11 ^ V 10 - 5 4 91 W? WANAsecurities.stanford.edu/filings-documents/1045/GEI... · 15 assignment of the purchase agreement between RJR and N.B.M.J. Geneva formes ... 3 the PPM it

1

Case

Vincent

2:10-cv-05491-JHN-MAN

D. Slavens, Esqq , (SBN

Document

217132)

1 Filed 07/26/10 Page 1 of 22 Page ID #:5

r-Eric J. Benink, Esq. (S )^N 187434)

2 Mary K. W^Y m̂an, Esq. (SBN 260104)KRAUSE KALFAYAN, BENINK & SLAVENS, LLP

3 625 Broadway, Suite 635 a% rS rnan Diego, CA 92101 ^.

4 Tel: (619) 232-03315 Fax:(619) 232-4019

Emai s: [email protected] ebenink(a)kkbs-law.com

mwyman(a),kkbs-law. com7

Attorneys for Plaintiffs and the Class8

UNITED STATES DISTRICT COURT9

CENTRAL DISTRICT OF CALIFORNIAto

11 ^ V 10 - 5 4 91 W? WANAOMAR G. SCARBOROUGH and GAY Case No.:

12 E. SCARBOROUGH Trustees of TheScarborough Family Trust, dated CLASS ACTION COMPLAINT FOR

13 1/5/07, on behalf N themselves and all DAMAGES14

others similarly situated,

Plaintiffs, JURY TRIAL DEMANDED

isVS.

16 BERTHEL FISHER & COMPANY17 FINANCIAL SERVICES, INC, an

Iowa corporation; GENEVA18 EXCHANGE INC., a Minnesota

corporation; GENEVA EXCHANGE, ORIGINAL19 LLC, a Minnesota limited liability

company; DUANE H. LUND, an20 individual; and DOES 1 — 10,

21 Defendants.

A 22 Plaintiffs Omar G. Scarborough and Gay E. Scarborough, Trustees of the

23 Scarborough Family Trust, dated 1/5/2007 ( "Plaintiffs") on behalf of themselves

24 and all others similarly situated, hereby bring this class action complaint and

25 allege, based upon their personal knowledge and the investigation of their

26 attorneys as follows:

27

28

CLASS ACTION COMPLAINT 1

Case 2: 10-cv-05491 -JHN-MAN Document 1 Filed 07/26/10 Page 2 of 22 Page ID #:6

1 I. INTRODUCTION

2 1. This case arises out of Defendants' offer and sale of securities in the

3 form of Tenant-In-Common interests to investors in an apartment complex know

4 as Beamer Place Apartments (`Reamer Place TICs"). The sale was part of a

5 investment scheme in which the promoter and issuer, Geneva Exchange, Inc. an•

6 Geneva Exchange LLC (together as "Geneva"), their sole owner, Duane H. Lund

7 ("Lund"), and underwriter Berthel Fisher & Company Financial Services, Inc.

8 (`Rerthel Fisher") sought to inflate the value of the Beamer Place TICs b

9 misrepresenting and/or concealing material facts as part of an exit strategy i

10 which Defendants reaped millions of dollars in investment proceeds, as well a-

11 fees and commissions, from unsuspecting investors. Moreover, investors assumes

12 millions of dollars in loans Geneva and Lund would otherwise have had to pay.

13 2. Defendants offered and sold the Beamer Place TICs through .

14 network of broker-dealers to approximately 23 investors throughout the Unite•

15 States including several in California, with total gross proceeds of approximatel

16 $7,463,063 in 2008. In addition to their capital investment, investors assumeq

17 substantial mortgage debt totaling approximately $9,104,057. Thus, the tota

18 offering amounted to approximately $16,567,120.

19 3. The Confidential Private Placement Memorandum ("PPM") whic +

21 was provided to potential investors, including Plaintiffs, misrepresented ans

21 omitted highly material facts. For example, although the PPM vaguely referred to

22 the fact that the then-existing short-term mortgage loan was subject to "a cross

23 default and cross-collateralization agreement" with two other mortgage loans o

24 two other properties ("CC Agreement"), it falsely represented that Geneva wa

25 obtaining a release from the CC Agreement.

26 4. The PPM also failed to provide any information (i.e. appraisals, loa

27 to value, cash flow analysis) about the two other properties involved in the Ce

28 Agreement. This was important because if one of the other two propertie


rCase 2:1 0-cv-05491 -JHN-MAN Document 1 Filed 07/26/10 Page 3 of 22 Page ID #:7

1 defaulted, creditors could foreclose on the Beamer Place Apartments, causing the

2 investors to lose their entire investment. In addition, the PPM failed to wa.

3 investors about the risks in the event that the CC Agreement was not released.

4 Furthermore, Beamer Place Apartment's appraisal value of $18.5 million stated i

5 the PPM was overinflated. Had the appraisal been accurate, Plaintiffs' losse

6 would have been less than a total loss.

7 5. On September 18, 2009, the lender notified investors that the othe

8 two loans were in default and the lender was exercising its rights under the C 0

9 Agreement to foreclose on Beamer Place Apartments and in fact foreclosed.

10 Defendants' misrepresentations and omissions contained in the PPM cause +i

11 investors to lose their entire investment in the Beamer Place TICs and subjectel

12 investors to the possibility of the lender seeking to collect from them personally fo

13 any deficiency balance remaining following foreclosure.

14 II. PARTIES

15 6. Omar G. and Gay E. Scarborough are the Trustees of the Scarboroug

16 Family Trust, dated January 5, 2007. At all relevant times, Plaintiffs have resid - .

17 in Azusa, CA. On or about May 29, 2008, Plaintiffs invested $438,000 in the

18 Beamer Place TICs and assumed a loan amount of $534,253. In making thei

19 investment, Plaintiffs, directly and by and through their investment adviser,

20 received, reviewed, and relied upon the PPM. Plaintiffs have lost their entire

21 investment.

