vernon Healy, attorneys at law
(239) 649-5390

For investors in KBS REIT I the trouble continues

More and more non-traded REITs continue to announce devastating losses for investors.  KBS REIT I is a repeat offender. Investors in the KBS Real Estate Investment Trust I were told last week that their shares, which have already been re-priced twice before, are now worth about 50 percent of what they initially paid. In addition, investors have been officially stuck in this investment without the ability to redeem their shares since 2010, unless they are willing to sell on the secondary market at an even deeper discount.

KBS REIT I first re-priced the value of its shares on Nov. 23, 2009. At that time, the non-traded REIT informed investors that their shares had declined in value approximately 29 percent from $10 per share to $7.17.  A little more than a year later on Dec. 10, 2010, KBS notified its investors that their shares had an improved value of $7.32 per share.  Although a slight improvement, this enhancement in share price was misleading.  Specifically, a careful review of the KBS 2010 annual report demonstrates that as of Dec.  31, 2010 − 20 days after KBS had re-priced its shares to $7.32− KBS had a net tangible book value per share of only $4.88.  In other words, based on the actual properties owned by KBS REIT I as of December 2010, the shares were actually worth less than $5.

Now that KBS REIT I has announced that its shares are presently valued at $5.16, investors should question what the actual net tangible book value per share actually is. Conveniently, KBS has stopped providing an estimated tangible book value per share in its filings. However, based on previous calculations in KBS filings with the SEC, the tangible book value is most likely less than $5 a share.
Another serious concern for investors in the KBS REIT I is the amount of debt the REIT has acquired over the years.  In its 2011 annual report filed March 26, 2012, KBS acknowledged surpassing the limit of debt stipulated in its offering documents. Below is an excerpt from the annual report:

“Our policies do not limit us from incurring debt until our total liabilities would exceed 75 percent of the cost (before deducting depreciation or other noncash reserves) of our tangible assets… Due to the amount of debt that we have assumed…we exceeded our charter limitation on total liabilities as of Sept. 30, 2011.”

KBS stopped being in violation of its own borrowing policy as of Dec. 31, 2011. Nevertheless, the fact remains that KBS REIT I has an overwhelming debt-to-asset ratio of more than 71 percent.

The trend described above is only exacerbated by the fact that for the past few years KBS has been disclosing in its filings that most of the distributions had actually been a return of capital − hence a return of investors’ own money. In 2010, KBS REIT I treated 96 percent of the amount distributed to investors as a return of capital.  Unfortunately, investors in the KBS REIT I now don’t even have the opportunity to get that distribution. On March 20, 2012, KBS REIT I approved the suspension of monthly distribution payments “in order to manage [its] reduced cash flows from operations and to redirect available funds to reduce [its] debt.”
Many investors that purchased shares in the KBS REIT I were told that they would be able to invest in real estate while getting a constant source of income and without exposure to the volatility of the market.  What they actually received is an illiquid investment that is worth less than half of what they paid for it, an investment that is not producing any income, and one that can’t be sold unless liquidated on the secondary market at an even deeper discount.

The Vernon Healy law firm is currently representing multiple investors nationwide that have suffered substantial losses due to problems with their investment in non-traded REIT.  For more information, contact Vernon Healy by phone at 239-649-5390 or by e-mail at

Dilemma for Investors in Non-Traded Reits: Sell for Big Loss or Hold

Investors who find themselves trapped in an unproductive and illiquid non-traded REIT investment and stiff REIT losses are now faced with an emerging and confusing trend: lowball tender offers made by third parties who target REITs like KBS REIT I and Behringer Harvard REIT I.

Recently, it has become common for third-parties to send letters to non traded REIT holders offering to purchase the investors’ REIT investments at very deep discounts of up to 80 or 90 percent.

In deciding whether to sell or hold, investors are torn between the two very bad choices of either liquidating their positions on their REIT holdings for what is likely less than the REITs are now worth or continuing to hold unproductive and illiquid REITs which have not performed at all the way disreputable financial advisors told investors they would at the time of purchase.

If you have invested in any of these products and have received a third party tender offer, we strongly suggest that you contact an attorney or trusted real estate professional who can assist you with exploring the options you may have before you decide whether to sell or hold.

The Financial Industry Regulatory Association, in a strongly worded investor alert issued today, cautioned investors about the dangers of investing in non traded REITs and included warnings about risks associated with illiquidity, valuation and fees. At Vernon Healy, we’ve been warning investors about these very dangers here on for more than two years.

An example of the increasingly unfavorable situations REIT investors find themselves in is Behringer Harvard REIT I. This particular REIT commenced public offerings in 2003 at a price of $10 per share. As part of the offering, Behringer Harvard REIT I charged investors the following fees and commissions:

Selling Commissions and Dealer Manager Fees = 9.5 percent
Organization and Offering Expenses = 2.6 percent
Acquisition and Advisory Fees = 3.0 percent
Acquisition Expenses = 0.5 percent
Initial Working Capital Reserve = 1.0 percent

The above fees and commissions, a large portion of which went to the trusted investment advisors who recommended this REIT, demonstrate that only a little over 80 percent of the initial funding was actually available to be invested in real estate. In other words, the investment had been diluted by 16.6 percent before any monies were invested in real estate. And regrettably, the fees and commissions investors are obligated to pay did not stop there. To this day, Behringer Harvard REIT I has the right to collect 4 percent of the gross revenue for property management and leasing fees and  3 percent of the total transactional value each time the REIT acquires or sells a property. Additionally, if this REIT were to ever go public, Behringer advisors would be entitled to up to 10 percent of the entire net asset value of the REIT.

