Napoli Bern Ripka LLP Continues to Investigate The Suitability of Non-Listed REITS
Real Estate Investment Trusts (‘REITs’) are corporations that invest primarily in real estate, receive special tax designations and distribute 90% of their income to its shareholders. Investors in non-exchange traded or private REITs, also referred to as Non-Listed REITs, have sustained substantial losses as a result of their advisors failure to recommend investments which were suitable, to properly explain the risks of investing in this unique investment vehicle and to meet their fiduciary duties.
For the past several years, investment advisors were recommending REITs as investments suitable for risk-avers investors. The Financial Industry Regulatory Authority (FINRA) imposes a duty on brokers to recommend only investments that are suitable to each investor’s individual risk profile and investment objectives. It is well established that before making any recommendation, your advisor must first understand the risks inherent in their proposed recommendation through diligent research and advise you on such known risks. Moreover, as a fiduciary, a broker must act in the best interest of their client without regard to their personal gain or that of their firm.
Investors allege that brokers and investment advisors were promoting non-listed REITs to elderly and conservative investors as a source of stable income providing an average return of 5-7%. Investors were never warned of the highly illiquid nature of non-listed REITs despite numerous warnings given to brokers by FINRA emphasizing this risk. Investors were unaware of the exposure to interest rate fluctuations or market risks that they were assuming with such an investment. Investors were never told that the market price for such a security is in fact set by the managers who operate the fund allowing them to in essence value themselves and can in fact vary from brokerage firms.
Many advisors failed to inform investors of the exorbitant commissions they were earning by recommending non-listed REITs along with hidden kickback schemes where undisclosed commissions were given to brokers for recommending certain REITs to their clients. In addition to this, investors were never advised that the asset acquisition fees, financing fees, management fees and additional expenses which had the cumulative effect of diminishing the value of their investment.
To learn more about the risks of investing in non-listed REITs and whether you are entitled to be fully compensated for your losses, please contact Adam J. Gana – Head of the Securities Fraud Department.
