Opinion ID: 774396
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 7 This case involves a securities class action brought against Kidder, a retail brokerage house, and Miller, a multi-faceted real-estate management, appraisal, and investment organization. App. at 35. In the early 1980s, brokerage houses began working with real estate companies, such as Miller, to offer investment opportunities. They often sought to take advantage of the booming construction markets in the south and southwest regions of the United States known as the Sunbelt. The companies formed limited partnerships, purchased Sunbelt commercial real estate, and sold interests to the general public. They marketed the investments as tax shelters, long-term capital gain opportunities, and income-producing plans. 8 In 1981, Kidder and Miller created three separate investment funds. The two companies formed wholly owned subsidiaries to serve as general partners for the funds, and then sold limited partnerships to the public. The plan was to acquire commercial real estate properties in the Sunbelt, collect rental income (thus providing a steady, but modest, income stream for investors), and eventually sell the properties six to ten years later and collect substantial capital gains. The bulk of the return for investors was to come from appreciation in the properties. 9 Kidder prepared and distributed to its brokers a prospectus, sales information, a videotape, and other reference materials describing the first investment fund. 1 In May 1992, Kidder began selling limited partnership units in that fund. By May 1986, it had sold units in all three funds to more than six thousand investors and raised approximately eighty-four million dollars. The funds purchased properties in Texas, Florida, Georgia, New Mexico, Arizona, Arkansas, and Illinois. 10 The crux of the Appellants' claims is that Kidder fraudulently suggested that the funds were low-risk, conservative investments suitable for low net-worth individuals. The Appellants believe that Kidder specifically targeted unsophisticated investors, intentionally misled them about the nature of the funds, and charged excessive fees and commissions. These acts allegedly constituted violations of the federal securities laws, 2 wire fraud, 18 U.S.C. S 1343, mail fraud, 18 U.S.C. S 1341, and RICO violations. 11 Furthermore, the Appellants claim that Kidder conducted inadequate due diligence in choosing commercial real estate investments. As a result, at least in part, fund properties lost many of their key tenants, and quarterly distributions (to limited partners) fell to only a few dollars per unit. Additional economic factors also weakened the Sunbelt real estate market as a whole, 3 and the value of the funds' investments plunged. Nonetheless, the Appellants claim that Kidder intentionally lulled [them] into a false sense of security that `things would probably work out and substantial losses would be avoided.'  App. at 39. 12 Economic conditions did not improve. By August 1991, Funds I and II had stopped paying quarterly distributions. In April 1992, Kidder informed investors that conditions were unlikely to rebound, and therefore it was initiating an exit strategy. App. at 40. By 1994, all three funds had announced their intention to liquidate, which they accomplished between February and November of 1997.