Is Your REIT A Bad Investment?

Jun 7, 2021

Real Estate Investment Trusts (“REITs”) are common income generating investments bought by individual retail investors.  REITs are defined as a company or investment trust that retains diverse portfolios of real estate assets.  A REIT both owns and operates real estate with 90% of the generated income paid out to its shareholders as dividends. They are popular as they are designed to provide  a steady payout of dividends which investors are attracted to when interest rates are low. Risks Associated with REITs Non-Traded REITs are not publicly traded investments. Because these REITs aren’t traded on any public exchange (such as the NASDAQ) it can be very difficult for investors to find out current information as well as prices. Non-traded REITs are generally “illiquid” making it very hard for investors to sell. Publicly traded REITs, those that are traded on an exchange, are subject to losing value when interest rates rise.  How REITs Operate  Since REITs are required to pay returns of at least 90% of their taxable income out to their shareholders,  they generally pay out a higher yield as compared to other market alternatives. This makes them particularly attractive when interest rates are low. While some REITs focus on a particular real estate sector, others invest in more diverse holdings. REITs are allowed to invest in many different types of real estate including: Residential apartment complexes Healthcare buildings Hotels and resorts Commercial office buildings Self-storage buildings Shopping centers and malls REITs provide the investor an opportunity to earn dividend-based real estate income while not having to buy the actual underlying property. They are popular because the investor can participate in real estate opportunities without the headaches associated with being a property owner. If a REIT has a proven and experienced management team, a good track record, and owns desirable properties, it can be a successful investment. But, there are many pitfalls and risks to investing in  REITs that investors should be informed about before buying any REIT. Risks of Non-Traded REITs Non-Traded REITS, also known as non-exchange traded REITs, do not trade on a stock exchange. Because of this, there are special risks associated with them. Share Value Because they are not listed on any exchange, investors are generally unable to perform research on these REITs. Significantly, it’s very difficult to determine the true price or value of the REIT’s. Its also hard to find out what assets the REIT holds at any given time.  Lack of Liquidity When an investment is “illiquid” this means that there may not be buyers available when an investor wants to sell their REIT. Also, often the investor is prohibited from selling the REIT for a period seven years. While some REITs will all investors to redeem a small portion of their investment after one year, there is usually a cost to doing so. Distributions The way that a REIT operates is that it has to pool the investor’s money to buy and manage properties. Sometimes, if there is not enough income generated from the property, the REIT may end up  paying out dividends from other investors’ money. When this happens, this can limit […]

Read more
FINRA arbitration process

What Is The Discovery Process In A FINRA Arbitration?

May 31, 2021

If you are wondering what the discovery process is for an arbitration action before the Financial Industry Regulatory Authority (“FINRA”) chances are that you are considering the hiring of a FINRA arbitration attorney. While the discovery process is relatively simple and streamlined, an experienced FINRA arbitration attorney knows exactly what documents to seek that will help you to prove your case. Discovery in FINRA is limited to a document exchange and, absent in some very limited situations, there are no depositions or pretrial testimony allowed. Therefore, it is very important to know what documents to ask for and how to get these documents through the FINRA discovery process. Overview of the FINRA Discovery Process The FINRA discovery process is designed to allow the parties to get the necessary facts and information from the opposing party in order to prove their case as well as to prepare for the final arbitration hearing.  Importantly, the FINRA Customer Code of Arbitration Procedure (“Code”) requires that the parties cooperate fully in a voluntary exchange of documents and information in order to expedite the arbitration process. The Code contains special prehearing and discovery rules, which address making discovery requests,  responding to the request, objecting to the discovery requests, and the arbitrator’s authority to impose sanctions against parties for not cooperating in discovery.  The FINRA Discovery Guide FINRA has issued a Discovery Guide for investor disputes containing guidelines to assist parties and arbitrators. In the most recent update to the Guide in 2013, FINRA set forth a detailed introduction section providing guidance with respect to producing electronic documents. It also explains how “product cases,” wherein a specific product or investment is the cause of the loss,  differs from other types of customer cases and sets forth the types of documents that are typically sought in such cases. Finally, the introduction clarifies the specific circumstances where a party might request an “affirmation” as to the efforts made to locate documents when an opposing party does not produce certain documents which are deemed discoverable under the  Guide. Responding and Objecting to Discovery  There is a FINRA rule regarding how a party may respond to Discovery Requests (including those specified in the Guide) if such requests are overly burdensome, seek irrelevant documents, or involve confidential or privileged information.  Until an objection is overruled by an arbitrator, the objecting party does not have to provide the documents or information requested.  The objecting party must state clearly in writing which the party is objecting to and the grounds for that objection. Motions to Compel  The FINRA rule on motions to compel requires that the parties first make an attempt to resolve their discovery issues with the opposing party and to describe these efforts in the motion. If, however,  the parties cannot agree as to how to resolve their discovery disputes, then the party seeing the documents can file a motion to compel seeking an order requiring the production of the requested documents. A motion to compel is simply a request for the arbitrators to issue an order requiring the production of documents and information.    In the motion to compel, the requesting party should […]