22 7. Defendant Berthel Fisher & Company Financial Services, Inc. is, an+'

23 was at all relevant times, an Iowa corporation with its principal place of business i -

24 Marion, Iowa. It is a registered broker-dealer with branch offices nationwide. I

25 has been registered to sell securities in California, and has sold securities i

26 California since 1986. Berthel Fisher was, at all relevant times, the lead or primar

27 underwriter of the Beamer Place TICs and drafted, reviewed, and approved of the

28 content and representations in the PPM distributed to Plaintiffs and the Class.


Case 2:10-cv-05491-JHN-MAN Document 1 Filed 07/26/10 Page 4 of 22 Page ID #:8

8. Defendant Geneva Exchange, Inc. was, at all relevant times, .-

2 Minnesota corporation. Geneva Exchange, Inc. was a promoter and offeror of the

3 Beamer Place TICs. It drafted, reviewed, and approved of the content an•

4 representations in the PPM.

5 9. Defendant Geneva Exchange, LLC was, at all relevant times, .

6 Minnesota limited liability company. Geneva Exchange, LLC was a promoter an$

7 offeror of the Beamer Place TICs. It drafted, reviewed, and approved of the

8 content and representations in the PPM.

9 10. Defendant Duane H. Lund ("Lund") was, at all relevant times, .

10 individual whose residence is unknown. At the time of the alleged offering o I

1i Beamer Place TICs, he was the sole owner and control person of Geneva and it

12 affiliated companies. He drafted, reviewed, and approved of the content an#

13 representations in the PPM.

14 11. Doe Defendants 1 through 10, inclusive, are sued herein unde

15 fictitious names. Their true names and capacities are unknown to Plaintiffs at thi

16 time. When ascertained, Plaintiffs will amend this complaint by inserting the tru:

17 names and capacities herein. Plaintiffs are informed and believe, and on that basi

18 allege that each of the fictitiously named Defendants is responsible in som:

19 manner for the occurrences alleged herein, and that Plaintiffs' rights and interest,

20 were prejudiced on account of the actions of Doe Defendants and/or that the Do:

21 Defendants have legal responsibility for the prejudice inflicted upon Plaintiffs.

22 III. JURISDICTION AND VENUE

23 12. Jurisdiction is conferred by virtue of § 22 of the Securities Act o i

24 1933, (15 U.S.C.A. § 77v(a)) and § 27 of the Securities Exchange Act of 1934, (15

25 U.S.C. § 77aa), which confers exclusive federal jurisdiction over Plaintiffs' federa

26 securities claims. Supplemental jurisdiction is conferred over the remainder o i

27 Plaintiffs' claims pursuant to 28 U.S.C. § 1367 by virtue of the fact that thes:

28


eCase 2:10-cv-05491-JHN-MAN Document 1 Filed 07/26/10 Page 5 of 22 Page ID #:9

1 claims form part of the same case or controversy under Article III of the Unite+

2 States Constitution as Plaintiffs' federal securities claims.

3 13. Venue is proper pursuant to 28 U.S.C. §1391(b) and (c) because .

4 substantial part of the events or omissions giving rise to Plaintiffs' claims occurrel

s in this judicial district.

6 IV. GENERAL ALLEGATIONS

7 14. Prior to January 15, 2007, N.B.M.J. Associates LLP ("N.B.M.J."

8 owned the Beamer Place Apartment complex (`Reamer Place"). Beamer Place is .

9 22 building, multi-family apartment complex, located in Houston, Texas. 1

10 consists of 267,424 rentable square feet, and has a pool, lounge areas, a fitnes-

11 center, washers and dryers, private patios and plenty of parking. As of March 25

12 2008, the property was 96% leased.

13 15. On January 15, 2007, N.B.M.J. sold Beamer Place to RJ'

14 Investments, LLC ("RJR"). On May 7, 2007, Geneva agreed to accept th=

15 assignment of the purchase agreement between RJR and N.B.M.J. Geneva formes

16 an entity called "Geneva Multi-Family Exchange VI, LLC" ("Geneva VI") to

17 facilitate the sale (and as a vehicle to make the Beamer Place TIC offering.) I

18 other words, Geneva VI agreed to purchase Beamer Place in place of RJR.

19 Geneva VI closed escrow on Beamer Place on May 15, 2007.

20 16. On or around March 28, 2008, Geneva engaged Berthel Fischer to

21 underwrite an offering of Beamer Place TICS ("the Offering") to investors throng

22 its network of investment brokers nationwide. Defendants worked together to dra

23 the PPM. They intended to provide copies of the PPMs to the individua

24 investment brokers who they expected to review and rely upon the PPM in makin

25 recommendations to investors for the purchase of Beamer Place TICs. In fact, the

26 PPMs were distributed to, and relied upon by, individual brokers who then offered

27 the Beamer Place TICs to Plaintiffs and the Class.

28



1 17. Defendants further intended that investors such as Plaintiffs and the

2 Class would receive, review, and rely upoij the PPM. In fact, on the first page o i

3 the PPM it reads: "Each investor should read this Confidential Private Placemen

4 Memorandum dated March 25, 2008 and all Exhibits attached hereto [] in thei

s entirety before making an investment decision." The PPM further warns that, "No

6 one has been authorized to make any representations or give any information no

7 contained or referred to herein. Only those representations set forth in thi-

a Memorandum may be relied upon in connection with this offering." Plaintiffs ano

9 the Class in fact received, reviewed, and relied upon the PPM in making thei

10 decisions to invest.

11 18. In the Offering Defendants offered and sold a 69.88% interest i

12 Beamer Place for a purchase price of $7,463,063. However, each $350,000 equit

13 investment (the minimum purchase) required the purchaser to also assum:

14 $426,961 in existing loans, which were then guaranteed personally by Lund.

