Sonn Law Group recently filed several FINRA arbitration claims against NFP Securities, Inc., and Securities America, Inc., on behalf of investors who made investments through Andrew Stuart Asset Management (“ASAM”), located in Coral Springs, Florida, by two stockbrokers registered with NFP Securities, Inc. The two stockbrokers, Andrew Rosenberg (“Rosenberg”) and Stuart Horowitz (“Horowitz”), recommended illiquid real estate investments including the Hennessey Financial Monthly Income Fund, LP also known as Capital Solutions Monthly Income Fund, LP, Capital Solutions Preferred Stock, and True North Finance Preferred Stock (“Capital Solutions”), Warsowe Acquisition Corp. Series 2 Debentures, Grub & Ellis Apartment REIT, and KBS REIT 1. Rosenberg and Horowitz’s customers reportedly have lost $7.9 million in the Warsowe Debentures alone.
In two recently filed cases, retired couples suffered devastating losses to their irreplaceable retirements savings as a result of following the recommendations of Rosenberg and Horowitz. One couple, an 83-year-old retired pharmacist and his wife, invested $276,000 in Capital Solutions after Rosenberg and Horowitz told them that Capital Solutions was a low risk investment that generated a 12% annual return by making short-term secured loans.
Rosenberg and Horowitz later solicited the pharmacist and his wife to invest an additional $81,000 in Capital Solutions Preferred Notes in April 2009. Rosenberg and Horowitz represented to the couple that the Fund’s investments were performing well and that by investing additional funds in Capital Solutions Preferred Notes they would achieve a higher priority over other investors. Rosenberg and Horowitz told a similar story to another retired couple who initially invested $250,000 in Capital Solutions, then invested an additional $75,000 in April 2009 at Rosenberg and Horowitz’s urging.
In March 2009, Horowitz emailed ASAM’s customers, and encouraged them to invest in Capital Solutions Preferred Notes. Amongst other things, Horowitz represented to his customers that:
- The conversion puts clients in a secured 1st position;
- Capital Solutions is not in jeopardy of lowering or eliminating their distribution at any time soon;
- There is more than sufficient collateral to cover all $ invested in Capital Solutions at this time; and
- We strongly believe that all investors will ultimately receive a full return of capital regardless of consistent or inconsistent monthly distributions.
In fact, Capital Solutions was a high risk and unsuitable unregistered hedge fund that was involved in risky real estate loans. Capital Solutions ceased paying distributions in September 2009, and the SEC sued Capital Solutions in September 2010 for being a Ponzi scheme whereby old investors in the Fund were being paid by new investors. Thus, investors have lost not only their capital, but also been deprived of income they otherwise would have earned in a suitable fixed income investment.
Rosenberg and Horowitz also recommended that both retired couples invest in Warsowe Acquisition Corp. Series 2 Debentures in late 2007. The pharmacist and his wife invested $345,000 in Warsowe Debentures, while the other retired couple invested $125,000. Warsowe is located in Florida and offered different series of investments secured by collateral assignments and corresponding mortgages. The investments were sold as safe and secure due to asset backing, when in fact some of the mortgages sold through Warsowe were subordinate to other mortgages and were high risk investments.
Warsowe began winding down its operations in March 2008, just four months after the retired couples made their investments. As a result, both retired couples lost a substantial portion of their principal plus the income that they should have earned from fixed income investments. Further, FINRA has sanctioned Rosenberg for his involvement in the Warsowe debentures.
Rosenberg and Horowitz further recommended that both retired couples invested in illiquid, non-traded REITS. The pharmacist and his wife invested $80,000 in the Grubb & Ellis Apartment REIT, Inc., which has since converted to the Landmark Apartment Trust of America (“G&E REIT”). The pharmacist and his wife also invested $20,000 in the KBS REIT 1. The other retired couple likewise invested $100,000 in the G&E REIT, and $100,000 in the KBS REIT 1.
Both the G&E REIT and the KBS REIT 1 are high risk, illiquid and unsuitable non-traded REIT. Through at least 2010, Rosenberg and Horowitz valued the investment in G&E REIT and KBS REIT at par value or $10 a share. However, recent reports from KBS REIT value the shares at $5.18 a share. Similarly, the G&E REIT is currently valued below $10 per share. As the shares are illiquid, they usually trade at a discount in the secondary market. KBS has currently ceased all distributions.
It is apparent that in making these recommendations, Rosenberg and Horowitz failed to adequately disclose the attendant risks, and never informed either retired couple that they could lose their entire principal, while being deprived of the income stream they sought. Brokerage firms and financial professionals may aggressively encourage their clients to pursue unsuitable investments, because these investment pay very high commissions, and are extremely profitable to those who sell them. The drive to make money can compel brokerage firms and financial professionals to ignore fundamental duties to their clients, such as the duty to research and understand an investment, as well as evaluate whether the investment is suitable for a particular client given the client’s investment experience, net worth, risk tolerance, and investment objectives.
Investors who have lost money in an illiquid real estate investment, such as the Hennessey Financial Monthly Income Fund, LP also known as Capital Solutions Monthly Income Fund, LP, Capital Solutions Preferred Stock, and True North Finance Preferred Stock (“Capital Solutions”), Warsowe Acquisition Corp. Series 2 Debentures, Grub & Ellis Apartment REIT, and KBS REIT 1, can file FINRA arbitration claims against the brokerage firms who sold this high risk, unsuitable investment to them. Investors may be able to sue for damages, while keeping ownership of their illiquid investment.
Sonn Law Group specializes in representing investors (not brokerage firms) in securities arbitration and investor fraud cases throughout the country. Sonn Law Group has represented numerous investors in FINRA arbitration claims against the brokerage firms who sold illiquid, high-commissioned, non-traded investments, including TICs, REITS, promissory notes, and others, who have filed claims against NFP Securities, Inc., Securities America, Inc., IMS Securities, Inc., and Investors Capital Corp., among others. Sonn Law Group continues to investigate investment claims against other firms and financial advisors regarding illiquid investments, such as REITs.
To learn more, including whether you may have a claim for your illiquid real estate investment or other investment losses, please call us at 844-689-5754 or complete our “contact form.”