Syndicated conservation easement investments were marketed to high-net-worth investors and accredited investors as a sophisticated, tax-advantaged strategy — a way to earn substantial charitable deductions by contributing a fractional interest in land to a qualified conservation organization. What many investors were not told is that the Internal Revenue Service (IRS) has treated these syndicated structures as abusive tax shelters since at least 2017, that courts have disallowed roughly 94% of claimed deduction values in litigated cases through 2025, and that the brokers and promoters who sold these products frequently violated federal and state securities laws in doing so.
If you purchased a syndicated conservation easement investment on the recommendation of a financial advisor or broker-dealer, you may have claims — independently and distinctly from any IRS proceeding — against the broker or promoter who sold you the investment with material misrepresentations about its tax defensibility, its appraisal, and its risk profile. Varnavides Law, PC is a Los Angeles–based securities litigation firm that represents investors in those recovery claims. Our founding attorney’s decade on the broker-dealer defense side means we understand how firms build their defenses — and where those defenses are most vulnerable.
Key Takeaways
- Syndicated conservation easements are securities: Interests in the partnerships and LLCs used to structure these deals meet the Howey test for investment contracts — meaning federal and state securities laws apply to how they were sold.
- Broker misconduct claims are separate from tax outcomes: Recovery against the broker or promoter who sold you the investment does not depend on the IRS audit outcome. It depends on what misrepresentations were made at the time of sale.
- Financial Industry Regulatory Authority (FINRA) arbitration is available: If a FINRA-registered broker-dealer recommended the investment, you may compel FINRA arbitration under FINRA Rule 12200 — even without a separate arbitration clause.
- IRS Notice 2017-10 designated syndicated conservation easements as listed transactions; T.D. 9991 (2023) is now the operative authority: This is the IRS’s highest-risk tax-shelter designation. After federal courts held that Notice 2017-10 was issued without the APA’s required notice-and-comment process, Treasury issued final replacement regulations (T.D. 9991, 88 Fed. Reg. 6828 (Jan. 31, 2023)) re-designating these structures as listed transactions through proper rulemaking. Courts have allowed only approximately 6% of claimed deduction values on average while imposing 40% gross valuation misstatement penalties.
- Time limits apply: FINRA Rule 12206 sets a six-year eligibility window running from the occurrence giving rise to the claim; federal securities fraud claims under 28 U.S.C. § 1658(b) must be brought within two years of discovery or five years from the violation, whichever expires first.
What Are Syndicated Conservation Easements?
A conservation easement is a legal restriction on land use, donated to a qualified conservation organization. A legitimate conservation easement restricts development on land a donor has owned for years, with an appraisal reflecting actual conservation value. The donor may claim a charitable deduction under 26 U.S.C. § 170(h) for the difference between the land’s unrestricted and restricted fair market values.
A syndicated conservation easement is a different animal. In the syndicated structure, a promoter identifies a parcel of land, forms a partnership or LLC to acquire it, sells interests in that entity to multiple investors, arranges for an inflated appraisal, and then causes the entity to donate a conservation easement on the land to a land trust — generating a large claimed charitable deduction that passes through to investors in proportion to their ownership interests. The promoter’s marketing materials typically promised investors deduction-to-investment ratios of 4:1 to 6:1 or more.
IRS Notice 2017-10 (2017) designated syndicated conservation easements as listed transactions — the IRS’s highest-risk designation for abusive tax shelters. After federal courts held that Notice 2017-10 was issued without the APA’s required notice-and-comment process (Green Valley Investors, L.L.C. v. Commissioner, 159 T.C. 9 (2022)), Treasury issued final replacement regulations (T.D. 9991, 88 Fed. Reg. 6828 (Jan. 31, 2023)) that re-designated these structures as listed transactions through proper rulemaking. T.D. 9991 is the operative authority for transactions after that date. Courts and the IRS have consistently disallowed deductions where appraisals were inflated beyond supportable fair-market values; the IRS Dirty Dozen documents the enforcement history. On average, courts have allowed approximately 6% of claimed deduction values while imposing 40% gross valuation misstatement penalties under 26 U.S.C. § 6662.
Statutory disallowance (SECURE 2.0): § 605 of the SECURE 2.0 Act (Dec. 2022) codified a 2.5× basis cap on syndicated conservation easement deductions at 26 U.S.C. § 170(h)(7), operating independently of IRS audit challenges.
