Financial Counsel by Eccleston Law

BREAKING NEWS: FINRA Charges David Lerner Associates With Soliciting Investors to Purchase Apple REITs Without Fully Investigating Suitability

On May 31, 2011, FINRA filed a complaint against David Lerner Associates of Syosset, New York with soliciting investors to purchase shares in Apple REIT Ten without conducting a reasonable investigation to determine whether it was suitable for investors.  FINRA also charged David Lerner Associates with providing misleading information on its website regarding the Apple REIT Ten distributions. 

To read a copy of the FINRA complaint, click here.

FINRA alleged that starting in at least 2004, the Apple REITs have unreasonably valued their shares at a constant price of $11 per share, notwithstanding market fluctuations and the decline of the commercial real estate market, while maintaining distributions of 7 to 8 percent by leveraging the REITs through borrowings and returning capital to investors.  

As the sole distributor of the Apple REITs, FINRA alleged that David Lerner Associates did not question the Apple REITs unchanging valuations despite the downturn in the commercial real estate market.

Rather than conduct due diligence into those valuations and distribution irreguities to determine that these securities were suitable for investors, FINRA alleged that David Lerner accepted the valuations and continued to record them on customer account statements. 

In its solicitation of customers to purchase Apple REIT Ten, FINRA alleged that David Lerner Associate’s website displayed distribution rates for all of the previous Apple REITs.  FINRA alleged that these figures were misleading and omitted material information because they did not disclose the recent distribution rate reductions or that distributions far exceeded income from operations and were funded by debt or a return of investor’s capital.

To many investors, this development may come as a surprise. Many investors were not fully informed of the risks involved in purchasing an Apple REIT and believed that this investment was suitable for their investment objectives, age, and risk tolerance. 

If you have invested in any of the Apple REITs upon the recommendation of David Lerner Associates, please contact one of our attorneys at 312-332-0000.  Our attorneys are representing investors who have suffered losses investing in the Apple REITs along with those who are seeking to rescind (get out of) their investment in these products.

SEC Files Complaint Against Daren L. Palmer and Trigon Group, Inc. for Operating a $40 million Ponzi Scheme

The Securities and Exchange Commission has alleged that that Daren L. Palmer ("Palmer"), a resident of Idaho Falls, Idaho, and his investment business Trigon Group, Inc. ("Trigon"), a Nevada corporation, raised at least $40 million as part of a Ponzi scheme that has defrauded at least 55 investors.

According to the SEC's complaint, from at least 1996 until October 2008, Palmer and Trigon defrauded investors by representing that invested funds would be used in a riskless trading program that earned annual returns of 20 percent or more. The complaint alleges that Palmer and Trigon sold securities in the form of promissory notes and investment contracts in unregistered transactions, and told investors that their principal would be invested in indexes, S&P 500 options or futures, currency futures and stocks in a way that would generate high returns with no risk. The Complaint alleges that, instead, Palmer and Trigon were using funds put into the program by later investors to pay fictitious returns to earlier investors in a classic Ponzi scheme. The Commission's Complaint further alleges that Palmer used investor funds to build a partially completed $12 million home in Idaho Falls, Idaho, to purchase snowmobiles, to pay himself compensation of $25,000 to $35,000 a month, and for other personal expenses. The Complaint also alleges that while Palmer told investors he was licensed to sell securities, he has never been licensed to sell securities and that neither Palmer nor Trigon is registered with the Commission in any capacity.

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 with Daren L. Palmer or Trigon Group, your losses may be recoverable through securities arbitration.  Please contact one of our attorneys at 312-332-0000 to discuss your recovery options. 

Eccleston Law Launches Investigation of Former Illinois Broker Edward Lynn Moskop Following SEC Criminal Indictment

The attorneys at Eccleston Law have launched an investigation of former Bellville, Illinois broker Edward Lynn Moskop and his firm, Financial Services Moskop and Associates, Inc., following a criminal indictment.

The Securities and Exchange Commission announced that on May 19, 2011, a federal grand jury returned a two-count indictment against Edward Lynn Moskop, a former registered representative and licensed insurance broker from Belleville, Illinois.  Moskop, age 62, was indicted on charges of mail fraud and money laundering. 

The indictment alleges that Moskop, operating as Financial Services Moskop and Associates, Inc., acted as a securities broker for several customers by making investments on their behalf.  According to the indictment, from 1991 to 2010, Moskop persuaded customers to provide him with funds for investment, but instead of making the investment, he kept the funds for his own use.