15 Following a full subscription of the offering, Geneva VI retained 10%, whil:

16 investors from a prior offering in 2007 retained 20.11 %.

17 19. Berthel Fisher received a commission of 7% of the equity portion o'

18 the offering price for interests sold, plus an expense allowance of .5% and a du:

19 diligence expense allowance of .5% of the equity portion of the offering price.

20 Berthel Fisher was entitled to appoint sub-agents as part of a "selling group" who

21 were required to be registered representatives of members of FINRA. Thus, the

22 underwriter and selling brokers earned as much as $653,018 from this offerin a

23 based on the maximum equity offering amount.

24 20. According to the PPM, Geneva and Lund received at least $2,836,440

25 from the sale of Beamer Place TICs. Moreover, Lund was relieved of millions o

26 dollars in personal loan guarantee obligations following the successful close of th&,

27 offering.

2s



21. According to the PPM, Geneva acquired Beamer Place as part of .

2 portfolio of three different apartment complexes in the Houston area. Although no

3 set forth in the PPM, investors later learned that the portfolio consisted of Beame

4 Place, Star Crossing, and Greentree Apartments. Geneva purchased the thre=

5 properties for $25,650,000 and purportedly made improvements to the propert

6 totaling $780,000. According to the PPM, N.B.M.J. allocated $14,255,000 i

7 value to Beamer Place.

8 22. Geneva financed a portion of the purchase price with a $13,027,001

9 short-term loan provided by Prudential Mortgage Capital Company, LLG

10 ("Prudential"). According to the PPM, Geneva VI expected to refinance the short

1i term loan with a long-term loan in the near future. The short-term loan wa

12 personally guaranteed by Lund. Buried in the summary portion of the PPM i

13 noted that " Whe Short-Term Loan is also currently subject to a cross-default ane!

14 cross-collateralization agreement with two other loans taken in connection with the

15 portfolio purchase described above, but the Company is in the process of obtainin •

16 a release from such agreement."

17 23. The PPM explained that the Geneva was in the process of procurin

18 long-term financing from Citibank in the amount of $12,500,000, which was les-

19 than the amount of the short-term loan, at an anticipated loan interest rate o 9

20 6.15%. The long-term loan would be for a term of 10 years with a balloo

21 payment due upon maturity. To make up the shortfall, Geneva planned to make .

22 loan in the amount of $527,000. The PPM made no mention of the cross-defaul

23 loan issue when discussing future financing plans.

24 24. On pages 12 through 21, the PPM lists and describes various ris

25 factors that investors were to take into account when deciding whether or not to

26 invest. It referenced the "Risks Relating to Real Estate," in which it discusse4

27 general risks of real estate ownership, including the possibility of lower renta

28 rates, a fall in the value of the property, local population trends, and other genera



risks that would apply to any real estate investment. It warned that the propert

z was being sold "as is" with only limited warranty as to the condition of the

3 property. It also discussed warnings about toxic or hazardous materials

4 compliance with the Americans With Disabilities Act, warnings about toxic mold

s potential for lower occupancy rates, risks of competition, and that investors woul o

6 hold undivided interests in the property as a whole. It discussed the potentia

7 requirement for additional working capital and the risks relating to a default o

8 bankruptcy of a co-owner, such as foreclosure and personal liability for the

9 investor's share of the loan.

10 25. The PPM warned investors about the "Risks Relating to Taxes"

11 recommending that investors consult their tax adviser regarding the risks ant

12 potential problems associated with a 1031 exchange. It discussed Geneva's effort

13 to qualify the offering for purposes of a 1031 exchange. It warned investors of the

14 risks of a failure to qualify for a 1031 exchange. It further warned about the

15 potential for disallowance of certain deductions, or if taxable income is in exces

16 of cash receipts, the potential for changes to the federal tax code, etc.

17 26. The PPM further warned about "Risks Relating to Financing." I

1s warned about the need to refinance the short-term loan and that a failure to do so.

19 could jeopardize the continued ownership of the property. It further warned tha

20 the interest rate on the refinancing may be higher than the short-term loan. It also

21 warned that the ability to refinance would depend upon the property manager',

22 ability to achieve certain occupancy rates from quality renters. It warned than

23 Geneva was in the process of procuring refinancing but that the terms of the ne

24 loan cannot be known with certainty. It further warned that, although the new loa

zs will be a non-recourse loan, the lender will likely require certain "carve-outs" o

26 conditions which would cause the loan to become a recourse loan resulting i

27 personal liability to the investors. It further warned that the new lender may no i

28 allow the investors to assume the loan. It further discussed the risks relating to


Case 2:10-cv-05491-JHN-MAN Document 1 Filed 07/26/10 Page 9 of 22 Page ID #:1 3

1 certain transfer restrictions, the availability of financing and market conditions, the

2 need to refinance the loan, limited prepayment rights, and risks associated with the

3 sale of the property. Specifically, the PPM reads —

4 The proceeds realized from the sale of the Property will

5 be distributed among the Co-Owners, but only after the

6 payment of any loans, the satisfaction of the claims of

7 other third-party creditors and certain fees owed to the

8 Management Team as described [in the PPM]. The

9 ability of an Investor to recover all or any portion of the

to Investor's Investment will, accordingly, depend on the

11 amount of net proceeds realized from the sale and the

12 amount of claims to be satisfied therefrom. There can be

13 no assurance that the Investors will realize gains on the

14 sale of the Property.

15 27. Despite repeated discussions of the default risks, the risks relating to

16 repayment of loans before any payment to investors in the case of a sale of the

17 property, none of the risk disclosures identified or explained the significant ris

18 related to the ongoing cross-default and cross-collateralization loans. Throughou

19 the lengthy risk disclosures, the PPM failed to explain the risk of default relating to

20 the Star Crossing and Greentree Apartments. It failed to provide any details abou

21 the other properties, such as their appraisal values, revenues, or debt service

22 despite the fact that unbeknownst to investors, Beamer Place depended upon the

23 other two properties to service their debt on a timely basis.

