Phoenix American Hospitality and the SEC's $86 Million Hotel REIT Case: What Investors Should Know

Federal regulators have settled fraud charges against Phoenix American Hospitality, a Dallas-based manager of hotel investment funds, and its president, William Lee "Perch" Nelson. According to the Securities and Exchange Commission (SEC), the company raised approximately $86 million from more than 2,000 retail investors. They allegedly made false statements about the funds' hotel holdings and the source of investor distributions.

What the SEC alleged

The SEC alleges that between 2022 and 2024, Phoenix American Hospitality offered two Regulation A hotel investment funds while misrepresenting key facts to investors. In any case involving Phoenix American Hospitality, understanding SEC allegations is crucial for affected investors. Also, knowing the details is important.

According to the complaint:

• One fund was promoted as owning up to 11 hotels. However, it allegedly held only a preferred equity interest in a single hotel until early 2024.
• Investors were told they could receive annual distributions of up to 12%. But the SEC alleges the funds were not profitable and that many distributions came primarily from investor capital rather than operating income.

Phoenix American Hospitality and Nelson agreed to settle the case without admitting or denying the SEC's allegations. The judgments include civil penalties and injunctions against future securities law violations.

What the settlement means for investors

The SEC settlement penalizes the defendants, but it does not establish a fund to compensate investors for their losses. The judgments do not require disgorgement, appoint a receiver, or create a process for returning money to affected investors. In addition, they do not result in a direct refund for Phoenix American Hospitality investors.

Investors seeking to recover losses generally must pursue their own legal remedies. Understanding your options may be vital if you suffered losses related to Phoenix American Hospitality.

FINRA arbitration and investor claims

If a broker or financial advisor recommended one of these investments, investors may have claims against the brokerage firm independent of the SEC's enforcement action. Phoenix American Hospitality cases may involve brokerage firm responsibilities. Furthermore, they may include arbitration claims.

Brokerage firms have obligations to perform reasonable due diligence before recommending alternative investments and to disclose important risks, including illiquidity and the true source of distributions. These disputes are often resolved through FINRA arbitration. They are rarely resolved in court.

Whether a claim exists depends on factors such as the recommendation made, the investor's objectives, the disclosures provided, and the suitability of the investment. Moreover, the involvement of Phoenix American Hospitality in these recommendations can be significant.

Steps investors should consider

If you invested in a Phoenix American Hospitality fund:

• Gather subscription agreements, offering documents, account statements, and distribution records relating to Phoenix American Hospitality investments.
• Save emails, presentations, and other communications from your broker or advisor.
• Document the distributions you received and how they were described. These records could be important in assessing losses from Phoenix American Hospitality opportunities.
• Be aware that FINRA arbitration eligibility and other legal deadlines may limit the time to pursue a claim.

Soreide Law Group represents investors nationwide in FINRA arbitration claims against brokerage firms. If you invested in a Phoenix American Hospitality hotel fund through a broker or financial advisor and would like your account reviewed, contact our firm for a free consultation. Instead, you may call 1-888-760-6552.

This article is based on the SEC's complaint and public settlement documents. The allegations remain allegations, and Phoenix American Hospitality and William Lee "Perch" Nelson settled the case without admitting or denying the SEC's claims. This article is provided for general educational purposes only and is not legal advice.