Newbridge target of investor complaints over REIT sales

Firm could face two dozen suits from police, firemen and other Philadelphia public employees alleging millions in damages, according to two attorneys handling the claims

Feb 13, 2018 @ 4:13 pm

By Bruce Kelly

Newbridge Securities Corp. could face two dozen investor complaints from police, fireman and other Philadelphia public employees alleging millions in damages from the sale of illiquid nontraded real estate investment trusts managed by one-time non-traded REIT czar Nicholas Schorsch, according to two attorneys handling the claims.

The broker who sold the REITs, Austin Dutton, was registered with Newbridge from August 2007 to August 2017, according to his BrokerCheck report. Last July, the Pennsylvania Department of Banking and Securities fined Mr. Dutton $200,000 and cited "dishonest or unethical practices in the securities business."

Pennsylvania last July also fined Newbridge $499,000 for failing to supervise a broker with sales of structured products to clients in the state. Mr. Dutton was not named in the state's action against Newbridge.

Complaints by investors against securities firms often follow after a regulator takes action against a firm and fines it.

The investor complaints come at a sensitive time for Newbridge. The firm, with about 200 brokers and advisers, said in October it was going to be acquired by a foreign firm, the London-based European Wealth Group. It is not clear whether regulators at the Financial Industry Regulatory Authority Inc. have approved the transaction.

Newbridge CEO Thomas Casolaro did not return a call Tuesday to comment. Mr. Dutton, who is now registered with Sandlapper Securities, also did not return a call to comment.

Mr. Dutton was well known in the Philadelphia area as a leading seller of REITs managed by American Realty Capital, the real estate investment company controlled by the one-time nontraded REIT czar, Nicholas Schorsch. He also marketed to police, fireman and other public employees through his firm, Bridge Valley Financial Services, the two attorneys said.

One of the plaintiff's lawyers, Nicholas Guiliano, said he had filed four complaints in November and December against Newbridge for arbitration with Finra. Those claims total damages of $750,000 and allege a failure to supervise by Newbridge. He expects to file five to 10 more similar claims against Newbridge. Mr. Dutton was the adviser to the clients, Mr. Guiliano said.

"This is going to snowball," Mr. Guiliano said. "All the clients know each other."

"We filed one claim against Newbridge for $50,000 and expect to file 10 more," said Jason Kane, another plaintiff's attorney. The claims will allege the illiquid REITs lacked suitability and Newbridge failed in its due diligence, he said.

Mr. Kane said the clients had more than 50% of a lump sum retirement benefit invested in the illiquid, ARC REITs. He added that the Newbridge clients also bought REITs sponsored by United Development Funding, which had its offices raided by the FBI two years ago after a hedge fund had earlier alleged it was operating like a Ponzi scheme.

"We suspect Dutton had an in with the offices of the local police and fire fighter unions," Mr. Kane said. "This is not the first time I've seen an FA use a relationship at a union to speak to — and ultimately represent — soon-to-be retirees."

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