The following is an online post by an obviously unhappy investor who put his money in a non-traded real estate investment trust known as Behringer Harvard.

“I’ve been burned by Behringer Harvard. I sent my request for distribution in on Feb. 10 of 2009. They denied me (and others) without any notice at their next board meeting (after making me resend the damn thing because I needed a special medallion signature stamp from my bank!).

“I wasn’t getting my money for any reason other than I’d been unemployed since June of 2008 and needed money to live! To find out I could only get my money out if I died was so morose and in bad taste that I wrote appeal after appeal to the board…only to be told to die or become disabled…and then ‘get in line with everyone else.’!”

That investor – who signs his post as “Larry” – goes on to write that “no one ever told him that this thing wasn’t liquid or would ever have these kinds of issues. No one ever told me that the valuation was completely a fiction. They’d just raised another few hundred million and then closed the doors on everyone!”

Larry’s situation is shared by a growing number of investors who put their faith and money in non-traded REITs. In the past year, non-traded REITs such as Behringer Harvard REIT I have become front-page news, with investors filing complaints over what their brokers failed to disclose about the investments.

In the case of Behringer Harvard, as well as the Cole REIT III, Inland Western, Inland American, and other REITs, investors found themselves totally caught off guard after discovering, like Larry, that their investments were high-risk, illiquid and contained highly complex and lengthy exit clauses.

By the way, Larry’s post – and others like it – can be found on the REIT Wrecks forum. In addition to online discussions about non-traded REITs, the Web site provides in-depth data, news and analysis about the non-traded REIT industry.

Maddox Hargett & Caruso currently is investigating sales of non-traded REITs, including those associated with Behringer Harvard, Hines REIT I, Cornerstone, Inland American, and Inland Western. If you’ve suffered financial losses of $100,000 or more in a non-traded REIT and believe those losses are the result of inadequate information on the part of your broker/dealer, please contact us.

Medical Capital Holdings. Securities America. Behringer Harvard REIT I. Main Street Natural Gas Bonds. Tim Durham. Fannie Mae, Freddie Mac Preferred Shares. Goldman Sachs CDO Fraud. Lehman Structured Notes. These names were among the hot topics that dominated the investment headlines in 2010.

In January, Securities America was accused by Massachusetts Secretary of State William Galvin of misleading investors and intentionally making material misrepresentations and omissions in order to get them to purchase private placements in Medical Capital Holdings. Medical Capital was sued by the Securities and Exchange Commission (SEC) in July 2009 and placed into receivership. Its collapse ultimately created about $1 billion in losses for investors throughout the country.

According to the Massachusetts complaint, as well as other state complaints that would follow, many investors were unaware of the risks involved in their Medical Capital private placements. They also didn’t know about the crumbling financial health of the company. Securities America, on the other hand, was fully aware of both, regulators allege.

In February, non-traded real estate investment trusts like the Behringer Harvard REIT I became front-page news, as investors filed complaints over what their brokers did and did not disclose about the investments. In the case of Behringer and other non-traded REITs, including Cornerstone, Inland Western and Inland American, investors found themselves blindsided after discovering their investments were high-risk, illiquid and contained highly specific and lengthy exit clauses.

In March, rogue brokers Bambi Holzer faced charges in connection to sales of private placements in Provident Royalties. Like Medical Capital Holdings, the SEC charged Provident with securities fraud, citing $485 million in private securities sales. In March 2010, the Financial Industry Regulatory Authority (FINRA) formally expelled Provident Asset Management LLC, the broker-dealer arm of Provident.

Ponzi schemes were big news, as well, in March. Heading the list of offenders was Rhonda Breard, a former broker for ING Financial Partners. State regulators contend Breard scammed nearly $8 million from investors in a Ponzi scheme that allegedly had been going on since at least 2007.