24 28. Additionally, the PPM further reported that the appraised value of the

25 Beamer Place property was $18,500,000 at the time of purchase in 2007. Th:

26 inclusion of this appraisal value was designed to mislead investors into believing

27 that the appraisal value at the time of the offering was the same, when in fac

2 s Defendants knew that the appraisal value had dramatically declined. Upon the



1 property's foreclosure in 2009 an appraiser valued the property at approximate)

2 $10 million.

3 29. Defendants' material misrepresentations and omissions were mad:

4 with the intent to defraud investors into buying Beamer Place TICs at inflater

5 prices. Berthel Fisher participated in this scheme in order to earn hundreds o i

6 thousands of dollars in commissions and fees.

7 30. The materiality of the misleading and omitted facts was not full

8 realized until September 18, 2009 when Prudential sent a notice of default to

9 investors. According to Prudential's notice, Beamer Place had not defaulted o

10 any loan payment. The lender wrote: "Lender has not received the September deb+

11 service payments on the loans secured by the real property commonly known a•

12 Star Crossing and Greentree Apartments. The payments were due on September 5,

13 2009.»

14 31. The Lender claimed that Star Crossing and Greentree Apartment

15 missed payments totaling $133,524.29. The Lender referenced the CC AgreemenI

16 covering all three properties in the portfolio. Unbeknownst to investors anc

17 contrary to the one sentence reference to the CC Agreement in the PPM, Geneva

1& had not obtained a release from the CC Agreement.

19 32. The Lender ultimately foreclosed upon Beamer Place. Unfortunately,

20 the sale price came in millions of dollars below the purchase price paid by Beamer

21 Place TIC investors. Plaintiffs and the Class, after investing up to $7,463,063,

22 receive nothing and face the potential threat of the Lender seeking a deficiency

23 judgment against them.

24 V. CLASS ALLEGATIONS

25 33. Plaintiffs seek to certify a Plaintiff Class pursuant to Fed. R. Civ.

26 Proc.23(b)(3).

27 34. The Plaintiff Class is defined as follows:

28



1 All persons who purchased a Tenant In Common Interest

2 in Beamer Place Apartments pursuant to a March 25,

3 2008 Private Placement Memorandum. Excluded from

4 this definition are Defendants, members of the Lund's

5 immediate family, past or present officers and directors

6 of the entity defendants, any affiliate or subsidiary of the

7 entity defendants and the senior officers and directors of

a the affiliate or subsidiary, or any entity in which any

9 excluded person has a controlling interest, and the legal

10 representatives, heirs, successors, and assigns of any

11 excluded person.

12 35. The members of the Plaintiff Class are so numerous that joinder of al

13 members is impracticable.

14 36. Questions of law and fact common to the members of the Plaintif I

15 Class predominate over questions that may affect individual Class members.

16 37. Plaintiffs' claims are typical of the claims of the members of the

17 Plaintiff Class as all members of the Plaintiff Class are similarly affected b

1a Defendants' wrongful conduct.

19 38. Plaintiffs will fairly and adequately protect the interests of the

21 members of the Plaintiff Class and has retained competent counsel experienced i

21 securities class action litigation.

22 39. A class action is superior to all other available methods for the fai

23 and efficient adjudication of this controversy since joinder of all members i-

24 impracticable. Furthermore, as the injuries suffered by individual Plaintiff Clas

25 members may be relatively small, the expense and burden of individual litigatio

26 make it impossible for members of the Class to individually redress the wrong

27 done to them. There will be no difficulty in the management of this action as .

28 class action.


Case 2:1 0-cv-05491 -JHN-MAN Document 1 Filed 07/26/10 Page 12 of 22 Page ID #:16

1 VI. CLAIMS FOR RELIEF

2 FIRST CLAIM FOR RELIEF

3 Violations of § 10(b) and Rule 10(b)(5) of the Securities Exchange Act of 1934

4 (Against All Defendants and DOES 1-10)

5 40. Plaintiffs hereby incorporate by reference each of the precedin

6 allegations as though fully set forth herein.

7 41. The Beamer Place TIC interests are securities.

8 42. In connection with the offer and sale of the Beamer Place TI •

9 interests, Defendants disseminated or approved the false statements specifies

10 above which they knew or recklessly disregarded were misleading in that the

11 contained misrepresentations and failed to disclose material facts necessary i

12 order to make the statements made, in light of the circumstances under which the

13 were made, not misleading.

14 43. Defendants violated § 10(b) of the 1934 Act and Rule 10b-5 in than

15 they:

16 (a) Employed devices, schemes, or artifices to defraud;

17 (b) Made untrue statements of a material fact or omitted to state .

18 material

19 fact necessary in order to make the statements made, in light of the

20 circumstances under which they were made, not misleading; or

21 (c) Engaged in acts, practices, or courses of business which operated o

22 would

23 operate as a fraud or deceit upon Plaintiff and others similarl

24 situation in connection with their purchase of the TIC investment.

25 44. Plaintiffs and the Class relied on Defendants' misrepresentation-

26 and/or omissions of material fact at all relevant times. If it were not fo

27 Defendants' misrepresentations and omissions of material fact, Plaintiffs and the

28 Class would not have purchased the Beamer Place TIC interests.



1 45. As a direct and proximate cause of Defendants' fraudulent acts i

2 connection with the Beamer Place TIC interests, Plaintiffs and the Class hav:

3 suffered damages in an amount to be determined at trial.

