According to the Wall Street Journal, the Securities and Exchange Commission is investigating Inland American Real Estate Trust (Inland American REIT) for potential violations of federal securities laws. According to the report, the SEC is looking at activity of Inland American REIT to determine if the REIT committed violations related to management fees, the timing and amount of distributions paid to investors, and transactions with affiliates.
Inland American is the largest of the non-traded REITs currently available and the investigation casts a large shadow on the non-traded REIT market.
Brokerage firms have a fiduciary duty to perform adequate due diligence on any investment that they recommend and to ensure that the investments recommended are appropriate in light of the client's age, investment experience, net worth, and investment objectives.
The problems we see involving non-traded REITs generally relate to the financial advisor's failure to adequately disclose the risks and illiquidity of these investments (as well as the high commission he/she earned for selling the REIT). REITs typically pay a high commission-often as much as 15% (which often explains the stockbroker's motivation in recommending the REIT investment to the investor). Due to the relatively high interest or dividend offered by non-traded REITs, elderly and retirees are often victimized by those misrepresented and unsuitable investment recommendations.
One of the other main complaints we continually hear relates to the problems in the valuation of these investments. FINRA rules currently mandate that sponsors of non-traded REITs establish an estimated per-share valuation within 18 months after the REIT stops raising money from investors. The problem with this language is that fund raising often lasts for years which results in the per-share valuation potentially remaining unchanged for years.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at email@example.com for answers to any of your questions about this blog post and/or any related matter.