Why Syndicated Conservation Easement Interests Are Securities
The threshold question for any investor-recovery claim is whether the investment constitutes a “security” — because securities laws are what creates the legal obligations brokers and promoters owe to investors. Partnership and LLC interests sold in syndicated conservation easement transactions typically satisfy the Howey test for investment contracts established in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
Under Howey, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” The four elements are: (1) an investment of money; (2) in a common enterprise; (3) with an expectation of profits; and (4) derived from the efforts of others. In a syndicated conservation easement transaction, investors contribute capital to a common entity, receive pass-through economic benefits (principally the deduction value), and depend entirely on the promoter to identify the land, arrange the appraisal, select the land trust, and document the donation — they contribute no effort themselves.
Securities registration and qualification: Syndicated conservation easement interests sold to investors are frequently unregistered securities. Registration of securities offerings is required under 15 U.S.C. § 77e (the registration requirement of the Securities Act of 1933), unless a valid exemption applies. California independently requires qualification or exemption under California Corporations Code § 25110 (the California Corporate Securities Law of 1968). Where neither federal registration nor a valid state qualification exemption applies, investors have independent civil remedies against the sellers under California Corporations Code § 25503 (civil remedy for § 25110 unregistered-securities violations) — separate from misrepresentation claims under § 25401 (prohibited fraudulent practices), whose civil remedy is provided by § 25501 (direct buyer-seller claims) or § 25504 (controlling-person and aider-abettor claims).
How These Investments Were Fraudulently Sold
Investors in syndicated conservation easements were typically approached through their financial advisors, wealth managers, or broker-dealers — not directly by the promoters. The broker’s role in the distribution chain is critical for recovery purposes: it creates independent legal obligations owed directly to the investor under FINRA Rule 2111 (suitability), Regulation Best Interest (Reg BI, 17 C.F.R. § 240.15l-1), and state securities laws.
Misrepresentations at the Point of Sale
- The tax deduction was “fully defensible” and had been cleared by legal counsel
- The appraisal was conducted by independent, IRS-compliant appraisers
- The IRS had reviewed similar transactions and not challenged them
- The investment had been used by hundreds of similarly situated investors without issue
- The charitable deduction ratio (e.g., “4:1 write-off”) was achievable and low-risk
Material Omissions at the Point of Sale
- The IRS had designated syndicated conservation easements as listed transactions (Notice 2017-10)
- Courts were systematically disallowing deductions at rates far exceeding the claimed values
- 40% gross valuation misstatement penalties applied to disallowed amounts
- The promoter and appraiser had pre-existing relationships that compromised the appraisal
- The broker received undisclosed compensation or referral fees from the promoter
- The investment was unregistered and subject to unregistered-securities risk
Claims Available to Investors: Recovery Pathways
Investors who suffered losses — whether through IRS disallowance of deductions, penalties, or the economic loss on the investment itself — may have multiple claims against the broker-dealer, registered representative, and promoter who sold the transaction. The applicable claims depend on the specific facts of each investor’s transaction and the role each defendant played.
| Claim Theory | Legal Basis | Forum | Key Elements |
|---|---|---|---|
| Broker suitability / best interest | FINRA Rule 2111 (suitability — three components); Reg BI (17 C.F.R. § 240.15l-1, best-interest obligation for retail customers) | FINRA arbitration | Recommendation was not suitable or in best interest; broker failed reasonable-basis or customer-specific diligence |
| Broker fraudulent misrepresentation | FINRA Rule 2010 (requires members to observe high standards of commercial honor and just and equitable principles of trade); FINRA Rule 2020; 15 U.S.C. § 78j(b) (§ 10(b))/17 C.F.R. § 240.10b-5 | FINRA arbitration / federal court | Untrue statement or omission of material fact; scienter; reliance; loss causation |
| California securities fraud | Cal. Corp. Code § 25401 / § 25501 | California state court / FINRA | Untrue statement or omission in connection with sale; no scienter required under § 25401 |
| Unregistered securities | Cal. Corp. Code § 25110 (prohibition); § 25503 (civil remedy for unregistered-securities violations) | California state court | Sale of unregistered/unqualified security in California without exemption |
| Failure to supervise (broker-dealer firm) | FINRA Rule 3110 | FINRA arbitration | Firm failed to establish or enforce reasonable supervisory system; representative’s misconduct resulted from that failure |
| Federal securities fraud (promoter) | 15 U.S.C. § 78j(b) (§ 10(b)); 17 C.F.R. § 240.10b-5 | Federal court (C.D. Cal., S.D.N.Y.) | Material misstatement or omission; scienter; connection with purchase/sale; reliance; economic loss |
FINRA Arbitration: The Primary Recovery Forum Against Brokers
If a FINRA-registered broker-dealer recommended the syndicated conservation easement investment, FINRA arbitration is typically the most efficient recovery forum. Under FINRA Rule 12200, a customer may compel a FINRA member or its associated persons into arbitration of any dispute arising in connection with the member’s business activities — even where no separate written arbitration clause exists.
