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Day: December 17, 2019

SEC Charges Non-Traded REIT and BDC Sponsor with Securities Fraud


The SEC has charged a non-traded REIT, its external adviser, an affiliated BDC adviser, and the principal with securities fraud in connection with misrepresentations about assets and insider transactions.  The SEC asserts that the REIT issued shares to the principal in exchange for hotels that he did not actually own.  The SEC also alleges that the principal failed to inform the BDC that he controlled a company to which the BDC made favorable loans.  The SEC alleges multiple violations of the securities laws including the anti-fraud rules and the affiliated transaction rules.

This is the kind of defendant that hurts the entire non-traded REIT and BDC industries.  It raises the bar for legitimate players to implement robust compliance, prove valuations, hire legitimate third party service providers, and retain competent officers and independent directors.