Major Timeshare Developer Sued for Alleged Violation of Securities Act of 1933

Major Timeshare Developer Sued for Alleged Violation of Securities Act of 1933

Las Vegas, NV (February 12, 2018)
-by staff
On Friday, February 9, 2018, the Las Vegas-based law firm of Albright, Stoddard, Warnick & Albright filed in the U.S. District Court Of Nevada a proposed class action lawsuit against Diamond Resorts International, Inc.* and other Defendants alleging that by selling points-based timeshare memberships in the way that they are presented to the Plaintiffs, Diamond is essentially selling investments that are not, as required by law, registered as securities.The complaint was filed on behalf of plaintiffs Joseph M. Dropp, Mary E. Dropp, Robert Levine, Susan Levine, and Kaarina Pakka, all of whom own various numbers of “points” they purchased from Diamond.According to the complaint the issue is that the manner in which the points are sold by Diamond representatives causes them to be considered unregistered securities and by law the sale of unregistered securities is in violation of Section 5(a), 5(c), 12(a)(1) and 15(a) of the Securities Act of 1933, which requires that any securities sold within the United States be registered with the United States Securities and Exchange Commission.To back up that claim, the plaintiffs’ attorneys assert that Diamond salespeople – under Diamond’s leadership and training – sold the points as more than just a way of vacationing but as an investment that would appreciate in value due to continuing improvements made by the company in the quality and number of its resorts and hotel properties, the general appreciation of real estate in the future and the managerial skill with which Diamond operates the properties it holds in its Collections.Diamond salespeople allegedly tell their sales guests that by purchasing points “now,” the purchasers will receive a discounted purchase price that is only available on the day of the sales presentation; that they are investing in their future; that their points will increase in value; that they can use their points to pay annual maintenance fees; and that they can sell their points – at a profit – at any time. Thus, these “points”,as alleged in the complaint, are actually investment contracts, and therefore securities, under the United States securities laws.Additionally, the complaint asserts those sales representations regarding the investment value of the points are false; that DRI points do not increase in value, there is no viable secondary market for them and DRI severely restricts the resale of points.Says the complaint:Defendants are selling purchaser investment contracts, and hence securities, even if they are no explicitly described as such and even though the written contracts contradict in part the promises of the sales pitches. Defendants have not followed the registration requirements under the securities laws and SEC regulations, and thus, they have violated and are in continuing violation of the Securities Act of 1933.DRI purports to be in the vacation business, but in reality, it is in the investment business – specifically, the business of selling unregistered, illiquid securities in the form of exchange pools of “points”, using high pressure sales techniques. DRI sells its “points”as an “investment,” when, in reality, all the “points” provide (other than an opportunity to try to book rooms at resorts and hotels, which can be done without purchasing points) is a source of debt for DRI’s investor-members, who must pay onerous maintenance fees and/or borrow money from a DRI affiliate in order to own and continue to own those points.The plaintiffs are asking for compensatory damages, including interest; reasonable costs and expenses, including counsel fees and expert fees; injunctive relief prohibiting defendants from continuing to market and sell unregistered securities, the right to rescind their purchases of points/memberships in order to get their money back and any other relief the court may deem appropriate.
Dropp et al v. Diamond Resorts International, Inc. et al
Filed: February 9, 2018
Case Number: 2:2018cv00247

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