4 SECOND CLAIM FOR RELIEF

5 Violations of § 20 of the Securities and Exchange Act of 1934

6 (Against Defendant Lund and DOES 1-10)



9 47. At all relevant times, Lund was the sole owner and control person o l

10 Geneva and acted as a controlling person of Geneva within the meaning of Sectio

11 20(a) of the Exchange Act, as alleged herein. By virtue of his sole ownership

12 participation in and/or awareness of Geneva's operations and/or intimat=

13 knowledge of the statements contained in the PPM and disseminated to Plaintiff,

14 and the Class, Lund had the power to influence and control and did influence an4

15 control, directly or indirectly, the decision-making of Geneva, including the

16 content and dissemination of the various statements that Plaintiffs contend ar:

17 materially false and misleading.

18 48. As set forth above, Lund committed acts in violation of § 10(b) an.

19 Rule l Ob-5. Thus, to the extent Lund is found not to have engaged in such conduc

20 directly, as a controlling person, Lund nevertheless is jointly and severally liabl:

21 with and to the same extent as Geneva.

22 49. At all relevant times, Lund directly or indirectly induced Geneva to

23 act in violation of § 10(b) and Rule IOb-5 and did not act in good faith.

24 50. As a direct and proximate result of Lund's wrongful conduct

25 Plaintiffs and the Class have suffered damages in connection with the purchase o l

26 the Beamer Place TICs in an amount to be determined at trial.

27

28


Case 2:1 0-cv-05491 -JHN-MAN Document 1 Filed 07/26/10 Page 14 of 22 Page ID #:18

1 THIRD CLAIM FOR RELIEF

z Violation of § 12 of the Securities Act of 1933


4 51. Plaintiffs hereby incorporate by reference each of the precedin,

s allegations as though fully set forth herein.

6 52. The Beamer Place TIC interests were offered to the public pursuant to

7 the PPM. The PPM provided to each purchaser constituted a prospectus within the

e meaning of Section 12 of the Securities Act of 1933 ("1933 Act").

9 53. Defendants were sellers, offerors and/or solicitors of sales of the TI G

10 investment issued in connection with the Offerings within the meaning of the 1933

11 Act.

12 54. Defendants were sellers within the meaning of the 1933 Act an$

13 solicited the purchase by Plaintiffs and other members of the Class.

14 55. The PPM provided to Plaintiffs and the Class by Defendant,

15 contained untrue statements of material fact and omitted other material facts, a,

16 alleged herein.

17 56. Defendants owed to Plaintiffs and the Class the duty to make .

18 reasonable and diligent investigation of the statements contained in the PPM t.

19 ensure that such statements were true and accurate, and that there were no

20 omissions of material fact necessary to prevent the statements contained therei

21 from being misleading.

22 57. Defendants did not make a reasonable investigation or posses,

23 reasonable grounds to believe that the statements contained and incorporated b

24 reference in the PPM, at the time of the Offering, were true and without omission,

25 of material fact, and were not misleading. Had Defendants exercised reasonabl:

26 care, they would have known of such omissions.

27 58. Plaintiffs and the Class members purchased or otherwise acquired the

2g Beamer Place TIC interests pursuant to the materially untrue and misleading PP



1 and did not know, or in the exercise of reasonable diligence could not have known

2 of the untruths and omissions contained therein.

3 59. By virtue of the conduct alleged herein, Defendant violated Sectio

4 12(a)(2) of the 1933 Act, 15 U.S.C. § 771, and Plaintiffs and the Class have bee

s damaged as a result.

6 60. Accordingly, Plaintiffs and other members of the Class have the right

7 to rescind and recover the consideration paid for the Beamer Place TIC interests

s together with interest thereon, elect to rescind, and will tender their securities to

9 Defendants.

10 FOURTH CLAIM FOR RELIEF

11 Controlling Person Liability Under § 15 of the Securities Act of 1933

12 (Against Defendant Lund and DOES 1-10)

13 61. Plaintiffs hereby incorporate by reference each of the precedin a


15 62. At all relevant times, Lund was the sole owner and control person o 1

16 Geneva and acted as a controlling person of Geneva within the meaning of Sectio

17 15 of the Securities Act of 1933 as alleged herein. By virtue of his sole ownership

1e participation in and/or awareness of Geneva's operations and/or intimat:

19 knowledge of the statements contained in the PPM and disseminated to Plaintiff

20 and the Class, Lund had the power to influence and control and did influence an o

21 control, directly or indirectly, the decision-making of Geneva, including the

22 content and dissemination of the various statements that Plaintiffs contend arr.

23 materially false and misleading.

24 63. As set forth above, Lund committed acts in violation of § 12(a)(2) o 1

25 the 1933 Act. Thus, to the extent Lund is found not to have engaged in suc

26 conduct directly, as a controlling person, Lund nevertheless is jointly and severall

27 liable with and to the same extent as Geneva.

2s



1 64. At all relevant times, Lund directly or indirectly induced Geneva t

2 act in violation of § 12(a)(2) and did not act in good faith.

3 65. As a direct and proximate result of Lund's wrongful conduct

4 Plaintiffs and the Class have suffered damages in connection with the purchase o 9

5 the Beamer Place TICs in an amount to be determined at trial.

6 FIFTH CLAIM FOR RELIEF

7 Professional Negligence

8 (Against Defendant Berthel Fisher & Company Financial Services, Inc. and

9 DOES 1-10)



12 67. At all relevant time, Berthel Fisher acted as the lead or prima

13 underwriter of the Beamer Place TICs and drafted, reviewed, and approved of th=

14 content and representations made in the PPM distributed to Plaintiffs and the Class.

15 Berthel Fisher owed Plaintiffs and the Class duties to use such skill, prudence an4

16 diligence as other members of their profession commonly possess and exercise o

17 behalf of Plaintiffs and the Class.

