Financial Counsel by Eccleston Law

Apple REIT Eight SEC Filing Highlights Unit Redemption Program’s Half-Truths

Eccleston Law is assisting Apple REIT Eight investors who are unable to redeem their investments. 

Some investors report being told that David Lerner Associates representatives told investors, at the point of sale, that they would be able to redeem a portion of their investment after the first year, and would be able to redeem their entire investment after three years.

However, those same investors were not told of Apple REIT Eight’s ability to 1) change the purchase price (value) for redemptions and 2) to modify, suspend or terminate the redemption program, both in its sole discretion.  As reflected in Apple REIT Eight’s March 21, 2011 10-K filing with the SEC, Apple REIT Eight made the following disclosure:

Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Unit Redemption Program

Effective in October 2008, the Company instituted a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit if the Units have been owned for less than three years, or 100% of the price paid per Unit if the Units have been owned more than three years. The maximum number of Units that may be redeemed in any 12-month period will be three percent of the weighted average number of Units outstanding during the 12-month period immediately prior to the date of redemption. The Company reserves the right to change the purchase price for redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. As of December 31, 2010, the Company has redeemed approximately 2.8 million Units in the amount of $29.0 million under the program. The redemptions represent 100% of the redemption requests as of the last scheduled redemption date in 2010, which was October 2010. In January 2011, the first scheduled redemption date of 2011, the Company redeemed in accordance with the Unit Redemption Program on a pro-rata basis approximately 61% of the requested redemptions, or a total of $8.0 million. (emphasis added)

If you have invested in Apple REIT Eight upon the recommendation of David Lerner Associates and if your understanding of the redemption program is inconsistent with the disclosure made above, please contact one of our attorneys at 312-332-0000.  Our attorneys are representing investors who have suffered losses investing in Apple REIT Eight along with those who are seeking to rescind (get out of) their investment in this product.

Eccleston Law Investigates New Jersey Investment Adviser Sandra Venetis Following SEC Fraud Charges

The attorneys at Eccleston Law have launched an investigation of Sandra Venetis, a Branchburg, N.J.-based investment adviser and three of her firms, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, for allegedly operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments. Venetis recently pleaded guilty to defrauding investors out of more than $13.6 million in a Ponzi scheme and using $7 million to settle gambling debts.

The SEC recently alleged that since 1997, Venetis and the three entities that she founded, owned, or controlled obtained more than $11 million from at least 127 investors. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.  Venetis allegedly told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of up to 11 percent per year that would be tax-free due to a loophole in the tax code.  She is believed to have told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis allegedly looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also allegedly funneled cash to her relatives.

The SEC's complaint also named three relief defendants for the purposes of recovering investor assets now in their possession: Jennifer Venetis (Venetis's daughter); Kevin Persley (Venetis's brother); and Venetis LLC (an entity owned and controlled by Venetis).

SEC Sanction Against David Lerner Associates Highlights Problems With Selling Illiquid REITs To Customers

In 2004, David Lerner Associates agreed to a Cease and Desist Order with the SEC involving the sale of unsuitable REITs to 4 customers of the firm. Regarding one of Lerner’s employees, the SEC Order reads that the employee made investment recommendations "that his customers purchase illiquid REIT securities on margin collateralized by the customers' bond holdings were contrary to the objectives of his customers who desired highly-liquid bond or tax-free bond issues. The margin purchases of illiquid REIT securities using the customers' liquid bonds as collateral effectively rendered the customers' holdings illiquid. The customers could not obtain cash by selling the REIT securities, which were illiquid, or by selling bonds, which collateralized the REIT securities." 

Ultimately, three customers "sustained losses arising from the illiquid REIT securities that Merl purchased for their accounts, as follows: (1) an 86-year old customer lost $103,281; (2) a 75-year old customer lost $37,778; and (3) a 55-year old customer lost $34,420".

Regarding another one of Lerner’s employees, the SEC Order states that the employee's "recommendation and offer of securities that were unsuitable for his customer violated Section 17(a) of the Securities Act. [The employee's] investment recommendations were contrary to the objectives of his customer, a married, middle-aged man with two children residing in his home. The customer wanted a diversified investment for the approximately $30,000 in his IRA account. This IRA account constituted nearly all of the customer's savings and was the customer's financial safety net. [The employee's] concentrated the customer's IRA account in an illiquid REIT security and did not provide the diversification that the customer desired. [The] customer sustained a loss of $6,518 arising from the illiquid REIT securities [the employee] purchased for his IRA account."

Fast forward to 2011, attorneys at Eccleston Law Offices are hearing from customers of David Lerner Associates that they believe that their investments in Apple REITs (and other Lerner investments) are unsuitable.  As part of Lerner’s agreement to the SEC sanctions, the firm promised that it would not recommend its investments in an unsuitable fashion in light of the customer’s investment objectives and financial situation.  The ongoing investigation calls into question whether Lerner has kept its promise to the SEC.