Read more
Investors Against Climate Risk

Can the SEC Help Protect Investors Against Climate Risk?

May 3, 2021

With climate change at the forefront of investor’s minds these days, you might wonder what the top regulators are doing to ensure that such interests align with the duties of corporate boards.

Read more
Cryptocurrency investments

Risk of Fraud in Cryptocurrency Investments & How Attorneys Can Help

Apr 26, 2021

It seems as if everywhere you look, there is some news article on cryptocurrency. Virtual currencies, such as Bitcoin, have recently become popular and were initially created to serve as a type of money or payment system.

Read more
Investment Fraud Protect

How To Stay Protected Against Investment Fraud?

Apr 19, 2021

Many people contact our law firm after they have been victimized by investment fraud. Often, they blame themselves for trusting the fraudster or believing the sales pitch. The truth is that just about anyone, no matter how smart or educated they are, can fall prey to investment fraud. There are certain steps, however, that you can take to protect yourself before making an investment. Verify That The Investment Is Registered Most investment opportunities or products also need to be registered. You can go to your particular state securities regulator’s website to see if your investment and the broker selling it are registered in the state where you live. The website for NASAA, the North American Securities Administrators Association, has an interactive map where you can look up the contact information for your state’s securities regulators. This organization has also published a list of signs of fraud which you should look out for. Below are a few of those, as well as some additional red flags to consider when making any investment.  Beware of Promises of Guarantees or Quick Profits Experienced con artists know what appeals to people. If it sounds too good to be true, it most likely is. The higher the return, the higher the risk. Other than a few government backed securities such as CDs and money market accounts, there is no such thing as a “no risk” investment. In fact, even when an investment is sold based upon a “guarantee,” that guarantee is only as good as the company behind the guarantee. A good example of this is Lehman Brothers Principal Protected Notes. Many folks bought these notes thinking they were fully protected by the guarantee that their principal investment would be returned. In fact, however, when the over 150-year old Lehman Brothers filed for bankruptcy in 2008, that guarantee vanished. As the SEC has warned, “any guarantee that your principal will be protected—whether in whole or in part—is only as good as the financial strength of the company that makes that promise.” Be Suspicious About High-Pressure Sales Tactics You should be particularly suspicious of individuals who tell you that you must act now or that this is a limited time offer which will end very soon. This is a trick used by fraudsters  to get you to invest quickly without you doing any investigating or weighing the risks.  In a legitimate investment, you should always have the opportunity to read the materials, understand your investment and make an informed decision.  If it’s a real deal, it’ll be there tomorrow. This type of sales pitch is used to create a false sense of urgency, whether it’s a limited amount of the investment product or a scarcity of time to invest. Don’t feel pressured to make a quick decision. Take your time and talk it over with an objective third party, someone who can check the facts regarding the investment opportunity. Beware Of Unsolicited Offers Have you ever received a call out of the blue offering an amazing investment opportunity from someone you don’t know? This very well could be a warning sign of a scam. Always treat […]

