According to his BrokerCheck report maintained by the Financial Industry Regulatory Authority (“FINRA”), Mr. Karl is currently the subject of a pending customer dispute. The allegations include unsuitable investment recommendations, including an investment into real estate, per FINRA. According to the disclosures on Mr. Karl’s BrokerCheck, the customer is requesting $100,000 in damages.
Mr. Karl’s FINRA records indicate that he has also been the subject of two prior customer disputes since 2010. In 2014, a client alleged that “the non publicly traded REIT sold to her was unsuitable,” per FINRA. This case was reportedly settled for $50,000. The other customer complaint, filed in 2010, alleged $120,000 in damages for failure to “fully explain tax laws regarding the sale of the client’s stock portfolio,” according to BrokerCheck, and was ultimately withdrawn.
A non-traded real estate investment trust, commonly known as a REIT, is a type of investment that is typically sold to those investors seeking income. Non-traded REITs differ from their publically traded brethren in that, in general, they cannot be easily sold on the open market – hence, “non-traded.” This can make them illiquid, meaning that they cannot be quickly sold and the cash taken out of the position. For investors who have no need for liquidity, that may not be an issue, but for investors who need ready access to their savings, this would normally not be a good choice.
Another issue with non-traded REITs is that they can be difficult to value since there is no “market value” for them, as there would be for a more traditional stock or bond investment. For investors, this can mean that losses may be hidden from view for some time. Investors may find themselves trying to sell non-traded REITs on a secondary market for only pennies on the dollar.
For these reasons, non-traded REITs are not for every investor. Before recommending them to a customer, a broker should ensure that they are a suitable investment for that customer. Unfortunately, many brokers do not. Brokers may be lured by the relatively higher commissions non-traded REITs and recommend them to customers to whom they are not appropriate. In such a case, that customer may be entitled to recover any losses resulting from the unsuitable REIT investment.
The attorneys at Malecki Law are regularly contacted by and regularly represent individuals who have lost money in connection with inappropriate securities transactions and outside business activities of financial advisors/stockbrokers. We have handled numerous cases involving REITs, unsuitable investment recommendations and other types of broker misconduct.