In April, Goldman Sachs and its role in the financial crisis faced new scrutiny by Congress. Internal emails became the driving force behind the interest. Eventually, charges were filed by the SEC over a synthetic collateralized loan obligation – Abacus 2007-ACI – that produced about $1 billion in investor losses. Goldman later reached a settlement with the SEC, paying a $550 million fine. The fine remains the biggest fine ever levied by the SEC on a U.S. financial institution. Goldman also acknowledged that its marketing materials for Abacus contained incomplete information.

In May, FINRA stepped up its own scrutiny of non-traded REITs. On its watch list: Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust, Wells Real Estate Investment Trust II and Piedmont Office Realty Trust. In particular, FINRA began to probe the ways in which broker/dealers marketed and sold non-traded REITs to investors.

In June, 49 broker/dealers found themselves named in a lawsuit involving sales of Provident Royalties private placements. The lawsuit, filed June 21 by the trustee overseeing Provident – Milo H. Segner Jr. – charged the broker/dealers of failing to uphold their fiduciary obligations when selling a series of Provident Royalties LLC private placements. Among the leading sellers of private placements in Provident Royalties were Capital Financial Services, with $33.7 million in sales; Next Financial Group, with $33.5 million; and QA3 Financial Corp., with $32.6 million.

In July, Fannie Mae and Freddie Mac were back in the news, as a rash of investors began filing lawsuits and arbitration claims over preferred shares purchased in the companies. In 2007 and 2008, investment firms like UBS, Morgan Stanley, Citigroup, Merrill Lynch and others sold billions of dollars in various series of preferred stock issued by the two mortgage giants. According to investors, however, the brokerages never revealed key information about the preferred shares, including the rapidly deteriorating financial health of Freddie Mac and Fannie Mae and the fact that both companies had a growing appetite for risky lending, excessive leverage and investments in toxic derivatives.

In August, new issues regarding retained asset accounts (RAAs) came to light. Specifically, RAAs allow insurers to earn high returns – 4.8% – on the proceeds of a life insurance policy. Meanwhile, beneficiaries often receive peanuts via interest rates as low as 0.5%. Adding to the issues of RAAs is the fact that the products are not insured by the Federal Deposit Insurance Corp. (FDIC).

In September, new concerns about the suitability of leveraged, inverse exchange-traded funds (ETFs) for individual investors began to crop up. Among other things, regulators cautioned investors about the products and stated that they may be inappropriate for long-term investors because returns can potentially deviate from underlying indexes when held for longer than single trading day.

In October, the ugliness associated with some non-traded REITs gained new momentum. A number of non-traded REIT programs eliminated or severely limited their share repurchase programs. At the same time, some non-traded REITs continued to offer their shares to the public. As of the first quarter of 2010, this group included Behringer Harvard Multi-family REIT I, Grubb & Ellis Apartment REIT, Wells REIT II, and Wells Timberland REIT.

In November, sales of structured notes hit record highs of more than a $42 billion. Leading the pack in sales of structured notes was Morgan Stanley at $10.1 billion, followed by Bank of America Corp., which issued $7.9 billion.

Because of their complexity, structured products are not for those who don’t fully understand them. Moreover, once an investor puts money into a structured product, he or she is essentially locked in for the duration of the contract. And, contrary to promises of principal by some brokers, investors can still lose money – and a lot of it – in structured notes.

Case in point: Lehman Brothers Holdings. Investors who invested in principal-protected notes issued by Lehman Brothers lost almost all of their investment when Lehman filed for bankruptcy in September 2008.

Also big news in November 2010: Tim Durham and Fair Finance. The offices of Fair Finance were raided by federal agents of Nov. 24. On that same day, the U.S. Attorney’s Office in Indianapolis filed court papers alleging that Fair Finance operated as a Ponzi scheme, using money from new investors to pay off prior purchasers of the investment certificates. According to reports, investors were defrauded out of more than $200 million.

The effects of Lehman Brothers’ bankruptcy continued to unfold in December 2010 for many investors who had investments in Main Street Natural Gas Bonds. Main Street Natural Gas Bonds were marketed and sold by a number of Wall Street brokerages as safe, conservative municipal bonds. Instead, the bonds were complex derivative securities backed by Lehman Brothers. When Lehman filed for bankruptcy protection in September 2008, the trading values of the Main Street Bonds plummeted.

