Elderly Retiree Loses More than $500,000 in Illiquid Real Estate Investments and Hennessey Fund Scheme

Sonn Law Group recently filed a FINRA arbitration claim against NFP Securities, Inc., on behalf of an elderly retired woman who lost more than $500,000 in illiquid real estate investments including Warsowe Acquisition Corp. Debentures, Hennessey Financial Monthly Income Fund, LP a/k/a Capital Solutions, Inland American Real Estate Trust, and GK Properties Fund III. The investments were sold through Andrew Stuart Asset Management, located in Coral Springs, Florida, by Andrew Rosenberg and Stuart Horowitz with NFP Securities, Inc.

Like many retirees, the elderly woman was a risk averse, unsophisticated investor who was interested in generating income during her retirement. Nevertheless, the NFP Securities stockbrokers implemented a high risk and unsuitable strategy of investing a significant percentage of the elderly woman’s funds in illiquid real estate investments. This reckless strategy concentrated her funds in a single sector on the verge of implosion with devastating results.

The two financial professionals recommended Warsowe Acquisition Corp. Debentures in December 2007. Warsowe is located in Florida and offered different series of investments secured by collateral assignments and corresponding mortgages. The investments were sold as safe and secure due to asset backing, when in fact some of the mortgages sold through Warsowe were subordinate to other mortgages and were high risk investments. Warsowe began winding down its operations in March 2008, just three months after the elderly woman made her investment. As a result, this elderly woman has lost both principal and the income that she should have earned from fixed income investments. Further, one of the woman’s NFP Securities stockbrokers has since been sanctioned by FINRA.

The NFP Securities stockbrokers also recommended that the elderly woman invest in Hennessey Financial Monthly Income Fund, LP a/k/a Capital Solutions (“Hennessey Fund”). The Hennessey Fund was represented as offering investors a 12% annual return. In fact, the Hennessey Fund was a high risk and unsuitable unregistered hedge fund that was involved in risky real estate loans. In September 2010, the Securities and Exchange Commission (“SEC”) sued the Hennessey Fund for being a Ponzi Scheme, whereby old investors in the Hennessey Fund were being paid by new investors. The woman’s investment in the Hennessey Fund is virtually worthless.

The NFP Securities stockbrokers further recommended that the elderly woman invest in the Inland American Real Estate Trust (“Inland REIT”). The Inland REIT is a non-traded REIT which by definition does not trade on an exchange. Consequently, it is a complex and illiquid investment and difficult to value. In fact, through at least April 2010, the woman’s NFP Securities stockbrokers valued the investment at par value or $10 a share. Recent reports from Inland American, however, value the shares at $7.22 a share. Moreover, investors in the Inland REIT have recently been offered $4.24 a share from a third party.

In addition, the NFP Securities stockbrokers recommended that the elderly woman invest in GK Properties Fund III (“GK Fund”), yet another high risk and unsuitable non-traded real estate investment. The GK Fund is a private REIT which means that it is unlisted and unregistered. The GK Fund had not paid any distributions to investors in years. It appears that the elderly woman has lost both principal and any income stream from this investment.

It is apparent that in making these recommendations, the NFP Securities stockbrokers failed to adequately disclose the attendant risks, and never informed the elderly woman that she could lose her entire principal, while being deprived of the income stream she sought. Brokerage firms and financial professionals may aggressively encourage their clients to pursue unsuitable investments, because these investments pay very high commissions, and are extremely profitable to those who sell them. The drive to make money can compel brokerage firms and financial professionals to ignore fundamental duties to their clients, such as the duty to research and understand an investment, as well as evaluate whether the investment is suitable for a particular client given the client’s investment experience, net worth, risk tolerance, and investment objectives.

Investors who have lost money in an illiquid real estate investment, such as the Warsowe Acquisition Corp. Debentures, Hennessey Financial Monthly Income Fund, LP a/k/a Capital Solutions, Inland American Real Estate Trust, or GK Properties Fund III, can file FINRA arbitration claims against the brokerage firms who sold this high risk, unsuitable investment to them. Investors may be able to sue for damages, while keeping ownership of their illiquid investment. Sonn Law Group specializes in representing investors (not brokerage firms) in securities arbitration and investor fraud cases throughout the country. Sonn Law Group has represented numerous investors in FINRA arbitration claims against the brokerage firms who sold illiquid, high-commissioned, non-traded investments, including TICs, REITS, promissory notes, and others, who have filed claims against NFP Securities, Inc., and Investors Capital Corp., among others. Sonn Law Group continues to investigate investment claims against other firms and financial advisors regarding illiquid investments, such as REITs.

To learn more, including whether you may have a claim for your illiquid real estate investment or other investment losses, please call us at 844-689-5754 or complete our “contact form.”