DiversyFund and REITs Misleading Statements and Omissions Class Action

This class action brings suit against two real estate investment trust (REITs), DF Growth REIT, LLC (REIT I), DF Growth REIT II, LLC (REIT II), their sponsor DiversyFund, Inc., and two persons who had control of these entities, Craig Cecilio and Alan Lewis. The complaint alleges that these defendants sold shares to investors while making false statements or omitting material information, violating the California Corporations Code.

The class for this action is all persons who bought Class A Investor Shares in REIT I or REIT II (DiversyFund Investor Shares) between November 13, 2018 and March 16, 2022.

Formed in 2018, REIT I was supposed to raise up to $50 million from investors, later raised to $75 million, to be used to invest in real estate projects, the complaint alleges, and ended its offerings at $65 million in November 2021. According to the complaint, it invested in thirteen real estate projects, eleven of which were managed by DiversyFund.

Formed in 2020, REIT II was supposed to raise up to $50 million from investors, and eventually raised more than $10 million, the complaint alleges, which it invested in five real estate projects, three of which were managed by DiversyFund.

Both of these entities raised the money by selling unregistered Class A investor shares, the complaint alleges, under Securities and Exchange Commission (SEC) Regulation A, which allows the sale of unregistered securities if the issuer complies with certain requirements. The complaint alleges, “DiversyFund’s target investors are generally unsophisticated, non-accredited individual retail investors.”

The complaint contends that the REITs offered shares to the investors while making false or misleading statements and material omissions and while not fully complying with the requirements of Regulation A.

For example, the complaint alleges that investors were told that REIT I and REIT II were completely separate, that REIT II did not have to raise any minimum amount to be viable, and that “REIT I will not be impacted by REIT II in any way.” But later, when the SEC launched a second investigation into DiversyFund and its affiliates and tried to disqualify REIT II from selling shares, the defendants argued that that would “cause significant and irreparable harm to DiversyFund and their 30,000 investors,” including the investors in REIT I and REIT II, because deals would fall through and the two REITs were interdependent.

As another example, the complaint alleges that the shares were sold with the promise of “no management fees,” even though DiversyFund was entitled to collect such fees from REIT I and actually did collect such fees from REIT II.

The complaint also claims that the defendants omitted information about earlier regulatory discipline of one of the individuals by the California Bureau of Real Estate and the SEC investigations.

Article Type: Lawsuit
Topic: Investments
Tags: Investment Losses, Investments, Material Omission, Providing False or Misleading Information, Real Estate