California Securities Fraud Lawyer Blog

As repeatedly reported here in the California Securities Fraud Lawyer Blog, we have seen an exponential growth in investor complaints involving the sale of private placements. For those of you unacquainted with the term "private placement," click here.

In a nutshell, private placements are illiquid non-publicly traded investments that are exempt from registration requirements under the Securities Exchange Act. For this reason, only wealthy and sophisticated investors, referred to as "accredited investors," are allowed to invest in them. In order to qualify as an accredited investor, an individual must have a net worth of $1 million or more. However, this does not mean that it is fair game for stockbrokers and investment advisors to sell private placements to anyone with a paper net worth of $1 million. See related blog posting: Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule.

In an effort to protect smaller investors whose only significant asset is their home, the Securities and Exchange Commission ("SEC") recently took steps to limit Regulation D of the Securities Exchange Act of 1933 to exclude an investor's primary residence from the $1 million net worth calculation. Although the rule became effective February 27, 2012, the net worth prohibition actually took effect back in July 2010 when President Obama signed off on the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009. See blog post: Investor Home Equity to be Excluded from $1 Million Minimum Net-Worth Requirement for Accredited Investors

The Bottom Line

We recommend extreme caution to anyone contemplating an investment in a private placement that is limited to accredited investors. Don't be fooled by your financial professional's sales pitch. No matter how you slice it, private placements are illiquid and risky investments. As stated in the fine print: These investments are only appropriate if you are willing to lose your entire investment. Still not convinced? I've got a backlog of cases where clients wrongfully assumed that they could get out of their investment anytime they wanted. They are still waiting.

Related Blog Postings:

• Investor Sues Ameritas Over Recommendation to Use Real Estate Loans to Invest in Private Placements


• FBI Reports 105% Increase in High Yield Investment Fraud Investigations


• IMH Secured Loan Fund | IMH Financial Corporation Lawsuit Information

As noted in a previous blog posting, ALF is pursuing an arbitration claim against Ameritas Investment Corporation on behalf of an investor who borrowed funds to invest in the IMH Secured Loan Fund (now known as IMH Financial Corporation). In an unusual move, Ameritas responded by filing a cross-claim against the broker who sold the investment seeking "contractual and/or common law contribution and/or indemnity" on the basis that any harm or damage suffered was the result of acts or omissions of the broker. It is believed that the broker in question was, at the time, acting in the capacity of an agent or employee of David White & Associates based in San Ramon, California.

As a result of these developments, ALF is stepping up their investigation into this matter and is reaching out to other IMH investors who purchased through brokers employed or affiliated with Ameritas Investment Corporation and/or David White & Associates. ALF is also interested in speaking with current or former brokers employed or affiliated with Ameritas and/or David White & Associates.

Related Blog Posts:

• Here come the lawyers! (Nov. 7, 2011)


• IMH Financial Corporation's CEO Shane Albers unloads stock at a premium of $8.02 per share (Aug. 15, 2011)


• IMH's Financial Troubles Reported in Wall Street Journal (Jan. 19, 2011)


• All IMH Posts

A number of our California securities law firm clients who suffered investment losses in the IMH Secured Loan Fund (now known as IMH Financial Corporation) have reported receiving a mass-mailed solicitation letter from a law firm located in Florida. California investors should think twice before hiring an out of state law firm to handle their case. For more information, see related blog posting: Why having a California licensed securities arbitration lawyer is so important

More IMH Blog Posts:

• IMH Financial Corporation's CEO Shane Albers unloads stock at a premium of $8.02 per share


• Investor Sues Ameritas Over Recommendation to Use Real Estate Loans to Invest in Private Placements


• Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

IMH Secured Loan Fund / IMH Financial Corporation Update

IMH just disclosed in the company's latest filing with the Securities Exchange Commision (SEC), that former CEO Shane Albers transferred 313,484 shares of stock to NW Capital as part of his separation agreement with IMH at a price of $8.02 per share. According to the SEC filing, NW Capital paid Albers $1.2 million over and above the estimated fair value for the IMH stock. By my calculation, this means the "fair value" given to Albers' IMH stock was approximately $4.25 per share. IMH investors who purchased ownership units for $10,000/each, paid the equivalent of $45.38 per share--thus, according to these latest figures, IMH has declined by more than 90%.