Many investors who purchased Main Street Natural Gas Bonds did so because they were looking for a safe, tax-free income-producing investment backed by a municipality. What they got, however, was a far different reality.

Their names may be different – Cornerstone Core Property, Inland American, Inland Western and Behringer Harvard REIT I – but these non-traded real estate investment trusts (REITs) have produced similar financial woes for their investors.

Non-traded REITs can be tricky investments. The products do not trade on national stock exchanges. Redemptions in them are limited at best; most non-traded REITs entail a lengthy holding period – in some instances, up to eight years.

The biggest fault concerning non-traded REITs is one of transparency. Non-traded REITs generally provide no independent source of performance data for investors. Instead, investors must rely on the broker/dealer responsible for pitching and selling the the investment.

And therein lies the problem.

In recent months, numerous complaints have come to light concerning non-traded REITs and, specifically, the broker/dealers behind the deals. Investors allege that they were never given complete details about their investment, as well as the many risks associated with non-traded REITs in general.

The lack of disclosure may have something to do with the high commissions and fees that broker/dealers take in from sales of non-traded REIT shares. In many cases, these fees are 15% or more.

This year, many investors in non-traded REITs have had to face a harsh reality. Instead of getting the stability, liquidity and a reliable source of income they were initially promised by their broker/dealers, they received dividend cuts and elimination of shareholder redemption programs.

Earlier this year, the Financial Industry Regulatory Authority (FINRA) began to take a keen interest in non-traded REITs by conducting a sweep of the promotion practices and sales of broker/dealers associated with the products.

Maddox Hargett & Caruso currently is investigating sales of non-traded REITs, including Cornerstone, Inland American, Inland Western and Behringer Harvard. If you’ve suffered financial losses of $100,000 or more in a non-traded REIT and believe those losses are the result of inadequate information on the part of your broker/dealer, please Contact Us.

Inland American Real Estate Trust has reset the value of its common shares to $8.03. For investors, it isn’t good news; the price is down from the $10 that the shares sold for when the non-traded REIT was first launched in 2005.

Inland announced the reset on Sept. 21 in an 8-K filing with the Securities and Exchange Commission (SEC). Inland also stated in the filing that it “gives no assurance that a stockholder would be able to resell his or her shares at the new estimated value.”

“We believe the current downturn in the economy has depressed the value of our assets and hence the estimated value of our shares,” Inland said. “The value of our shares will likely change over time and will be influenced by changes to the value of our individual assets as well as changes and developments in the real estate and capital markets.”

Other non-traded have followed Inland lead in resetting their values. Among them: Behringer Harvard REIT I, which reset its shares to $4.25 earlier this summer, and KBS REIT, which reset its value to $7.17 in late 2009.

Maddox Hargett & Caruso is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning non-traded REITs, please contact us.

Non-traded REITs such as Behringer Harvard REIT I, Behringer Harvard Opportunity, Wells Real Estate Investment Trust II, Inland America Real Estate Trust and Inland Western Retail Real Estate Trust may become more transparent thanks to a new platform under development by the Depository Trust and Clearing Corporation (DTCC).

As reported June 6 by Investment News, the intent of the platform it to provide standards, centralize data and automate transactions for alternative investments like private placements, non-traded real estate investment trusts, limited partnerships and hedge funds. Through the new platform, the DTCC will operate as a go-between among firms that create alternative investments and the broker/dealers and companies selling them.

The platform – called the Alternative Investment Product (AIP) – currently is being used by Pershing LLC. The Charles Schwab Corp. is testing it, according to the Investment News story, and National Financial Services LLC, a clearing unit of Fidelity Investments, plans to have it operating by 2011.

In the interim, about 15 DTCC- affiliated sponsors of alternative investment products are testing the platform.