For further information, or to discuss your claims, distributions not made, redemption requests not honored, and investment losses suffered at the hands of David Lerner Associates, contact Eccleston Law Offices at 312-332-0000.

Eccleston Law Consults Financial Advisers Troubled By News of Securities America Sale

Advisers, first stunned by the magnitude of client losses related to sales of private placements such as Provident Royalties, now face an uncertain future given news that parent company Ameriprise is putting Securities America up for sale.

Concerned advisers want to know how any sale may affect their business, and some advisers aren’t planning to hang around to find out. Advisers considering transition have asked several questions, including whether EFL (employee forgivable loan) balances can be forgiven, and whether their employment agreements contain any provisions that they should consider.  They also want to know what protections they can negotiate with their new firms.

We stand ready to assist, both by consulting advisers as to whether they should transition and by serving as their counsel to effectuate a successful transition to a new firm and to negotiate the most favorable employment terms.  Contact us for a free consultation.

Apple REIT Eight, Inc. Files 8-K With SEC Disclosing Default Notices, Potential Foreclosure Risk and Obtaining a Loan to Pay Investor Redemptions and Distributions

On April 21, 2011, Apple REIT Eight, Inc. filed a Form 8-K with the SEC disclosing that the company has placed some of the loans secured by five of its properties with a special servicer to renegotiate the terms of such loans.  In order to have the loans placed with the special servicer, the Company did not make the scheduled monthly payments for March and April 2011, which triggered the company to receive default notices on these loans.

The total outstanding balance of these loans was approximately $36.7 million on December 31, 2010.  Apple REIT Eight disclosed that if it is unable to renegotiate the loans, it may be more cost beneficial for the company to pursue a deed in lieu of foreclosure with the lenders rather than to cure the defaults. 

Apple REIT Eight also disclosed that on April 2011, the company entered into a loan agreement with Bank of America for a $20 million revolving credit facility with a maturity date of April 19, 2012.  The loan agreement is guaranteed by Glade M. Knight, the company’s Chairman and Chief Executive Officer and is secured by assets of Mr. Knight. Apple REIT Eight disclosed that the loan will be used by the Company for general working capital purposes, including the payment of redemptions and distributions.

These disclosures come in the midst of Eccleston Law's continued investigation of David Lerner Associates and Apple REITs. David Lerner, who is well known in the greater New York City area for his “Take a Tip from Poppy” radio segments, is the president of David Lerner Associates. Upon information and belief, certain David Lerner Associates salespeople may have sold investors securities or investment products carrying high commissions that may have been unsuitable for the investor's needs. These investment products may include real estate investment trusts (“REITs”) such as Apple REIT Eight, collateralized mortgage obligations (“CMOs”) and Real Estate Mortgage Investment Conduits (“REMICs”).  

If you have lost money investing with David Lerner Associates in Apple REIT Eight, another Apple REIT, a CMO or, REMIC, or if you are unable to redeem your investment in an Apple REIT, you may be entitled to recovery through securities arbitration. Please contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000 to discuss your recovery options.  

UPDATE: Eccleston Law Expands Investigation of California-Based Torrey Pines Securities for Unregistered Private Placement Offering

Following an SEC order censuring Torrey Pines Securities, Inc., the attorneys at Eccleston Law have expanded their investigation of the Del Mar, California broker-dealer for the offer and sale of unregistered securities through a private placement offering and for the failure to reasonably supervise Dennis Lee Keating II. 

According to SEC documents, starting in August 2006, Dennis Lee Keating, II, who was a registered representative and part-owner of Torrey Pines Securities, allegedly raised over $17 million from friends, family and Torrey Pines Securities’ customers in a private, unregistered offering of securities.  Keating is believed to have lulled investors in with false assurances that they would receive a return on their investment. 

Jack Smith, the President and CEO of Torrey Pines Securities was alleged to have the overall supervisory responsibility for the firm during the relevant time periods.  Although Torrey Pines securities had a policy prohibiting selling securities outside of the firm, the firm failed to develop adequate systems for supervisors and the compliance department to monitor adherence with the provisions.  According to the SEC, a number of suspicion events concerning Keating’s outside business activities came to the attention of the supervisors and/or compliance staff at Torrey Pines Securities, which may have allowed Torrey Pines Securities to detect and possibly prevent Keating’s activities. 

Eccleston Law represents individual and institutional investors to recover their investment losses caused by securities and investment fraud. Our attorneys also help victims of Ponzi schemes pursue recovery by submitting claims with receiverships established by the SEC or by assisting victims with the filing of a Theft Loss Tax Deduction with the IRS.

If you have lost money investing with Dennis Lee Keating II or with Torrey Pines Securities, your losses may be recoverable through securities arbitration.  Please contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000 to discuss your case.     