There are several lawsuits pending against IMH and the original principals of the company, including a class action lawsuit. In addition, numerous investors have filed lawsuits and securities arbitration claims against their stockbrokers or financial advisors who recommended IMH. In fact, our securities law firm is currently representing a group of investors who filed an arbitration claim against Scottsdale, Arizona, financial advisor Randolf Albers who recommended and sold IMH to his clients through Albers Financial Group and Sunset Financial Services, Inc. Randy Albers is the father of IMH's former CEO Shane Albers.

Click here for more blog postings about IMH Financial Corporation (formerly known as the IMH Secured Loan Fund, LLC)

According to IMH Financial Corporation's latest SEC filing, the company entered into a funding commitment letter with NWRA Ventures I, LLC on April 20, 2011 to obtain a $50 million loan from MWRA for a period of five years at a rate of 17% per year. Under the terms of the arrangement, Shane Albers will resign from the company and receive a $550,000 severance payment, a renewable $20,000 per month "transitional consulting" fee and more than $200,000 in expense reimbursements.

In addition, IMH reported that NWRA plans to submit a cash tender offer to purchase up to $10 million worth of Class B or Class C shares from IMH stockholders. According to the SEC filing, the offer price is expected to be at "a substantial discount to the current book value per share of our common stock."

Following completion of the loan closing, the company also intends to offer existing investors the opportunity to purchase an aggregate of $10 million of convertible notes.

For more information:

• IMH Form 8-K Filed with SEC
• IMH Financial Corporation's Latest SEC Filing Reflects a 73% Decline in Value
• More IMH Blog Postings

Our law firm recently filed a securities arbitration claim before the Financial Industry Regulatory Authority (FINRA) on behalf of a Northern California woman who was encouraged by her investment advisor at Ameritas Investment Corporation to take out real estate loans so that she could invest in the IMH Secured Loan Fund, a private placement that was exempt from Federal securities registration requirements. The mistaken assumption in many of these cases is that the high yield offered by the investment can be used to pay the mortgage. Unfortunately for our client, a few months after she made her investment, the fund stopped making interest payments and accepting liquidation requests from investors.

As our client's case illustrates, using a home loan to make investments is usually a bad idea and, when the investment is a speculative private placement that cannot be publicly traded or easily liquidated, it is never a good idea. [Click here for more information about private placements.] This isn't the first time that Ameritas has run into trouble for inducing customers to take out additional mortgages and home equity loans to invest. In August 2009, FINRA fined Ameritas $100,000 for failing to adequately supervise a broker who used misleading financial plans to recommend that customers refinance their homes or take out home equity loans to pay for the purchase of securities. FINRA fined the broker $60,000 and suspended her for 60 months.

When it comes to investing in securities, always invest within your means and never bet the farm.

Related Blog Posting:

Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

Although there is no news to report regarding the proposed IPO from IMH Financial Corporation, the company did file a new Form 10-K with the Securities and Exchange Commission (SEC) today. According to the SEC filing, the book value for IMH Financial Corporation shares (as of December 31, 2010) was $11.98 per share, which represents a 20% decrease from the company's previously reported book value of $15.05 per share.

Under IMH's new valuation, a $100,00 investment in IMH is now worth approximately $26,397, which gives new meaning to the company's motto:

Customers who purchased IMH Secured Loan Fund units through a securities broker may be able to recover damages by pursuing an arbitration claim before the Financial Industry Regulatory Authority (FINRA).

Related Entry:

Investor Sues Ameriprise Over Recommendation to Use Real Estate Loans to Invest in Private Placements

IMH Financial Corporation Files Amended Preliminary Prospectus with the SEC in Anticipation of Pursuing an IPO

Today, IMH filed an amended preliminary prospectus with the Securities Exchange Commission (SEC). Click here to view IMH's Form S-11/A. The prices and terms for the IPO have yet to be determined. Interested investors are urged to carefully read all 27 pages of the "Risk Factors" discussed in the company's prospectus.

