Our law firm is handling claims against Financial Industry Regulatory Authority (“FINRA”) securities broker-dealers who solicited customers to invest in tenants-in-common (“TIC”) investments, including investments in DBSI. Other TIC investments sold to investors include Covington Main Street Commons, Sequoia Stonebriar, TSG/Rob Hannah, Geyser Realty, USA View at Encino Commons, Stonebriar, Braintree Park, Eliason, Behringer Harvard St. Louis Place, Mission Bellevue Ridge, NNN Mt. Moriah Apartments 1, TIC Connor Farms, Mission Antioch, Argus Realty Investors, Heron Cove and DBSI.
In 2005 FINRA, f/k/a the NASD, issued Notice to Members 05-18 titled Private Placements of Tenants-In-Common Interests. The Notice addresses Section 1031 tax-deferred exchanges of real property for certain TIC interests in real property offerings. In a TIC exchange, interests in real property are exchanged for instruments that generally are securities for purposes of the federal securities laws and NASD rules. The Notice reminds members that when offering TIC interests that are securities to customers, members and their associated persons must comply with all applicable NASD rules, including those addressing suitability, due diligence, splitting commissions with unregistered individuals or firms, supervision and recordkeeping.
In addition, members relying on private offering exemptions from the registration requirements of the Securities Act of 1933 must ensure that their manner of offering TIC interests complies with all applicable requirements, including the prohibition on general solicitation.
It has been reported that to date, investors have filed claims in the FINRA arbitration forum totaling $12.6 million, which involved direct broker-dealer sales of TIC deals from DBSI. Of these claims, FINRA Arbitration Panels have awarded investors about $4.8 million since June 2010. Between 2003 and 2008, investors purchased about $1 billion of DBSI’s TIC investments. About 100 broker dealers sold DBSI TICs.
In February 2012, a FINRA Arbitration Panel ordered LPL Financial to pay two investors about $1.4 million for losses sustained in two TIC exchanges Heron Cove, LLC and Braintree Park, LLC. The sponsor of the two deals was Direct Invest, LLC. LPL was also held responsible for $35,700 in hearing session fees. Over the past decade, TIC investments became increasingly more common. In 2003, the IRS amended its rules which allowed investors to avoid capital gains taxes by investing proceeds from a property sale into TIC investments. Individuals who invest in TICs become fractional owners of a single property. When the real estate market crashed, many TIC investors saw the value of their investments decline substantially.
FINRA securities brokerage firms who sold TIC investments to their customers were required to conduct adequate due diligence into the investments before selling the products. Financial advisors who sold TIC investments often represented the products as safe and guaranteed, with returns of 7 to 12 percent per year. With the recommendation to invest in the TICs, however, many advisors failed to properly advise their customers of the risks associated with the products. Investors who purchased TIC investments from a full-service securities broker-dealer and sustained significant losses can contact KlaymanToskes to explore their legal rights and options.