Monthly Archives: October 2010

Inland American Real Estate Trust has reset the value of its common shares to $8.03. For investors, it isn’t good news; the price is down from the $10 that the shares sold for when the non-traded REIT was first launched in 2005.

Inland announced the reset on Sept. 21 in an 8-K filing with the Securities and Exchange Commission (SEC). Inland also stated in the filing that it “gives no assurance that a stockholder would be able to resell his or her shares at the new estimated value.”

“We believe the current downturn in the economy has depressed the value of our assets and hence the estimated value of our shares,” Inland said. “The value of our shares will likely change over time and will be influenced by changes to the value of our individual assets as well as changes and developments in the real estate and capital markets.”

Other non-traded have followed Inland lead in resetting their values. Among them: Behringer Harvard REIT I, which reset its shares to $4.25 earlier this summer, and KBS REIT, which reset its value to $7.17 in late 2009.

Maddox Hargett & Caruso is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning non-traded REITs, please contact us.

Non-traded real estate investment trusts (REITs) are big business. According to research from Blue Vault Partners LLC, non-traded REITs are on track to raise $7 billion in 2010, a 17% increase over 2009.

For brokers and firms pushing non-traded REITs, that’s good news. They stand to make huge commissions from sales of non-traded REITs. Investors, however, often come out on the losing end of non-traded REIT deals. That’s because non-traded REITs lack transparency, and they are not even considered liquid investments.

Moreover, investors in non-traded REITs often fail to realize that redemptions can be suspended at any time. The same goes for dividends, which could be reduced or suspended. The end result? Investors’ money in non-traded REITs is tied up, oftentimes for years.

As reported by REIT Wrecks, a Website devoted to the REIT sector, a number of non-traded REIT programs have eliminated or severely limited their share repurchase programs. Among these are some non-traded REITs that continue to offer their shares to the public. As of the first quarter of 2010, this group included Behringer Harvard Multi-family REIT I, Grubb & Ellis Apartment REIT, Wells REIT II, and Wells Timberland REIT.

Says REIT Wrecks: “Based on their Q3 earnings, the two apartment REITs are in heaps of trouble, while Wells Timberland REIT is playing a game of beat the clock with its lenders using money from new shareholders. Avoid these like the plague.”

Maddox Hargett & Caruso currently is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning investments in a non-traded REIT, please contact us.

Embattled broker/dealer Securities America is crying foul as it faces Massachusetts securities regulators over claims of misleading investors who bought $7.2 million in Medical Capital private placements. The legal showdown began in earnest last week, when Securities America appeared at an administrative hearing to answer allegations brought in early 2010 that the broker/dealer failed to disclose potential red flags to both advisers and clients about Medical Capital.

Medical Capital is a Tustin, California, lender that issued private placements to purchase medical receivables. Securities America was one of Medical Capital’s biggest distributors, selling an estimated $700 million of the private placements from 2003 to 2008.

Meanwhile, investors reportedly lost more than $1 billion with their purchases of Medical Capital notes.

In July 2009, the Securities and Exchange Commission (SEC) charged Medical Capital and its two top executives with securities fraud. After raising $2.2 billion in capital, the firm is now in receivership. Regulators have since discovered that Medical Capital’s assets included not only medical receivables and loans but also a 118-foot yacht and a $20 million stake in the movie, “Perfect Game.”

As reported Oct. 4 by Investment News, the Securities America case is the first major legal battle involving an independent broker/dealer that sold private placements, or Regulation D offerings.

According to the lawsuit brought by Massachusetts regulators, Securities America deceived investors by allegedly representing MedCap notes as safe, secure and guaranteed, and never revealing the true nature of risk that the investments presented.

In addition, the lawsuit alleges that a due-diligence analyst at Securities America had serious concerns about Medical Capital, including the lack of audited financials for the series of private placement offerings. In 2005, Jim Nagengast, who was then Securities America’s president and current its chief executive officer, wrote in an e-mail that he, too, had issues about the lack of audited financials.

“Massachusetts investors were sold unsuitable, fraudulent notes by fraudulent means,” said Richard Khalife, an attorney for the Massachusetts Securities Division, in the Investment News article. “Unlawful conduct can’t go unpunished.”

Massachusetts isn’t the only regulator suing Securities America over sales of Medical Capital notes. In August, Montana regulators also sued Securities America, alleging that the firm and executives “withheld material information regarding heightened risks” from its representatives and their clients regarding notes issued by Medical Capital Holdings.

More than 40 other independent broker/dealers sold private placements in Medical Capital.

Maddox Hargett & Caruso P.C. continues to file arbitration claims with the Financial Industry Regulatory Authority (FINRA) on behalf of investors who suffered investment losses in Medical Capital. If you purchased Medical Capital Notes from a broker/dealer and wish to discuss your potential rights for recovery, contact us.