Did you lose money investing in EquiAlt Fund III?
Galvin Legal, PLLC is launching an investigation on behalf of investors who may have suffered losses investing in EquiAlt Fund III at the recommendation of their financial advisor. If you suffered losses investing in the investment, then Galvin Legal, PLLC may be able to help you recover your losses in a Financial Industry Regulatory Authority (“FINRA“) arbitration claim against the broker-dealer and/or registered representative that recommended the investment.
Understanding EquiAlt, LLC Investments
EquiAlt, LLC purports to be a private real estate company with at least four private placements offerings: EquiAlt Fund, LLC; EquiAlt Fund II, LLC; EquiAlt Fund III, LLC; EquiAlt Secured Income Portfolio REIT, Inc.; EquiAlt Qualified Opportunity Zone Fund, LP; and EA Sip, LLC.
On February 18, 2020, the Securities and Exchange Commission (SEC) filed an emergency enforcement action and sought to obtain a temporary restraining order along with an asset freeze against EquiAlt, LLC, its CEO Brian Davison, and its Managing Director Barry Rybicki. The SEC alleged that the action was being made in connection with EquiAlt, LLC’s alleged fraudulent unregistered securities offering that raised more than $170 million from at least 1,100 investors.
According to the SEC’s complaint, in the U.S. District Court for the Middle District of Florida, EquiAlt, LLC, Davison, Rybicki, and the other entities involved in the claimed fraud, raised millions of dollars by making material misrepresentations and false claims to investors about EquiAlt, LLC’s investment strategy. The SEC claims that EquiAlt, LLC told investors they would pool investor funds and use approximately 90% of the money to purchase under-valued real estate, rent or flip the properties, and pay investors 8-10% annual interest generated from the real estate investments. However, as in the case with so many frauds, the SEC is claiming that a large portion of investor money went to support Davison’s and Rybicki’s lavish personal spending and that in fact less than 50% of the funds raised were used to invest in properties and other legitimate purposes. The SEC is claiming that money from one investment fund controlled by EquiAlt, LLC was allegedly used to make Ponzi-like payments to investors in another fund. Such commingling of funds amongst supposedly separate entities is common in Ponzi-schemes.
A federal judge has granted the SEC’s request for emergency relief and obtaining a temporary restraining order and an asset freeze. The court also granted the SEC’s request to appoint a receiver, whose job it is to marshal assets on behalf of defrauded investors. However, in many cases of fraud the receive only obtains a very small amount of funds to return to investors in relation to the size of the fraud.
What are Real Estate Investment Trusts (REIT)?
A Real Estate Investment Trust (“REIT”), such as EquiAlt Fund III, is a complex investment that is generally only suitable for sophisticated high-net worth investors, and then only in certain circumstances. A REIT is an entity that owns, and may also manage, income producing real estate. REITs pool capital from multiple investors and use it to purchase properties, similar to mutual funds and other pooled investment vehicles.
A Real Estate Investment Trust can be offered in several different forms. A Public Exchange Listed REIT is registered with the U.S. Securities and Exchange Commission (“SEC”) and is publicly traded on a national securities exchange. A Public Non-Listed REIT is registered with the SEC, but does not trade on a major securities exchange. Finally, a Private REIT, also known as a private-placement REIT, is not registered with the SEC and does not trade on a national securities exchange.
EquiAlt Fund III Due Diligence Requirement
FINRA requires brokerage firms to conduct due diligence on investments, such as EquiAlt Fund III, and to conduct a suitability analysis when recommending securities to a customer that takes into account the customer’s knowledge and experience. FINRA Rule 2111(a) states that “a member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”
Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. Brokerage firms that fail to conduct adequate due diligence on investments they recommend, such as EquiAlt Fund III, or that make unsuitable recommendations can be held responsible for the customer’s losses in a FINRA arbitration claim.
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This information is all publicly available and is being provided to you by Galvin Legal, PLLC.
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