18 68. Defendants breached this duty to Plaintiffs and the Class by failing to

19 exercise reasonable care of competence in its preparation of the PPM and in the

20 due diligence of the Beamer Place Apartments and the Offering.

21 69. As a direct and proximate cause of Defendants' negligence, Plaintiff

22 and the Class have been damaged in an amount to be determined, according to

23 proof at trial.

24 SIXTH CLAIM FOR RELIEF

25 Violation of Minnesota Blue Sky Law


27 70. Plaintiffs hereby incorporate by reference each of the preceding




1 71. Defendants offered and sold the Beamer Place TIC interests from the

2 State of Minnesota to Plaintiffs and the Class.

3 72. Defendants violated Minn. Stat. § 80A.76 (2010) which states in pa

4 that a person is liable to the purchaser if the person sells a security by means of a

s untrue statement of a material fact or an omission to state a material fact necessar

6 in order to make the statement made, in light of the circumstances under which it i

7 made, not misleading, the purchaser not knowing the untruth or omission and the

8 seller not sustaining the burden of proof that the seller did not know and, in the

9 exercise of reasonable care, could not have known of the untruth or omission.

10 73. Plaintiffs and the Class did not know the untruths or omissions.

11 Defendants cannot sustain the burden of proof that they did not know, and in the

12 exercise of reasonable care, could not have known of the untruths and omissions.

13 74. Plaintiffs and the Class seek actual damages and/or rescission of thei .

14 investments, and attorneys fees pursuant to § 80A.76(b)(1), (2), and (3). They wil

15 tender their Beamer Place TIC interests prior to entry of judgment in this action.

16

17 PRAYER FOR RELIEF

18 WHEREFORE, Plaintiffs request of this Court the following relief, on behalf o

19 themselves and all others similarly situated:

20 A. A determination that this action is a proper class action maintainable

21 pursuant to Federal Rule of Civil Procedure 23 and an order appointing Plaintiffs

22 as representatives of the Class and Krause Kalfayan Benink & Slavens, LLP as

23 Plaintiff Class counsel;

24 B. Damages in an amount to be determined at trial, but not less than

25 $5,000,000 or alternatively, rescission of their investments;

26 C. Pre judgment interest at the maximum rate allowable at law;

27 D. Reasonable attorney's fees as permitted under Minn. Stat. § 80A.76

28 (2010);



1 E. Court costs; and

2 G. Such other and further relief as the Court deems just and proper.

3

4

5

6 Dated: July 22, 2010 KRAUSEL AYAN BENINK &SLAVENS, P

8

9 Vincent D. Slavens, Esq.Attorneys for Plaintiff

10

11

12

13

14DEMAND FOR JURY TRIAL

15

16 Plaintiffs Omar G. Scarborough and Gay E. Scarborough, Trustees of the17

is Scarborough Family Trust, dated 1/5/2007 demand a jury trial pursuant to Rule

19 38(b) of the Federal Rules of Civil Procedure.

20

21

22

23 Dated: July 22, 2010 KRAUSE KALFAYAN BENINK &SLAV 91\ ALP

24

25

26Vincent D. Slavens, Esq.Attorneys for Plaintiff

27

28



UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE .VJDGE FOR DISCOVERY

This case has been assigned to District Judge Mariana P. Pfaelzer and the assigneddiscovery Magistrate Judge is Margaret A. Nagle.

The case number on all documents filed with the Court should read as follows:

CV10 - 5491 MRP (MANx)

Pursuant to General Order 05-07 of the United States District Court for the CentralDistrict of California, the Magistrate Judge has been designated to hear discovery relatedmotions.

The United States District Judge assigned to this case will review all filed discoverymotions and thereafter, on a case-by-case or motion-by-motion basis, may referdiscovery related motions to the Magistrate Judge for hearing and determination

NOTICE TO COUNSEL

A copy of this notice must be served with the summons and complaint on all defendants (if a removal action isfiled, a copy of this notice must be served on all plaintiffs).

Subsequent documents must be filed at the following location:

[X] Western Division Li Division Li Division312 N. Spring St., Rm. G-8 411 West Fourth St., Rm. 1-053 3470 Twelfth St., Rm. 134Los Angeles, CA 90012 Santa Ana, CA 92701-4516 Riverside, CA 92501

Failure to file at the proper location will result in your documents being returned to you.

CV-18 (03/06) NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY


Name & Address:Vincent D. Slavens, Esq. (SBN. 217132)Eric J. Benink, Esq. (SBN. 187434)KRAUSE KALFAYAN BENINK & SLAVENS, LLP625 Broadway, Suite 635San Diego, CA 92101 (619) 232-0331

UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

OMAR G. SCARBOROUGH and GAY E. SCARBOROUGH CASE NUMBERTrustees of The Scarborough Family Trust, dated 1/5/07, onbehalf of themselves and all others similarly situated,

GV10— i^PLAINTIFFS)5V.

BERTHEL FISHER & COMPANY FINANCIAL SERVICES,INC, an Iowa corporation; GENEVA EXCHANGE, INC., aMinnesota corporation; GENEVA EXCHANGE, LLC, aMinnesota limited liability company; DUEANE H. LUND, an SUMMONSindividual; and DOES 1 - 10,

DEFENDANT(S).

TO: DEFENDANT(S): BERTHEL FISHER & COMPANY FINANCIAL SERVICES. INC. GENEVA EXCHANGE, INC,

GENEVA EXCHANGE, LLC, DUEANE H. LUND, et al.

A lawsuit has been filed against you.

Within -1-0 Z 1 days after service of this summons on you (not counting the day you received it), youmust serve on the plaintiff an answer to the attached 5^complaint q amended complaintq counterclaim q cross-claim or a motion under Rule 12 of the Federal Rules of Civil Procedure. The answeror motion must be served on the plaintiff's attorney, Vincent D. Slavens, Esq. , whose address is625 Broadway, Suite 635, San Diego, CA 92101 . If you fail to do so,

judgment by default will be entered against you for the relief demanded in the complaint. You also must fileyour answer or motion with the court.

