The law firms of Vernon Litigation Group and Dovin, Malkin & Ficken have filed a $1.5 Million claim against ProEquities, Inc. on behalf of a Florida family that was guided toward inappropriate, high commission investments by one of ProEquities financial advisors.
In order to ensure that a portion of their money would last and benefit them and their three children for years to come, the investors sought the advice of a financial advisor registered with ProEquities, Inc. Under the guidance of their ProEquities financial advisor, they put much of their money into Behringer Harvard REIT I and Behringer Harvard Strategic Opportunity Fund II.
Although Behringer Harvard REIT I started out paying the Florida couple regular distributions, a portion of the dividend investors (including the Florida couple) were receiving was derived from new investors’ money or from loans made to the REIT rather than profits. In fact, Behringer’s annual report also reveals that at one point Behringer Harvard treated more than 91 percent of the distribution as a “return of capital.” Behringer Harvard’s practice of using new investors’ money or borrowed funds to pay prior investors continued. In 2008, the annual report disclosed that “none of the distributions… were distributions from the taxable earnings of real estate operations.” In other words, 100 percent of the distribution came from new investors’ money and/or loans made to the REIT.
Soon thereafter, Behringer Harvard REIT I distributions were cut and most recently cut again to 1 percent. The claim states that their trusted ProEquities financial advisor reassured the family that their funds were safe and that the distribution was reduced because Behringer Harvard REIT I was preparing itself to either go public or be purchased by another REIT and needed to make its balance sheet look more desirable. The claim points out that, in reality, Behringer Harvard REIT I had already lost a considerable portion of its value and is now worth considerably less than its original value of $10 per share. Redemptions in this REIT are also suspended, so the Florida couple cannot redeem their shares unless they are sold in the secondary market at a very substantial loss.
Behringer Harvard Strategic Opportunity Fund II, another non-traded REIT sold to the Florida couple, has now stopped paying distributions altogether. The ProEquities financial advisor reassured the investors that their money was safe and growing and represented that a liquidity event would occur, according to the claim. Recently, investors in Behringer Harvard have been informed that the REIT is underwater and most of the capital is now going toward the repayment of loans, which is inconsistent with an entity about to enter into a positive liquidity event.
The claim against ProEquities, Inc alleges that it violated its obligations by inappropriately pushing investors into these products. “These investments netted the financial advisor and ProEquities a six-figure commission but left his clients with little to show for their investment,” said Chris Vernon, securities fraud lawyer and founding partner at the firm representing the family. “Despite his duty to his clients, the financial advisor decided to make recommendations that benefited himself and ProEquities.”
Vernon Litigation Group and Dovin, Malkin & Ficken are currently representing numerous investors across the country whose money was put into Behringer Harvard REITs and other non-traded REITs such as Wells, Inland, Cole, CNL, and KBS. “Sadly, the allure of high-commission investments blurs the advisor’s purportedly independent judgment, who fails to act with the investor’s best interest in mind,” said Chris Vernon. “What is worse is that this occurs at the expense of retired individuals and families who are in need of safe and liquid investments that provide a steady source of income.”