Suitability and Best Interest Obligations
FINRA Rule 2111 imposes three discrete suitability obligations on member firms and their registered representatives: (1) reasonable-basis suitability — the product must be suitable for at least some investors, meaning the broker must conduct adequate due diligence on the product itself; (2) customer-specific suitability — the recommendation must be suitable for this particular customer based on that customer’s investment profile (age, other investments, financial situation, tax status, investment objectives, investment experience, time horizon, liquidity needs, and risk tolerance); and (3) quantitative suitability — a series of recommendations, taken together, must not be excessive in light of the customer’s profile.
Reg BI (17 C.F.R. § 240.15l-1), effective June 30, 2020, establishes four component obligations for broker-dealers serving retail customers: Disclosure, Care, Conflicts of Interest, and Compliance. Reg BI is a distinct standard from FINRA Rule 2111 suitability, which continues to apply to non-retail customers. Recommending a syndicated conservation easement that the broker knew or should have known was designated a listed abusive tax shelter, without disclosing that designation and the disallowance risk, is a straightforward failure under either suitability or best-interest frameworks.
FINRA Rule 12206: The Six-Year Eligibility Rule
FINRA Rule 12206(a) provides that no claim shall be eligible for submission to arbitration under the Customer Code where six years have elapsed from the occurrence or event giving rise to the claim. This is an eligibility rule — not a substantive statute of limitations. If a claim is dismissed under Rule 12206 because more than six years have elapsed since the transaction, that dismissal does not preclude filing in court if the applicable substantive limitations period has not yet expired. FINRA Rule 12206(c) expressly states that nothing in Rule 12206 shall extend any applicable statute of limitations.
Time limits are a critical threshold issue. The six-year FINRA eligibility period runs from the occurrence giving rise to the claim — typically the date of purchase, not the date the IRS issued an adverse determination. Federal securities claims under 28 U.S.C. § 1658(b) must be brought within two years after discovery of the facts constituting the violation, or five years after the violation, whichever expires first. California § 25401 claims have their own limitations period. Do not wait for the IRS audit to resolve before assessing your broker-misconduct claims — they may have different and earlier deadlines.
Federal Securities Claims Against Promoters
In addition to claims against the recommending broker, investors in syndicated conservation easement transactions may have federal securities fraud claims directly against the promoters, appraiser-affiliated entities, and syndicators who structured the deal.
15 U.S.C. § 78j(b) and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5) — the federal securities anti-fraud provisions — make it unlawful for any person, in connection with the purchase or sale of any security, to employ any device, scheme, or artifice to defraud; to make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made not misleading; or to engage in any act, practice, or course of business which operates as a fraud or deceit upon any person.
Conservation easement syndicates that marketed the deduction as “IRS-compliant” or “audit-proof” while knowing the IRS had designated these transactions as listed abusive tax shelters are a textbook misrepresentation-and-omission pattern. The key elements — material misstatement, scienter (knowledge or reckless disregard), connection with purchase or sale of a security, reliance, and economic loss — are generally present in cases where investors received marketing materials stating or implying IRS acceptance that the promoter knew to be false.
California Securities Law Claims
For California-based investors, state law provides additional — and in some respects more favorable — remedies. California Corporations Code § 25401 prohibits any person from offering or selling a security in California by means of any written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements made not misleading. Unlike federal § 10(b) claims, a § 25401 claim does not require proof of scienter — the investor need only show the misrepresentation or omission, not that the seller knew the statement was false.
California Corporations Code § 25501 provides the civil remedy: any person who violates § 25401 is liable to the investor for rescission (recovery of the consideration paid plus interest, less income received) or damages. Privity note: § 25501 requires a direct buyer-seller transaction between plaintiff and defendant. In many conservation easement structures, the recommending broker was not the direct seller — claims against the recommending broker typically proceed under Cal. Corp. Code § 25504, which imposes liability on controlling persons and aiders-and-abettors of § 25401/§ 25501 violations. California Corporations Code § 25110 independently prohibits the offering or sale of unregistered, unqualified securities in California. Syndicated conservation easement interests sold without proper registration or a qualifying exemption provide a standalone basis for civil liability under § 25503.
FINRA Arbitration
For claims against FINRA-registered broker-dealers and their associated persons. Typically faster and less expensive than federal court. Mandatory under FINRA Rule 12200 at investor’s election.
Federal Court (C.D. Cal. / S.D.N.Y.)