Clerk, Uk District Court

2 g JUL NO ^IN,

By:Deputy Clerk

(Seal of the Court)

[Use 60 days if the defendant is the United States or a United States agency, or is an officer or employee of the United States. Allowed60 days by Rule 12(a) (3)].

CV-01A (12/0 7) SUMMONS

Case 2:10-cv-05491-JHN-MAN Document 1 Filed 07/26/10 Page 21 of 22 Page ID #:25CIVIL COVER SHEET

I (a) PLAINTIFFS (Check box if you are representing yourself q) DEFENDANTSOMAR G. SCARBOROUGH and GAY E. SCARBOROUGH Trustees of The BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC, an Iowa corporation;Scarborough Family Trust, dated 1/5/07, on behalf of themselves and all others GENEVA EXCHANGE, INC., a Minnesota corporation; GENEVA EXCHANGE, LLC,similarly situated, a Minnesota limited liability company; DUANE H. LUND, an individual; and DOES I -10,

(b) Attorneys (Finn Name, Address and Telephone Number. If you are representing Attorneys (If Known)yourself, provide same.)

Vincent D. Slavens, Esq

KRAUSE, KALFAYAN, BENINK & SLAVENS, LLP625 Broadway, Suite 635, San Diego, CA 92101 (619) 232-0331

II. BASIS OF JURISDICTION (Place an X in one box only.) 11). CITIZENSHIP OF PRINCIPAL PARTIES - For Diversity Cases Only(Place an X in one box for plaintiff and one for defendant.)

q 1 U.S. Government Plaintiff 3 Federal Question (U-S. PTF DEF PTF DEFGovernment Not a Party) Citizen of This State q 1 q 1 Incorporated or Principal Place 114 q 4

of Business in this State

q 2 U.S. Government Defendant q 4 Diversity (Indicate Citizenship Citizen of Another State q 2 q 2 Incorporated and Principal Place q 5 [15of Parties in Item III) of Business in Another State

Citizen or Subject of a Foreign Country q 3 q 3 Foreign Nation q 6 q 6

IV. ORIGIN (Place an X in one box only.)

M I Original q 2 Removed from q 3 Remanded from q 4 Reinstated or q 5 Transferred from another district (specify): q 6 Multi- q 7 Appeal to DistrictProceeding State Court Appellate Court Reopened District Judge from

Litigation Magistrate Judge

V. REQUESTED IN COMPLAINT: JURY DEMAND. VYes q No (Check 'Yes' only if demanded in complaint.)

CLASS ACTION under F.R.C.P. 23: X Yes Q No MONEY DEMANDED IN COMPLAINT: $ No less than $5,000,000.00

VI. CAUSE OF ACTION (Cite the U.S. Civil Statute under which you are filing and write a brief statement of cause. Do not cite jurisdictional statutes unless diversity.)15 U.S.C.§§ 780), 78(t), 77 (1), 77 (o) Violation of Federal and State Securities in Commection with Private Placement Investment.

VII. NATURE OF SUIT (Place an X in one box only.)

QTHER S'FATEITES y CQNTitACT E T'OR ^ ^^ 1̂ "f^7RTS ^ ±.^RLTQNER,,. k „^? zy,LABOY2 . ^ :.;',q 400 State Reapportionment qV 110 Insurance PERSONAL INJURY PERSONAL EETII4N5 q 710 Fair Labor Standardsq 410 Antitrust q 120 Marine q 310 Airplane PROPERTY q 510 Motions to Actq 430 Banks and Banking q 130 Miller Act q 315 Airplane Product q 370 Other Fraud Vacate Sentence q 720 Labor/Mgmt.q 450 COmmerce/ICC q 140 Negotiable Instrument Liability q 371 Truth in Lending Habeas Corpus Relations

Rates/etc. q 150 Recovery of q 320 Assault, Libel & q 380 Other Personal q 530 General q 730 Labor/Mgmt.q 460 Deportation Overpayment & Slander Property Datnage q 535 Death Penalty Reporting &0470 Racketeer Influenced Enforcement of q 330 Fed. Employers' q 385 Property Damage q 540 Mandamus/ Disclosure Act

and Corrupt Judgment Liability Product Liability Other q 740 Railway Labor ActrOrganizations q 151 Medicare Act q 340 Marine `tr'; BAMU q 550 Civil Rights q 790 Other Labor

q 345 Marine Productq 480 Consumer Credit q 152 Recovery of Defaulted

Liabilit q 422 Appeal 28 USC q 555 Prison Condition LitigationrEl 490 Cable/Sat TV Student Loan (Excl. y 158 FFORT i7RLa q 791 Empl. Ret. Inc.

q 350 Motor Vehicleq 810 Selective Service Veterans) q 355 Motor Vehicle [1423 Withdrawal 28 . ; P157A;vTXa ,.,., Security ActN 850 Securities/Commodities/ q 153 Recovery of Product Liability USC 157 q 610 Agriculture -AQPRT-R)GtiTS„^

Exchange Overpayment of E-1360 Other Personal CN7LtTtIGH 4 q 620 Other Food & q 820 Copyrightsq 875 Customer Challenge 12 Veteran's Benefits Injury q 441 Voting Drug E1830 Patent

USC 3410 q 160 Stockholders' Suits q 362 Personal Injury- q 442 Employment q 625 Drug Related q 840 Trademark.^:q 890 Other Statutory Actions q 190 Other Contract Med Malpractice q 443 Housing/Acco- Seizure of ! 1 $ IiRITY;;;:,q 891 Agricultural Act q 195 Contract Product q 365 Personal Injury- tnmodations Property 21 USC q 861 HIA (1395f1)E1892 Economic Stabilization Liability Product Liability q 444 Welfare 881 q 862 Black Lung (923)