Read more
ponzi scheme

How Ponzi Schemes Looks Legitimate

Apr 12, 2021

During times of economic uncertainty, such as in the wake of the COVID-19 pandemic, creative fraudsters come up with all types of schemes to swindle innocent people out of their hard-earned money.  Almost anyone, no matter how sophisticated or savvy, can fall prey to a financial scam. Financial fraud can often appear completely legitimate on the surface.  Investors should research any prospective investment before it’s made to avoid getting caught up in a Ponzi scheme or any type of investment fraud. Hallmarks of a Ponzi Scheme Ponzi schemers generally use the promise of big returns to fool investors.  Usually, the supposed investment vehicle does not really exist.  Rather, earlier investors are paid with new money provided by later investors who are also swindled.  Such schemes continue indefinitely as long as the fraudsters are able to lure new victims into the scam.  The scheme appears to be “legitimate” as long as the investors continue to receive a return on their investment.  Once the source of new investors dries up, and thus no new money comes in to pay the earlier investors, this ultimately exposes the Ponzi scheme. Ponzi Schemes Appear to be Legitimate Business Enterprises Why do Ponzi schemes appear to be legitimate? The way that Ponzi schemers make their enterprises look like legitimate investments is that their operators are able to show valid returns being paid to their existing investors.  This track record lends credibility to the entire operation.  In order to confuse investors and to create the appearance of a sophisticated enterprise, fraudsters often present highly complex investment strategies to their victims.  They will often provide complicated offering documents that most prospective investors will only analyze on the surface.  Generally, if an investment strategy seems overly complex, most people will just leave it to the “experts” who are running the scam and not perform any research. Additionally, Ponzi scammers will often generate fake account statements that look quite real.  The false statements are then transmitted to their clients who are lulled into believing that their investment is both profitable and safe.  When one investor believes that they are making money, and then tell their friends of their success, this helps to propagate the fraud and recruit more victims. This will often happen in an “affinity fraud” situation where members of a church, club or ethnic group all invest with the same fraudster.   Recent Ponzi Schemes Have Involved  Virtual Currency According to the SEC, recent Ponzi scheme organizers use the latest innovation, technology, product or growth industry to entice investors and give their scheme the promise of high returns. Potential investors are often less skeptical of an investment opportunity when assessing something novel, new, or “cutting-edge.” You should look out for potential scams using virtual currency.  Virtual currencies, such as Bitcoin, have recently become popular and are intended to serve as a type of money. they may be traded on online exchanges for conventional currencies, including the U.S. dollar, or used to purchase goods or services, usually online. The SEC is concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to […]

Read more
financial advisor losses with mediation

How To Recover Financial Advisor Losses With Mediation

Apr 5, 2021

If you have lost money in your investments you might just chalk it up to the stock market or the performance of your investment. There are many investors who simply shrug off their investment losses due to market conditions, when in fact it may be the fault of their stockbroker or financial advisor. For example, it could be that the investment was unsuitable for you, or that the risks of the investment were not fully disclosed. One popular way to recover your losses is by mediating your claims by hiring an investment fraud lawyer. The Financial Industry Regulatory Authority  (“FINRA”) has a mediation program that allows for a fast settlement of claims recovery of losses for investors. What is the Difference Between Mediation and Arbitration? If you opened a brokerage account, chances are you are limited to arbitrating your case through the FINRA dispute resolution forum. When you hire a FINRA arbitration attorney, he or she will file your claim with FINRA and go through the process of document discovery and prepare for your final arbitration hearing. Generally, your arbitration claim will follow a parallel track where your FINRA attorney prepares your case for a final hearing, but, at the same time, the parties can agree to engage the services of a FINRA mediator to help resolve the dispute.  FINRA Mediation Differs From FINRA Arbitration  Resolving your case through FINRA mediation differs from resolving it through a FINRA arbitration hearing. A final arbitration hearing is where arbitrators hear your claims, listen to the witnesses (including experts),  examine the evidence and arguments of your attorneys, and make a final award that is binding and generally not subject to an appeal.  On the other hand, mediation is really nothing much more than a settlement conference conducted using an experienced mediator. In a FINRA mediation, the mediator cannot bind either party to a settlement amount,  but instead the mediator facilitates settlement discussions. The mediator is typically someone experienced in FINRA arbitration who can help both parties by evaluating the strengths and weaknesses of their positions in the case. By agreeing to a settlement amount in mediation, the parties can control the outcome of their case and not leave it up to a panel of arbitrators to decide their claims.   Sometimes experienced attorneys negotiate a settlement directly with the attorneys on the other side of the case. But, in cases where one client may be stubborn or if the direct settlement is ineffective, it helps both sides to have a mediator, who is an objective third party, to evaluate the case and guide the parties to a successful settlement.  There are only a handful of mediators who specialize in securities arbitration cases. An experienced FINRA attorney will know these mediators and choose one that is right for your case.  Who Pays the Mediator? Typically, the parties must initially agree to share the cost of the mediator, which can sometimes run up to several thousand dollars. While this fee may seem large, it is significantly lower than the cost of paying the FINRA arbitrators their daily rate to hear your case at an arbitration hearing.   […]

