A financial advisor looking to line his own pockets with high commissions rather than protecting the hard-earned $1.2 million nest egg of his Illinois businessman client improperly sold high-risk Behringer Harvard REITs and other unsuitable investments to the man’s Trust, according to a claim filed today by Vernon Litigation Group, the investor rights law firm.
The non-traded REIT investments, which are now illiquid and worth far less than when the financial advisor-sold them to the man, have robbed him of a secure retirement and left him wondering if he must now return to work, the claim asserts.
The man, who now lives in Florida, chose a financial advisor who he believed understood his need for protecting his nest egg for his upcoming retirement.
The advisor recommended that the best course for his $1.2 million from the sale of his business was diversification in secure financial vehicles with the intention of wealth protection and growth, according to the claim. But the advisor failed to follow his own recommendations, instead of concentrating more and more of the man’s Trust in ultra-high commission, high-risk, non-traded REITs, specifically in only one company – Behringer Harvard, according to the claim.
The financial consulting relationship that began with plans for diversification and wealth protection ended in 2007 with more than $830,000 of the $1.2 million nest egg invested in high-risk Behringer Harvard REITs, the claim states. These REITs have suspended distributions and redemptions and are currently worth roughly 25 cents on the dollar on the limited secondary market. As well another $85,000 was also invested in Ridgewood Energy, another illiquid and inappropriate investment for the Trust, according to the claim.
As it now stands, the Trust that was put in place to provide a secure retirement for Vernon Litigation Group’s client will be insolvent by 2012 due to the advisor’s investment recommendations, according to the claim.
The Vernon Litigation Group Law Firm is conducting ongoing investigations into the sales of non-traded REITs, including Behringer Harvard, Cole REITs, Inland REITs, and Apple REITs offered by David Lerner & Associates, to clients who need stability and wealth protection. Vernon Litigation Group believes its investigations have revealed that non-traded REITs are one of the most defectively designed investment products on the market.
The Financial Industry Regulatory Authority (FINRA) filed a complaint Tuesday against David Lerner & Associates and charged the firm with selling shares in Apple REIT Ten, a $2 billion non-traded REIT, to elderly and unsophisticated investors without investigating whether it was suitable for them. The firm was also charged with giving misleading information about Apple REIT Ten distributions.
Vernon Litigation Group has found that some non-traded REITs are financial engineering schemes that falsely entice new, often conservative investors with the promise of owning a piece of real estate that they would never otherwise be able to own while receiving a stream of income for years. Such sales pitches are bolstered by claims that these investments are not affected by stock market volatility.
Part of the enticement comes from the robust returns that investors initially see. What they don’t know is that the distributions are often actually coming from more recent investors. Some REITs are actually borrowing to provide returns rather than generating them from the REIT’s operations.
In carrying out this operation of paying old investors with new investors’ money, Behringer Harvard was creating a false yield simply to make investing in its REITs more attractive to the investor seeking income from his investments, according to the claim.
Chris Vernon, the founder of Vernon Litigation Group, has spoken to and warned regulators in several states regarding the sale of these high-risk, ultra-high commission investments that unscrupulous financial advisors are pushing on traditionally risk-averse clients, many of them retirees with irreplaceable nest eggs.
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 were among the first to caution investors about the dangers of non-traded REITs. The firm’s REIT attorneys have written about the dangers of these products in numerous articles. They are currently representing investors who have collectively suffered millions of dollars in REIT losses, and they have warned regulators about them.
CONTACT: Vernon Litigation Group
Christopher T. Vernon, attorney at law
Susan R. Healy, attorney at law