Private placement investments in Medical Capital Holdings and Provident Royalties have caused a mountain of legal woes for broker/dealers recently. Now another private placement may come back to haunt Commonwealth Financial and LPL.
As reported Aug. 4 by Investment News, financial reps from both Commonwealth and LPL sold the fund in question, the Laeroc 2005-2006 Income Fund LP. The fund now wants to raise another $12 million to $15 million to pay off – at a big discount – nearly $50 million of debt.
According to the article, real estate investor Laeroc Partners issued a “cash call” notice in June to investors who bought the Laeroc 2005-2006 Income Fund. The notice states that the fund’s lenders will foreclose by the end of the year on a shopping center in Sacramento, Calif., if the new cash isn’t paid. Reportedly, the Laeroc Fund has paid more than $180 million to buy eight properties and owes some $105 million in mortgage debt.
It isn’t clear exactly how much of the Laeroc 2005-2006 Income Fund that Commonwealth and LPL brokers sold.
The fallout from private placements in Medical Capital Holdings and Provident Royalties reached a fever pitch after the Securities and Exchange Commission (SEC) charged the two sponsors with fraud in July 2009. Investors saw about half of their principal wiped out in the two deals. Meanwhile, legal costs associated with client arbitration claims and settlements forced many broker/dealers to close their doors.
Industry executives noted that real estate deals of various stripes, including nontraded real estate investment trusts, which raised money and bought properties from 2006 to 2009, are struggling.
If you are an LPL or Commonwealth client and invested in the Laeroc 2005-2006 Income Fund LP, contact us to tell story.