The non-traded real estate investment trust known as the Wells Timberland REIT recently lowered its stock valuation by 35% to $6.56 per share. When shares of the REIT were offered to the public in 2006, the price was $10 a share.

As reported Dec. 17 by Investment News, the company blames the REIT’s 35% drop in value on the economic downturn and continued problems in the housing industry.

Wells Timberland REIT is sponsored by Wells Real Estate Funds, one of the biggest players in the non-traded REIT industry. According to Wells’ corporate Web site, the company has invested more than $11 billion in real estate for more than 300,000 investors.

As noted in a letter sent to stockholders last week by Wells President Leo Wells III, the $6.56 estimate for common shares was based on information as of Sept. 30. However, investors in the Wells Timberland REIT might find it hard to actually get that price in the market based on the illiquid nature of non-traded REITs.

Last October, the trust suspended redemptions of shares until the new estimate of share values was completed. Beginning in January, shareholders should theoretically be able to redeem shares for 95% of the estimated value – or $6.23. The REIT, however, funds redemptions out of its “distribution reinvestment plan,” and because it has made no cash distributions, it also has not made any ordinary share redemptions, according to the Investment News article.

 

 

It’s more bad news for non-traded real estate investment trusts (REITs) and the broker/dealer firms that market and sell them to investors. Yesterday, Massachusetts securities regulators filed a complaint against LPL Financial, charging the B-D of failing to supervise registered reps who sold the non-traded REITs in violation of both state limitations and the company’s rules.

As reported Dec. 12 by Investment News, the charges stem from sales of $28 million of non-traded REITs to almost 600 Massachusetts clients from 2006 to 2009. Nearly all of the transactions in question violated state securities regulations or LPL’s own compliance practices, the Massachusetts Securities Division says.

Secretary of the Commonwealth William Galvin also charged LPL with dishonest and unethical business practices. He is seeking restitution to investors who bought the REITs, a fine and other sanctions, according to the complaint.

LPL reps sold $28 million in investments in non-traded REITs and collected about $1.8 million in fees as a result, Galvin’s office alleges.

“Non-traded REITs present risks to investors,” Galvin said in a statement. “Massachusetts recognizes those risks and requires limits on an investors’ exposure to the high fees, potential illiquidity, and risky nature of non-traded REIT products.”

REITs own and manage income-producing property or are involved in real estate financing.  Non-traded REITs are more difficult to get one’s money out of, and tend to carry high fees and commissions, Galvin said.

Of the REITs listed in the complaint, the largest amount of sales was for Inland American Real Estate Trust. Inland American is the biggest non-traded REIT in the industry, with more than $11 billion in real estate assets. Massachusetts investors put more than $20 million in Inland American, which currently is the focus of a probe by the Securities and Exchange Commission (SEC).

LPL calls Galvin’s claims “substantially overstated.”

 

After clients saw $18 million in financial losses tied to variable annuities with subaccounts invested in hedge funds, the Financial Industry Regulatory Authority (FINRA) wants answers from the broker/dealers behind the sales.

As reported Dec. 5 by Investment News, the variable annuity was issued by Sun Life Financial Inc., while the two hedge funds were the Foresee Strategies Insurance Fund and the Foresee Strategies 3(c)(1) Insurance Fund LP. Both funds were related to a group called the SALI Multi-Series Fund LP.

The broker/dealers facing FINRA arbitration complaints from investors regarding the Sun Life annuities include: Geneos Wealth Management Inc., Lincoln Financial Network, National Planning Corp., SagePoint Financial Inc. and FSC Securities Corp.

Another broker/dealer that sold the product reportedly has been shut down.

Last week, a FINRA arbitration panel issued a $284,000 award to a SagePoint client, Phillip Sherrill, who filed a claim against the firm one year ago. In his complaint, Sherrill alleged actions of unsuitability, common law fraud, breach of fiduciary duty and negligence related to investments in the SALI Multi-Series Fund and the SALI Multi-Series Fund 3(c) (1) LP.

Could a potential door for investment fraud be opening in the near future courtesy of the Jumpstart Our Business Startups (JOBS) Act? That very well may be the case unless the Securities and Exchange Commission (SEC) intervenes and comes up with new regulations to protect investors.

The JOBS Act was signed into law in April, with the idea to make it easier for small companies to raise capital. The law also allows private placements and hedge funds to advertise, for the first time, their products to the public.

As reported Dec. 4 by Bloomberg, the JOBS Act essentially means underperforming hedge funds can now market themselves with no serious restrictions or regulations regarding what they say or to whom they say it. In other words, some funds could easily tout themselves on the “airwaves, on websites and in the pages of the financial press to unsophisticated investors eager to get the same fabulous returns as the Wall Street elite,” the Bloomberg article said.

