SEC Launches Formal Investigation Regarding Silver Star Properties REIT

Silver Star Properties REIT Inc. announced that the Securities and Exchange Commission issued a formal order of investigation related to the company. According to the SEC’s Fort Worth, Texas, regional office, it will be soon issuing a subpoena requesting certain documents.

The real estate investment trust noted interactions with the SEC in November 2023 related to voluntary information requests pertaining to activities of the REIT, its affiliates, and current and former officers and directors, of which the REIT took seriously. Dating back to July 2023, The DI Wire reported via an anonymous source that Silver Star had been notified via letter by the SEC that they were commencing a preliminary investigation related to the company, its acquisitions and/or its former officers. The letter from the SEC, however, did not disclose the exact target of the investigation.

In the recent filing made by Silver Star disclosing the formal SEC investigation, the company said that it couldn’t speculate on what actions will be taken by itself or the SEC as a result of the subpoena.

In the letter previously issued to Silver Star last July, the SEC focused on several matters and advised Silver Star to retain documents and data that may be relevant to the investigation, including those pertaining to:

• the removal of Allen Hartman, whom, as previously reported, the executive committee of the Silver Star’s board of directors removed as executive chairman of the company, as well as the termination of the agreement between Hartman Short Term Income Properties XX Inc. and Mr. Hartman;
• Silver Star’s investigation into “certain violations of fiduciary and other duties to Silver Star by Hartman;”
• Silver Star’s purchase of all equity interests in Southern Star Self-Storage Investment Company;
• the resignation of Mark Torok as chief executive officer of Silver Star, who resigned last May, less than a month after reaching a long-term employment agreement with the board of directors;
• and the determination that Silver Star had material weaknesses in controls over the review, approval and disclosure of related party transactions and the insufficient design of controls relating to the timing of revenue recognition of estimated recoveries of operating expense items under leasing agreements.

The SEC can impose significant sanctions on companies and individuals who are found to have violated the provisions of applicable federal securities laws, including cease and desist orders, civil money penalties, and barring individuals from serving as directors or officers of public companies.

Silver Star previously announced that it would move away from investing in office properties as that asset class has faced significant post-pandemic occupancy, valuation and financing challenges resulting from an increase in remote working. According to the company in a Feb. 5 news release, the sale of existing office holdings has enabled the REIT to pay down existing debt, improve its balance sheet, and position it for self-storage facility acquisitions in target markets.

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