Did Brokers Recommend This Unregistered Security Because of High Commissions?
Investors who backed Moody National REIT II, a nontraded real estate investment trust, are now grappling with losses sustained after this investment significantly plunged in value and the company’s public offering and distribution payments were suspended.
Nontraded REITs, which are very high risk, are not for every investor, and yet the 7% commission the REIT paid stockbrokers may have been incentive enough to recommend them to customers even when they weren’t in the latter’s best interests.
At Shepherd Smith Edwards and Kantas (SSEK Law Firm), our nontraded REIT fraud lawyers are looking into claims involving Moody National REIT II to see if investors have grounds for a broker-dealer negligence claim against the firm and its registered representatives that marketed and sold them these investments.
Moody National REIT II Hit Hard by Coronavirus
Moody National invests mostly in securities and hotels, in particular acquiring select hospitality properties with premier brands like Hilton, Marriot, Hyatt, and others.
However, earlier this year, the firm notified shareholders that as of April 6th it was suspending its share repurchase program and distribution reinvestment plan after the pandemic caused a “rapidly deteriorating demand” throughout the hotel sector.
In May, Mackenzie Realty Capital, which invests in debt and equity real estate-related securities, announced a tender offer to buy Moody National REIT II shares for $5/share. Considering that the nontraded REIT’s original buying price was $25/share, this was very bad news for investors.
Since then, reports indicate that the value of these shares could be very well less than 50 cents for every dollar bought.
Granted, no one could have anticipated a global pandemic, but for many Moody National REIT II investors who have sustained huge losses, there are now questions as to whether these investments were unsuitable for their portfolios from the beginning — COVID-19 or not.
How Risky Is This Kind Of Investment?
Nontraded real estate investment trusts are illiquid, expensive, and charge high fees, and some may not be redeemable at all. They are usually sold as unregistered securities, which means they don’t come with the regulatory oversight that more traditional investments are subject to.
Unregistered securities are known for not bringing in much returns considering how much risk is involved. It’s gotten to the point that some states are now restricting investors from investing over 10% of their liquid assets in these investment types.
Yet brokers continue to recommend them to a broad range of customers, including retail and inexperienced investors. because of the commissions that they can earn from the sales. Now, many of these investors are paying the price.
Moody National REIT II Fraud Lawyers
SSEK Law Firm helps REIT fraud investors recover the losses and damages they’ve sustained from the brokers who sold them these investments and the broker-dealers who enabled these sales or were negligent in not properly supervising their registered representatives.
Contact our Moody National REIT Fraud II attorneys today. For 30 years, we’ve represented investors throughout the US and have successfully pursued nontraded REIT fraud claims against some of the largest firms on Wall Street.