ArciTerra Update: Arciterra & CEO Charged with Defrauding Investors
The White Law Group continues to investigate potential securities claims involving Arciterra REITs.
This week, the Securities and Exchange Commission announced fraud charges against ArciTerra Companies LLC and its chief executive officer for engaging in a multi-year scheme to misappropriate $35 million in investor funds. The SEC also charged several entities controlled by the CEO for taking part in the scheme.
Since at least January 2017, Arciterra’s CEO and the entities he controls allegedly misappropriated more than $35 million from private real estate funds and other investment products that ArciTerra managed. The SEC alleges that the CEO used one of the entities as his “own personal bank account,” to fund a lavish lifestyle of private jets, yachts, and expensive residences.
The SEC is also charging the executive and Cole Capital Funds LLC, an entity he formed and controlled, with issuing a false press release in November 2023 stating that Cole Capital intended to purchase 51% of all minority ownership shares in WeWork Inc. at $9 a share, more than nine times WeWork’s then-current trading price. According to the SEC’s complaint, WeWork’s stock rose close to 150% in after-hours trading shortly after the press release was issued.
The SEC further alleges that the CEO purchased more than 72,000 call options in WeWork at a price far below the stock price in the days before the press release was published, hoping to execute the trades at profit after manipulating the stock price. However, due to a delay in the issuance of the press release, most of the options expired before the executive could exercise them.
The SEC’s complaint seeks permanent injunctive relief, the appointment of a receiver, disgorgement and prejudgment interest, and a civil penalty and other relief.
Arciterra Investors File Lawsuit
The SEC charges follow a group claim filed by Arciterra investors earlier this year. According to Bloomberg on May 30, 2023, Arciterra investors filed a federal lawsuit, accusing the property owner of misusing investor cash to fund his personal lifestyle. Investors in a St. Louis-area shopping center are reportedly upset about lack of payments while Arciterra Companies owner allegedly spends money on private jets and a dog’s $100,000 birthday party.
Bloomberg reported that while the firm owns dozens of properties in the Midwest, the lawsuit involves 175 investors and an Illinois strip mall, Belleville Crossing in St. Clair County, according to the lawsuit.
More than 2,000 investors in Arciterra allegedly haven’t received payments since 2019. The investors reportedly allege that Arciterra is trying to “wait out” its funders to give up on getting their money, or to die.
Arciterra reportedly raised roughly $187 million since 2013, through more than 19 investment offerings, according to the lawsuit. The property owner allegedly lives a lavish lifestyle including purchases of a Cessna Citation and a Gulfstream G400. The lawsuit further alleges the executive threw a $100,000 birthday party for his Boston Terrier.
The Illinois strip mall, Belleville Crossing has reportedly fallen into disrepair, according to the suit. Problems include lack of land maintenance, overflowing trash and leaky roofs. The owner has also purportedly failed to make lease renewals or timely bill payments.
Arciterra REITs – Complex Investment Product
According to its website, ArciTerra is a real estate investment and development company that was established to offer quality opportunities in an industry clouded by complexity. Non-traded REITs are complex investments and often risky investments which should only be sold to high-net worth and sophisticated investors.
The White Law Group continues to investigate the liability that FINRA registered brokerage firms may have for improperly selling high-risk REITs, like ArciTerra REITs, to its clients.
Besides the risks of investing in REITs, brokerage firms continue to push this type of investment because of the high commissions associated with their sale and creation. Brokerage firms generally make between 7-10% for selling a REIT, which is far in excess of the typical commission for more traditional investment types.
Specifically, The White Law Group is investigating the following ArciTerra offerings:
| ArciTerra National REIT, Inc. | |
| ArciTerra Note Fund I LLC | |
| ArciTerra Note Fund II LLC | |
| ArciTerra Note Fund III LLC | |
| ArciTerra Opportunity Fund I LLC | |
| Arciterra Strategic Income Corp | |
| ArciTerra Strategic Retail II, LLC | |
| ArciTerra Strategic Retail REIT, Inc. | |
| ArciTerra Strategic Retail, LLC | |
| ArciTerra Whitefish Opportunity Fund, LLC | |
Suitability – Arciterra REITs
FINRA (Financial Industry Regulatory Authority) has rules in place to ensure that broker-dealers and their associated representatives act in the best interests of their customers when recommending investments. These rules are collectively known as the Suitability Rule, and they are designed to protect investors and promote fair and ethical practices in the securities industry.
FINRA Rule 2111, known as the Suitability Rule, outlines the requirements that brokers and broker-dealers must follow when making investment recommendations to customers. Before recommending any investment product or strategy to a customer, the broker-dealer must conduct reasonable diligence to understand the investment’s features, risks, and potential benefits. This means having a reasonable basis for believing that the recommendation is suitable for at least some investors based on its characteristics.
The broker-dealer must have a reasonable basis for believing that the recommended investment is suitable for the specific customer based on their financial situation, investment objectives, risk tolerance, and other relevant factors. The broker must gather essential information from the customer to make an appropriate recommendation.
The broker-dealer must also have a reasonable basis for believing that a series of recommended transactions, when taken together, are not excessive and do not result in churning or excessive trading.
Hiring a FINRA Attorney
If you have suffered investment losses in Arciterra REITs, The White Law Group may be able to help you through FINRA arbitration. For a free consultation with a securities attorney, please call 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
For more information on the firm and its representation of investors in FINRA arbitration claims, visit https://whitesecuritieslaw.com.
Tags: Arciterra REITs, non-traded REITs Last modified: December 1, 2023
