SEC Charges Parking REIT exec with Fraud *UPDATED*
The White Law Group continues to investigate potential securities claims involving broker dealers who may have unsuitably recommended The Parking REIT to investors.
The Parkin REIT is a non-traded REIT formed in December 2017 by the merger of MVP REIT and MVP REIT II that invests primarily in parking lots and garages in the United States.
The White Law Group has been investigating the Parking REIT/MVP REIT II since 2016 when it first announced that it would re-evaluate pursuing a listing on the NASDAQ Global Market, and consider other stockholder liquidity options.
The company suspended distributions paid on its Series A and Series 1 Preferred Stock last April due to economic turmoil caused by the COVID-19 global pandemic. Yet prior to the Coronavirus, the company suspended distributions and share repurchases for holders of its common stock in 2018.
Update on August 25, 2021 – SEC charges Parking REIT Exec with Fraud
According to the Securities and Exchange Commission on July 30, the regulator is charging an executive of the Parking REIT, and his wholly owned investment advisory firm, Vestin Mortgage LLC with fraud.
The SEC alleges that since at least 2012, the executive “fraudulently enriched himself and one of the REITs he controlled, The Parking REIT”, at the expense of two publicly traded REITs that he earlier had founded, Vestin Realty Mortgage I and Vestin Realty Mortgage II.
The executive allegedly funneled $29 million from Vestin Realty Mortgage I and Vestin Realty Mortgage II into The Parking REIT and then purportedly initiated “money-losing transactions in which the same six buildings were repeatedly re-sold”, all to allegedly benefit himself and The Parking REIT, according to the complaint.
The SEC alleges that the executive violated his fiduciary duties to the Vestin REITs including, allegations that he made two separate securities transactions to get the companies to pay him almost $10 million. The executive was also allegedly charged with misleading investors by having the Vestin REITs make false and misleading statements in their public filings, which purportedly hid his alleged self-dealing.
The SEC’s complaint reportedly seeks disgorgement plus pre-judgment interest, penalties, permanent injunctions, and industry, penny stock, and officer and director bars against the executive.
More Bad News for Investors
According to a Form 10-Q filing on November 16, as a result of the COVID-19 pandemic, the Company entered into temporary lease amendments with some of its tenants as of September 30, 2020. The Company was compelled to make certain of these amendments “in response to challenging market conditions” faced by its lessees and operating partners due to the significant negative impact of COVID-19 on demand for parking in many of the markets in which the Company owns properties, particularly in major population centers.
The Company noted it intended for the amendments to be temporary and did not believe that the amendments would cause the Company to fail its REIT income tests for the 2020 year. Apparently the COVID-19 pandemic has continued to negatively impact the Company longer than anticipated, and the Company has not yet been able to amend all of its agreements back to their original form.
The income generated under these lease amendments do not constitute qualifying REIT income for purposes of the REIT gross income tests, according to the filings. As a result, the Company was not in compliance with the annual REIT income tests for the quarters ended June 30, 2020 and September 30, 2020. Therefore it is “evaluating options and strategies that may enable us to maintain our REIT status for our taxable year ending December 31, 2020 notwithstanding our inability to comply with these income tests in the past two quarters.”
Unfortunately for investors, if the company fails to qualify as a REIT for taxable year ended December 31, 2020, it would no longer be required to make distributions of its annual taxable income.
Further, unless entitled to relief under specific statutory or administrative provisions, it would be ineligible to elect to be treated as a REIT for the four taxable years following 2020. “We believe that we may not be entitled to this statutory relief, and there can be no assurances that we will be able to obtain such relief.”
For more information on the White Law Group’s investigations involving the Parking REIT please see:
Risks of Non-Traded REITs
Many investors are not fully aware of the problems and risks associated with non-traded REITs before purchasing them.
Real estate investment trusts (REITs) are complex and inherently risky products. Compared to traditional investments, such as stocks, bonds and mutual funds, REITs are significantly more complex and often better suited for sophisticated and institutional investors.
Another problem often associated with REIT recommendations is the high sales commissions brokers typically earn for selling REITs – as high as 15%. Brokers have an obligation to make investment recommendations that are consistent with their clients risk tolerance, net worth, investment objectives and experience in the market. Unfortunately, in many cases, the high sales commission may provide some brokers with enough incentive to make unsuitable investment recommendations.
In addition to the high risks, non-traded REITs often lack liquidity. Investors looking to sell these investments often have difficulty finding a buyer, and if they are able to find one can suffer significant losses on the sale.
Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Firms that fail to do so, may be held responsible for any losses in a FINRA arbitration claim.
If you suffered losses investing in the Parking REIT and would like a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.
The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois.
For more information on The White Law Group, visit www.whitesecuritieslaw.com.