The indictment alleges that Moskop obtained by fraud approximately $2,400,000 from 25 victims.  According to the indictment, Moskop's victims included his relatives, individuals referred by trusted friends and attorneys, a local Veterans of Foreign War Post, and long-time customers of his insurance business.  The criminal case is being prosecuted in the U.S. District Court for the Southern District of Illinois.   The criminal charges against Moskop are related to the conduct underlying the SEC's civil action against Moskop and his company, Financial Services Moskop & Associates. 

The SEC had previously filed an emergency civil action in the United States District Court for the Northern District of Illinois to halt an ongoing fraud on investors conducted by Moskop and his company.  In its complaint, the SEC alleged that from 1989 until the filing of the SEC's action against Moskop and his company, Moskop misappropriated most of the life savings of at least two elderly investors.  On the same day the SEC filed its case, the Honorable Rebecca R. Pallmeyer, United States District Court Judge, granted the SEC's motion for emergency relief, entering a temporary restraining order against Moskop and his company and an order freezing their assets. On Nov. 27, 2010, the court entered a preliminary injunction against Moskop and his company and continued the order freezing their assets. 

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 with Edward Moskop or Financial Services Moskop and Associates, Inc., your losses may be recoverable through securities arbitration.  Please contact one of our attorneys at 312-332-0000 to discuss your recovery options.  

FINRA Pushes Broker-Dealers to Take A More Active Role in Private Placement Securities Offerings

FINRA has made it clear that private placements are the organizations number one investor protection area for this year.  As such, FINRA has recognized that broker-dealers must take a more active role in the due diligence process of a Regulation D securities offering to adequately protect the investor. 

The issue of broker-dealer due diligence in private placement offerings comes on the heels of the collapse of two major deals in 2009: Medical Capital Holdings, Inc. and Provident Royalties, LLC.   Dozens of broker-dealers across the nation raised approximately $2.7 billion for these two offerings.

Many of these broker-dealers relied on third-party due diligence reports rather than conducting their own due diligence, even though they received a “due diligence fee” of up to 1% of the sale.  FINRA has made it clear in no uncertain terms that broker-dealers now need to take additional steps regarding the due diligence in private placement deals. 

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 in a private placement investment, your losses may be recoverable through securities arbitration.  Please contact one of our attorneys at 312-332-0000 to discuss your recovery options.  

UPDATE: Eccleston Law Expands Investigation of Baker Tilly Capital (f/k/a Virchow Krause & Company) For Private Placement Losses

The attorneys at Eccleston Law have expanded their investigation of Baker Tilly Capital (formerly known as Virchow Krause & Company, LLP) for losses that investors have suffered in private placement investments. 

The attorneys believe that Baker Tilly Capital sold at least three, highly risky private placements including: The Orchard at Picacho, Cahava Investor, LLC and S&L Orlando, LLC. Investors are also believed to have been sold interests in Key Lime Cove Water Park.  The true risks of these investments may not have been properly disclosed to investors, and these investments may not have been suitable for investor’s needs given their financial resources, risk tolerance, and investment objectives.

The Orchard at Picacho was purportedly a real estate development project which was created to purchase 930 acres of undeveloped land in Pinal County Arizona. Approximately $30.55 million was raised for this project, which was closed out on March 16, 2006.  According to a statement of claim that was recently filed with FINRA, at the time of the offering no plan had been submitted to the county, no zoning changes had been proposed to city council and no plan was in place to bring water and other basic services to the proposed development site.

Cahava Investor, LLC was a similar real estate development project called Cahava Springs.   Virchow Krause sought to raise approximately $17 million for this project.  For this service, the Virchow Krause was positioned to receive an 8% commission that would have yielded them a total fee of $1,360,000 for the entire offering.

S & L Orlando, LLC believed to be yet another private placement sold by Virchow Krause to investors.  This investment was sold as being a secure, short term 9-month investment that offered principal protection. S&L Orlando is believed to have sold a total of $3.2 million in these notes and successfully acquired a loan in the amount of $18,550,000 which was to be used to purchase of hotel-condo units in a hotel complex located in Orlando, Florida. The notes sold to investors were subordinate to this loan, which held a first mortgage position on the property. S&L was allegedly going to operate the unit as a Crowne Plaza Hotel, with the management of the property handled by S&L Hospitality, LLC, a Wisconsin LLC. According to the PPM, an entity called VAF sub-CDE III, LLC, an affiliate of Virchow Krause and the accounting arm Virchow Krause, LLP, acquired this property for $23.5 million. However, the investors in this project are believed to have sustained a complete loss on the investment.

