Shopoff Realty Investments, L.P., Shopoff Securities, Inc., Stephen and William Shopoff, and their related entities, have a history of troubled private offerings, where there has been a lack of transparency, because once again, the offering of these securities is exempt from registration with the Securities & Exchange Commission.
Shopoff and their related entities, have a long history of “underestimating its debts” to investors, “inaccurately project[ing] income from pending real estate deals,” listing executives not associated with the company in offering documents, omitting facts as to how the proceeds of investment sales would be used, including the use of investor proceeds to repay previous investors, and the reliance on “infusions” from investors and third parties.
However, stockbrokers and investment professionals, and their firms, were paid “due diligence fees,” of at least 3%, and total fees or commissions in excess of 13%, in connection with the approval, sale and marketing of these investments to its customers.
With respect to alternative or direct investments, in April 2010, FINRA issued Notice to Members 10-22, reminding its members that:
Rule 2310 requires broker-dealers to conduct a suitability analysis when recommending securities to both accredited and nonaccredited investors that will take into account the investors’ knowledge and experience. The fact that an investor meets the net worth or income test for being an accredited investor is only one factor to be considered in the course of a complete suitability analysis. The BD must make reasonable efforts to gather and analyze information about the customer’s other holdings, financial situation and needs, tax status, investment objectives and such other information that would enable the firm to make its suitability determination. A BD also must be satisfied that the customer “fully understands the risks involved and is…able…to take those risks.”
As stated in FINRA Notice to Members 10-22:
The Securities and Exchange Commission (SEC) and federal courts have long held that a BD that recommends a security is under a duty to conduct a reasonable investigation concerning that security and the issuer’s representations about it. This duty emanates from the BD’s “special relationship” to the customer, and from the fact that in recommending the security, the BD represents to the customer “that a reasonable investigation has been made and that [its] recommendation rests on the conclusions based on such investigation.”
Failure to comply with this duty can constitute a violation of the antifraud provisions of the federal securities laws and, particularly, Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. It also can constitute a violation of FINRA Rule 2010, requiring adherence to just and equitable principles of trade, and FINRA Rule 2020, prohibiting manipulative and fraudulent devices.
FINRA Notice to Members 10-22 (April 2010). Notice to Members 10-22 also provides that a broker dealer must conduct a reasonable investigation into each offering, must maintain supervisory procedures under Rule 3010 that are reasonably designed to ensure that these securities are suitable for particular customers, and retain records documenting both the process and results of its investigation.
In addition, FINRA has also reminded its members that “In order to ensure that it has fulfilled its suitability responsibilities, a BD should, at a minimum, conduct a reasonable investigation concerning:
• the issuer and its management;
• the business prospects of the issuer;
• the assets held by or to be acquired by the issuer;
• the claims being made; and
• he intended use of proceeds of the offering.
A BD must conduct a reasonable investigation in connection with each offering, notwithstanding that a subsequent offering may be for the same issuer. (Id. at 5).
Investors in Shopoff Realty Investments, L.P., and its related entities, should consult with qualified counsel to determine their legal rights.
Guiliano Law Group
Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.
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