Act q 196 Franchise E1368 Asbestos Personal q 445 American with q 630 Liquor Laws q 863 DIWC/DIWWq 893 Environmental Matters'' .;, `.REt1h; ('ROI'ERTY Injury Product Disabilities - q 640 R.R. & Truck (405(g))q 894 Energy Allocation Act q 210 Land Condemnation Liability Employment q 650 Airline Regs q 864 SSID Title XVIq 895 Freedom of Info. Act E1220 Foreclosure tM2vEIIi1 tON , ; q 446 American with q 660 Occupational q 865 RSI (405(8))q 900 Appeal of Fee Detenmi- q 230 Rent Lease & Ejectment q 462 Naturalization Disabilities - Safety /Health FDtAL SC3iTS-";

nation Under Equal q 240 Torts to Land Application Other 13690 Other q 870 Taxes (U.S. PlaintiffAccess to Justice q 245 Tort Product Liability q 463 Habeas Corpus- -0440 Other Civil or Defendant)

q 950 Constitutionality of q 290 All Other Real Property Alien Detainee Rights q 871 IRS-Third Parry 26State Statutes q 465 Other Immigration USC 7609

Actions

-51,91 FOR OFFICE USE ONLY: Case Number:

AFTER COMPLETING THE FRONT SIDE OF FORM CV-71, COMPLETE THE INFORMATION REQUESTED BELOW.

CV-71 (05/08) CIVIL COVER SHEET Page I of2

Case 2:1 0-cv-05491-JHN-MAN Document 1', Filed 07/26/10 Page 22 of 22 Page ID #:26CIVIL COVER SHEET

VIII(a). IDENTICAL CASES: Has this action been previously filed in this court and dismissed, remanded or closed? C(No q YesIf yes, list case number(s):

V111(b). RELATED CASES: Have any cases been previously filed in this court that are related to the present case? O^No q YesIf yes, list case number(s):

Civil cases are deemed related if a previously filed case and the present case:(Check all boxes that apply) q A. Arise from the same or closely related transactions, happenings, or events; or

• B. Call for determination of the same or substantially related or similar questions of law and fact; or

• C. For other reasons would entail substantial duplication of labor if heard by different judges; or

q D. Involve the same patent, trademark or copyright, and one of the factors identified above in a, b or c also is present.

IX. VENUE: (When completing the following information, use an additional sheet if necessary.)

(a) List the County in this District; California County outside of this District; State if other than California; or Foreign Country, in which EACH named plaintiff resides.q Check here if the government, its agencies or employees is a named plaintiff. If this box is checked, go to item (b).

County in this District:" California County outside of this District; State, if other than California; or Foreign Country

Los Angeles, California

b) List the County in this District; California County outside of this District; State if other than California; or Foreign Country, in which EACH mined defendant resides.q Check here if the government, its agencies or employees is a named defendant. If this box is checked, go to item (c).

County in this District:' California County outside of this District; State, if other than California; or Foreign Country

BERTHEL FISHER & COMPANY - Marlon, IowaGENEVA EXCHANGE, INC. - Hennepin, MinnesotaGENEVA EXCHANGE, LLC. - Hennepin, MinnesotaDUANE H. LUND - Unknown

c) List the County in this District; California County outside of this District; State if other than California; or Foreign Country, in which EACH claim arose.Note: Inland condemnation cases, use the location of the tract of land involved.

County in this District:' California County outside of this District; State, if other than California; or Foreign Country

Marlon, IowaLos Angeles, California Hennepin, Minnesota

* Los Angeles, Orange, San Bernardino, Riverside, Ventura, San : F bara, or San Luis Obispo CountiesNote: In land condemnation cases, use the location of the tract of land olved

X. SIGNATURE OF ATTORNEY (OR PRO PER): Date

Notice to Counsel/Parties: The CV-71 (JS-44) Civil Cover Sheet and the information contained herein neither replace nor supplement the filing and service of pleadingsor other papers as required by law. This form, approved by the Judicial Conference of the United States in September 1974, is required pursuant to Local Rule 3-1 is not filedbut is used by the Clerk of the Court for the purpose of statistics, venue and initiating the civil docket sheet. (For more detailed instructions, see separate instructions sheet.)

Key to Statistical codes relating to Social Security Cases:

Nature of Suit Code Abbreviation Substantive Statement of Cause of Action

861 HIA All claims for health insurance benefits (Medicare) under Title 18, Part A, of the Social Security Act, as amended.Also, include claims by hospitals, skilled nursing facilities, etc., for certification as providers of services under theprogram. (42 U.S.C. 1935FF(b))

862 BL All claims for "Black Lung" benefits under Title 4, Part B, of the Federal Coal Mine Health and Safety Act of 1969.(30 U.S.C. 923)

863 DIWC All claims filed by insured workers for disability insurance benefits under Title 2 of the Social Security Act, asamended; plus all claims filed for child's insurance benefits based on disability. (42 U.S.C. 405(8))

863 DI W W All claims filed for widows or widowers insurance benefits based on disability under Title 2 of the Social SecurityAct, as amended. (42 U.S.C. 405(g))

864 SSID All claims for supplemental security income payments based upon disability filed under Title 16 of the Social SecurityAct, as amended.

865 RSI All claims for retirement (old age) and survivors benefits under Title 2 of the Social Security Act, as amended. (42U.S.C. (g))

CV-71 (05/08) CIVIL COVER SHEET Page 2 of 2

Documents

11 ^ V 10 - 5 4 91 W? WANAsecurities.stanford.edu/filings-documents/1045/GEI... · 15 assignment of the purchase agreement between RJR and N.B.M.J. Geneva formes ... 3 the PPM it