Upon information and belief, these private placements were sold by accountants (who are also FINRA registered brokers) to their accounting clients in certain midwestern states including Wisconsin. 

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 with Virchow Krause, Baker Tilly Capital, or if you have lost money investing in The Orchard at Picacho, Cahava Investor, Cahava Springs, Key Lime Cove, or S&L Orlando, your losses may be recoverable through securities arbitration.  Please contact one of our attorneys at 312-332-0000 to discuss your recovery options.  

Notice to Apple REIT investors Who Held Investment in Their Pension and Profit Sharing Accounts

Investors who have held Apple REITs in pension and profit sharing accounts custodied by David Lerner & Associates accounts should contact us to discuss claims against the firm, Apple REITs and others for overvaluing their investments.

Every year, sponsors of pension and profit sharing accounts rely upon custodians like David Lerner & Associates and REITs to provide a value of the investment held in those accounts.  They must do so in a reasonable manner and cannot simply rely upon purchase price.  That value then is reported on Form 5500. 

The Department of Labor and the IRS take these matters very seriously. Investors -- and plan sponsors -- should contact us to further discuss this matter.

Notice to Apple REIT investors Who Held Investment in Their IRA Accounts

Investors who have held Apple REITs in IRA accounts custodied by David Lerner & Associates accounts should contact us to discuss claims against the firm, Apple REITs and others for overvaluing their investments.

Every year, IRA custodians are required to calculate the value of investment held in IRA accounts.  They must do so in a reasonable manner and cannot simply rely upon purchase price.  That value then is reported to the IRS, which then calculates what the RMD (Required Minimum Distribution) is for individuals older than 70 ½.  Taxes must be paid on that distribution.

So, when a non-traded REIT custodian overvalues those assets, IRA investors pay more taxes than necessary by virtue of their receiving higher than necessary Required Minimum Distributions.

Please contact us to discuss these and other claims.

Calling All Whistleblowers; David Lerner & Associates and Apple REITs

 We are investigating claims against this firm and welcome an opportunity to speak with former employees who have information regarding the firm’s sales practices, valuation practices and property management practices with respect to Apple REITs.

Apple REIT Eight Unilaterally Modifies Unit Redemption Policy To Its Investors Detriment

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

Some investors report being told that David Lerner Associates representatives told investors, at the point of sale, that they would be able to redeem their entire investment after three years for 100 cents on the dollar.  Following a recent change in the Apple REIT Eight redemption policy, this may no longer be the case. 

Apple REIT Eight recently disclosed that investors who have held shares longer than one year may redeem for the lesser of 92% of either the $11 per share purchase price, or the purchase price per unit that the investor paid.  In other words, most investors who try to redeem their shares would suffer an 8% penalty.

The relevant portion of the revised Apple REIT Eight redemption policy reads as follows:

"If you have held Units for the required one-year period, you may redeem your Units for a purchase price equal to the lesser of 92% of either (a) $11 per unit or (b) the purchase price per Unit that you actually paid for your Units. Notwithstanding the foregoing, if you are redeeming all of your Units either (a) due to the death of all Unitholders in one account or (b) purchased through the Company’s Dividend Reinvestment Program, you may redeem such units for a purchase price equal to the lesser of (i) $11 per Unit or (ii) the purchase price per Unit that you actually paid for your Units. In the event that you are redeeming all of your Units, Units purchased pursuant to our Additional Share Option or our dividend reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of the board of directors."

To many investors, this development may come as a surprise.  Many investors were not fully informed 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. 

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.

UPDATE: Eccleston Investigates China Voice Holdings Corp. Following Emergency Asset Freeze and Ponzi Scheme Allegations; Investors Suffering Losses Encouraged to Come Forward

The attorneys at Eccleston Law have expanded their investigation of China Voice Holding Corporation following an SEC emergency asset freeze allegations that it was nothing more than an $8.6 million Ponzi scheme.  Investors suffering losses in China Voice are encouraged to contact our attorneys to discuss their recovery options.

The SEC recently obtained a court order freezing the assets of China Voice, which trades in the over-the-counter (OTC) market.  China Voice purported to have a portfolio of telecommunications products and services in both the U.S. and China. 

The SEC alleges that China Voice’s CFO David Roland Allen, and his associates Alex Dowlatshahi and Christopher Mills, promised investors in a series of offerings of limited partnerships that they would earn profits of at least 25 percent on their investments.  Investors were falsely told that their money would be loaned to companies that had a track record and large profit margins. Contrary to these representations, Allen and his associates used investor money to pay back earlier investors, to funnel money to China Voice, and for personal use.

