Written by The White Law Group• December 20, 2024• 4:20 am• Blog, Investment Loss Recovery

Lodging Fund REIT III: Securities Investigation

SEC Fines Lodging Fund REIT III Exec, featured by top securities fraud attorneys, the White Law Group

Lodging Fund REIT III Shareholders may have Claims

The White Law Group continues to investigate potential securities claims involving broker dealers who may have improperly recommended Lodging Fund REIT III to investors. If you suffered losses investing in Lodging Fund REIT III, the securities attorneys at the White Law Group may be able to help you.

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The REIT filed its 2023 annual report this month which had been delayed approximately 9 months. The REIT was unable to file its quarterly report in a timely fashion for the quarter ending June 30, 2024.

According to SEC filings in April, 2024, the REIT has just filed its 2022 third quarter report and its annual report for 2022 in March of 2024. The company remains outstanding on its quarterly reports for the first three quarters of filings for 2023.

SEC Fines Lodging Fund REIT III Exec Over Improper Expense Reimbursements

In September 2023, the co-founder of Legendary Capital, a sponsor of non-traded Real Estate Investment Trusts (REITs), agreed to pay a $100,000 civil penalty to settle charges with the Securities and Exchange Commission (SEC). The charges stemmed from allegations of unauthorized expense reimbursements totaling approximately $5 million made to external advisors of Lodging Opportunity Real Estate Investment Trust and Lodging Fund REIT III Inc.

These reimbursements were allegedly directed to Legacy Hospitality II LLC and Legendary Capital REIT III LLC, both co-owned by the executive. The advisors involved were ordered to disgorge $4.8 million, covering the reimbursed funds, interest, and penalties.

The two REITs, lacking in-house employees, were managed by the advisors, who incurred expenses such as payroll and office rent for their services. Offering memoranda distributed to investors in 2014 and 2018 stated that the advisors were responsible for overhead costs. However, contrary to these disclosures, the advisors allegedly sought reimbursement for these expenses, reportedly violating SEC regulations.

The SEC concluded that these reimbursements contradicted investor agreements, which explicitly assigned overhead costs to the advisors rather than the REITs.

Non-traded REITs are Complex Investments

Non-real estate investment trusts (REITs) are complex and inherently risky products. Unfortunately for investors, many hospitality REITs have taken a hit due to the steadily rising interest rates, and some have suspended distributions during this uncertain time.

Compared to traditional investments, such as stocks, bonds and mutual funds, REITs are significantly more complex and often better suited for sophisticated and institutional investors.

Another problem often associated with REIT recommendations is the high sales commissions brokers typically earn for selling REITs – as high as 15%. In addition to the high risks, non-traded REITs often lack liquidity. Investors looking to sell these investments often have difficulty finding a buyer, and if they are able to find one can suffer significant losses on the sale.

Due Diligence

Brokerage firms are required by the Financial Industry Regulatory Authority (FINRA) to disclose all the risks of an investment, prior to making recommendations to an individual investor. Recommendations should only be made if the investment is suitable for an individual investor given their age, investment objections, investment experience and risk tolerance.

Brokerage firms that do not perform adequate due diligence on an investment and/or make unsuitable recommendations can be held accountable for investment losses through FINRA arbitration.

Class Action vs. Individual FINRA Arbitration Lawsuit

People often wonder whether a large class action lawsuit is a better litigation option for them than an individual FINRA arbitration case. The answer depends on many factors, but typically if the loss sustained is large (say larger than $100,000), an individual arbitration claim is likely a better option. Class actions as a recovery option are more appropriate for grouping large numbers of individuals who have small claims – too small to generally pursue individually.

Recovery of Investment Losses – Lodging Fund REIT III

If you are concerned about your investment in Lodging Fund REIT III, you may be able to file a complaint against your brokerage firm. Please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.

Our firm represents investors in all types of securities related claims, including claims involving stock fraud, broker misrepresentation, churning, unsuitable investments, selling away, and unauthorized trading, among many others.

With over 30 years of securities law experience, The White Law Group has the expertise to help investors defrauded by their financial advisor.