Read more
investment fraud tactic and red flags

Look Out For Common Investment Fraud Tactics And “Red Flags”

Mar 29, 2021

Scam artists don’t discriminate among victims. Almost anyone can be the victim of investment fraud. Our law office has seen people of many different educational levels,  age groups, professions, and backgrounds lose money in investment scams. The best thing you can do to protect yourself from investor fraud is to be on the lookout for common fraud tactics and to be able to recognize popular “red flags” of stockbroker abuse and misconduct.  The Financial Industry Regulatory Authority (also known as FINRA)  has created a list of the seven most common “red flags” of investment fraud.  FINRA’s top warning signs to watch for to stay on guard and avoid becoming drawn into a scam: 1. Guarantees: Be suspect of anyone who guarantees that an investment will perform a certain way. All investments carry some degree of risk. 2. Unregistered products: Many investment scams involve unlicensed individuals selling unregistered securities—ranging from stocks, bonds, notes, hedge funds, oil or gas deals, or fictitious instruments, such as prime bank investments. 3. Overly consistent returns: Any investment that consistently goes up month after month—or that provides remarkably steady returns regardless of market conditions—should raise suspicions, especially during turbulent times. Even the most stable investments can experience hiccups once in a while./ 4. Complex strategies: Avoid anyone who credits a highly complex investing technique for unusual success. Legitimate professionals should be able to explain clearly what they are doing. It is critical that you fully understand any investment you’re seriously considering—including what it is, what the risks are and how the investment makes money. 5. Missing documentation: If someone tries to sell you a security with no documentation—that is, no prospectus in the case of a stock or mutual fund, and no offering circular in the case of a bond—he or she may be selling unregistered securities. The same is true of stocks without stock symbols. 6. Account discrepancies: Unauthorized trades, missing funds or other problems with your account statements could be the result of a genuine error—or they could indicate churning or fraud. Keep an eye on your account statements to make sure account activity is consistent with your instructions, and be sure you know who holds your assets. For instance, is the investment adviser also the custodian of your assets? Or is there an independent third-party custodian? It can be easier for fraud to occur if an adviser is also the custodian of the assets and keeper of the accounts. 7. A pushy salesperson: No reputable investment professional should push you to make an immediate decision about an investment, or tell you that you’ve got to “act now.” If someone pressures you to decide on a stock sale or purchase, steer clear. Even if no fraud is taking place, this type of pressuring is inappropriate. There are also some less common but important red flags such as: 1. A stockbroker who pushes buying on margin or using equity from your retirement account; 2. A new account form that asks for little more than the investor’s name, address and social security number, or a stockbroker who does not discuss the investor’s current assets, goals for investment […]

Read more
FINRA arbitration

What To Expect When You File a FINRA Arbitration Claim?

