REITs Investigation
Zamansky & Associates LLC is investigating claims by investors in non-publicly traded or unlisted real estate investment trusts (REITs). Non-traded REITs do not trade on a stock exchange, and are relatively illiquid investments. Since 2000, unlisted REITs raised nearly $60 billion from investors and some of the largest unlisted REITS are managed by Behringer Harvard, Inland Western, Inland America, Wells Real Estate Trust, Lightstone, CNL Income Properties, Hines Real Estate Trust, W.P. Carey, Apple, Cole Credit Property Trust, Piedmont Office Realty Trust and American Real Estate Trust.
In March 2009, the Financial Industry Regulatory Authority (FINRA) officially opened an investigation into non-traded REITs with an examination of documentation and data from various brokers who sell the investments. FINRA is examining the compensation paid to brokers who sold unlisted REITs - which have raised nearly $60 billion since 2000. Specifically, regulators want to know if investors are being properly informed about the products at the time they buy into them, and if there were misrepresentations about fees, dividends and liquidity.
Because unlisted REITS have liquidity restrictions, many of these REITs have specific suitability guidelines for investors; typically, these are a minimum income of $70,000 and minimum net worth of $250,000. Unlisted REITs are not suitable for purchase by investors who do not meet these minimum guidelines, and may not be suitable for investors for other reasons as well. Another reason may be that the unlisted REIT is not a safe or conservative income-generating investment. FINRA is examining whether brokers sold unlisted REITs to investors when it was an unsuitable investment.
Recently, investors have taken losses on these REITs and may have legal claims for unsuitability and/or misrepresentation. For example, Behringer Harvard REIT I, which raised $2.9 billion from its 2003 launch to the end of its final offering in December 2008, has reduced its share value as of May 17 to $4.25, plus cut its annualized dividend rate to 1%, according to a regulatory filing. For countless investors, this revaluation has been a crushing blow financially.
If you have invested in unlisted REITs and believe that you may have a claim, please contact us.
The Questionable Activities of For-Profit Schools
by on October 22, 2010
Federal prosecutors in Manhattan and Georgia last week scored a major Medicare fraud bust with the indictments of 44 members of an Armenian-American crime syndicate who billed Medicare for more than $100 million of treatments that were never performed or received. The group reportedly succeeded in stealing $35 million in Medicare reimbursements, making it the largest Medicare fraud operation conducted by a single group to result in criminal fraud charges.
“With 118 phantom clinics and over $100 million in bogus billings, this group of international gangsters allegedly ran a veritable fraud franchise,” Preet Bharara, the United States attorney in Manhattan, said in a statement announcing the charges. “As charged, they stole taxpayer dollars earmarked for the elderly and infirm and got away with it, until now.”
If Bharara and his federal colleagues are genuinely concerned about misuse of taxpayer money, it is my sincere hope that they are taking a close look at the GAO’s allegations that many of the nation’s leading for-profit schools engaged in equally deceptive practices involving taxpayer dollars.
As someone who has investigated Wall Street for more than three decades, I’ve seen an incredible amount of wrongdoing. However, the activities of for-profit education schools appears to take the cake. Most Wall Street wrongdoing involves firms or brokers simply ripping off their customers; there is considerable evidence suggesting that for-profit education companies may have systematically defrauded the Department of Education, ruined, possibly forever, the finances of already hard-pressed low-income students, and deceived investors about the true condition of their business. The extent and the magnitude of the wrongdoing could possibly rival the sub-prime mortgage debacle.
The GAO reported in August that undercover tests at 15 for-profit colleges found that all made “deceptive or otherwise questionable statements” to the agency’s undercover applicants. One admissions representative told an applicant to fraudulently remove $250,000 in savings on a financial aid form. A student interested in a massage therapy certificate costing $14,000 at a for-profit college was told that the program was a good value, but the GAO said the same certificate from a local community college cost $520. Recruiters at these schools also frequently engaged in aggressive marketing tactics to pressure these students, who had few options and limited financial flexibility, into enrolling. To review the extent of the alleged wrongdoing, here’s a link to the GAO report. Warning: the accompanying video will make your blood boil.
My firm represents investors who bought for-education stocks that were aggressively touted by their brokers. The clients were told that for-education stocks would prosper in the wake of the downturn because millions of people would seek vocational retraining. The investors, of course, were never told that for-education companies were boosting their financials using questionable sales and marketing practices. The stocks of these companies have plummeted.