In addition to these Ponzi scheme charges, the SEC has filed a complaint against China Voice, its former Chairman and CEO William F. Burbank, IV, and David Allen for a series of fraudulent company statements about its financial condition and business prospects.  The SEC alleges that China voice overstated its business prospects, failed to discloses the significant loans that it needed to fund its operations, and that

In addition to these charges, the SEC has charges two China Voice shareholders, Gerald Patera and Ilya Drapkin, for helping David Allen finance stock promotion campaigns to pump up the company's stock price. These campaigns included a blast fax campaign orchestrated by Robert Wilson, who also is charged in the SEC's complaint. The spam faxes were sent to thousands of people at once and contained false and misleading statements about China Voice and who was paying for the faxes. At the same time they were spending more than a million dollars on stock promotion, Patera and Drapkin dumped millions of shares of the company into the market.

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 in China Voice Holdings, please contact one of our attorneys at 312-332-0000 to discuss your recovery options.  

Apple REIT 10 Modifies Redemption Policy to Investors Surprise

On May 13, 2011, Apple REIT 10 issued a Form 8-K which indicated that it has amended the company's unit redemption program, to change the purchase price for the units investors redeem during the first five (5) years from the date of purchase to be 92.5% of the price paid for those units. The 8-K in part reads as follows:

"Item 8.01. Other Events.

The Board of Directors of the Company approved the amendment of the Company’s Unit redemption program to change the purchase price for Units redeemed during the first five (5) years from the date of purchase of the Units to be redeemed from 92% of the price paid for the Units to 92.5% of the price paid for the Units. The applicable section of the program was amended to be:

“After you have held your Units for a minimum of one year, our Unit redemption program will provide an opportunity for you to redeem all or a portion of your Units, subject to certain restrictions and limitations, for a purchase price equal to: (1) for redemptions made during the first five (5) years from the date of your purchase of the Units to be redeemed, 92.5% of the price you paid for your Units to be redeemed, and (2) for redemptions made after the first five (5) years from the date of your purchase of the Units to be redeemed, 100% of the price you paid for your Units to be redeemed.. In the case of redemption of Units following the death of all shareholders in one account, the purchase price will equal 100% of the price paid by the deceased shareholders for the Units.”

The entire revised Unit redemption program description is attached hereto as Exhibit 99.1."

If you are an investor in Apple REIT 10 who is surprised by this announcement or who had a different understanding of the Apple REIT 10 redemption program, please contact one of our attorneys at 312-332-0000.

Wells Fargo Advisors Fined $1 Million for Prospectus Delivery Failures

On May 5^th, FINRA announced it has fined Wells Fargo Advisors, $1 million for its failure to deliver prospectuses to 934,000 investors who invested in Wells Fargo mutual funds in a timely manner.  Customers who purchased mutual funds in 2009 received their prospectuses as much as 153 days late. There were also delays in reporting material information about its current and former representatives, including arbitrations and complaints involving its representatives.

In 2009, Wells Fargo contracted with a third-party service provider to mail the prospectuses to customers. However, after receiving quarterly reports showing between 4% and 9% of the firm’s mutual fund customers failed to receive prospectuses on time and after being notified in daily reports that a number of prospectuses still require delivery, Wells Fargo did not take adequate corrective measure to ensure future delivery of the prospectuses in a timely manner.

Wells Fargo settled this matter with FINRA, neither admitted nor denied the charges.  Nonetheless, the firm consented to the entry of FINRA’s findings.

If you are an investor that suffered losses as a result of Wells Fargo's late prospectus delivery, please contact one of the attorneys at the Eccleston Law Offices at 312-332-0000 to discuss your recovery options.

Non-Traded Real Estate Investment Trusts (REITs); Nothing But Fool’s Gold

            Investors need to say, “No thanks” when presented with an opportunity to buy REITs that are not publicly traded.  Publicly traded REITs have their own issues, but at least those investments have relative transparency, liquidity, accurate share valuation and fees that aren’t outrageous.  The same cannot be said for non-traded REITs, yet the market for them is booming.  As the saying goes, those products “are sold, not bought”, by way of salesmen telling half-truths to unsophisticated investors and retirees over a free dinner presentation. 

            Let’s examine why investors should stay clear of non-traded REITs, and if they unfortunately own them, what remedies they may have.

