Las Vegas-based real estate investor Michael Shustek is again in hot water with financial regulators.
The Financial Industry Regulatory Authority is investigating whether Shustek’s brokerage violated federal securities laws or the authority’s rules when it raised money from investors from 2012 to 2017, according to a Securities and Exchange Commission filing Friday.
Shustek raised about $180 million from investors for MVP REIT I and MVP REIT II, real estate investment trusts set up to buy and lease parking and storage properties across the United States. Shustek merged the two companies last year into The Parking REIT.
The authority has not specified what laws Shustek and his brokerage MVP American Securities may have violated.
However, FINRA has inquired about how much his brokerage and other brokerages pocketed from selling shares in the parking REITs. The regulator also wants to know how much was spent to organize the share placement, such as traveling and marketing expenses, the filing said.
“The FINRA investigation is continuing, and [The Parking REIT] cannot predict its outcome. However, it is possible that FINRA will seek to impose penalties on [MVP American Securities] and/or its registered principals,’’ the filing stated.
Shustek did not return a message left at his office or reply to an email sent to his work account.
Shustek initially responded to the FINRA inquiry with inaccurate compensation information, according to the filing. He also supplied inaccurate personal financial information to banks when applying for loans for The Parking REIT, the filing said.
An unnamed company employee informed The Parking REIT’s audit committee in February that inaccurate information had been sent to the regulator. Shustek’s brokerage withdrew its FINRA registration shortly thereafter, and at least four salespeople left.
The audit committee conducted an investigation and found that “Shustek did not exercise proper judgment and appropriate oversight in connection with the initial submission of underwriting compensation information,’’ according to the filing.
To improve financial transparency, the board of The Parking REIT subsequently required that the chief financial officer report directly to it. Shustek then fired CFO Edwin Bentzen IV and named his son-in-law Brandon Welch to succeed Bentzen. Welch is also a drag race car driver.
Bentzen’s severance package included a $50,000 payment and a “mutual release of all claims.” Bentzen did not respond to a request for comment.
Allen Wolff, a board member of The Parking REIT, stepped down following the investigation, citing disagreements over strategy with Shustek, according to an SEC filing May 3. The company said in the filing that Wolff did not want Shustek to serve as both CEO and chairman of the board. Wolff declined to comment on his resignation.
William Wells, the former head of RSM audit business in Las Vegas, replaced Wolff on the board in May. Other current board members are Robert Aalberts, a former UNLV law professor; David Chavez, a former auditor and now a consultant; Shawn Nelson, who is running for Congress from Orange County, California; Nicholas Nilsen, a retired PNC Financial banker; Eric Hart, an attorney from California; and John Dawson, a lawyer and brother of federal Judge Kent Dawson.
John Dawson, who specializes in trust law, is the registered agent for a Shustek family trust, according to the Nevada secretary of state’s website. Dawson’s ex-wife Shannon Haddow Gibson was chief compliance officer of MVP American Securities and was responsible for ensuring its employees follow broker rules and regulations.
The FINRA investigation follows a critical report issued in April 2017 by Craig McCann of Securities Litigation and Consulting Group in Washington, D.C.
McCann, a former SEC economist known for his investigative work on REITs, studied Shustek’s funds and identified “abusive” transactions Shustek carried out with his former business partner Lance Bradford.
McCann highlighted the fact that Shustek’s funds and Bradford’s property companies bought and sold the same six Las Vegas commercial buildings three times between 2013 and 2016. The third transaction resulted in a $9.2 million loss for investors in Shustek’s two Vestin funds, excluding commissions and closing costs, the report stated. Shustek created Vestin Mortgage Realty I and II funds in the 2000s to invest in mortgages.
“Repeatedly selling the six buildings makes little economic sense, and looks more like a shell game than transactions with economic substance,’’ McCann wrote in his report.
He questioned how the funds could lose money when property values were rising in Las Vegas.
At the same time the six properties were being traded, Shustek outsourced his funds’ bookkeeping and tax preparation needs to LLB CPA, an accounting firm managed by Bradford.
According to Friday’s SEC filing, Bradford’s accounting firm made a gross mistake in the 2013 tax filing for one of Shustek’s funds.
The filing claims Bradford’s firm changed data without authorization. Bradford did not return repeated calls to his office.
Bradford’s accounting firm had its license revoked by the Public Company Accounting Oversight Board, the audit industry’s watchdog, in 2015 for multiple violations.
Two auditors who were reprimanded — Eric Bullinger and Dustin Lewis — were employed at one time as CFOs of Shustek’s funds.
The FBI raided Bradford’s firm — which was located in the same building as Shustek’s office — in February 2016 amid an investigation into whether one of his workers paid a bribe to steer a government contract.
Federal prosecutors last year charged Lewis with paying Bureau of Land Management official Fredrick Leavitt $200,000. Leavitt had been a director at Shustek’s funds for many years.
A criminal and civil investigation is continuing into Lewis, Leavitt and Bradford’s auditing firm, and it could impact Shustek and his companies, according to the SEC filing.
“No individual currently associated with the Company, the Advisor or their affiliates has been notified that they are targets or subjects of any such investigation. However, we can give no assurances regarding the future course of the investigation,” the filing stated.
Shustek, a UNLV graduate, has come under regulatory scrutiny before.
In 1999 the Nevada Financial Institutions Division investigated him for potential securities violations while running Del Mar Mortgage. He paid a $50,000 fine but admitted no wrongdoing. Within months he hired Michael Whiteaker, one of the division’s top investigators, as vice president for regulatory affairs. Whiteaker still works for Shustek.
In the early 2000s, Shustek launched the Vestin real estate funds to invest in high-risk commercial property mortgages his own company arranged. He raised more than $530 million from retail investors, making his company one of the largest mortgage players on the West Coast.
The SEC investigated his company and fined him $100,000 in 2006 for using a slide with misleading information in his presentation to retail investors. The SEC suspended him from working with any brokerages for six months.
The Vestin funds had $22 million in equity left as of March 30, SEC filings show. The funds have lost nearly $180 million since their founding. Shustek still earns $1.4 million a year to manage them.
According to Shustek’s biography, he has been a guest lecturer on real estate law and ethics at UNLV.