To date we have represented over 100 TIC investors. All of them lost significant amounts of their savings in fraudulent TIC schemes. Stockbrokers sold most of these investments. Many of those bad brokers folded up their tents and simply closed their doors leaving investors with nothing. Thankfully, some investors do get lucky and get back some of their money. One of the lucky ones is William Farrington.
Before telling Mr. Farrington’s story, some background is necessary. A TIC is a tenant-in-common. IRS rules allow investors to pool the gains from the sale of property and combine those monies to purchase a larger investment such as an office park or warehouse. They are complex investments and require a high degree of tax knowledge and investment experience to put together.
For example, let’s say an elderly couple decides to downsize. They sell their home and make a nice profit from the sale. Unless they are purchasing a new home of greater value, the couple faces a tax on the gain or profit from their house. Enter TIC promoters and IRS section 1031 “rollovers” or exchanges.
On paper, there is nothing wrong with a good TIC financed project. Unfortunately, the industry attracted a number of crooked promoters who were only interested in “rolling” their investors. Many of the promoters are now in jail (DBSI) or missing in action (Carlton Cabot). Investors in those situations have little recourse but the stockbrokers and their employers may be liable.
Stockbrokers have a duty to perform due diligence on the investments they recommend to customers. In our experience, however, the stockbrokers we have encountered often did not understand the investments. Sadly, a few swallowed the kool-aid and were also duped. Legally, however, their employers (the brokerage firms) may still be liable for any TIC fraud losses.
We are not sure of what happened in William Farrington’s case as his claim was settled before trial. We know from records obtained from the Financial Industry Regulatory Authority – FINRA – that LPL Financial and individual stockbroker Richard Zito had claims filed against them in 2013 by Mr. Farrington. We also know those claims involved a TIC investment.
The case was settled confidentially so figuring out exactly what happened is difficult. The complaint says that Zito’s recommendation of the TIC investment was unsuitable and that Zito didn’t properly explain the risks. Ultimately Zito’s employer, LPL Financial, paid $300,000 to settle the TIC fraud allegations. The broker’s statement to FINRA, however, tells a different story, “Ultimately the firm elected to settle this arbitration due to the significant costs associated with trying such a complicated matter and the inherent uncertainty in litigation…”
Did LPL Financial simply settle this case as a nuisance claim? In our opinion, no. Although the settlement is not public, Zito’s disclosures to FINRA indicated that LPL paid $300,000 to settle. Nuisance value cases usually settle for $5,000 or $10,000. More importantly, this month a FINRA arbitration panel elected not to expunge Zito’s record. Typically, FINRA will expunge a broker’s record if a hearing panel concludes that no wrongdoing occurred and that any settlement was truly a “nuisance” payment. Notwithstanding the large payment, LPL has stood behind Zito who remains employed there.
LPL Financial and several of its brokers have been in trouble recently for sales of illiquid investments such as TICs and nontraded REITs. The TIC boom was almost a decade ago. That means that many TIC fraud cases are approaching or have reached the statute of limitation. Time is running out to file claims against brokers and brokerage firms.
Having represented so many TIC fraud victims, sometimes we hear that a victim wants to wait to see what happens with criminal restitution or lawsuits against the promoter. Unfortunately, time is simply running out for many TIC claims. Waiting for money from another source does not toll or stop the statute of limitations clock.
Lost money in a TIC fraud scheme, nontraded REIT or other investment fraud? Give us a call. Our fraud recovery team has helped many investors get back millions of dollars. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries kept strictly confidential.