Naples, FL— A financial advisor improperly sold multiple high-risk non-traded REITs and other alternative investment products to a risk-averse Minnesota teacher and caused her dramatic losses, according to a claim filed today by investment fraud attorneys at Vernon Litigation Group, the investor rights law firm.
The financial advisor repeatedly recommended high-risk and illiquid investments despite the divorced teacher’s clear and repeated calls for caution. The advisor answered questions about risk with promises of safety and dismissed the teacher’s concerns about unsuitable products with reassurances that later proved false. All the while, the financial advisor earned high commissions on the products he was pushing, the claim states.
Vernon Litigation Group firm founder Chris Vernon said the retired teacher, who invested more than $500,000 in REIT investments as well as on other real estates related and alternative investments, sought financial management specifically because she felt unqualified to safely invest the limited nest egg that was to provide retirement income for her following her divorce.
But instead of carrying out his duties as a financial professional, the financial advisor repeatedly recommended products that lined his own pockets with high commissions and put the client’s assets at risk, according to the claim. Products sold to the teacher included non-traded REITs and other real estate related investments such as Inland American Real Estate Trust, Inc., Summit CRA Multi-Family Housing II, LLC, IMH Secured Loan Fund, United Development Funding II, and a Wells/Piedmont REIT.
While the typical sales pitch for non-traded REITs centers on owning income-producing real estate without the headache and sidestepping market volatility, the truth is that these products often do not perform as anticipated. Non-traded REITs sidestep market volatility only because there is no liquid secondary market to price them. This same lack of liquidity gives investors no way out of a bad situation if the non-traded REIT reduces or suspends payments to investors and then suspends redemptions. In that all too frequent case, investors cannot sell their shares back to the REIT but must instead sell in a very thin secondary market at a very deep discount.
Although the client in today’s claim requested diversified, safe, income-producing investments, the financial advisor did just the opposite; he concentrated her assets in more and more non-traded REITs and another alternative, illiquid, and high-risk products.
For example, in addition to the REIT and other real estate investments, the financial advisor also inappropriately recommended and sold the Minnesota School teacher high risk and illiquid health-related investments such as U.S. Preventative Medicine and Medical Capital Notes.
The claim requesting FINRA arbitration alleges that the financial advisor:
* Failed to perform due diligence on investments that would have revealed glaring problems with principals who had been sued for fraud and embezzlement and immediately ruled out those investments for the client.
* Failed to diversify the retired teacher’s portfolio and instead loaded it with real estate investments such as highly risky non-traded REITs that saw vanishing disbursements and then became illiquid when redemptions were suspended.
* Put the retired teacher’s money in products that were not traded on the open market, leaving her with no place to sell her investments.
Vernon Litigation Group is a Naples, Florida law firm that represents investors nationwide who are victims of stock fraud and stock losses due to broker fraud and brokerage firm fraud and misconduct. Vernon Litigation Group’s investment fraud attorneys are experienced in arbitration and litigation, and the firm assists clients in attempting to recover losses caused by all manner of financial fraud and negligence. It focuses its practice on complex financial litigation and arbitration as well as other complex business litigation and arbitration.
CONTACT: Vernon Litigation Group
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law
Keywords: REIT losses, non-traded REITs, Wells REIT, Inland American REIT, REIT investing, Medical Capital