Broker-dealers that sold the now defunct private securities deals backed by assisted living developer Inspired Healthcare Capital generated more than $100 million in fees and commissions for securities that no longer issue distributions – think dividends - to clients.
The value of the $1.2 billion of private placements, DSTs – Delaware Statutory Trusts – and other private vehicles issued by Inspired Healthcare since 2016 and sold by independent broker-dealers is also in question, according to industry executives.
With Inspired Healthcare filing for chapter 11 bankruptcy on February 2, the question is, what are these private deals really worth?
“The broker-dealers who got the $100 million in commissions are going to face claw backs,” said one senior industry executive who spoke privately to InvestmentNews about the matter. “By the time Inspired Healthcare gets liquidated and the trustees and lawyers all get paid, there’s not going to be much, if anything, left for investors in these private placements.”
The $100 million in fees and commissions on sales of $1.2 billion in Inspired Healthcare private securities equals an 8.3% rate paid to broker-dealers, clearly on the high end of industry standards.
Founded in 2016 by Luke Lee, Inspired Healthcare Capital of Scottsdale, Ariz., first used private placements to raise money and then in 2020 relied on DSTs, according to a filing from February 4 in the federal court bankruptcy proceedings.
“The company was heavily reliant on capital raises by various broker dealers,” according to the filing, which was written by M. Benjamin Jones, chief restructuring officer, Inspired Healthcare Capital, and a senior managing director at Ankura, a restructuring advisor.
“These broker dealers profited from their role in capital raises for the company, receiving more than $100 million in commissions and fees,” Jones wrote. “Emerson Equity was the managing broker dealer on 29 of the DSTs and all the Investment Funds.”
“The largest contributing factors to the Company’s entry into bankruptcy were underperformance at certain communities and the decision to prioritize investor distributions,” according to the filing.
Emerson Equity was also the managing broker-dealer for more than $1 billion in now almost worthless securities issued by bankrupt GWG Holdings, which declared bankruptcy in 2022.
An attorney for Emerson Equity, Amir Tadjedian, decline to comment when asked about the firm being involved in the sale of securities for two companies that have declared bankruptcy.
“Money was used by former management to acquire luxury cars, a condo in Las Vegas, and for significant non-business expenses and purchases, including the purchase of real estate titled in a non-debtor company’s name owned by Mr. Lee and his wife and the payment of personal expenses,” according to the filing.
Inspired Healthcare Capital since 2016 has raised more than $1.2 billion in cash from 3,300 fund investors, 2,300 DST Investors, and 200 development investors, according to the filing.
The company has 33 operating senior-living facilities across 14 states, according to the filing, and it has acquired five real estate properties for development, two of which are still under development and three of which remain undeveloped land.
The Securities and Exchange Commission last April “initiated a formal investigation into the company,” according to the filing.
In response to the investigation, Inspired Healthcare stopped making distributions to investors and lenders, according to the filing.
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