Behringer Harvard REIT I initially began paying investors a 7 percent distribution in 2004. However, according to the 2004 annual report, all or a substantial amount of the dividend amount investors were receiving then was coming from new investors’ money or from loans made to the REIT. Furthermore, the annual report also reveals that the REIT treated more than 91 percent of the distribution as a “return of capital.” This practice of using new investors’ money or borrowed funds to pay prior investors continued all the way until 2008, when the annual report disclosed that “none of the distributions….were distributions from the taxable earnings of real estate operations.” In other words, 100 percent of the distribution came from new investors’ money and/or loans made to the REIT.

Behringer Harvard REIT I closed share offerings to the public on Dec. 31, 2008.  Since new money stopped coming in, distribution amounts plummeted from 7 percent to 3.3 percent, and more recently down to 1 percent.  In addition, just three months after the offering of new shares was closed to the public, redemptions were suspended indefinitely.  This means that most investors are currently stuck in this illiquid investment.

In FINRA Regulatory Notice 09-09, now requires REITs to re-assess the value of their shares no later than 18 months after the conclusion of an offering. Per FINRA Rules, Behringer Harvard had to re-assess share value last year and notified investors that their shares are now worth $4.55. A disastrous 54.5 percent decrease in value.

In its September 2010 quarterly report Behringer Harvard REIT I disclosed that approximately 271 million shares were issued through public offering. Before the shares were re-priced on May 17, 2010, the REIT was priced at approximately $2.8 billion ($10 per share plus the value of shares issued through distribution reinvestments). The re-pricing of shares to $4.25 reflects a stunning decline in investor value of more than $1.4 billion.

Despite this precipitous drop in share value, most investors cannot redeem their shares. Behringer Harvard REIT I announced in its last quarterly statement dated June 30, 2011, that even exceptional redemptions, such as  redemptions requests due to death or disability,  will be limited to a cap of a little over $1 million per quarter — far less than 1 percent of the total value of the REIT:

“[T]he board determined to suspend until further notice redemptions other than those submitted in respect of a stockholder’s death, disability or confinement to a long-term care facility (referred to herein as “exceptional redemptions”).  In November 2010, the board set a funding limit of $4.25 million for exceptional redemptions considered in 2011 proportional to each redemption period, or $1,062,500 per period.”

Because of the tremendous losses suffered by Behringer Harvard REIT I and the fact that the REIT is not currently accepting any redemptions, “vulture” third-party firms are now attempting to purchase investor shares at more than 80 percent discounts, or $1.80 per share from the purchase price.

Contact Vernon Healy at 239-649-5390 or if you have information for the Vernon Healy investigation or if an investor in this REIT and you want information about your legal options.

Vernon Healy is a Naples, Florida law firm that represents investors nationwide who are victims of stock fraud and investment losses due to securities fraud and broker misconduct. Vernon Healy’s investment fraud attorneys were among the first to caution investors about the dangers of non-traded REITs. They are currently representing investors nationwide who have collectively suffered millions of dollars in REIT losses in REITs such as Behringer Harvard, Desert Capital, Inland, KBS, Wells, and other REITs.

Financial Advisor Improperly Sold High Risk, Non-Traded REITs, Vernon Healy Claim Asserts

A financial advisor seeking high commissions for himself instead of the financial well being of his widowed school teacher client improperly sold her high risk non-traded REITs and other unsuitable investments that caused significant losses and locked up her retirement nest egg, according to a claim filed today by Vernon Healy, the investor rights law firm.

Despite the investor’s aim of reasonable income from conservative investments, the financial advisor steered the widow toward high risk non-traded REITs and other real estate-related and alternative investments, the claim seeking FINRA arbitration states.

Following the death of her husband, the woman found herself for the first time handling the family investments, including a brokerage account. Not having the expertise to invest in individual stocks, the woman had the majority of her funds invested in mutual funds and municipal bonds. She then sought an expert to help protect her irreplaceable assets while investing them to gain a retirement income. Instead, the financial advisor failed to put his client’s interests above his own, steering her to high commission, alternative investments that caused significant losses and essentially froze her assets.

Between 2006 and 2009, the financial advisor converted almost $700,000  of the woman’s liquid investments into high risk non-traded REITs and other real estate-related investments and alternative investments, which by 2009 accounted for nearly 60 percent of the woman’s assets. Those investments robbed the woman of liquid assets and left her with illiquid investments that, while steadily losing value, she may not be able to sell – other than at a huge discount – to meet upcoming minimum distribution requirements of her IRA.

The high commission investments that this advisor used to line his own pockets at the expense of his school teacher client include: AmREIT, NetREIT, Inland REIT, KBS REIT and Behringer Harvard REIT, all of which have either severely curtailed or suspended investor redemptions. As well, the advisor recommended other alternative investments such as venture capital schemes and oil and gas investments that will not be liquid for 15 to 20 years. These investments weren’t suitable for the client in violation of industry rules because the woman clearly needed access to her funds sooner.

“This woman was led to believe that her portfolio was well diversified and safer than being exposed to market risk,” said Chris Vernon, founder of Vernon Healy. “In truth, the majority of her portfolio was exposed to significant risk, was largely concentrated in real estate-related investments, and was illiquid.”

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.

CONTACT:  Vernon Healy
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law
(239) 649-5390
Toll Free: (877) 649-5394

Non-Traded REIT disaster: A retired couple’s story

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.