Claims for failed Tenants in Common (TIC) investments still haunt stockbrokers and investment advisers according to a story in InvestmentNews. According to the report published on Friday, arbitration awards continue to be made against broker dealers.
TICs were a popular investment vehicle several years ago. An IRS ruling allowed individuals to pool their monies and invest in larger real estate projects such as hotels and office buildings. Investors were promised a stable rate of return and professional management. Stockbrokers loved TICs because they paid an above rate of return and helped them offer clients a product with above market rates of return.
If that sounds to good to be true, it was for many TIC owners. TIC projects by DBSI and Boston based promoter Carlton Cabot caused many investors to lose hundreds of millions of dollars. With recovery against the TIC promoters unlikely, the investors turned to (or more accurately, turned on) their brokers.
Firms that failed to conduct proper due diligence or misrepresented the risks of the investments soon found themselves on the receiving end of arbitration complaints. (Claims against stockbrokers are usually handled by binding arbitration before FINRA, the Financial Industry Regulatory Authority.) Several brokerage firms went under after being unable to pay claims. Earlier this month we wrote about a large TIC related award against brokerage giant ProEquities.
InvestmentNews claims that other large claims remain in the pipeline and should soon be resolved involving TIC claims. Whether the brokerage firms will be held responsible is not yet known. The obvious lesson is to always perform your own due diligence before investing. While many broker dealers did perform adequate due diligence, some did not. If your broker dealer didn’t due their homework, you may have a claim but only if the firm is on sound economic footing. With the typical TIC loss measuring $100,000 or more, it doesn’t take too many of those to put a smaller firm out of business.
The fraud lawyers at Mahany & Ertl specialize in TIC frauds. We can help you recover against the brokers who sold these investment as well as protect you in the event a lender seeks to pursue the TICs in the event of a failed project. Unfortunately, many of the Cabot TICs are now learning that their investment documents contained personal guaranty language even though many brokers claimed the projects were funded with “non recourse” loans.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Services available in many jurisdictions.
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Posted by Brian Mahany, Esq.