Reif Law Group., P.C., is investigating claims of breach of financial duty, financial elder abuse, constructive fraud, breach of contract, and unfair business practice claims against Vereit, Inc., formerly known as American Realty Capital Partners, and formerly known as Cole Capital Partners, LLC, plus Vereit Operating Partnership, L.P. (collectively, Vereit), EFA Asset Management, LLC, and Equity Fund Advisers, LLC (collectively, the Companies), in connection with investments in a commercial property known as The Shoppes at North Village (SJMO or the Property), a shopping center located in St. Joseph, Missouri.
RLG filed a civil action on behalf of investors, The Malitz Family Trust, DTD July 12, 2000, by Trustee Eugene Malitz, and SJMO TIC #11, LLC, et al. v. VEREIT, Inc., et al, Los Angeles Superior Court, Case No. 23STCV07387 (April 3, 2023).
It is alleged that Vereit solicited over $20 million in cash and $30 million in assumed debt from investors, primarily elderly and retired retail consumers, to purchase the SJMO Property. The investment structure was a tenancy in common (TIC), a securities transaction requiring all material disclosures at the time of sale and an ongoing duty to disclose as fiduciaries.
Upon information and belief, the Companies:
- Breached their fiduciary duty and failed to disclose material information that deprived the retail investors of the ability to make fully informed decisions regarding the purchase, the management, the loan maturity, and the disposition of the SJMO Property
- Failed in various opportunities to perform on promises to provide for tax deferral, interest income, and capital appreciation with a planned liquidity event
- Caused investors substantial investment losses in 2019 and 2020, when the Property was sold for a loss and investors were faced with tax deferral recapture liability
The civil complaint alleges that the sales literature relied upon by the investors failed to fully disclose the risk profile and time horizon of the investment, the risk of loans being pooled as collateral for commercial mortgage-backed securities (CMBs), the risk of a loan default, and hyper-amortization at loan maturity after 10 years.
It is also alleged that the Companies mismanaged the SJMO Property after the purchase event by failing to create liquidity, failing to preserve the asset, and failing to fully inform investors of material events affecting the SJMO Property, including squandering the optimal time to sell, refinance or restructure the SJMO Property near the loan’s maturity event.
In particular, it is alleged that the Companies:
- Failed to renegotiate, restructure or replace the loan before hyper-amortization, thereby depriving investors of monthly distributions and incurring a tax liability, and
- Pressured the investors to execute a substandard negotiated sale price for the Property, thereby causing substantial investment losses.
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