Suitability

Published on: October 25, 2017

Hospitality Investors Trust Inc. (formerly ARC Hospitality Trust) Subject Of $5.53 A Share Tender Offer

Hospitality Investors Trust Inc. (formerly known as ARC Hospitality Trust, Inc.) is a non-traded real estate investment trust (REIT) focused on ownership of hotels and other lodging properties in the United States. As a publicly registered non-traded REIT, Hospitality Investors Trust was permitted to sell shares to the investing public at large, oftentimes upon the recommendation of a broker or financial advisor. The REIT sold shares to the public for $25.00/share. Some investors may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

According to reports, Hospitality Investors Trust has terminated redemptions, and the company no longer pays a dividend. The company must get approval from Class C units before doing future redemptions, and according to SEC filings it “no longer pays distributions.” The NAV of Hospitality Investors Trust has reportedly decreased by 47% since initial issuance to just $13.20, down from the $25 initial purchase price. Thus, investors who bought shares at the $25.00 offering price have experienced a loss of nearly half of their principal.

On October 23, 2017, MacKenzie Realty Capital, Inc. reportedly extended a tender offer to purchase shares of Hospitality Investors Trust Inc. for $5.53 a share- suggesting that shares may be worth even less than the REIT’s reported NAV.

Published on: October 25, 2017

Investors in ARC Healthcare Trust III May Have Arbitration Claims

by InvestorLawyers

Money In Wind Investors in American Realty Capital Healthcare Trust III Inc. (“ARC HT III”) may be able to recover losses on their investment in FINRA arbitration. ARC HT III is a publicly registered non-traded real estate investment trust (“REIT”) sponsored by AR Global and based in New York, NY. As its name suggests, this non-traded REIT is focused primarily on investing in healthcare-related assets including medical office buildings, seniors housing and other healthcare-related facilities. ARC HT III currently owns a portfolio of 19 properties purchased for a total of $128.3 million.

ARC HT III raised approximately $168 million in investor equity prior to cancellation of its securities offering, due in large part to a series of ARC related scandals. On July 19, 2017, ARC HT III announced an estimated net asset value (“NAV”) per share of $17.64. Investors who participated in the offering bought in at $25 per share. Additionally, on July 18, 2017, the ARC HT III Board determined that it would cease paying distributions beginning in August 2017. One of the risks associated with investing in non-traded REITs concerns the viability of the distribution payment. At its discretion, the board of a non-traded REIT may well decide to substantially reduce, or altogether suspend, payments of distributions to investors. This is troubling, particularly because many investors are advised to purchase non-traded REITs as a means of earning enhanced income.

On December 21, 2017, ARC HT III shareholders will vote at the annual meeting to be held at 4pm at The Core Club in New York, NY, on an important proposal. Specifically, shareholders will be asked to vote on a plan of liquidation and dissolution of the company. Pursuant to the proposed plan of liquidation, ARC HT III shareholders will receive $17.67 – $17.81 per share of stock held. As part of the contemplated liquidation, the non-traded REIT anticipates paying an initial liquidation distribution of $15.75 per share, expected to be paid within two weeks of closing the asset sale. In connection with the transaction, ARC HT III will sell its underlying property portfolio for $120 million to the affiliated entity – Healthcare Trust Inc. In order for the plan of liquidation to become effective, shareholders must vote to approve both the contemplated purchase of ARC HT III by Healthcare Trust Inc., as well as the proposal to liquidate the company.

Published on: October 16, 2017

FINRA Prioritizes Oversight of Variable Annuity Sales and Switching for Potential Abuse

by InvestorLawyers

Recently, the Financial Industry Regulatory Authority (“FINRA”) has devoted significant regulatory oversight to one financial product that is rife with potential for abuse: the variable annuity (“VA”).

As a general rule, annuities are treated as insurance products. Accordingly, annuities are subject to regulation at the State level. Specifically, each State maintains a guarantee fund that will act as a backstop to annuity policies, up to a certain dollar amount, in the event that an insurance carrier experiences insolvency or similar inability to honor its financial obligations. Additionally, each State has its own insurance commissioner, an individual responsible for overseeing all annuity business within that State. Fixed annuities, fixed indexed annuities, single premium immediate annuities, and longevity annuities (a/k/a deferred income annuities) are all regulated at the State level.

