Phoenix American Hospitality Investor Alert: SEC Alleges Misrepresentations Regarding Hotel REIT Investments

Phoenix American Hospitality Investor Alert: SEC Alleges Misrepresentations Regarding Hotel REIT Investments.

Investors in Phoenix American Hospitality REITs May Have Legal Options

The U.S. Securities and Exchange Commission (“SEC”) recently filed a significant enforcement action against Phoenix American Hospitality, LLC (“PAH”) and its president, William Lee “Perch” Nelson, alleging that investors were misled about the assets and profitability of certain hotel-focused investment funds.

If you invested in American Hospitality Properties REIT I, American Hospitality Properties REIT II, or another Phoenix American Hospitality-sponsored investment based upon representations concerning hotel ownership, distributions, income, safety, or suitability, you may wish to review your legal rights.

The securities attorneys at Goodman & Nekvasil, P.A. are investigating potential claims on behalf of investors who purchased Phoenix American Hospitality investments through financial advisors, stockbrokers and registered representatives of broker-dealer firms.

SEC Files Action Against Phoenix American Hospitality and William Lee “Perch” Nelson

According to the SEC’s Complaint filed in the United States District Court for the Northern District of Texas, Phoenix American Hospitality and its president allegedly raised approximately $86 million from more than 2,000 retail investors between March 2022 and July 2024 through two hotel-focused investment funds.

The SEC alleges that investors were provided with materially inaccurate information regarding both the assets owned by the funds and the profitability of those investments.

Specifically, the SEC alleged:

• One fund was represented as owning as many as 11 hotel properties.
• In reality, according to the SEC, the fund allegedly held only a preferred equity interest in a single hotel until January 2024.
• Investors were allegedly told that the funds paid regular profit distributions of up to 12% annually.
• The SEC alleges that neither fund was profitable and that distributions were primarily funded through returns of investor capital rather than operating profits.

The SEC further alleged that these statements violated federal securities laws prohibiting fraudulent and misleading conduct in connection with the offer and sale of securities.

Importantly, Phoenix American Hospitality and Mr. Nelson settled the SEC action without admitting or denying the allegations. As part of the settlement, the parties consented to injunctive relief, civil penalties, and a proposed five-year officer and director bar against Mr. Nelson, subject to court approval.

What Were Investors Told About the Investments?

Many investors purchase non-traded REITs and private real estate investments because they are marketed as:

• Income-producing investments;
• Diversified real estate holdings;
• Alternatives to stock market volatility;
• Investments capable of producing stable distributions; and
• Long-term wealth preservation vehicles.

When recommending these products, brokers and financial advisors frequently emphasize portfolio diversification, predictable cash flow, and the underlying value of real estate assets.

If investors were led to believe that a fund owned multiple hotel properties when it allegedly did not, or that distributions were generated from profitable operations when they allegedly were not, those facts may have been important to an investor’s decision to purchase or hold the investment.

Broker-Dealers Have Important Due Diligence Obligations

Broker-dealers and registered representatives have obligations under FINRA rules and industry standards when recommending alternative investments, non-traded REITs, private placements, and other illiquid securities.

These obligations generally include:

Reasonable Due Diligence

Before recommending an investment, broker-dealers are expected to conduct a reasonable investigation into the issuer, management team, business model, financial condition, and investment risks.

A firm cannot simply rely on marketing materials supplied by an issuer without conducting an independent review of the offering.

Suitability Analysis

Financial advisors must have a reasonable basis to believe an investment is suitable for a customer based upon factors such as:

• Age;
• Financial condition;
• Investment objectives;
• Liquidity needs;
• Risk tolerance;
• Net worth; and
• Investment experience.

Alternative investments such as non-traded REITs are often illiquid, complex, and speculative, making suitability review particularly important.

Accurate Disclosure of Risks

Investors should receive balanced information regarding both potential rewards and potential risks.

Material facts regarding asset ownership, financial performance, distributions, leverage, liquidity restrictions, and valuation methodologies may be critical information for investors evaluating whether to purchase a security.

Common Investor Complaints Involving Non-Traded REITs

Investors frequently report concerns involving:

• Illiquidity;
• Difficulty obtaining redemptions;
• Suspended distributions;
• Declining valuations;
• Concentration in alternative investments;
• Misrepresentations regarding safety or income;
• Unsuitable recommendations; and
• Failure of broker-dealers to conduct adequate due diligence.

Because many non-traded REITs are sold through commissioned financial advisors, investors often rely heavily upon the information provided by their broker when making investment decisions.

Signs You May Have a Potential Investment Loss Claim

You may wish to consult securities counsel if:

• You invested in American Hospitality Properties REIT I;
• You invested in American Hospitality Properties REIT II;
• Your investment was recommended by a stockbroker or financial advisor;
• You were told the investment owned numerous hotel properties;
• You were told distributions came from profits or operations;
• You were told the investment was safe, conservative, or suitable for retirees;
• You experienced losses or redemption issues; or
• You believe important risks were not adequately disclosed.

Contact Goodman & Nekvasil, P.A. for a Free Case Evaluation

The investment fraud attorneys at Goodman & Nekvasil, P.A. are reviewing potential claims involving Phoenix American Hospitality investments and related broker-dealer sales practices.

If you invested in American Hospitality Properties REIT I, American Hospitality Properties REIT II, or another Phoenix American Hospitality-sponsored investment and have concerns regarding losses, disclosures, suitability, or broker recommendations, contact Goodman & Nekvasil, P.A. for a free, confidential case evaluation.

St. Petersburg, Florida law firm Goodman & Nekvasil, P.A., has a national practice representing victimized investors.  The  firm continues to investigate brokerage firms that placed elderly retirees and other conservative investors in unsuitable investments.

Goodman & Nekvasil, P.A., has filed numerous cases against brokerage firms selling high-risk investments and has recovered more than $500 million dollars on behalf of victimized investors.

We allege in these cases that these investment recommendations were unsuitable for our clients in view of their financial situation, needs and investment objectives.

There is no charge for an evaluation of your case. We handle our cases on a contingency fee basis. This means that unless we recover money for you, we charge no attorney’s fee.

If you incurred losses on your investment and would like your case evaluated by a securities attorney, please contact us.

Some of the information in this blog post was obtained from FINRA on 6/09/26. If you believe this information was reported incorrectly, please contact our firm: 1-800-500-4442.

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