Real Estate Investment Trusts

Coastal Equities Broker Luke Johnson Under Investigation for Unsuitable Non-traded REIT Recommendations

June 1, 2018 | Silver Law Group

Silver Law Group is investigating Wilmington, Delaware-based Coastal Equities, Inc. (CRD# 23769) broker Luke Johnson (CRD# 461987) for unsuitable recommendations in non-traded REITs, annuities and other illiquid investments.

In August 2017, a Coastal Equities customer filed a FINRA arbitration alleging that Johnson recommended unsuitable securities purchased in approximately 2015. The FINRA arbitration complaint alleges $56,000 in damages. In 2005, Johnson’s previous firm permitted Johnson to resign after he admitted that he signed the name of his office’s designated supervisor on four (4) variable life insurance application forms which indicated an acceptable suitability review by the supervisor.

Johnson operates under the name Legend Capital Group Inc. As part of his business under Legend Capital Group, he sells fixed insurance and annuity products for various insurance companies, according to his FINRA BrokerCheck report. He is also an investment advisor with Coastal Equities.

Centaurus Financial

June 1, 2018 | Silver Law Group

Centaurus Financial has been the recipient of multiple FINRA actions, including 11 regulatory events and 8 reported arbitration claims. Not all of these are major issues, but they could be relevant to an investor doing business with Centaurus.

The SEC has strict rules about how a broker-dealer operates, runs their business and keeps records; any variation from these rules can trigger a sanction or other regulatory process. Centaurus has been the subject of multiple sanctions for various infractions and disputes filed by customers. For these regulatory sanctions, the company has paid $532,156.62 in penalties, fines and fees over the years. In some cases, there were no financial products involved or sold, only regulatory violations.

Centaurus has paid out $3,064,930.66 in securities arbitration awards and judgments.

MVP REIT/The Parking REIT Losses

May 8, 2018 | Silver Law Group

The Parking REIT recently announced that the board unanimously approved the suspension of all cash distributions and stock dividends, effective March 22, 2018. Their press release states, ”The Board is focused on preserving capital in order to maintain sufficient liquidity to continue to operate the business and maintain compliance with debt covenants, including minimum liquidity covenants…”

Additionally, it has notified the SEC that the company will not be able to make its 10-K filling on time.

This company, the product of a recent merger between two REITs, (real estate investment trust) is a publicly registered, non-traded entity that focuses on a specific type of real estate. In this case, the focus is parking lots and parking-related facilities. The merger between MVP REIT and MVP REIT II was finalized in late 2017. The company is now known as “The Parking REIT,” and is based in Las Vegas, NV. (A REIT is required to pay out 90% of its income in order to avoid corporate income tax.)The company has a portfolio with 44 parking facilities across 15 states.

Kingwood, Texas-based Broker D.H. Hill Under Investigation Over Regulatory Actions Concerning REITs

October 11, 2017 | Silver Law Group

Silver Law Group is investigating Kingwood, Texas-based brokerage firm D.H. Hill Securities, LLLP (CRD# 41528) (“D.H. Hill”) after FINRA sanctioned the firm for its conduct concerning the firm’s role as underwriter of a real estate investment trust (“REIT”).

D.H. Hill Securities Enters into a Settlement with FINRA

D.H. Hill entered into an Acceptance, Waiver & Consent (“AWC”), signed in November 2016, with FINRA. The AWC alleged that, between February 2012 through April 2013, D.H. Hill participated as a dealer manager of a REIT offering, replacing another firm in the process. When D.H. Hill replaced the previous brokerage firm, it failed to seek or obtain authorization from FINRA’s Corporate Financing Department to proceed with the offering, a requirement under FINRA Rule 5110.

IMS Securities Broker Michael J. Spears Under Investigation Over Non-traded REIT Unsuitability Allegations

March 27, 2017 | Silver Law Group

Silver Law Group is investigating Houston, Texas-based IMS Securities Inc. (CRD# 35567) broker Michael J. Spears (CRD# 4501523) after two (2) customers filed complaints against Spears regarding non-traded REITs.

According to Spears’ FINRA BrokerCheck report, two customers filed complaints against Spears in 2016. The first, in August 2016, alleges negligence, misrepresentation, failure to supervise, breach of fiduciary duty and involves non-traded REITs. The FINRA arbitration claim alleges over $1.6 million in damages.

The second, filed in July 2016, also involves real estate securities as well as variable annuities (“VAs”). This FINRA arbitration complaint alleges negligence, overconcentration, breach of fiduciary duty, misrepresentations, failure to supervise and damages in the amount of $3 million.