VAs are also monitored at the State level. However, because VAs are considered a hybrid insurance / security product, they receive additional scrutiny and regulatory oversight at the federal level. As investment products, VAs are subject to monitoring by both the Securities and Exchange Commission (“SEC”), as well as the Financial Industry Regulatory Authority (“FINRA”).

Published on: October 13, 2017

Summit Healthcare REIT Subject of $1.34 a Share Tender Offer

by InvestorLawyers

Summit Healthcare REIT Inc. (“Summit”), a publicly registered non-traded real estate investment trust, has recommended to shareholders that they reject a third-party tender offer by MacKenzie Realty Capital to purchase shares for $1.34 a share. The REIT estimates its net asset value per share as $2.53, and therefore says that the $1.34 a share offer is lower than fair value. Summit’s most recent estimated net asset value per share is $2.53, as of December 31, 2016.

As a publicly registered non-traded real estate investment trust (“REIT”), Summit was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares upon the recommendation of a broker or financial advisor. Unfortunately for many non-traded REIT investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

One of the more readily-apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%). These fees act as an immediate ‘drag’ on any investment and can compound losses. Further, another significant and less readily-apparent risk associated with non-traded REITs has to do with liquidity. Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange, leaving investors with limited options if they wish to sell their shares after the initial purchase- especially if the issuer is not redeeming shares.

Published on: October 11, 2017

Woodbridge Mortgage Fund Investors May Have FINRA Arbitration Claims

by InvestorLawyers

Investors who have lost money in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds may be able to pursue recovery of any losses through securities litigation or arbitration.

Brokerage firms that sell private placements such as the Woodbridge funds must conduct due diligence on the investment before recommending it to their clients. The due diligence rule stems from FINRA Rule 2310, the so-called suitability rule, which requires that a brokerage firm must have reasonable grounds to believe that a recommendation to purchase a security is suitable for the customer. This principle is further explained in National Association of Securities Dealers Notice to Members 03-71, which elaborates that a brokerage firm must perform significant due diligence before recommending a private placement investment to any customer(s). By recommending a security to customers, the brokerage firm effectively represents that a reasonable investigation of the merits of the investment has been made.

According to a lawsuit filed by the Securities and Exchange Commission (“SEC”), Woodbridge has raised over $1 billion from thousands of investors through various finds. Some of the Woodbridge investments involve First Position Commercial Mortgages (“FPCMs”), which consists of a promissory note from a Woodbridge Fund, a loan agreement, and a non-exclusive assignment of the Woodbridge Fund’s security interest in the mortgage for the underlying hard-money loan. These FPCMs are securities in the form of notes, investment contracts, and real property investment contracts.

Published on: October 11, 2017

Variable Annuity Switching, Subject of FINRA Crackdown, May Signal Broker Abuses

by InvestorLawyers

The Financial Industry Regulatory Authority (FINRA) has filed two recent enforcement actions that may signal a crackdown on variable annuity (VA) misconduct this year, continuing a 2016 trend of high fines related to VA sales in 2016.

In the first disciplinary proceeding, FINRA reportedly suspended broker Cecil E. Nivens for two years and ordered the broker disgorge nearly $186,000 in commissions for causing “considerable monetary harm” to customers related to VA exchanges. According to FINRA filings, while working for New York Life, Mr. Nivens allegedly made unsuitable recommendations that several of his clients purchase variable universal life insurance policies, also known as VULs, using use the proceeds of annuities that they already owned. According to the allegations, Mr. Nivens also failed to follow certain technical requirements of Section 1035 of the Internal Revenue Code (IRC) that allows people to transfer funds from one life insurance policy or annuity to a new policy without incurring a tax penalty, resulting in substantial negative tax implications for his customers.