Today, the Wall Street Journal published an article summarizing the state of affairs for IMH Financial Corporation, formerly doing business as the IMH Secured Loan Fund (the acronym I-M-H stands for "Investors Mortgage Holdings").

Click here to view the WSJ article. [Subscription required to read the entire article]

For those of you who do not have a subscription to the Journal, here are a few highlights mentioned in the article:

• IMH's prospectus assured investors that the fund had built in safeguards to mitigate risk, such as securing personal guarantees from borrowers.
• However, IMH's motto: "Rule 1: Don't lose the money. Rule 2: Don't lose the money. Rule 3: Don't forget Rule 1 and Rule 2" was no match for the downturn in the real estate market.
• IMH's managers earned nearly $93 million in loan origination and modification fees between 2004 and 2009.
• IMH's managers also received $14 million in stock as a result of the conversion.
• IMH incurred costs of $6.2 million to prepare the IPO; however, IMH is unable to offer shares to the public due to an ongoing investigation by the SEC.

Click here to view all IMH blog postings.

Now that the conversion of IMH Secured Loan Fund units into shares of IMH Financial Corporation is complete, brokerage firms have begun quietly disseminating the bad news to their customers. When they open their monthly statements, many IMH investors will be surprised to learn that their investment has fallen in value by more than 66%. As of December 28, 2010, the estimated price given to shares of IMH Financial Corporation common stock was $15.0500 per share. However, even though the shares have been given an estimated value, IMH's stock is still illiquid and cannot be publicly sold. As previously reported in this blog, the IPO has been placed on indefinite hold.

Click here for more blog postings about the IMH Secured Loan Fund and IMH Financial Corporation.

Shareholders in the IMH Financial Corporation (formerly known as the IMH Secured Loan Fund) hoping to cash in on the promised initial public offering (IPO) should take note of the following information that was recently included in the Form 10-Q filed by IMH Financial Corporation on November 22, 2010:

We received notice on June 8, 2010 that we were the subject of an SEC investigation. After consultation with our potential underwriters, legal counsel and others, we believe that it is not probable at this time that we will be in a position to complete an IPO until matters concerning the SEC's investigation are clarified or resolved and market conditions are more favorable. We cannot determine at this time when matters before the SEC will be clarified or resolved.

On October 27, 2010, IMH Financial Corporation filed an initial registration statement with the Securities & Exchange Commission (SEC) seeking approval from the SEC to pursue an initial public offering (IPO). In a letter to shareholder's IMH conservatively reported:

The registration statement is not yet effective, is subject to customary review by the SEC, and we expect to file various amendments to the registration statement in the course of the SEC review process. The size, timing and ability to complete the proposed offering are subject to and contingent upon marketing considerations, including financial market conditions, the timing of effectiveness of the registration statement and other risks, uncertainties and considerations.

Additional Information:

Download the October 27, 2010 registration statement

View all IMH filings with the SEC

View all IMH blog postings

The Alcala Law Firm, a securities law firm based in the San Francisco Bay Area, has just published a newsletter for IMH Secured Loan Fund investors who had their investment converted into shares of IMH Financial Corporation. The newly issued IMH shares are not publicly traded and are illiquid. Investors have several options available to recover some or all of their investment losses, including a class action lawsuit against IMH and individual securities arbitration claims against stockbrokers who sold or recommended IMH.

For more information, please click on the link below to download the IMH Newsletter:

IMH NEWSLETTER

On June 7, 2010, an IMH Secured Loan Fund Unitholder, filed a proposed class action lawsuit captioned, Charlotte Wood, on behalf of herself and all others similarly situated v. IMH Secured Loan Fund, LLC, IMH Financial Corporation, Investors Mortgage Holdings, Inc., IMH Holdings, LLC, IMH Management Services, LLC, Shane Albers, William Meris and Steven Darak (the "IMH Defendants"), before the United States District Court for the District of Arizona (the "Wood Action"), as well as an application to enjoin the vote from proceeding. In summary, the Wood Complaint alleges that the Conversion Transaction was: (1) being effectuated pursuant to a false and misleading Consent Solicitation and other false statements by the IMH Defendants, and (2) that the Conversion Transaction was both procedurally and substantively unfair to IMH Unitholders. Therefore, the complaint alleges, the Conversion Transaction is a breach of both the IMH Defendants common law fiduciary obligations to the Unitholders and their duties under the Fund's Operating Agreement.