Alternative investments like non-traded REITs and private placements have come under fire by regulators in recent months for their lack of transparency. In July 2009, the Securities and Exchange Commission (SEC) filed fraud charges against the Tustin, California, lender Medical Capital Holdings in connection to private placements that the company issued to more than 20,000 investors nationwide.

Non-traded REITs also faced intense scrutiny lately. Last year, some of the most prominent non-traded REITs, including Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust and Piedmont Office Realty Trust slashed dividends to investors and/or shut down their redemption programs.

The AIP is intended to standardize the way the alternative investment industry communicates information about these types of investments, providing more new clarity.

“The challenge for many alternative investments is that they’re non-standardized,” said one anonymous industry executive in the June 6 Investment News story. “They’re not always priced and valued on a regular basis. This is an investor need, a broker/dealer need.”

Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust, Wells Real Estate Investment Trust II and Piedmont Office Realty Trust are non-traded real estate investment trusts, or REITs – an industry that has garnered new interest from the Financial Industry Regulatory Authority (FINRA).

As reported May 28 by Investment News, FINRA is paying close attention to non-traded REITs and, in particular, the ways in which broker/dealers marketed and sold the products to investors.

Non-traded REITs are considered illiquid investments because they do not trade on a stock exchange. The majority of non-traded REITs have a specific time frame that outlines when investors can redeem their REIT shares. Non-traded REITs also come with high commissions and fees, a fact that may lead some broker/dealers to misrepresent the products for personal profit.

The market for non-traded REITs experienced an especially tumultuous year in 2009. Many of the largest non-traded REITs either slashed dividends to investors, shut down redemption programs or both.

In March 2009, for instance, the Behringer Harvard REIT I suspended shareholder redemption requests. A short time later, it announced plans to slash annualized dividends from 6.5% to 3.25%, based on an original share purchase price of $10.  The Behringer Harvard Opportunity REIT I also halted its shareholder redemptions.

Maddox Hargett & Caruso is investigating sales of non-traded REITs on behalf of investors. If you believe your broker/dealer or financial adviser misrepresented the facts concerning non-traded REITs, please Contact Us.

Unsuitable investments in Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust have become a growing source of concern for more investors these days. In many cases, sales of Inland REITs were appropriate from the start for some investors. Why? Because the broker/dealers behind the deals failed to disclose all of the necessary information associated with the products, including the high commissions that the REITs commanded. In some instances, those fees exceeded 15%.

The Inland REITs are considered unlisted REITs; they do not trade on national stock exchanges. Redemptions in unlisted REITs are limited and almost always have a minimum holding period. If investors want to exit an unlisted REIT entirely, they usually can only do so at specified times.

Perhaps the biggest criticism of unlisted REITs has to do with their lack of transparency. Unlisted REITs also typically come with no independent source of performance data. Moreover, critics of unlisted REITs cite the often vague prospectus language regarding their formal exit strategies.

In recent months, we’ve heard from several investors who say their broker/dealer never discussed the various risks that investors take on when they purchase shares of an unlisted REIT. In reviewing these complaints, we’ve also discovered that some investors were kept in the dark about the fact that their investment in an unlisted REIT could literally be tied up for an undetermined amount of time in the event the REIT suspends its share-repurchase program.

That’s exactly what happened with Inland American, which suspended its buyback program in March 2009. Investors had two options: Hold onto their shares until buybacks become re-instated or attempt to sell their share, at a significant loss, on the secondary market.

If you believe your broker/dealer failed to provide adequate information concerning investments in the Inland American Real Estate Trust, the Inland Western Retail Real Estate Trust or another unlisted REIT, contact us.

Sales of Inland American REITs have produced a firestorm of financial headaches for investors, many of whom were sold on the products based on inappropriate recommendations from broker/dealers. Investments such as the Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust are non-traded, or unlisted, REITs – financial products that have come under increasingly scrutiny lately because of the potential risks they may carry.

Non-traded REITs are not listed on a stock exchange, and investor redemptions are usually limited to a specified time frame. Most important, non-traded REITs can be pricey to get into, with fees as high as 15%.