            First, all REITs invest in various types of real estate properties.  They buy the properties, manage and maintain the properties, attempt to rent the properties, and ultimately seek to sell the properties for profit.  That raises the first concern: REITs are concentrated in one market sector – real estate.  Whether the REIT invests in lodging, office, industrial, residential, health care facilities, or a combination thereof, the REIT portfolio neither is balanced nor diversified.  As such, REITs are subject to all of the real estate related investment risks and economic risks.

            Second, non-traded REITs suffer from conflicts of interest.  For example, the sponsor’s chairman or president may own or have duties as an officer of a third-party advisor, a manager, contractor or a competitor.  This problem is so widespread that the securities regulator FINRA has sent “targeted examination requests” to firms promoting non-traded REITs in order to investigate those conflicts of interest.

            Third, non-traded REITs commit “highway robbery” in charging egregious upfront fees of 12% to 15%.  One is hard-pressed to identify a higher-charging investment!

            Fourth, non-traded REITs are illiquid.  That means that there is no public market for sale.  Sometimes, but certainly not often, these products can be sold through a “secondary market”, but only at a small fraction of the offering price in a kind of “fire sale.”

            So, in light of the above, one naturally should ask, why on earth would anyone knowingly buy a non-traded REIT?  The answer is simple and unfortunate.  Unsophisticated and retiree investors have been told, over a steak dinner and through misrepresentations and omissions, that non-traded REITs are safe (non-volatile share price), that they distribute monthly income as high as 8% annualized in a market where CDs pay less than 2%, and that they are liquid typically after one year.  Let’s explore those tricks of the trade.

            First, many non-traded REITs trick investors by reporting the value of the investment at its original purchase price.  Securities rules are complicated in this regard, and sponsors have done everything that they can to hide the truth – the real value of the shares – so that on every monthly or quarterly statement the value miraculously is perfectly stable.  Recently some sponsors have marked to market their shares, and investors have witnessed the value of their safe, non-volatile investment cut in half!

            Second, over steak dinner, non-traded REIT promoters speak in terms of the investment “paying” or “yielding” 8%.  They neglect to inform their dinner guests that the 8% payment or yield actually may be from a partial or entire return of the investor’s own capital invested!  Worse still, they neglect to inform that the 8% payment or yield may be possible only because the non-traded REIT (in effect, the investors) took out a loan to make that payment.

            Of course, increasing indebtedness and returning capital do not bode well for safety for principal.  This is true without regard to whether and when the sponsor is willing or able to sell the underlying REIT properties and terminate the investment.  In that regard, most non-traded REITs have a finite life – usually not longer than ten years – at which time the properties must be sold.  One of the most deceptive tricks of the trade is to promote past, successful sales of other REIT issues, suggest that the underlying properties will be sold, yet in the fine print of a prospectus reveal that the sponsor has no obligation to sell the properties within any time frame.  After all, it is only when investors receive pennies on the dollar at such sale will the con job fully have been revealed!

            A final trick of the trade is to promote that, although illiquid and with no secondary market for sale available, the non-traded REIT sponsor will maintain a share redemption program for investors to liquidate the shares.  While sponsors never fail to promote their liquidation feature in sales presentations, they often fail to state that in their discretion they can modify the share redemption program, suspend it, or even terminate it.  And sponsors also often fail to state that they have the discretion to reduce the price per share paid to the redeeming shareholder.

            The good news is that investors who have invested in non-traded REITs do have remedies.  They can seek damages, rescission of their investment and other relief, through arbitration against the financial services firm that sold the investment.  Investors always have a claim for “suitability” when a recommended investment is not appropriate for their needs, objectives, risk tolerance and so forth, and it matters not whether adequate risk disclosure was contained in a prospectus.  Moreover, in over 15 years of regulatory notices, FINRA has made it clear that there is no “prospectus defense” when there was an unbalanced or otherwise misleading sales presentation.  Did someone say “Filet Mignon”?

SEC Charges Investment Adviser Lloyd Barriger With Defrauding Investors in Two Upstate New York Real Estate Funds

The SEC has charged Monticello, New York-based investment adviser Lloyd V. Barriger with fraudulently offering and selling securities in two upstate New York real estate funds he managed.  The SEC alleged that Barriger told investors in the Gaffken & Barriger Fund that the real estate fund was a relatively safe and liquid investment that generated a minimum return of 8 percent per year, when in reality the fund’s actual performance did not justify these claims.  The SEC further alleges that Barriger defrauded investors in Campus Capital Corporation by raising money from them to prop up the ailing  Gaffken & Barriger Fund without disclosing how that money was being used. 

