Investor Lawyers Blog
Investors in private placement securities including Shopoff Land Funds and other private placement securities may have legal claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.
Shopoff Land Funds and other private placement investments are generally categorized as alternative investments and may be unsuitable for many inexperienced investors or those with a modest net worth. Private placements are investments that are not publicly registered with the Securities and Exchange Commission that are offered via various exemptions from registration that permit the sales. Sales of certain private placements including those offered under an exemption known as “Regulation D” are largely limited to sales to “accredited investors” who meet certain eligibility criteria established by the Securities and Exchange Commission (SEC). For example, an investor would be accredited if they had a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Investors can also be deemed accredited based upon professional experience.
Shopoff private placement offerings have reportedly included the following:
- Shopoff Land Fund I
- Shopoff Land Fund II
- Shopoff Land Fund III
- Shopoff Land Fund IV
- Shopoff Land Fund V
- Shopoff Commercial Growth and Income Fund
- Shopoff Commercial Growth and Income Fund II
- Shopoff Commercial Growth and Income Fund III
- Vertimass, LLC
- SCF – 4440 VKA, LLC
- SCF – 2100 Q Street, LLC
- SCGIF II – Franklin, LLC
- SCGIF II – Skypointe, LLC
- SCGIF II – Des Plaines, LLC
- TSG Fund IV
Private placements are generally speculative and illiquid, in comparison to publicly traded securities such as common stocks listed on exchanges or mutual funds. However, private placements have been popular with certain independent broker-dealer firms because private placement investments generally carry commissions many times higher than publicly traded securities. Many private placements may carry commissions and other upfront costs ranging from 7% to 12% in total fees, costs, due diligence fees, and selling commissions to the brokerage firm. According to SEC filings on “Form D”, some of the Shopoff investments listed above carry a 7% selling commission and 3% in due diligence and underwriting costs, for a total of 10% in commissions and fees. The commissions vary from investment to investment and selling commissions listed may or may not include expenses such as reimbursement of organization and offering expenses.
As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors- including private placements under Regulation D. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.
Investors who wish to discuss a possible claim 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. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).