The Securities and Exchange Commission has charged Suneet Singal and three entities with two separate frauds, one relating to a non-traded business development company and the other relating to First Capital Real Estate Trust Inc., a non-traded real estate investment trust.
Singal is the chief executive officer and chairman of First Capital REIT’s board of directors, as well as the beneficial owner and CEO of its advisor. Singal previously owned a 24.9 percent interest in the BDC’s investment adviser, served on its investment committee, and during various periods, served as a director, acting CEO and chief financial officer.
Although not specifically named in the SEC complaint, the BDC in question is likely First Capital Investment Corporation, which recently changed its name to StHealth Capital Investment Corporation. In March 2018, First Capital Investment Corp announced that StHealth Capital Partners LLC was purchasing the entity that owns FCIC Advisors LLC, the company’s then investment adviser.
The SEC’s complaint alleges that after acquiring an ownership interest in the BDC’s external investment adviser, Singal directed the BDC to make two $1.5 million loans to an entity that he controlled, and then used nearly half of the loan proceeds for his own purposes. The SEC claims that the BDC completely lost its $3 million investment.
According to StHealth Capital Investment’s third quarter filing, two $1.5 million unsecured loans were made to an affiliate of First Capital Retail LLC in early 2017. Under the “unsecured loan” section of the quarterly filing, First Capital Retail is noted as being “fully impaired due to lack of credit worthiness.”
In the second alleged fraud, Singal falsely stated that he owned 12 hotels that he contributed to First Capital REIT in order to acquire a $15.2 million interest in the REIT’s operating partnership.
Singal and First Capital REIT then allegedly made material misrepresentations and omissions concerning the hotels in several SEC filings. The SEC claims that, as a result of Singal’s conduct, First Capital REIT reported inflated net asset values and issued common shares to investors at inflated prices.
Specifically, the SEC complaint states that Singal’s misconduct caused First Capital REIT’s NAV to decline by $15.2 million.
For several months, Singal had been in negotiations with the principals of the entities that owned the hotels but had not acquired them as of September 15, 2015. The hotels, some of which were in bankruptcy, could not be sold to Singal without the consent of investors, lenders, and the bankruptcy court.
The SEC said that on September 15, 2015, at Singal’s urging and on very short notice, the principals travelled from Texas to First Capital REIT’s New York offices, but left without signing any documents or assigning their interests in the hotels to Singal’s private company.
However, that same day, Singal allegedly contributed the hotels to FC REIT by executing several agreements that falsely represented that his firm “own[ed] 100 percent of the membership interests” in the entities that owned the hotels, and that title to the hotels was “good and marketable.”
Unbeknownst to the hotel principals, the agreements were later notarized, and the notarization was backdated by one day without their permission or knowledge, the SEC said.
Shortly thereafter, the hotel principals wrote to Singal to express their increasingly urgent concerns about SEC filings that falsely represented that FC REIT owned and controlled the hotels.
They asked Singal to immediately send them a “more formal” memorandum of understanding and said that they would “continue to work with [Singal] in [an] attempt to help [him] execute on these deals.” They also reiterated that if one of the hotel lenders “gets wind of the 8K filing before we have a chance to notify all parties, we are screwed.” By late-December 2015, Singal abandoned efforts to acquire the hotels.
In a January 2016 SEC filing, the REIT stated that it was not moving forward with the 12-hotel acquisition because the hotel principals could not procure the necessary approvals for the transaction.
The SEC claims that the filing was materially misleading to describe the transaction as if it were a potential transaction that FC REIT merely decided “not to move forward with” given that Singal previously had represented publicly that the REIT already owned the hotels in two prior SEC filings, which had not been withdrawn or corrected.
In addition, First Capital REIT has not filed a quarterly report since the second quarter of 2015, nor has it filed an annual report since 2014.
The SEC’s complaint charges Singal and First Capital REIT with violating various federal securities laws. First Capital Real Estate Advisors LP was charged with aiding and abetting First Capital REIT’s violations, and First Capital Real Estate Investments LLC was charged with aiding and abetting Singal’s violations.
The complaint seeks injunctive relief against all defendants, disgorgement and prejudgment interest from Singal and First Capital Real Estate Investments, and civil money penalties against Signal, First Capital Real Estate Advisors and First Capital Real Estate Investments. The complaint also seeks an officer-and-director bar against Singal.