Attorneys Investigate WFP Securities and Western Financial Advisors For Allegedly Recommending Unsuitable Investments To Clients

Our attorneys have launched an investigation of California-based WFP Securities, Western Financial Advisors, and WFP Securities Corporation for allegedly recommending the purchase of unsuitable, highly speculative investments to their clients. Louis Schooler is believed to be the president of Western Financial Planning and his brother, John Evan Schooler, is believed to be president of WFP Securities and Western Financial Advisors. WFP Securities is located in Cornerstone Court in Sorrento Valley, California.

Investors who have suffered losses investing with any of these firms are encouraged to contact us to discuss their recovery options.

Upon information in belief, the firms failed to conduct thorough due diligence on certain securities that turned out to be Ponzi schemes and sold investors products that may not have been suitable for their investment needs.  The investments at issue include, but are not limited to Medical Capital, Desert Capital Real Estate Investment Trust, Provident Royalties, and other such investments. 

Our attorneys represent individual and institutional investors nationwide to recover their investment losses caused by securities fraud, unsuitable investment recommendations, breach of fiduciary duty, negligence or other misconduct. We have extensive experience representing investors in arbitration and litigation disputes with securities broker-dealers and investment advisory firms, and have recovered tens of millions of dollars for investors.

If you are an investor that has suffered losses investing with WFP Securities, Western Financial Advisors, Western Securities Corporation, Louis Schooler or John Evan Schooler, your losses may be recoverable through securities arbitration.  Please contact us at 312-332-0000 to discuss your recovery options.  

Eccleston Law Launches Investigation of AIC, Inc. and its Agents and Subsidiaries Following Offering Fraud and Ponzi Scheme Charges

The attorneys at Eccleston Law have launched an investigation of Richmond, Virginia-based AIC, Inc. and its President and CEO, Nicholas D. Skaltsounis, along with AIC’s subsidiary, Community Bankers Securities, LLC, John B. Guyette of Greenley, Colorado and John R. Graves of Pensacola, Florida for their roles in the offering fraud and Ponzi scheme.

In addition, the attorneys at Eccleston Law are also investigating several AIC subsidiaries, including Allied Beacon Partners, Inc. (f/k/a Waterford Investor Services, Inc.), Advent Securities, Inc., and CBS Advisors, LLC, along with their registered representatives for their role in the fraudulent scheme.

The SEC alleged that from January 2006 through November 2009, Nicholas Skaltsounis, directly and through registered representatives associated with CB Securities, including John Guyette and John Graves, fraudulently offered and sold as much as $7.7 million in AIC promissory notes and stock to at least 74 investors in at least 14 states, many of whom were elderly, unsophisticated brokerage customers of CB Securities. Skaltsounis, Guyette, and Graves allegedly misrepresented and omitted material information to investors relating to, among other things, the safety and risk associated with the investments, the rates of return on the investments, and how AIC would use the proceeds of the investments.

The SEC further alleged that AIC promised to pay interest and dividends up to 12.5% on the promissory notes and stock knowing that it did not have the ability to pay those returns. Skaltsounis is believed to have used the money raised from new investors to pay back principal and returns to existing investors in a Ponzi scheme manner. To the detriment of investors, by December 2009, the Ponzi scheme collapsed when Skaltsounis could no longer solicit investments and recruit new investors to pay back existing investors.

Eccleston Law represents individual and institutional investors nationwide to recover their investment losses caused by securities fraud, unsuitable investment recommendations, breach of fiduciary duty, negligence or other misconduct. We have extensive experience representing investors in arbitration and litigation disputes with securities broker-dealers and investment advisory firms, and have recovered tens of millions of dollars for investors.

If you are an investor that has suffered losses investing, AIC, Community Bankers Securities, Nicholas Skaltsounis, John Graves, John Guyette, Allied Beacon Partners, Waterford Investor Services, Advent Securities, or CBS Advisors, your losses may be recoverable through securities arbitration.  Please contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000 to discuss your recovery options.  

New Suitability And Know Your Customer Rules Will Benefit Investors

The Securities and Exchange Commission (SEC) has approved two rules proposed by the Financial Industry Regulatory Authority (FINRA) which will benefit investors.  The new rules, FINRA Rule 2090 and FINRA Rule 2111, take effect in October 2011.  As FINRA states in its Regulatory Notice 11-02, the new rules "retain the core features" of the current rules and "at the same time strengthen, streamline and clarify them."  Let's examine the important aspects of the new rules.

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Congratulations To Joshua Kons For Passing The Illinois Bar!

Congratulations to our newest associate Joshua Kons who recently passed the Illinois Bar Exam.  He's met his certification requirements as well.

The Illinois Bar admission ceremony is expected to be this May at which time Josh will become a member of the Illinois Bar.  Josh already is a member of the California and Wisconsin Bars.