In conversations with several investors, Maddox Hargett & Caruso has learned that many individuals who invested in non-traded REITs, including the Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust, were ill-informed by their broker/dealer of the high fees, illiquidity and other risks tied to the products. If you suffered investment losses in either of these REITs or another non-traded REIT, contact us to tell your story. 

Investments in Inland American REITs have backfired for investors throughout the country. In many instances, these products – including the Inland American Real Estate Trust and Inland Western Retail Real Estate Trust – were pitched by broker/dealers as a low-risk, conservative investment. In reality, however, investors were putting their money into non-traded REITs, and the qualities that define these REITs are anything but conservative.

Non-traded REITs (or unlisted REITs) are not listed on a stock exchange. Redemptions in them are limited at best. Perhaps the biggest downside to non-traded REITs is their fees, which in some cases can be upwards of 15%.

Many investors were woefully unaware of the high fees associated with their non-traded REITs – until it was too late. And for some broker/dealers, that’s just what they had in mind when they pitched these products to their conservative clients.

Maddox Hargett & Caruso is investigating a number of non-traded REITs, including the Inland American Real Estate Trust and Inland Western Retail Real Estate Trust. If you suffered investment losses in either of these REITs or another non-traded REIT, contact us to tell your story. A member of our securities fraud team will work with you to determine if some or all of your losses can be recovered.

Inland American Real Estate Trust is among several unlisted real estate investment trusts (REITs) to face a wave of backlash from investors lately. Why? Because many independent broker/dealers and their financial advisers misrepresented the risks and characteristics of unlisted REITs like the Inland American Real Estate Trust. Only now are many retail investors coming to terms with the collateral damage that has taken place in their portfolios.

To be sure, sales of unlisted (also known as non-traded) REITs are booming. Unlisted REITs raised more than $10 billion in 2008.

Sold through broker/dealers, shares in unlisted REITs do not trade on national stock exchanges. Redemptions are limited and usually include a minimum holding period. If an investor does decide to get out of the trust entirely, he or she can usually only do so on a specified date.

There are several other caveats associated with unlisted REITs, not the least of which is an exorbitant fee of up to 15% to get in. And that’s in addition to ongoing management fees and other expenses. Even more important: Unlisted REITs often offer no independent source of performance data. They also fail to offer investors a guarantee that their dividend payments will continue throughout their planned investment period in the REIT. 

Non-Traded REITs: Considerations for Hotel Investors by John B. Corgel and Scott Gibson provides an in-depth look at unlisted REITs and the unintended consequences that the products may create for individual investors who do not conduct their own due diligence.

Specifically, the study – which claims to be the first professional and academic report to analyze the structure of non-traded REITs – shows that investors who purchased hospitality REITs early in the investment cycle saw a diminished return as a result of subsequent sales. In other words, the early investors subsidize the commissions paid to the dealers who sell to late-term investors, the report says. 

One of the criticisms cited in the report – and one which has been touted in general by critics of unlisted REITs – is the vague prospectus language regarding exit strategies.

The fixed share prices of non-traded REITs are another bone of contention with naysayers of the products. Often marketed to investors as a selling point, the fixed share price can actually become an unwanted feature. Says Non-Traded REITs: Considerations for Hotel Investors: 

“ . . . this policy of maintaining fixed share prices in companies that continually offer shares at the same or similar fixed prices throughout the investment cycle will have adverse consequences to investors who buy into programs early in the cycle.” 

To their detriment, investors throughout the country may have purchased shares in non-traded REITs like the Inland American Real Estate Trust based on misrepresentations by their brokerage firm. That advice has now proven to financially disastrous. Instead of access to their cash, investors are finding themselves left out in the cold – their money locked up for an undetermined period of time in these illiquid, high-commission products. 

Maddox Hargett & Caruso continues to investigate the selling practices of brokerage firms such as UBS, Merrill Lynch, Citigroup, LPL Linsco, Morgan Keegan & Company, as well as others that may have recommended unsuitable investments in non-traded REITs to their clients. If you have a story to tell about your investment losses in non-traded REITs, contact us.