Barriger allegedly misused Gaffken & Barriger Fund assets by causing the fund to pay cash distributions of “Preferred Returns” to those investors who requested them.  Barriger also caused the fund to redeem investors at values reflecting the purported accrued 8 percent per year return when the fund lacked the income to support those allocations and payments.

George Canellos, Director of the SEC's New York Regional Office, commented that “in the midst of the credit crisis, Barriger chose to lie about the solvency and liquidity of his fund rather than admit the somber truth of a collapsing business” and that Barriger “continued to solicit new investor funds based on the same misrepresentations up until the day before the fund collapsed.”

The Gaffken & Barriger Fund is believed to have raised approximately $20 million from January 1998 to March 2008, and Campus raised approximately $12 million from October 2001 to July 2008. Barriger froze the Gaffken & Barriger Fund in March 2008 and disclosed its true financial condition to 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 with Lloyd Barriger or in the Gaffken & Barriger Fund or Campus Capital Corporation, please contact one of our attorneys at to discuss your recovery options.

Non-Traded REITs May Not Reflect Their True Value on Customer Account Statements

The attorneys at Eccleston Law are continuing to represent investors in FINRA arbitration proceedings to recover their investment losses and frozen funds in non-traded REITs such a Behringer Harvard, Cole Properties, Apple REITs, Hines REITs, and others. 

Investors in these products often have great difficulty in determining the true value of the non-traded REITs that they have purchased.   This problem is so serious that FINRA has issued guidance to brokerage firms regarding their obligations to accurately reflect the price the non-traded REITs on customer account statements.

NASD Rule 2340 requires members to include an estimated value for any REIT held in a customer account or appearing on the customer’s statement if the REIT’s annual report contains an estimated per share value. (See Rule 2340(c)(1)(B). Under this rule, that estimated per share value may come from the annual report itself, an independent valuation service, or any other source.

However, under Rule 2340(c)(2), FINRA states that a brokerage firm may only include an estimated per share value of a non-traded REIT if the estimated value uses data that is no more than 18 months old. FINRA Regulatory Notice 09-09 echos this requirement, stating that in accordance with Rule 2340(c)(2), firms must not use an estimated par value  on a customer account statement more than 18 months after the conclusion of an offering, unless an appraisal of the program’s assets and operations yield the same value.

Rule 2340(c) also states that member firms must abstain from using an estimated per share value on a customer’s statement, if the firm “can demonstrate the value… no longer is accurate as a result of a material change in the operations or assets of a program or trust.” Rule 2340(c)(4).

The values of many non-traded REITs have finally been “marked to market” by most brokerage firms. The customer statements are beginning to show the true valuation of these non-traded REITs, and consequently the unrealized losses investors may have in these positions.

Unfortunately for investors, these numbers may still be higher than what is being offered in the secondary market.  For example, a recent offer for shares in a Behringer Harvard REIT on the secondary market was $1.50, down from $10, representing an 85% decline in value in this position.

If you have invested in any non-traded REIT and find that you have suffered losses (including unrealized losses) when your investment was “market to market”, please contact one of our attorneys at 312-332-0000.  Our attorneys are representing investors who have suffered losses investing in non-traded REITs along with those who are seeking to rescind (get out of) their investment in these investments without realizing losses.

Eccleston Law Seeks Information from Apple REIT Eight Investors Who Attended the 2011 Annual Meeting

The attorneys at Eccleston Law are interesting in speaking with those Apple REIT Eight investors who attended the company's 2011 annual meeting, which was held at the Marriott in downtown Richmond, Virginia located at 500 East Broad Street, Richmond, Virginia 23219 on Thursday, May 12, 2011 at 11:30 a.m., EST. 

Specifically, our attorneys are interested to hear Glade Knight's analysis of the overall health of Apple REIT Eight, along with specific commentary on the company's cash flow situation, the properties that recently received default notices, and the use of proceeds from the recent $20 million dollar loan that Knight personally guaranteed.   

If you are an investor in Apple REIT Eight who attended the May 12, 2011 annual meeting, please contact our attorneys at 312-332-0000 to discuss your impressions of this meeting.

Two Chicago Businessmen Charged with Operating Fraudulent Scheme Defrauding More than $16 Million from 300 Investors

Following an FBI investigation of the now defunct Palatine, Illinois-based real estate investment company Michael Franks, LLC, federal prosecutors have charged Michael Morawski and Frank Constant with fraud.   

