Own KBS REIT?? No Good News Yet

In May 2012,  a class action complaint was filed against KBS Real Estate Investment Trust, Inc (KBS REIT I) and related companies and executives. The suit alleges what we have heard from many of our clients…that KBS made misrepresentations about the investment objectives, the reliability of the purported dividend payments and the value of the REIT’s investments.

Investors paid $10 per share for KBS. The company announced an “estimated value” of $5.16 per share in March 2012, however as we have previously noted, the secondary market, which is the only place this investment can be traded, discounts the company’s “estimated value” by another 20-30%. So investors may be surprised to learn that their shares are only worth $3-$4 if they need to liquidate quickly.

Given the rise in litigation over non-exchange traded REITs like KBS I, broker-dealers are becoming more wary of selling these products. The Investment News recently reported that Summit Brokerage Services, Inc. had suspended its selling agreements with KBS.

Investors who purchased KBS in 2006 should be aware that time may be running out for filing claims. See our prior discussion on that topic here.

Brokers owe a duty to investors to perform due diligence on the investments they offer to their customers. They also owe a duty to accurately and fully disclose the risks and rewards associated with each investment they sell. If you were misled about the nature of KBS REIT or any other investment  and have suffered losses, you may be able to recover those losses.

Contact us at 561 391 1900 for a free consultation. Nationwide representation.

Rex Securities Law

Rex Securities Law Investigates Recovery of Losses from Atlantic Coast Financial Services & Broker Robert Zacharias

Rex Securities Law recently filed an arbitration complaint with the
Financial Industry Regulatory Authority (FINRA) on behalf of an elderly lady from the Jacksonville FL area who was sold over one million dollars worth of non-exchange traded real estate investment trusts (REITs), annuities and a universal life insurance policy. The arbitration complaint alleges that the investments were not suitable for her and that there were numerous misrepresentations made to her in connection with the sales.

REITs purchased include KBS REIT, Hines REIT, WELLs REIT II and Cole REIT.

The customer, who had an account with Atlantic Coast Bank on N.
University Boulevard, was encouraged by bank employees to open an account with Atlantic Coast Financial Services and broker Robert
Zacharias located on Normandy Boulevard in Jacksonville.

If you have information related to this matter we would appreciate hearing from you.

Robert H. Rex, Esq. been helping investors recover investment losses for over twenty years. We represent clients nationwide.

Brokers have a duty to make recommendations that are suitable for each individual investor. If you have suffered losses as a result of investments sold to you by Atlantic Coast Financial and or Robert Zacharias , you may be able to recover those losses.

Please do not hesitate to contact us at 561 391 1900.
Free consultation.

Rex Securities Law


SEC Says OppenheimerFunds Misled Investors: Assesses $35 M Fine

The Securities & Exchange Commission found that during the financial crisis, OppenheimerFunds did not adequately disclose the use of derivatives in two funds to investors:

  • Oppenheimer Core Bond Fund- OPIGX
  • Oppenheimer Chamption Income Fund -OPCHX

The Core Bond Fund lost 36% and the Champion Income Fund lost 72% of its value. According to SEC Enforcement Officer Robert Khuzami, “Mutual funds have an obligation to clearly and accurately convey the strategies and risks of the products they sell. Candor, not wishful thinking, should drive communications with investors, particularly during times of market stress.”

The derivatives added leverage supposedly to add substantial exposure to commercial mortgage backed securities in the funds, however, according to the SEC it backfired in 2008 when the market collapsed. 

If you have unexplained losses in your brokerage account, we may be able to help you recover those losses from the broker dealer who sold you the investments. Brokers have a duty to make suitable recommendations and to disclose the risks and rewards of every deal they sell. Call us at 561 391 1900 for a free consultation.

Nationwide representation

Rex Securities Law

Do You Own Lerner Apple REIT Ten ? Read Why FINRA is Concerned, Part One.

In December 2011, the Financial Industry Regulatory Authority (FINRA) amended their complaint against the company David Lerner Associates, Inc. and added David Lerner, individually. That amended complaint contains information that should be of interest to anyone who owns any of the Lerner Apple REITs, and especially those owning Apple REIT Ten. The amended complaint can be accessed here.