On June 9, 2010, the IMH Defendants announced that they had obtained a sufficient number of votes to move forward with the Conversion Transaction, although the vote had not been certified, thereby mooting Wood's injunction motion. According to the preliminary results reported by IMH, 64.67% of the total membership interests submitted a vote with 57.48% of the net votes being cast in favor of the Conversion Transaction. On June 10, 2010, the IMH Defendants further announced that they were voluntarily dismissing the action entitled, IMH Secured Loan Fund, LLC v. David I. Kurtz, an individual, on behalf of himself, and all other persons similarly situated, Case No. 2:10-01071-ROS (the "Kurtz Action"), which they had filed before the Arizona court, alleging that certain Unitholders were trying to interfere with the vote.

On June 14, 2010, the "Committee to Protect IMH Secured Fund," filed an action and injunction motion similar to the Wood Action, before Vice Chancellor Leo Strine in the Chancery Court for the State of Delaware. Thereafter, the Vice Chancellor Strine held a short telephonic hearing indicating that he was denying any application for injunctive relief, but that the any harm to the Unitholders as a consequence of the Conversion Transaction and the attendant vote, could be compensated for by monetary damages. Wood has re-filed her action before Vice Chancellor Strine, and intends to continue her action for damages on behalf of the Unitholders.

Click here for more blog postings about the IMH Secured Loan Fund

My securities law firm represents several IMH investors, some of them unaccredited investors who never should have been allowed to purchase the fund in the first place. A large percentage of these investors purchased the IMH Secured Loan Fund from brokers registered with Independent Financial Group. My clients want their money back as soon as possible. The quickest way to accomplish this was to cash out at the price of $1,000 per unit as part of the tender offer from MacKenzie Patterson Fuller (MPF) which expired on April 26, 2010. Admittedly, the $1,000 per unit price is a steep discount from the $4,406.86 per unit book value reported by IMH in the Form 10-K recently filed with the SEC for the period ending December 31, 2009. However, investors currently have no way to sell or redeem their units at this or any other price. The next opportunity for investors to sell their units may be as part of an initial public offering (IPO)--assuming the company's restructuring plan is approved by investors and the company can pull off a successful IPO under what may prove to be very challenging market conditions. IMH management anticipates that the initial IPO price will be set at a discount to the book value per share price.

There is at least one group lead by LGM Capital Partners LLC that is opposing IMH's plan and advising members to vote against the reorganization. On May 18, 2010, "The Committee to Protect IMH Secured Loan Fund" filed a statement with the SEC advising members to reject management's restructuring plan. Additional information was filed by the committee on May 20, 2010. Click here to download the committee's "talking points" which was intended for use by broker dealers when advising customers about IMH management's proposal.

Investors have until 5. p.m. on June 14, 2010, to cast their vote on management's proposal to restructure the company. If management's plan is approved, investors will be allowed to exchange one ownership unit for 220.3419 shares of Class B or Class C common stock. When investors cast their vote, they must elect whether to receive Class B stock, Class C stock, or some combination of the two. Those who do not make an election will automatically receive Class B common stock in exchange for their membership units.

Many investors are understandably confused about the different classes of shares. Investors who elect to receive Class B shares will receive a fixed percentage of series B-1, B-2 and B-3 stock. Class B shares cannot be sold immediately after the IPO. Series B-1 shares can be sold 6 months after the IPO. Series B-2 shares can be sold 9 months after the IPO, while Series B-3 shares may not be sold until 12 months after the IPO. Class C shares, on the other hand, can be sold immediately after the IPO. Investors who want to liquidate their investment at the next available opportunity may want to convert some or all of their units into Class C shares, rather than Class B shares. Investors who can afford to hold onto their investment long-term and are optimistic about the company's prospects may want to choose Class B shares.

Below is a chart that was presented to investors during a video produced by IMH's management in support of the restructuring plan.

Click here for more blog postings about IMH Secured Loan Fund.