Dept. of Financial Institutions





Dept. of Financial Institutions order #S-10-047-10-SC01



Specifics:        A member of an LLC that owned a building in Seattle was unhappy about the fact that their investment had not created any return and that they were being asked to make capital contributions to cover income shortfalls.  The membership shares were sold in 2006.  The value of each building was based on an income approach to value and a cap rate determined by comparable sales in the area at that time.  The state questioned the disparity between the tax assessed value of the building and the value stated in the offering.



Due to the lending crisis beginning in 2008 the value of the building did not increase as members would have liked.  All but one seemed to understand that the entire country was experiencing this downturn and that real estate values across the country were declining.  Mr. Pinneo did not mastermind a global lending crisis and the members and Greg himself all felt the effect of current conditions.  Greg himself maintained an ownership interest in all of the LLC’s and was as effected as any of the members by capital calls, falling equity position, etc. The membership agreement for each LLC was drafted by an independent attorney and each member was encouraged to seek their own legal and appraisal counsel.



Greg was approached by one of the members wanting to sell their membership share.  Rather than follow the guidelines as set forth in the membership agreement, this member delivered an ultimatum to Mr. Pinneo; either pay back what I paid for my membership share plus 8% or I will “raise Holy Hell.”   As this is nothing short of blackmail, Greg did not give in to their demands and they subsequently followed through and wrote a letter to the Department of Financial Institutions.   As a result, the Dept. of Financial Institutions is required to look into the matter and spell out their findings of fact. 



The state’s tentative findings of fact determined that the selling of shares in the LLC’s constitutes a “securities offering” and therefore needed to be registered as such with the state.  Not registering a security constitutes a violation of RCW 21.20.005 & RCW 21.20.140



Relevant Links:            At the DFI homepage enter the order #S-10-047-10-SC01 into the Search box.  See also:


Lessons Learned:   On average, real estate values across the country had declined 27% with cities such as San Bernadino/Riverside, CA experiencing a 39.4% fall in home values.  I’m not sure who exactly these homeowners should blackmail over the fact that their homes have dropped in value but the idea of it is equally absurd.  And perhaps there should be a referendum stating that everybody who made money on a real estate transaction prior to 2008 should return the money to the buyer because certainly the property isn’t worth today what it was worth in 2008. 



Bottom line is we’re all in this together and people who want to point the finger and hold other people responsible when things don’t go exactly as they would like them to have much to learn about strength, responsibility and personal choice. 



This issue resulted in a nominal fine to help cover the costs of the investigation. The case has been closed.