Investor Lawyers Blog
Investors in AEI Accredited Investor Fund V, L.P. (“AEI V” or the “Limited Partnership) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if the recommendation to invest in FSEP was unsuitable, or if the broker or financial advisor who recommended the investment made a misleading sales presentation. AEI V is structured as a Minnesota limited partnership and is based in St. Paul, MN. The Limited Partnership was formed as a capital investment entity for the purpose of investing in a portfolio of income producing commercial real estate.
On May 29, 2013, AEI V first offered securities through its private placement pursuant to Regulation D (“Reg D”) of the federal securities laws. The total initial offering amount was $1,915,573, and investors who participated in the offering were required to invest a minimum of $5,000.
In general, limited partnerships — particularly non-traded limited partnerships, such as AEI V — are very complex and risky investments. For this reason, investing in a limited partnership through a private placement is typically only available to accredited investors (to be accredited an investor must have an annual income of $200,000 or joint annual income of $300,000, for the last two years, or alternatively, have a net worth in excess of $1 million).
One of the primary risks associated with investing in securities through a private placement has to do with their illiquid nature. This means that an investor who committed capital to the AEI V offering may not be able to readily redeem their investment with the issuer, nor can an investor seek to sell their Limited Partnership units on a national securities exchange. Moreover, even when investors can redeem their units or find a secondary market platform on which to sell out of or exit their investment, it is often the case that the bid-ask spread is significant, meaning that the investor must sell at a significant discount to the initial investment price. This lack of liquidity and pricing inefficiency can prove very troublesome for retail investors who may need ready access to their investment dollars.
Furthermore, an additional risk associated with investing in non-traded partnerships has to do with their typically high fees (in many instances, a broker or promoter recommending such an investment will earn considerable commissions, perhaps as high as 10-15% of the initial investment). With regard to AEI V, publicly available information through the Form D initially filed with SEC indicates that the Limited Partnership allocated 5% of the contemplated capital raise for immediate sales commissions. In all likelihood, AEI V investors incurred additional fees, as well, perhaps including incentive fees to the General Partner managing the real estate investments. Such high fees act as an immediate ‘drag’ on investment performance.
Applicable industry rules and regulations mandate that broker-dealers and their financial advisors must perform adequate due diligence on an investment before recommending such a financial product to an investor. Further, a financial advisor must perform a suitability analysis in connection with the sale of a private placement offering to ensure that the investment is suitable based on the investor’s stated investment objectives and other criteria, including the investor’s net worth and income, age and experience with investing, in addition to risk tolerance.
If you have invested in AEI V, or a similar non-traded partnership, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.