In the second disciplinary proceeding, filed Oct. 6, FINRA charged former Legend Equities broker Walter Joseph Marino with recommending unsuitable variable annuity replacements that benefitted him to the tune of $60,000 in commissions while his customers—including a 78-year-old retired widow—suffered financial harm, including incurring surrender charges and tax liabilities, due to the unsuitable recommendations. The FINRA complaint alleges that Marino recommended that two customers replace their non-qualified variable annuities (VAs) issued by Jackson National Life and The Variable Annuity Life Insurance Company, resulting in unnecessary surrender charges and commissions. FINRA alleges that Marino also failed to utilize a 1035 exchange that would have saved his clients substantial taxes, and pocketed $60,000 in commissions while causing substantial financial harm to his customers.

Published on: October 10, 2017

Senior Investors Often Targeted For Investment Fraud, New Survey Shows

by InvestorLawyers

Recently, the North American Securities Administrators Association (“NASAA”) released a timely survey entitled ‘Seniors & Financial Exploitation’ (the “Survey”). The Survey, which was conducted among NASAA’s membership of 67 state, provincial and territorial securities administrators in all 50 States, as well as the District of Columbia and Puerto Rico, in addition to the U.S. Virgin Islands, Canada and Mexico, asked a number of pertinent questions surrounding the issue of elder financial abuse and senior investor exploitation.

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financial symbols coming from hand

With respect to the Survey, 36 regulators from member organizations provided formal responses. Among the Survey data gathered from the Respondents were the following questions and answers:

Published on: October 10, 2017

Investors in Business Development Corporation of America May Have Arbitration Claims

by InvestorLawyers

Business Development Corporation of America (“BDCA”) is a non-traded business development company headquartered in New York, New York. As a business development company (“BDC”), BDCA focuses on providing flexible financing solutions to various middle market companies (e.g., BDCA extended a second lien term loan in August 2016 to the well-known “fast casual” restaurant chain, Boston Market).

BDCs are not a new investment product, having been around since the early 1980’s (in 1980, the U.S. Congress enacted legislation making certain amendments to federal securities laws allowing for BDC’s — types of closed end funds — to make investments in developing companies and firms). Many brokers and financial advisors have recommended BDCs as investment vehicles to their clientele, touting the opportunity for retail investors to participate in private-equity-type investing through BDCs, as well as their typically outsized dividend yield.

Non-traded BDCs, as their name implies, do not trade on a national securities exchange, and are therefore illiquid products that are hard to sell (investors can typically only sell their shares through redemption with the issuer, or through a fragmented and illiquid secondary market). In addition, non-traded BDCs such as BDCA have high up-front fees (typically as high as 10%), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.

Published on: October 10, 2017

Investors in CNL Growth Properties May Have Arbitration Claims

by InvestorLawyers

CNL Growth Properties, Inc. (“CNL Growth”) is a publicly registered non-traded real estate investment trust (“REIT”) based in Orlando, FL. Because CNL Growth is registered with the SEC, the non-traded REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or financial advisor. Unfortunately for many CNL Growth investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

One of the more readily apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%). These fees act as an immediate ‘drag’ on any investment and can compound losses. Further, another significant and less readily apparent risk associated with non-traded REITs has to do with liquidity. Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange. As a result, many investors in non-traded REITs who were uninformed of their liquidity issues, have come to learn that they can only redeem shares of the investment directly with the sponsor (and only then on a limited basis, and often at a disadvantageous price), sell the shares through a limited and fragmented secondary market, or alternatively, sit and wait for the occurrence of a future “liquidity event” such as listing on a national exchange, a merger, or liquidation.

CNL Growth, formerly known as Global Growth Trust, commenced its $1.5 billion IPO in October 2009. By April 2013, CNL Growth had concluded its offering, priced at $10 per share, after a capital raise of approximately $94.2 million. Shortly thereafter, in August 2013, CNL Growth initiated a follow-on offering and refined its investment strategy to focus on multifamily development projects in the Southeast and Sun Belt regions of the U.S. These combined offerings raised approximately $208 million in investor capital.

Published on: October 4, 2017

Investors in Strategic Realty Trust May Have Arbitration Claims

by InvestorLawyers

Strategic Realty Trust (“SRT,” formerly known as TNP Strategic Retail) is a San Mateo, CA based non-traded real estate investment trust (“REIT”) that invests in and manages a portfolio of income-producing real properties including various shopping centers located primarily in the Western United States.

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Market Analyze.

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.