Cetera Subsidiary VSR Financial Services Closing; Transferring Brokers to Other Firms in Cetera Network

January 17, 2017 | Silver Law Group

Cetera Financial Group subsidiary VSR Financial Services, Inc. (CRD# 14503) is winding down and transferring some of its brokers to other Cetera Financial Group broker-dealers.

VSR is one of Cetera Financial Group’s (“Cetera”) many independent brokerage firms. Cetera was acquired by Nicholas “Nick” Schorsch’s RCS Capital in 2014 in an acquisition spree used to create a selling network for RCS Capital’s products, including numerous business development companies (“BDCs”) and non-traded REITs. Many of Cetera’s brokerage firms operate under Cetera Advisor Networks, LLC (CRD# 13572), a list of which can be found here.

According to some sources, the move is part of an ongoing plan to evade RCS Capital’s poor reputation. VSR will be the second firm under the Cetera umbrella to be shut down if it can beat Investors Capital Corp. (CRD# 30613), which is also part of Cetera’s Financial Group and expected to also be closed or consolidated in the coming months. J.P. Turner & Company, L.L.C. (CRD# 43177), shuttered in 2015, was the first Cetera subsidiary broker-dealer to close.

Are (or Were) Unsuitable Non-Traded REITs in Your Portfolio?

November 7, 2016 | Silver Law Group

Are (or Were) Unsuitable Non-Traded REITs in Your Portfolio? on silverlaw.com

Learn the details about this vehicle, and why it may be an unsuitable investment

REITs, or real estate investment trusts, are companies that own real estate-related assets. These may include office parks, hotels, homes, or even related debt like mortgages. REITs are an attractive investment because they can often provide a steady stream of income to investors, as the IRS mandates that they distribute at least 90% of their taxable income to shareholders.

Most REITs are publicly registered and publicly traded on major stock exchanges – however, some are not publically traded. These non-exchange traded REITs are usually managed by a private investment manager, and they can be much riskier than their tradable cousins.

FBI Raids United Development Funding (“UDF”) Headquarters Amidst SEC Investigation

March 15, 2016 | Silver Law Group

On February 18, 2016, the FBI raided the headquarters of UDF, the manager of a family of real estate investment trusts (“REITs”) and other funds, sending shares of UDF’s largest fund, United Development Funding IV (“UDF IV”), tumbling 54% before NASDAQ halted trading, according to InvestmentNews.

The FBI raid is the most recent negative activity for the troubled fund manager. In November 2015, UDF’s auditor, Whitley Penn disclosed he would no longer be auditing UDF’s financial statements and UDF board member William Kahane resigned. A few weeks later in December 2015, Kyle Bass and his firm Hayman Capital Management, posted a report and letter alleging UDF was managed “like a Ponzi scheme.” UDF responded to the reports, saying that it had been under SEC investigation since April 2014.

On February 5, 2016, Bass and his firm set up the website https://udfexposed.com/ in order to further substantiate his allegations. Additionally, Bass revealed that he had a significant short position in UDF.

FINRA Proposes New Rule to Make Brokerage Fees More Transparent to Customers

June 24, 2014 | Silver Law Group

The Financial Industry Regulatory Authority (FINRA) has recently sponsored a new securities industry rule that makes the information included on customer account statements more transparent. Transparent commissions will likely lower the total up-front commissions a broker can collect on certain popular securities as investors realize the steep fees they are paying.

Nontraded real estate investment trusts (REITs) are among the most popular investment products sold by registered representatives and their broker-dealers. Typically sold for less than $10 per share, the commission to a rep and the firm in this $1.4 billion “alternative investment” sector of the retail investment market is 7%, though the amount that goes toward the total upfront commission is split amongst several different players involved in selling the REIT. A problem for investors is that their account statements do not clearly show the breakdown of those commissions or the estimated per-share valuation of their investment — something that the current rules do not require be revealed to them until 18 months after the REIT sponsors stop raising funds.

Under FINRA’s proposed new rule, the time frame in which broker-dealers will have to show investors a true valuation of such purchases will be drastically sped up. By accelerating that timetable, investors will be provided quicker and much greater transparency in seeing the commissions being charged to them; and industry experts anticipate that broker-dealers are likely to lower the fees they assess to investors on such alternative investments. Both nontraded REITs and illiquid private placements known as “direct participation programs” (DPPs), which would also fall directly under this new rule, have frequently been criticized for high commissions.