NAPLES, Fla., May 28, 2013 (GLOBE NEWSWIRE) -- The law firms of Vernon Healy and Dovin, Malkin & Ficken have once again filed an arbitration claim against ProEquities, Inc. for the inappropriate sale of non-traded REITs and other illiquid and speculative investments to a Minnesota couple. The claim was filed on the heels of penalties announced by the state of Massachusetts against Ameriprise Financial, Royal Alliance Associates, Commonwealth Financial Network, and Securities America for the improper sale and other compliance related issues of non-traded REITs to investors nationwide.
In the case recently filed with the Financial Industry Regulatory Authority (FINRA), the Minnesota couple attended a seminar after reading a newspaper ad containing the words "Safe" and "Retirement." At the seminar, the ProEquities advisor talked about investments that avoided the risk of and exposure to the stock market. According to the Claim, the advisor's catchphrases included "no stock market risk, retirement income – net of fees and expenses" and "the golden years."
The couple followed the initial and ongoing advice of the ProEquities advisor and invested and maintained the bulk of their lifetime savings into what turned out to be illiquid and highly speculative investments. Specifically, the products sold by ProEquities were Behringer Harvard REIT I, Behringer Harvard Multifamily REIT I, LEAF Equipment Leasing Income Fund III, and ATEL Growth Capital Fund III.
As stated above, the products sold to the couple were far from safe. For example, the Behringer Harvard REIT I (one of the two REITs sold to the couple by ProEquities) began paying the Minnesota couple distributions as expected. Nevertheless, the Claim asserts that such distributions were being paid from new investor's money or from loans made to the REIT. Moreover, a few years later, Behringer Harvard REIT I announced a re-price of its shares from $10.00 a share to a most recent valuation of $4.64 a share. The share re-price subsequently caused a devastating loss to the couple of over 53 percent of their original investment, according to the Claim.
As to the "constant" source of income that was represented to the couple prior to making the investment, the source of income turned out to be everything but predictable, the Claim asserts. As it turns out, Behringer Harvard REIT I initially cut distributions from 7 percent to 3.5 percent. Subsequently, Behringer further cut the distributions down to 1 percent. Finally, on December of 2012, Behringer Harvard REIT I decided to suspend distributions altogether. Behringer Harvard Multifamily REIT I (the other non-traded REIT sold to the couple) has also slashed its distributions (to 3.5 percent).
Despite assurances that the couple could sell their shares in any of these products at any given time, the Claim alleges the opposite is true. For instance, Behringer Harvard REIT I has suspended all redemptions indefinitely. Similarly, Behringer Harvard Multifamily REIT I currently has an extremely limited redemption policy; one in which the couple would have to forego a substantial portion of the investment if they were to decide to redeem their shares.
The other products sold by ProEquities to the couple raise similar concerns. The Claim asserts that the distributions received by the couple from their ATEL Growth Capital Fund and the Leaf Equipment Leasing Income Fund investments consisted primarily of a return of capital. Moreover, similar to the Behringer Harvard products described above, the illiquid leasing equipment investments have slashed their distributions and continue to cause the couple devastating harm.
For the recommendation and sale of the above products, ProEquities and its advisor received outrageous commissions ranging from 7 percent to 10.5 percent. Sadly, the Claim establishes that the advisor also misrepresented to the couple that the commissions originated from the respective companies, when in reality the advisor knew that commissions came directly from the couple's investment in these illiquid products.
The claim against ProEquities, Inc. (that seeks damages in excess of $300,000) alleges that it violated its obligations by inappropriately pushing investors into the above referenced products. "These investments generate substantial commissions for both the financial advisor and the brokerage firm, but caused substantial losses to our clients," said Chris Vernon, a securities fraud lawyer and founding partner at Vernon Healy.
Some states around the country are investigating and fining brokerage firms for the improper sales of non-traded REITs to investors. As stated above, the state of Massachusetts settled with multiple firms—including Ameriprise and LPL Financial—for the payment of fines to the state (as well as restitution for the economic damage done to investors). When learning about the Massachusetts settlement, Mr. Vernon added: "It is becoming a pattern that high-commission investments get in the way of the advisor's purported independent judgment. Since the sale of high commissioned products such as non-traded REITs has skyrocketed in recent years, it is a positive sign to see different state regulators become proactive in penalizing firms for misleading their clients." Nevertheless, the best recourse for most investors around the country continues to be handling personal claims against these firms in Arbitration.
The legal team of Vernon Healy and Dovin, Malkin & Ficken continue to represent multiple investors across the country who have collectively suffered more than $7 million in losses from non-traded REITs such as Behringer Harvard, KBS, Wells, Inland, CNL, 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 call Vernon Healy toll-free at 1-877-649-5394 or by e-mail at info@vernonhealy.com.