Investor Alert - REIT Default/ Fraud

REIT default and fraud is becoming more and more prevalent in today’s financial world, and Wall Street execs aren’t the ones who are suffering. Have you incurred a large realized or unrealized loss in a REIT without fully understanding how this investment works?

Real Estate Investment Trusts, “REITs”, is a company or fund that owns a portfolio or pool of real estate properties, offering investors a rate of return from revenue derived from the properties held in the REIT. Generally, the riskier the pool of properties held in the REIT the riskier the investment.

REITs are similar to mutual funds in that they allow investors with less capital to invest in products to which they would not usually have access. Since many REIT investors have limited capital, liquidity is one of the most attractive qualities of the product. However, the smaller initial investment required brings less sophisticated investors to the table, and in recent years, fraud and default in REITs has resulted in average Americans suffering losses from which they cannot recover.

For example, fresh from celebrating their miraculous Super Bowl triumph, the city of Philadelphia’s public workers, fireman and police, are facing substantial losses associated with REIT investments made by Austin Dutton, formerly of Newbridge Securities. Dutton worked at Newbridge from August 2007 to August 2017. He is currently employed at Sandlapper Securities, LLC, in Doylestown, PA.

Newbridge Securities is a full-service brokerage firm based in Boca Raton, Florida, offering brokerage and investment banking services to retail clients. In July 2017, Newbridge was fined $499,000.00 by the Pennsylvania Department of Banking and Securities for failure to supervise an unnamed employee.

In July 2017 Mr. Dutton was also fined $200,000 by the Pennsylvania regulator after being charged with "dishonest or unethical practices in the securities business." News accounts of these matters state that Dutton is the unnamed employee involved in the Newbridge matter.

The Department’s order does not describe the securities in question but news accounts of the sanction state that Dutton sold clients shares of American Realty Capital Partners (symbol ARCP) a well-known REIT that sank when accounting fraud committed by senior executives came to light.

Dutton’s BrokerCheck report shows that there are four reported arbitrations pending involving Dutton. The claims allege unsuitable trading and misrepresentation. Total damages of $760,000 are alleged in the four claims. Dutton is not named as a respondent in the claims.

These surely aren’t the first cases concerning dishonesty when soliciting REITS. One of the most notable cases regarding REITs involved David Lerner Associates. In October of 2012, FINRA ordered DLA to pay $14 million in restitution because of unfair practices in the sale of their proprietary non-traded Apple REITs.

FINRA found that DLA knowingly made false claims regarding the performance, returns, and market value of the Apple REIT’s and even went as far as to solicit the elderly and unsophisticated investors on these false notions.

DLA sent out numerous letters and held seminars claiming that the Apple REIT was a “goldmine” and “cash cow” while having knowledge that the income from those illiquid REITs was not sufficient to cover the payments to investors.

David Lerner Associates is one of the most notable cases concerning REIT fraud, but there are slier, far less noticeable ways that one might be deceived by a REIT distributor.

If you or a loved one has experienced losses in connection with the purchase of REITS or have continuously missed payouts or interest promised from a REIT investment, contact the securities attorneys of Lubiner Schmidt & Palumbo for a consultation.