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Behringer Harvard Suit

Behringer Harvard Suit

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Published by Robert Wilonsky

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Published by: Robert Wilonsky on Sep 18, 2012
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07/10/2013

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UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF TEXASDALLAS DIVISION
 LILLIAN HOHENSTEIN, Individually andOn Behalf of All Others Similarly Situated,Plaintiff,vs.BEHRINGER HARVARD REIT I, INC.,BEHRINGER HARVARD HOLDINGS,LLC, ROBERT M. BEHRINGER, ROBERTS. AISNER, STEVEN W. PARTRIDGE,RONALD WITTEN, SCOTT W.FORDHAM, JAMES E. SHARP, andCHARLES G. DENNIS.Defendants.§§§§§§§§§§§§§§§§Case No. 3:12-CV-03772
CLASS ACTION COMPLAINT
Lillian Hohenstein ("Plaintiff") by her attorneys, alleges and for her class actioncomplaint, upon personal knowledge as to herself and her own acts, as to all other matters uponinformation and belief derived from,
inter alia
, counsel’s review of documents filed with theSecurities and Exchange Commission (“SEC”), press releases issued by defendants, and publiclyavailable news sources, such as newspaper articles, as follows:
NATURE OF THE ACTION
1.
 
This is a class action on behalf of investors of Behringer Harvard REIT I ("BHREIT" or the “Company”), against BH REIT, the parent company of its advisor BehringerHarvard Holdings, LLC, its Board of Directors (the “Board”) and certain of its executive officers(the "Individual Defendants") (collectively "Defendants") for violating federal securities lawsand breaching their fiduciary duties to Plaintiff and the proposed class.
Case 3:12-cv-03772-G Document 1 Filed 09/17/12 Page 1 of 40 PageID 1
 
22.
 
With the contraction of the United States economy, the Federal Reserve Boardhas continued to pursue a policy of historically low interest rates. The current rates of interestavailable to savers are the lowest in the history of the country. Passive investors seekingreasonable risk adjusted returns have few attractive options. Individual savers, in particular, havebeen hard hit because safe investments traditionally available to "Mom and Pop" savers such ascertificates of deposit, money market funds, and highly rated corporate bonds offer almost noreturn on investment. These developments have left retirees and other retail investors vulnerableto investment promoters who promise attractive rates of return
.
3.
 
Defendants are in the business of selling investments in real estate investmenttrusts, or "REITs." Most REIT shares are registered for trading on a national securities exchange.Publicly traded REIT shares are widely followed by securities analysts. Their share pricesfluctuate with changes in the REIT's portfolio and economic conditions. Other REITs, such asBH REIT are referred to as “non-traded REITs,” as their shares are not registered for trading onany exchange. Investors in non-traded REITs generally expect to hold their shares for a five toseven year term, with the understanding that the sponsor will seek to list the shares on a nationalsecurities exchange. Investors depend on the legitimate operation and accounting of the REIT'sbusiness and the sale of properties or listing for the return of their principal. Investors in non-traded REITs who seek to sell their shares before the term of the investment must either reselltheir shares to the sponsor or sell in an inefficient secondary market, usually at severe discounts.Because non-traded REIT shares do not trade in an open market, investors depend on thedisclosures made by the sponsor for information about the value of the REIT's shares.4.
 
Since BH REIT’s shares are not listed on a national stock exchange, BH REIT isdeemed an illiquid investment. Therefore, BH REIT’s articles of incorporation mandate that the
Case 3:12-cv-03772-G Document 1 Filed 09/17/12 Page 2 of 40 PageID 2
 
3Company provide its shareholders with a liquidity event by 2017 by means of a liquidation of itsinvestments and subsequent distribution to shareholders (the “Liquidation”), if its common stock was not listed by the Liquidation deadline, unless that deadline is extended.5.
 
Plaintiff and the proposed class invested in BH REIT with the understanding thatthe money they invested with Defendants would be used to pursue the stated investmentobjectives of BH REIT which were: “to preserve, protect and return your capital contributions, tomaximize cash distributions paid to you, to realize growth in the value of our investments uponour ultimate sale of such investments; and to list our shares for trading on a national securitiesexchange….” The offerings in which Plaintiff and the proposed class invested were structuredas “blind pool” offerings, in which Plaintiff and the proposed class committed their moneybefore knowing what properties Defendants would purchase with the net offering proceeds.Plaintiff necessarily depended on the accuracy of Defendants' disclosures about their investmentobjectives and policies to assess the risks associated with investment.6.
 
BH REIT’s initial public offering occurred between February 19, 2003 andFebruary 19, 2005 (“Initial Offering”). The initial offering was of 80,000,000 shares at a price of $10 per share. The Company also offered up to 8,000,000 additional shares at $10.00 per shareunder its distribution reinvestment plan at this time. BH REIT commenced a second publicoffering that offered 80,000,000 shares of common stock at $10.00 a share on February 11, 2005(“Second Offering”). The Second Offering also offered 16,000,000 additional shares at $9.50per share. This was terminated on October 20, 2006. BH REIT commenced a third publicoffering (“Third Offering”) on October 20, 2006. Under this offering, BH REIT offered200,000,000 shares at $10.00 per share and an additional 50,000,000 shares at $9.50 per share.On January 5, 2009, BH REIT then shocked those who had previously invested and commenced
Case 3:12-cv-03772-G Document 1 Filed 09/17/12 Page 3 of 40 PageID 3

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