The potential risks to hedge-fund investors are considerable given the fact that the funds lack transparency, are extremely opaque and entail a compensation structure that encourages managers to bet big in order to claim their share of profits.

Moreover, many hedge funds hold thinly traded or illiquid investments, so investors are unable to easily withdraw their money.

The bottom line: Allowing hedge-fund advertising with no oversight attached does little to promote investor confidence in Wall Street. Indeed, it does the opposite.

Five thousand victims, 50 years in prison. That’s what it came down to when a federal judge sentenced Indianapolis businessman and owner of Ohio-based Fair Finance Tim Durham to 50 years in prison for swindling investors out of $250 million.

Durham was convicted of using investors’ life savings to fund his own lavish lifestyle, which consisted of classic cars, mansions in California and Indiana, luxury gambling trips and other extravagant items. On Nov. 30, Durham and the judge responsible for determining his fate heard from several former clients who once trusted Durham with their life savings.

U.S. District Judge Jane Magnus-Stinson received more than 1,000 letters from investors of Fair Finance. One of the investors was Jane Kalina, who told the court that her father had invested everything with Durham’s company – only to lose his life savings of $170,000.

“My father’s been a farmer for many, many years and as soon as he had his farm paid off, he started investing in Fair Finance. When he sold the farm, he put some of that money in, too. Basically this is his life savings. He’s been devastated. He has no retirement, no 401(k) and this is his life savings for him and my mother,” said Kalina.

Then there’s 74-year-old Barbara Lukacik, an Ohio nun who lost more than $125,000 to Durham’s scam.

In speaking to the court, the 74-year-old looked Durham squarely in the face and said: “Shame on you!”

Two of Durham’s co-conspirators also learned their fate on Nov. 30. Fair Finance co-owner James Cochran was sentenced to 25 years in prison, while Rick Snow was sentenced to 10.

“Mr. Durham will never spend another day of his life in anything other than a federal prison,” said Joe Hogsett, U.S attorney, following Friday’s hearing.

In the end, Tim Durham’s own arrogance and sense of entitlement may have been the deciding factor to his fate. In handing down a 50-year prison sentence for Durham, Judge Jane Magnus-Stinson offered three words to describe the disgraced businessman, 50, and his crimes in conning more than 5,000 unsuspecting Fair Finance investors out of $250 million: Deceit, greed, and arrogance.

It’s quite a fall for Durham who once famously threw lavish parties at his Geist Reservoir mansion and drove expensive Bugatti cars.

Durham offered only a brief statement to the court before Judge Magnus-Stinson announced his sentence. What he did not offer, however, was an apology to his victims. Instead, Durham stated that he felt “terrible that they all lost money. My family has lost all of its investments.”

Durham’s 50-year sentence means he’ll likely spend the rest of his life behind bars. Unlike state prisoners, federal inmates are required to serve 85 percent of their sentences. Durham will have to live to the age of 93 to survive his sentence.

Judge Magnus-Stinson also sentenced Fair Finance co-owner Jim Cochran, 57, to 25 years in prison, and Fair Finance CFO Rick Snow to 10 years.

Durham attorney John Tompkins says he plans to appeal his client’s sentence within the next 14 days.

Before Durham’s sentence was announced, several Fair Finance victims spoke about the crime and its effect on their lives. One of the victims was Barbara Lukacik, a 74-year-old nun who lost her life savings of $125,000 to Durham’s scheme.

“What has happened is shameful,” she said in a Nov. 30 story by the Indianapolis Business Journal. “Yes, the economy was weak, but that didn’t give you the right to steal not only my money but all the victims of Fair Financial to use as you wish, for serious greed and pampering. And you say you haven’t hurt anyone; let’s be real. I honestly believe justice must be served because it’s the righteous thing to do.”

As she concluded her testimony, Lukacik turned toward Durham and said, “Shame on you.”

Following the sentencing, Lukacik stated to WRTV Channel 6 that she disappointed Durham failed to show any signs of remorse.

“If he had said he was sorry, that would have meant something,” she said.

 

 

James Cochran, the business associate of disgraced Indianapolis financier Tim Durham, has been sentenced to 25 years in prison for his role in a Ponzi scheme that swindled about 5,000 investors out of more $200 million.

U.S. District Judge Jane Magnus-Stinson sentenced Cochran about an hour after she sentenced Durham to 50 years in prison.

In June, a jury found Durham, Cochran and another business associate, Rick Snow, guilty of securities fraud and conspiracy.

Prosecutors say the three men used Ohio-based Fair Finance as their personal piggy banks, orchestrating an elaborate Ponzi scheme to steal investors’ money to buy mansions, fancy cars and other luxury items for themselves.