Federal prosecutors allege that between 2006 and 2010, Michael Franks raised more than $16 million from at least 300 investors by offering passive ownership interests in various multi-family residential properties located in Illinois, Texas and Alabama.  The defendants represented that they would use investor funds to acquire, improve and operate specific apartment complexes.  The investments purportedly carried interest rates of between 8 and 30 percent per year. 

Contrary to these representations, prosecutors allege that Morawski and Constant, through Michael Franks, engaged in a scheme to defraud investors my misrepresenting the nature of the investments and the use of investor funds.  Furthermore, the prosecutors allege that the defendants operated a Ponzi scheme by continually using funds raised from new investors to pay earlier investors.  The defendants are also believed to have used investor money to pay employees, to make commission payments to other individuals, and to make payments for personal expenses such as country club memberships. 

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 Michael Franks, LLC, Michael Morawski, or Frank Constant you may be eligible for an immediate theft loss tax deduction.  Under a new IRS safe harbor rule, you may be eligible for an immediate theft loss tax deduction of 95% of your losses, or 75% of your losses if you pursue third-party recovery. Please contact the Eccleston Law Offices at 312-332-0000 for more details.  

UPDATE: Eccleston Law Actively Seeks Investors Suffering Losses In Publicly Traded Chinese Companies

Following a recent, wide-spread probe by the SEC’s enforcement and corporate finance divisions, the attorneys at Eccleston Law are investigating various Chinese companies that are publicly traded on U.S stock exchanges.  Our attorneys are actively seeking to speak with investors have suffered losses investing in a Chinese company or with whistleblowers who may have original information about an ongoing fraud related to a publicly traded Chinese company.

In recent years, hundreds of Chinese companies seeking access to the U.S. capital markets have registered as publicly trading companies on such exchanges as the NASDAQ and OTC-BB through a process called a “reverse merger”.

In a reverse merger, a privately held company acquires an existing publicly traded company so that it can freely sell shares without undertaking an initial public offering.  In the case of the Chinese companies, they typically acquire small publicly traded companies publicly traded companies with a relatively law market capitalization or a “shell” company.  A publicly traded shell company is on that has no significant operations or assets, other than the fact that it is still publicly traded on an exchange.   The reverse merger process saves companies the time and expense involved in conducting an initial public offering, or IPO.  However, this may ultimately be at the expense of US investors.

Publicly traded Chinese companies have come under scrutiny by U.S. securities regulators for their lack of transparency, lax corporate governance standards, and questionable accounting practices, which makes these companies ripe for self-dealing and fraud. 

In 2010, the Public Company Accounting Oversight Board observed that from 2007 through 2010, of the 603 reported reverse merger transactions, 159 (or 26%) of all the reverse mergers during that time period were Chinese companies.  Furthermore, the number of Chinese reverse mergers was almost three times the number of IPOs conducted in the U.S. by Chinese companies. 

Recent examples of publicly traded Chinese companies that have harmed investors include RINO International Corporation, which was trading on the NASDAQ at over $30 per share in late 2010.  Following disclosures in November and December 2010 about accounting flaws and an ongoing SEC investigation, RINO’s stock price dropped 80% and the company was subsequently delisted from the NASDAQ.

Investors in who have suffered losses investing in a publicly traded Chinese company may be able to recover their losses through securities litigation or arbitration.  In addition, under the new SEC whistleblower program, those who provide the SEC with original information about a fraud related to a publicly traded Chinese company that leads to a successful enforcement action may be entitled to an award of 10-30% of the fines and penalties levied by the SEC.

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 with a publicly traded Chinese company, or if you have information about a fraud relating to a publicly traded Chinese company, please contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000.  

Eccleston Law Investigates Brett S. Kleese and BSK Enterprises, LLC following SEC Administrative Proceedings

The attorneys at Eccleston Law have launched an investigation of Mesa, Arizona resident Brett S. Kleese, BSK Enterprises, LLC, and Rosand Enterprises, Inc. following SEC administrative proceedings and a 2009 Arizona Corporation Commission cease and desist order.

From about October 2007 through May 2008, Kleese offered and sold at least 57 investors approximately $3 million of unregistered promissory notes issued by BSK.  The promissory notes contained promises by BSK to repay the investors principal plus interest.  Kleese told investors that BSK would lend their funds to Rosand Enterprises, which Rosand would use as collateral to pay for the construction of low-cost, prefabricated housing in Chicago.  Kleese also told investors that their funds would be deposited into an Illinois law firm’s trust account, and that none of the money would be withdrawal because it was to be used by Rosand as collateral for the line of credit and that the account was covered by a bond.

