LPL Sued for $8 Million In Real Estate Investment Dispute

February 15, 2012

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2011 and amended thereafter, Claimants asserted numerous causes of action, among which were fraud, negligence, and elder abuse arising in connection with their real estate investments in Direct Invest. LLC. (includes investments in Heron Cove. LLC and Braintree Park, LLC.).  Claimants sought at least $8,000,000.00 in damages, a declaration that Respondents indemnify Claimants from any and all liability; punitive damages in an amount to be determined; fees; and costs.

In the Matter of the FINRA Arbitration Between:

  • Heinrich Hardt
  • Araceli Hardt
  • Hardt Family Trust dated June 8. 1978
  • Hardt Family Trust dated February 22. 2008, Claimants/Counter-Respondents,


  • LPL Financial LLC
  • Orchard Securities, LLC
  • Meridian Capital Partners, LLC, Respondents,


  • Meridian Capital Partners, LLC, Respondent/Counter-Claimant (FINRA Arbitration 11-00347, February 10, 2012)

Respondents generally denied the allegations, asserted various affirmative defenses, and sought the expungement of the arbitration from Respondent Orchard's Central Registration Depository records ("CRD"). Respondent Meridian counterclaimed.

At the conclusion of the hearing. Respondent LPL moved to seal the testimony of Claimants' percipient witness, which was opposed, and which the Panel took under advisement. Percipient?  Hey, I didn't write the Decision, I'm just reporting about it. Percipient is essentially a fancy-schmanzy term for an eyewitness (rather than, say, an "expert").


The FINRA Arbitration Panel found Respondent LPL liable and ordered it to  pay to $1,367,000.00, inclusive of compensatory damages, interest, and costs.. The total damages amount includes an award of compensatory damages, interest, and costs.

Respondent LPL's request to seal the testimony of Claimants' percipient witness is denied.

Bill Singer's Comment

As best I understand, the two investments at issue here are so-called TICs - Tenants In Common.  As I previously wrote on this topic:

SIDE BAR: TIC investments became increasingly popular as a way for a seller of real estate to qualify for a so-called 1031 Tax Free Exchange via the acquisition of an ownership interest in another property.  Sales of fractional ownership interests to sellers of appreciated realty became an attractive business for many FINRA brokerage firms, who marketed this transaction as a way to preserve the tax-free status of a property exchange.

However, as with most flavor-of-the-month investment ideas, TIC transactions have seen their share of consumer complaints.  Among the most common source of friction is the alleged lack of adequate pre-sale due diligence by the brokerage firm, and the failure of the firm to reasonably monitor ongoing developments at the subject properties.  A cursory glance at the litigation in this area shows disagreements between claimant investors and respondent brokerage firms as to the quality of the latter's review of financial statements; the thoroughness of background checks involving promoters; and the validity of any appraisals done on the property in dispute.

The Past That's Now The Prelude: Read this helpful 2005 commentary by the NASD (now FINRA): Private Placements of Tenants-in-Common Interests: NASD Issues Guidance on Section 1031 Tax-Deferred Exchanges of Real Property for Certain Tenants-in-Common Interests in Real Property Offerings (Notice to Members 05-18, March 2005)

Also seePaul Leon White II (FINRA Offer of Settlement, November 2011)

TIC-ed Off Customers Sue Over Tenants In Common Investment