Securities lawyers have filed a class action lawsuit against Behringer Harvard REIT (“BH REIT”) and other parties alleging among other things, violations of federal securities laws, breach of fiduciary duty, unjust enrichment and negligence in federal court in the Northern District of Texas. The alleges , multiple classes including:
- “all persons who purchased or otherwise acquired shares in BH REIT from February 19, 2003 to the present (the “Class”). Excluded from the Class are Defendants and any person, firm, trust, corporation, or other entity related to or affiliated with any Defendant;”
- “all persons who were entitled to tender their shares pursuant to the Tender Offer Statement on Schedule TO under Section 14(d)(1) or 13(e)(1) of the Exchange Act, filed with the SEC by CMG on August 23, 2011 and February 23, 2012 (the ‘CMG Tender Offers’), and who suffered harm as a result of the Director Defendants’ action and violations of Section 14(e) of the Exchange Act for issuing materially false and misleading Schedule 14D-9 Solicitation/Recommendation Statements on September 7, 2011 and February 24, 2012 (the ‘Tender Class’);” and
- “And all persons who were BH REIT shareholders of record as of April 1, 2011 and were entitled to vote on the Schedule 14A filed with the SEC on April 1, 2011, and their heirs, successors, and assigns who suffered harm as a result of the Director Defendants actions and violations of Section 14(a) of the Exchange Act for materially false and misleading Proxy (‘Proxy Class’).”
Hohenstein v. Behringer Harvard REIT I, Inc., et al., Cas No. 12-CV-3772-G (N.D. Texas). The deadline for lead plaintiff applications is November 17, 2012.
In addition to the class action, stock brokers and brokerage firms have been hit with claims by investors who purchased shares in Behringer Harvard REIT based upon the broker’s recommendation. REITs have special risks which must be explained to investors. Further, brokers have a duty to ensure that such investment are suitable to their clients needs.
In a recent speech on September 27, 2012, FINRA’s Executive Vice President, Member Regulation Sales Practice noted problems that had been discovered concerning non-traded REITS:
FINRA examiners have found in some cases that investors in REITs have been confused about the product’s features, fees and liquidity. Investors who are attracted to the product are often interested in high initial distribution rates as well as the possibility of a gain upon liquidation of the REIT. Brokers must ensure that investors understand there is no guarantee the distributions will continue in the same amount, or at all, and that distributions may exceed cash flow from operations.
During 2011 and 2012, FINRA examiners have been conducting examinations of numerous retail sellers of non-traded REITs. In several instances, FINRA examiners have found that firms selling these products failed to conduct reasonable diligence before selling a product, and failed to make a determination that the product was suitable for investors. FINRA examiners have noted that—in the instances of REITs that have experienced financial difficulties—red flags existed and should have been considered by firms prior to the product being offered to firm clients.