Mar 1, 2021

If you are reading this blog, it’s likely that you lost money due to investment fraud or broker negligence and are seeking to understand the FINRA arbitration claim process and perhaps find an experienced attorney to handle your case. Our experienced and dedicated attorneys have recovered tens of millions of dollars for investors who have been the victims of investment fraud or brokerage fraud. We have over 25 years of experience representing investors in FINRA arbitrations. Chances are, if you have a brokerage account, you are obligated to bring your claims before FINRA in its arbitration forum.  This is because  FINRA member firms have agreements with the customers subjecting them to mandatory arbitration.  This should not concern you because your securities fraud claim will be heard, just not in a traditional court. Why am I stuck in Arbitration? When you opened up an account with your brokerage firm, you probably signed a document or clicked an agreement giving up your legal right to bring a lawsuit for securities fraud or negligence. If you do not remember doing this, this is not uncommon. The vast majority of brokerage firm and investment account customer agreements contain a FINRA pre-dispute arbitration clause. There has been a lot of discussion in the media about mandatory arbitration in consumer cases and some people think this is unfair. However, the Supreme Court of the United States has decidedly ruled that brokerage firms have the right to do so. While giving up the right to bring a lawsuit may seem like a negative thing to an investor, all in all, the FINRA arbitration has some big benefits as well.  The prime benefits of FINRA arbitration versus court are 1) the process is quicker (generally you will get to a hearing within a year when court cases can take years to go to trial); 2) Unlike court, there are no depositions and the only discovery is an exchange of documents by the parties; 3) FINRA arbitration is much cheaper due to the streamlined nature of the process; 4) you get to rank and select the arbitrators who will hear your case, rather than your case being assigned to a judge; 5) there is generally no right of appeal—absent very narrow circumstances; 6) most FINRA arbitration cases tend to settle prior to a final hearing while court cases may not since the defendant always has the right (and money to fund) an appeal.  Be Sure to File Your FINRA Arbitration Claim on Time Unlike court, the FINRA forum has an “eligibility” rule, requiring that all claims must be brought within six years of the occurrence or event giving rise to the dispute.  If you fail to take action in time, you may lose the ability to take action at all. However, it must be noted that securities dispute cases are incredibly complex and this is not the only time rule. In addition to the eligibility, various types of claims may have their own statutes of limitations that are even shorter. For example,  Florida has enacted a four-year statute of limitations for negligence claims, and various states have their own […]

Read more
Tips For Investing In Non-traded REITS

Tips For Investing In Non-traded REITS

Feb 22, 2021

Sales of non-traded real estate investment trusts topped $1.1 billion in December 2020, the highest total since February and a 30 percent increase from the $859 million raised in November, according to investment bank Robert A. Stanger & Company. And, many of these have been sold to unsophisticated retail investors. While generally an investor can easily buy and sell shares of publicly-traded REITs, it’s much harder to sell a non-traded one. They also tend to have longer holding periods, some up to 10 years. Brokers like non-publicly traded REITS because the front-end fees are large—sometimes as much as 15% just for selling this one product. Non-traded REITS are often recommended to investors seeking income, and,  in a low-interest environment, they appeal to people because they appear to be backed by real estate assets. What most investors do not know, however, is that often these non-traded REITs are highly leveraged and may be paying their investors with this borrowed money, or just giving the investor their money back as a distribution. Brokerage Firms Have been Fined for Improperly Selling Non-Traded REITs Non-Traded REITs have also been the subject of recent regulatory actions. It has been reported that NEXT Financial Group,  a Houston-based broker-dealer, will pay $475,000 in fines to settle charges that it placed investors in unsuitable non-traded real estate investment trusts. Some of these unsuitable sales of non-traded REITs include sales to investors over 80 years old. The Enforcement Section of the  Massachusetts  Securities Division filed a complaint against LPL Financial, LLC for improprieties in the sales of seven non-traded REITs. In recent years, LPL has come under fire from customers and regulators for what are considered the inappropriate sales of REITs. New Hampshire and New Jersey have also filed actions against  LPL over this alleged misconduct in the sale of non-traded REITs by its brokers.  What Exactly is a REIT? REIT, short for a real estate investment trust, is a company that owns, and generally operates, income-producing real estate or real estate-related assets.  REITs pool the capital of numerous investors to purchase a portfolio of properties—from office buildings and shopping centers to hotels and apartments, even timber-producing land—which the typical investor might not otherwise be able to purchase individually. Types of such income-producing real estate assets owned by a REIT include real assets (such as an apartment or commercial building) or real estate-related debt (such as mortgages).  How is a Publicly Traded REIT Different from a Non-Traded REIT? Publicly traded REITs (sometimes referred to as exchange-traded REITs) are registered with the SEC, file regular reports with the SEC, and are listed on an exchange such as the NYSE.  Similar to stocks listed on an exchange, you can buy and sell a publicly-traded REIT easily.  This is why an investment in a  publicly-traded REIT is generally often called a “liquid” investment. Because a publicly-traded REIT is listed on an exchange,  you can easily determine its value by looking up the share price at which the REIT is trading. A non-traded REIT is also registered with the SEC and files regular reports with the SEC. However, these investments are not listed on any […]

Read more