President Obama has repeatedly been bashing Wall Street for its greed and unscrupulous practices but so far his rhetoric rings hollow. The SEC remains as ineffective as ever under his administration, merely meting out wrist slaps to alleged fraudsters like Goldman Sachs and Angelo Mozilo. I say alleged because despite agreeing to pay fines of $550 million and $67.5 million respectively, they weren’t required to admit any wrongdoing.
If President Obama truly cared about curbing Wall Street’s reckless and ruinous behavior, he’d be at the forefront calling for a public investigation of for-profit companies and criminal prosecutions for defrauding any government program, not just Medicare.
Goldman’s Actions Fuel Obama Push
The Sydney Morning Herald : by on April 22, 2010
Capitol Investments USA, Inc. and Nevin K. Shapiro
Zamansky & Associates has launched an investigation into the business practices of Capitol Investments USA, Inc., its founder Nevin K. Shapiro, and its various affiliates based on allegations that the firm operated a $900 million Ponzi scheme. The firm claimed to deliver outsized returns to investors through a so-called grocery diverting business, but according to the SEC, it used investors’ money to fund a lavish lifestyle that included a $5 million house and $1 million boat.
Most Ponzi schemes of any scale are typically aided or abetted by large financial institutions. Zamansky & Associates is examining what institutions may have worked with Capitol Investments USA and Nevin Shapiro, such as brokers that allegedly were paid as much as $13 million in commissions, and other financial services providers that may have either contributed to Mr. Shapiro’s alleged fraud directly or were grossly negligent.
Moreover, some victims used their retirement accounts to invest in Capitol Investments USA, which usually requires a “custodian” who must oversee the investment to ensure it is legitimate. We are investigating whether these firms are potentially liable for losses.
If you are a victim of the alleged fraud orchestrated by Nevin K. Shapiro, or are a customer/investor in Capitol Investments, USA, Inc., contact Zamansky & Associates.
Ethical Showdown: Goldman vs. Bear
by on April 22, 2010
Goldman Sachs has long reigned supreme on Wall Street because of the widespread perception and belief that they employed the smartest guys in the business. But the SEC’s fraud charges against the firm have exposed another possible reason for the firm’s stratospheric success: The firm is more ethically challenged than some of its rivals.
We will let the courts decide the legal merits of the fraud charges the SEC filed against Goldman last week, but let’s consider the moral propriety of the firm selling its clients mortgage securities that hedge fund powerhouse John Paulson had determined were most likely to fail. Goldman steadfastly maintains that it had no legal obligation to disclose that Paulson was the designer of the CDOs, but at least one competitor reportedly couldn’t stomach concocting such an arrangement.
In his book, “The Greatest Trade Ever,” Wall Street Journal reporter Greg Zuckerman discloses that Paulson first approached Bear Stearns trader Scott Eichel to structure a package of highly toxic securities with a high likelihood of failure, but Eichel and his colleagues apparently wouldn’t do the deal. According to Zuckerman:
Mr. Eichel said he felt it would look improper for his firm. “On the one hand, we’d be selling the deals to investors, without telling them that a bearish hedge fund was the impetus for the transaction, Mr. Eichel told a colleague; on the other hand, Bear Stearns would be helping Mr. Paulson wager against the deals.”
Zuckerman says that Deutsche Bank and other unnamed banks also worked with Paulson to structure CDOs that he could short, which, if true, raises the question as to why the SEC has singled out only Goldman for fraud. Bears Stearns was hardly the paragon of ethical propriety (it marketed hedge funds filled with dubious subprime mortgage securities to unsuspecting retail investors), but its impressive that they chose to turn down a lucrative fee arrangement rather than engage in a transaction they perceived as morally wrong. Goldman and Deutsche Bank apparently had no such ethical compunctions.
Ironically, Eichel now reportedly works for Royal Bank of Scotland, which acquired a business unit of ABN AMRO that was on the losing side of the Paulson designed instruments. Goldman maintains that it also lost $90 million on the deal, but I’m skeptical about the validity of the claim; the firm has long bragged about its risk management and its ability to hedge its trades. So while perhaps Goldman did indeed lose $90 million on one side of the transaction, it’s more than likely that they made it up on another.