Contrary to these representations, the funds sent to Rosand were withdrawn from the trust account which was not covered by a bond.  Kleese admitted that he did not adequately disclose these facts to 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 with Brett S. Kleese, BSK Enterprises or Rosand Enterprises, please contact one of our attorneys at 312-332-0000 to discuss your recovery options.

Apple REIT Nine Strikes Large Natural Gas Deal to its Investors' Surprise; Potential Conflicts of Interest Abound

Most investors in Apple REIT Nine believe that the company is focused on acquiring and operating hotel properties across the nation.  However, to the surprise of many investors, in 2009 Apple REIT Nine decided to get into a business that has little or nothing to do with acquiring and operating hotels – the natural gas business.

In 2009, Apple REIT Nine purchased 410 acres of natural-gas producing land located near Fort Worth, Texas.  Apple REIT 9 ended up paying $147 million for this land.  The company quickly entered into a 40 year lease with Chesapeake Energy Corporation. 

Fast forward to 2011, when Apple REIT Ten (the next Apple REIT sold by David Lerner Associates) elected Anthony Francis “Chip” Keating, III to Apple REIT Ten’s Board of Directors.  According to its SEC filings, Mr. Francis previously “served as the Real Estate Development Manager for Chesapeake Energy Corporation in Oklahoma City, Oklahoma from March 2007 to March 2010. While at Chesapeake, Mr. Keating closed and transacted over $850 million in real estate transactions ranging from corporate headquarters, sale leasebacks, field offices, investment properties and land for natural gas drill sites.”

It is clear that Anthony Keating, III worked at Chesapeake Energy when Apple REIT Nine entered into this natural gas leasing arrangement.  While the SEC filing does not say whether or not Mr. Keating was involved in the Apple REIT Nine deal, his appointment to the Board of Apple REIT Ten certainly raises questions about undisclosed conflicts of interest, and Apple REIT Nine’s entry into the natural gas business.

Did investors realize that they would ultimately end up investing in a company that would be involved in the natural gas business? Probably not. 

But for those investors in Apple REIT Nine who do not want to participate in natural gas investments, due to the illiquid nature of their investment in Apple REIT Nine they may be “stuck” in this illiquid investment indefinitely.

If you have invested in Apple REIT Nine upon the recommendation of David Lerner Associates and you are surprised by the company’s foray into the natural gas business, or if your understanding of the investment is inconsistent with the information 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 Nine along with those who are seeking to rescind (get out of) their investment in this product.

Apple REIT Eight’s Distributions and Redemptions May Be Unsustainable

IRS rules mandate that REITs, such as Apple REIT Eight, must pay out at least 90% of their taxable income to investors in order to maintain REIT status for tax purposes.  Most REITs are structured so that their distributions and redemptions meet, or just barely exceed this minimum threshold. 

In contrast, Apple REITs, including Apple REIT Eight, are generally sold as “safe” investments that carry a consistent 7% return on principal whether or not the economy is good or the underlying properties are generating income. As a result of this consistent rate of return, the Apple REITs (including Apple REIT Eight) must pay investors dividends whether or not there is a positive cash flow.

Some recent 10-K filings from Apple REIT Eight support this conclusion:

• 2007: 30% ordinary income and 70% return of capital;
• 2008: 53% ordinary income and 47% return of capital;
• 2009: 33% ordinary income and 67% return of capital; and
• 2010: 42% ordinary income and 58% return of capital.

Based on the illustration above, in every year except in 2008 the return of capital to investors exceeded the ordinary income generated by Apple REIT Eight. What this may mean for investors is that the distributions and redemptions largely are coming from offering proceeds and debt.

In light of the recent 8-K SEC filing that announced another $20 million loan that was personally guaranteed by Glade M. Knight, Apple REIT Eight’s Chairman and Chief Executive Officer, it seems likely that Apple REIT Eight is being forced to borrow to meet continue to meet investor distribution and redemption requests.   Moreover, the fact that lenders required that this loan be personally guaranteed by the assets of Glade Knight himself suggests that lenders are not be confident in Apple REIT Eight’s ability to continue to borrow money to pay investor distributions and redemptions.

If you have invested in Apple REIT Eight upon the recommendation of David Lerner Associates and if you are concerned about the ability of Apple REIT Eight to continue to pay distributions or meet redemption requests, 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.