According to an Investment News report, nontraded real estate investment trusts and potential shortcomings in how broker-dealers sell them are once again in the cross hairs of regulatory examiners from the Financial Industry Regulatory Authority Inc.
These FINRA regulatory examinations appear to focus on the retail sellers of nontraded REITs and the numerous “red flags” that these firms overlooked in selling these products.
Specifically, FINRA is looking at the firms’ failure to conduct reasonable diligence before selling a product and the broker-dealers’ failure to make an appropriate determination that the products were suitable for investors. FINRA is also looking at the distributions (or dividends) paid by nontraded REITs. It is not uncommon for nontraded REITs to borrow funds to make distributions if operating cash flow is insufficient. Unfortunately for investors, excessive borrowing may increase the risk of default or devaluation. In certain instances, nontraded-REIT distributions may also only be a return of principal (a fact that is typically not adequately disclosed to the investors).
The White Law Group continues to file FINRA arbitrations against the broker-dealers that improperly sold nontraded REITs. These claims generally allege that the firms overlooked the red flags of these products because of the high commissions paid (generally between 7-10%).
The White Law Group has filed FINRA arbitrations to recover nontraded REIT losses experienced in the following nontraded REITs (among others): KBS REIT, CNL REIT (CNL Lifestyle Properties), Desert Capital REIT, Apple REIT, Behringer Harvard REIT, Dividend Capital REIT, Wells REIT, Healthcare Trust of America REIT, Inland American, Cornerstone Core Properties, Inland Western, and Cole REIT.
If you have invested in a nontraded REIT and would like to discuss your litigation options with an experienced securities attorney, please call The White Law Group at 312/238-9650 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.