Since the complaint is 58 pages long I will break this analysis into several separate posts. Here are highlights of the FINRA allegations that you should be aware of. Annotations are to the page number of the amended complaint:

  • Lerner continues to solicit thousands of customers to purchase Apple REIT Ten without performing adequate due diligence that there is reasonable basis to recommend the security to any customer..….and has sold the illiquid investment to unsophisticated and elderly customers. (Pages 1 & 2)
  • Through June 2011, Lerner marketed Apple Ten by using misleading results from Apple REITs Six, Seven, Eight & Nine, by misrepresenting the rate of return and the misleading investors into believing  distributions are income by using slide presentations that omit material information and present statements and claims that are misleading and exaggerated. (Pages 2&3)
  • Lerner , to counter negative press following the filing of the original FINRA complaint, sent out letters and conducted seminars regarding the performance , prospects, risks, a potential merger and the liquidity of the Apple REIT programs  that are exaggerated and misleading. (Pages 3&4)
  • The Apple REITs are illiquid and concentrated in one sub sector, extended stay hotels, however, many Lerner investors own two or more of the Apple REITs. Many of the investors are elderly and/or unsophisticated and were solicited by internet, radio, cold calls, mailings and seminars at senior centers, restaurants and country clubs. Nearly all  of Lerner’s sales are solicited. (Pages 7& 8)
  • The $11 share valuation for Apple REIT shares is currently inaccurate and has been inaccurate in the past. The valuation is incorrect due to market conditions , performance declines  and debt incurred by the REITs to fund distributions. Lerner did not take any of this economic reality into consideration and continued misleading investors by publishing the $11 a share value. (Pages 8-12)
  • Distributions from the Apple REITs have exceeded the REIT’s Net Income  by hundreds of millions per quarter. These distributions were funded by incurring debt and by returning some of the investors capital. While investors believed they were receiving income they were actually being handed back some of their own money, while the investment fell in value. (Pages 12-15)
  • Until June 2011, Lerner’s web advertising provided misleading figures for the performance of Apple REIT Six through Nine.  (page 17) Did you rely on this misinformation when purchasing Apple REIT Ten?
  • Since Mid-2011 sales of Apple REIT Ten have plummeted while investor requests to redeem shares have skyrocketed. In January 2011, Apple 10 sales were about 100,000,000. By October 2011, they had dropped to about $14 million. Redemption requests  for Apple Six, Seven, Eight and Nine for the the fourth quarter of 2010 were just over three million shares. By the third quarter of 2011, requests for redemption were nearly 50 million shares. Since there is a limit on the number of shares Lerner is obligated to redeem, only a small percentage of each series were actually redeemed. (Page 20) 

In a future post I will cover the highlights of the rest of the FINRA amended complaint against Lerner and his company.

Brokers have a duty to make suitable recommendations to investors and to provide accurate and complete information related to the risks and rewards of a particular investment. Many purchasers of Lerner Apple REITs were led to believe the investment would provide a safe haven for their nest eggs while generating regular and dependable income. If you have questions about the purchase of Lerner Apple REITs, or any other issue with your brokerage account, we may be able to help.

Call 561 391 1900 for a free consultation or contact us online.

Nationwide representation.

Rex Securities Law

Brookstone Securities Nailed for Preying on Elderly-$2.6 Million Fine

Following a 16 day hearing before the Financial Industry Regulatory Authority (FINRA) , Brookstone Securities and several officers, including its owner Antony Lee Turbeville, were fined and ordered to pay restitution totally over $2.6 million dollars. A copy of the FINRA ruling can be viewed here.

Brookstone is a midsize independent broker-dealer headquartered in Lakeland, FL. The firm employs nearly 200 registered representatives (brokers) and has 45 branch offices.

The ruling concluded an action filed by FINRA alleging that Brookstone and the named individuals had violated Federal securities laws by making fraudulent misrepresentations and omissions of material fact in connection with the sales of complex, esoteric and risky tranches of collateralized mortgage obligations (CMO’s). In addition to the fines and restitution, Turbeville and Christoper Kline were barred from association with any FINRA-regulated firm. David Locy, Brookstone’s former chief compliance officer,  was barred from acting in any supervisory or principal capacity with any FINRA-regulated firm and suspended for two years.

CMO’s are very complicated investment products not generally suitable for the average investor. While
Brookstone’s officers testified that they believed CMO’s to be suitable
for retired persons seeking income, FINRA disagreed.
If you take time to read the ruling, you will see that FINRA found Turbeville’s and Kline’s testimony not credible with regard to the explanations they purportedly provided to investors about CMO’s.

If your broker suggests an investment strategy or product that you find difficult or impossible to understand, then that product may not be suitable for you. If your accountant or other trusted adviser cannot help you understand it, then perhaps you should pass on that opportunity.

If you have losses in CMO’s or other stock market losses, you may be able to recover by filing an arbitration claim with FINRA. Contact us at 561 391 1900 for a free consultation about issues with your brokerage account.

Nationwide representation.

Rex Securities Law