Wolper Law Firm, P.A. is Pursuing Recovery Options for Investors that were Sold Syndicated Conservation Easements Through Patrick Capital Markets

• December 16, 2024
• Patrick Capital Markets

The Wolper Law Firm represents investors around the country who have lost money in syndicated conservation easement transactions.  Syndicated conservation easements have been under tremendous IRS scrutiny over the last several years.  The IRS has almost uniformly labeled syndicated conservation easements as sham transactions and denied the claimed deductions, resulting in a loss of investment principal, payment of back taxes, fines and interest.  Patrick Capital Markets is one of the FINRA member brokerage firms that participated in the sale of Syndicated conservation easements to its customers.

 

If you have been sold a Syndicated conservation easements, and the characteristics and risks of the strategy were not fully disclosed, please contact the Wolper Law Firm at (800) 931-8452 or by email at mwolper@wolperlawfirm.com for a free, confidential consultation to discuss your legal options.

 

What are Syndicated Conservation Easements

 

A conservation easement is a securitized corporate structure that owns real estate with a unique habitat or ecosystem.  The landowner sells the right to develop that land in exchange for favorable tax deductions that can be secured only if the land is deemed to have a “conservation purpose.”   In theory, the expense of protecting the land is absorbed by private citizens instead of the government and there is less development and impact to the ecosystem, which makes the investment socially conscious.  While conservation easements are not new, as with everything, when Wall Street gets involved, the rules may get bent and broken.

 

Over the last six (6) years, syndicated conservation easements have become a profit center for small and mid-size brokerage firms, like Patrick Capital Markets.  Opportunistic brokerage firms around the country have marketed and sold conservation easements to retail clients as a means to achieve meaningful tax savings.  In some instances, brokerage firms have affiliated “tax savings” companies that they work with to identify, securitize, manage, market and sell conservation easements to retail clients so that they can profit on all sides of the transaction.  The problem is that many of the properties underlying the syndicated conservation easements are not unique in any way, shape or form.  They are run-of-the-mill properties that financial industry professionals are acquiring and, almost overnight, artificially inflating the value in order to support the sale of bogus tax deductions to retail clients.

 

The IRS, Department of Justice and Congress have all taken notice.  In December 2016, the IRS issued Notice 2017-10, stating that the “Department of Treasury and the Internal Revenue Service are aware that some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested…This notice also alerts persons involved with these transactions that certain responsibilities may arise from their investment.”  The IRS further stated that “promoters obtain an appraisal that purports to be a qualified appraisal…but that greatly inflates the value of the conservation easement based on unreasonable conclusions about the development potential of the real property.”   

 

In November 2019, the Internal Revenue Service (IRS) issued a warning that it was “increasing its enforcement actions for syndicated conservation easement transactions” and have been consistently denying the value of tax deductions claimed by the investment structure that purchased the rights for the conservation easement.  The IRS further stated that it would not “stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of artificial, highly inflated deductions based on these aggressive transactions.”  In making this pronouncement, conservation easements were added to the IRS’ “dirty dozen” list of offensive tax scams.

 

The IRS has taken this position for two primary reasons.  One, the land underlying many of the conservation easements do not have a true “conservation purpose.”  Two, even if the property has a conservation purpose, syndicators of these products are claiming diminution in value to the property caused by the conservation easement to be astronomically higher than is objectively reasonable.  Put simply, the IRS has sent a clear message that it will not allow financial or tax professionals to create investment products that encourage or facilitate inflated tax deductions.

 

In December 2018, the United States Department of Justice commenced an action against Ecovest Capital, Inc., the largest syndicator of conservation easements in the country.  This was a watershed event because it put purveyors of these products on notice that the U.S. federal government was willing to go the distance.  It had no impact on Respondents, who continued to sell syndicated conservation easements.

 

Since 2021, the IRS has audited nearly all of these transactions and denied the deductions.  In many of the offerings, the IRS has concluded that the appraisal is “fatally flawed and cannot be used to make reliable and appropriate financial, investment, business and/or regulatory transactions” and  “relies on misleading data,” “there were “errors in presented data,” and a “lack of meaningful analysis” leading to “performance projections [that] are not realistic or reasonable.”  In fact, many industry participants, including appraisers and syndicators, have been criminally charged.

 

As a result of the IRS denying the claimed deductions, investors are required to repay all back taxes along with hefty fines and interest.  Investors may also lose their entire principal investment.

 

Patrick Capital Markets

 

Patrick Capital Markets is a FINRA member brokerage firm with its headquarters located in St. Louis, Missouri.  Patrick Capital Markets holds itself out to the general public as a provider of “alternative possibilities” that offers “managing dealer services” to many investment companies seeking to raise capital.  Syndicated conservation easements are one of the business lines for Patrick Capital Markets.  Patrick Capital Markets also offers Delaware Statutory Trusts (DST) and other private placements. Among the syndicated conservation easements and other high risk private placements offered through Patrick Capital Markets are the following:

 

• Camden Cove Partners, LLC
• River Birch Investments, LLC
• Hollow Oak Partners, LLC
• Jake Hollow Investment Fund, LLC
• Cedar Grove Investments, LLC
• Liberty Grove Partners, LLC
• Bear Creek Investment Holdings, LLC
• Massey Creek Partners, LLC
• Magnolia Heights Partners, LLC
• Birch Terrace Partners, LLC
• Red Angus Solar Investors, LLC
• Wood Duck Energy Opportunity Fund, LLC
• Mill Creek Investors, LLC
• Wayside Hill Partners, LLC
• Charolais Solar Investments, LLC
• Salem Bend Partners, LLC
• Bear Mountain Partners, LLC

 

Prior to recommending a private placement investment to retail investors, like a syndicated conservation easement, FINRA requires that the brokerage firm first conduct extensive due diligence.  FINRA Notice to Members 10-22 “reminds broker-dealers of their obligation to conduct a reasonable investigation of the issuer and the securities they recommended in offerings.”  “A BD ‘may not rely blindly upon the issuer for information concerning a company, nor may it rely on the information provided by the issuer and its counsel in lieu of conducting its own reasonable investigation…firms are required to exercise a ‘high degree of care’ in investigating and independently verifying an issuer’s representations and claims.”  FINRA NTM 10-22 requires that “broker-dealers…conduct a reasonable investigation of the issuer and the securities they recommend…”  “When presented with red flags, the BD must do more than simply rely upon representations by issuer’s management, the disclosure in an offering document or even a due diligence report of issuer’s counsel.”   Many brokerage firms fall short in their due diligence obligations.

 

If you were placed into a syndicated conservation easement by Patrick Capital Markets or another brokerage firm, and the IRS has denied the claimed deduction, contact the Wolper Law Firm, P.A. for a free consultation, to discuss available options for recovery.

 

The Wolper Law Firm, P.A. Offers Free Consultations

 

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled more than 1,000 securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.