KBS REIT

Published on: December 5, 2013

Unsuitable Recommendation of Non-traded REITs and Other Unsuitable Investment Products

Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses as a result of the unsuitable recommendation of risky non-traded REITs and other products by their broker or financial advisor. Last month, another arbitration claim was filed with the Financial Industry Regulatory Authority regarding such risky products.

Unsuitable Recommendation of Non-traded REITs and Other Unsuitable Investment Products

According to the claim, Paul Larsen, a financial advisor, liquidated the claimants’ mutual funds, blue chip stocks and fixed income investments. Allegedly, he told his clients he was doing this to get away from the market risk of these investments. Furthermore, he represented the replacement investments as safe and claimed they would generate income and were opportunities he offered to his “best clients.” However, the products he invested his clients’ funds in were risky, unsuitable investments including:

KBS REIT

Published on: October 29, 2012

Recovery of Inland Western REIT Losses

by InvestorLawyers

Earlier in October, another claim was filed in an effort to help investors recover REIT losses. This claim was against LPL Financial and its goal is to recover losses sustained in Retail Properties of America, formerly known as Inland Western Real Estate Investment Trust. This claim, which was filed with FINRA, also involves eight other alternative, illiquid investments, and is seeking $1,000,000 in damages.

Recovery of Inland Western REIT Losses

Typically, REITs carry a high commission which motivates brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. In addition, frequent updates of the investment’s current price are not required of broker-dealers, causing misunderstandings about the financial condition of the investment. Because frequent updates are not required, investors may believe the REIT is doing much better than it actually is.

Reportedly, LPL Financial and its advisor, used an over-concentration of illiquid investments in the client’s portfolio. Furthermore, these investments carried a high level of risk because the securities recommended to the claimant didn’t trade freely. In addition to the Inland Western REIT, the portfolio also consisted of KBS REIT, Inland American REIT, LEAF Fund, Hines REIT, Atlas, ATEL Fund X, PDC 2005A, and ATEL Fund XI

Published on: October 10, 2012

FINRA Targets Non-traded REITs

by InvestorLawyers

According to stock fraud lawyers, the Financial Industry Regulatory Authority has and will continue to relentlessly target non-traded real estate investment trusts, or REITs. Specifically, the regulatory authority is focusing on how broker-dealers sell these investments and potential shortcomings in their strategies. According to the Executive Vice President of Member Regulation Sales Practices at FINRA, Susan Axelrod, examiners at FINRA have been scrutinizing “numerous retail sellers of non-traded REITs.” Axelrod also stated that, “In several instances, FINRA examiners have found that firms selling these products failed to conduct reasonable diligence before selling a product and failed to make a determination that the product was suitable for investors.”

FINRA Targets Non-traded REITs

Investment fraud lawyers note that independent broker-dealers have a responsibility to perform adequate due diligence when selling any investment, especially complex, illiquid products. Since the 2008 market collapse, FINRA has been aggressive with broker-dealers who failed to do so. Axelrod stated to the Securities Industry and Financial Markets Association’s Complex Products Forum that, “FINRA examiners have noted that in the instances of REITs that have experienced financial difficulties, red flags existed and should have been considered by firms prior to the product being offered to firm clients.”

Another problem with non-traded REITs, according to Axelrod, is that “non-traded REITs may also borrow funds to make distributions if operating cash flow is insufficient, and excessive borrowing may increase the risk of default or devaluation. In addition, non-traded-REIT distributions may actually be a return on principal.”

Published on: August 23, 2012

Following KBS Class Action Withdrawal, Investors Can Still Recover Losses Through Arbitration

by InvestorLawyers

According to securities arbitration lawyers, investors who suffered significant losses as a result of their losses in the KBS REIT still may recover those losses through securities arbitration following the withdrawal of a class action against KBS REIT. Plaintiff George Steward led investors in suing KBS REIT in May. Allegations stated that misrepresentations about the REIT were made by KBS. These alleged misrepresentations included the dividend payment policy, investment objects and the REIT’s investments value. Reportedly, a voluntary dismissal was filed by the plaintiffs in the U.S. District Court in Fort Myers, Florida last month.

Following KBS Class Action Withdrawal, Investors Can Still Recover Losses Through Arbitration

In March, KBS REIT I investors were notified that the investment’s value would drop from $7.32 to $5.16 per share, representing a 29 percent decline in value. The investment’s offering price was $10 per share. Furthermore, KBS also stated it would cease distributions to investors. An investor presentation filed with the SEC in March stated that KBS REIT I raised $1.7 billion in equity during its initial offering. The investment holds loans and other debt of $2.3 billion and property assets of $3.4 billion.

Financial Industry Regulatory Authority rules have established that brokers and firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. Non-traded REITs are illiquid and inherently risky and, therefore, not suitable for many investors. According to securities fraud attorneys, because of the high-commissions these investments generally offer, many brokers make unsuitable recommendations of REITs to investors. Based on information now known about KBS REIT, many of the firms that sold this investment will be unable to prove the adequate due diligence was performed before recommending this product to investors.