The party is really over for convicted Indianapolis Ponzi schemer Tim Durham. The once big spender will be spending the next 50 years of his life in prison. U.S. District Judge Jane Magnus Stinson announced Durham’s sentence today at approximately 2 p.m.

Durham, 50, was convicted in June of securities fraud, conspiracy and 10 counts of wire fraud for bilking 5,000 investors in Ohio-base Fair Finance out of more than $200 million. Many of the investors were elderly.

Judge Magnus Stinson’s sentence was much less than the 225 years that the state was pursuing. The judge noted, however, that it was “effectively” a life sentence. She told Durham it was easy for him to donate to charity and politicians because he was using other people’s money and that he was trying to play the system.

Durham took the stand on Friday, but no one testified on his behalf. Ten individuals, including Durham’s mother, did write character letters for Durham in which they described him as gentle, loving, charitable and unselfish.

While on the stand, Durham stated that he felt “bad” for investigators, telling the court that he didn’t know people invested on an individual basis and wishes he was clearer about some things.

Earlier this week, Durham’s attorney, John Tompkins, lobbied unsuccessfully for his client’s sentence to reduced to five years.

“We believe that (five years) is well-supported by the law,” Durham’s attorney John Tompkins told The Indianapolis Star. Tompkins argued that Durham deserves a shorter sentence because “the seriousness of Mr. Durham’s offenses is substantially overstated.”

Prosecutors, meanwhile, saw Durham’s crimes in a different light.

“Durham is responsible for one of the largest and most brazen frauds in Midwest history, and due to its terrible impact on the victims, also one of the most egregious frauds in history,” prosecutors stated in initial charging documents.

Durham and Fair Finance co-owner Jim Cochran (who was convicted on eight of 12 felony charges) bought Fair Finance in a 2002 leveraged buyout. Following the purchase of the business, court documents say Durham drained tens of millions from Fair Finance by making loans to himself and several failing businesses he owned. Millions of dollars also went toward Durham’s mansions, including one in the swanky neighborhood of Geist Reservoir in Indianapolis, a yacht, part ownership of an airplane, remodeling of his garage and $150,000 at one casino.

Rick Snow, Fair Finance’s chief financial officer, was convicted on five of 12 counts.

Cochran and Snow also will be sentenced Friday.

Friday is a big day for former Indianapolis financier and Fair Finance owner Tim Durham. Convicted in June of securities fraud, conspiracy and 10 counts of wire fraud for conning about 5,000 investors out of more than $200 million, Durham is set to be sentenced in U.S. District Court in Indianapolis.

Durham is facing a possible sentence of 225 years in prison, the maximum sentence recommended in a federal probation report.

“Durham has earned a place among the greediest, most selfish, and remorseless of criminals,” federal prosecutors wrote in documents filed Monday.

Earlier this week, Durham’s attorney, John Tompkins, filed documents asking for a five-year sentence for his client. Among other things, Tompkins argued that Durham deserves a shorter sentence because “the seriousness of Mr. Durham’s offenses is substantially overstated.”

The 5,000 investors in Fair Finance may think otherwise.

Troubles at large and smaller brokerage firms – from allegations of misappropriation of funds to bankruptcies – are leaving more investors with questions – and concerns – about the safety of their assets.

“There’s a big difference between doing business with a national or regional brokerage firm and a smaller one,” said Mark Maddox, founder of Maddox, Hargett & Caruso, P.C. in a Nov. 23 Wall Street Journal article. Maddox, an Indianapolis-based lawyer, has represented investors in arbitrations against both small and large brokerage firms.

Larger brokerages such as UBS or Morgan Stanley Wealth Management or online firms such as Fidelity Investments and Charles Schwab are often thought of as more secure and less likely to fail, experts say.

But, as the WSJ article points out, some investors prefer the homegrown touch of smaller brokerage firms to their bigger counterparts. To ensure their money stays safe, investors should consider several factors, according to the article.

Among those considerations: Choose the right type of account. A cash account compared to a margin account is safer. It’s also important to check the Broker Check Web site of the Financial Industry Regulatory Authority (FINRA) to view the history of regulatory actions or civil proceedings against a firm or broker.

In addition, research the firm’s reputation and balance sheet.

“If a firm is thinly capitalized, you want to stay away from it,” Maddox said in the Wall Street Journal article. Case in point: Hudson Valley Capital Management. Earlier this month, the New York-based firm was expelled from the securities industry after its chief executive allegedly used customer assets to cover up losses he sustained while day trading. As of Sept. 30, 2011, Hudson Valley Capital had only about $80,000 in assets.

Maddox also advises asking the brokerage firm if it has professional liability insurance. If it does, and it commits malpractice that costs clients money, they will be able to recover what is owed to them. Maddox recommends asking for a copy of the declaration page of the policy that summarizes the firm’s coverage.