For § 10(b)/Rule 10b-5 claims against promoters, appraisers, and syndicators. Varnavides Law is admitted to federal court in the Central District of California (C.D. Cal.), the Southern District of New York (S.D.N.Y.), and the Eastern District of New York (E.D.N.Y.).
California State Court
For § 25401 / § 25501 claims (no scienter required) and § 25110 unregistered-securities claims. Also available for common-law fraud, negligent misrepresentation, and breach of fiduciary duty theories.
What Varnavides Law Does — and Does Not — Handle
Varnavides Law, PC represents investors who suffered financial losses because brokers or promoters sold them syndicated conservation easement investments with material misrepresentations or omissions — either about the IRS defensibility of the deduction, the integrity of the appraisal, the undisclosed compensation arrangements, or the registered/unregistered status of the securities.
What We Handle
- FINRA arbitration claims against broker-dealers who recommended the investment
- Federal securities fraud claims (§ 10(b)/Rule 10b-5) against promoters and syndicators
- California securities law claims (§ 25401 / § 25501; § 25110 unregistered securities)
- Common-law fraud, negligent misrepresentation, and breach of fiduciary duty claims against brokers and promoters
- Failure-to-supervise claims against broker-dealer firms under FINRA Rule 3110
What We Do Not Handle
- IRS audit defense or tax controversy representation — we are not tax attorneys
- Advice on the IRS audit outcome, tax liability, penalties, or appeals
- Estate planning, capital gains treatment, or tax-credit structuring
- Advice on the conservation land trust or the easement donation itself
Important distinction: Our firm handles investor recovery claims against the parties who sold you the investment. We do not represent you before the IRS or in Tax Court. If you are facing an IRS audit or have received a notice of deficiency, you need a tax attorney or enrolled agent for that proceeding. Our claims are against the broker, promoter, or advisor who sold you the investment — those claims proceed independently of and do not require a particular outcome in your IRS audit.
What to Expect From the FINRA Arbitration Process
FINRA arbitration for investor claims against broker-dealers generally proceeds through several stages: statement of claim, member firm answer, discovery (including document production, interrogatories, and depositions in more complex cases), hearing scheduling, the evidentiary hearing itself, and the panel award. Arbitration hearings are conducted before one or three FINRA-appointed arbitrators. For investor claims above $100,000, a three-arbitrator panel is standard. FINRA awards are typically issued within 30 days of the hearing’s close. FINRA’s published arbitration statistics show that customer cases filed annually in FINRA arbitration have consistently numbered in the thousands, with securities account disputes representing the core of the docket.
Conservation easement fraud claims typically involve discovery of the broker’s suitability analysis (or the absence of one), the firm’s due diligence records on the product, the broker’s compensation disclosures, and internal communications about IRS scrutiny of similar transactions. These fact-patterns tend to favor investors at the arbitration stage because the IRS’s published position on syndicated conservation easements provides documentary evidence that any reasonably diligent broker should have known about before making the recommendation.
Gary Varnavides — Background and Qualifications
Gary Varnavides founded Varnavides Law, PC after spending more than a decade at Sichenzia Ross Ference LLP in New York City, where he defended broker-dealers in FINRA arbitrations and securities matters. That experience informs how we build investor cases: we know what arguments broker-dealer firms make, what records they keep, and where their defense strategies are most vulnerable.
Gary is a graduate of Fordham University School of Law (J.D. 2010), where he served as Editor-in-Chief of the Fordham Journal of Corporate & Financial Law. He has been recognized as a New York Super Lawyers Rising Stars honoree (2015–2023), a distinction awarded to the top 2.5% of New York Metro attorneys. His article, “The Flawed State of Broker-Dealer Regulation,” received the IMCA Richard J. Davis Legal/Regulatory/Ethics Award. Gary is admitted to practice in California and New York, and in federal court in the Central District of California (C.D. Cal.), the Southern District of New York (S.D.N.Y.), and the Eastern District of New York (E.D.N.Y.). Varnavides Law, PC is headquartered in Los Angeles at Century City.
Frequently Asked Questions
Can I recover my investment losses even if the IRS audit has not concluded?
Yes. Your investor-recovery claims against the broker or promoter who sold you the investment are independent of the IRS audit outcome. The broker-misconduct claims center on what misrepresentations and omissions were made at the time of sale — not on what the IRS ultimately does with the deduction. In fact, waiting for the IRS audit to conclude before pursuing broker claims may forfeit your claims if the applicable limitations periods expire. We recommend consulting with us as soon as you believe a material misrepresentation was made in the sale.
What if I signed a private placement memorandum (PPM) that disclosed risks?
Disclosure in a PPM does not automatically bar investor recovery. If the PPM’s risk disclosures were so general as to be misleading — for example, acknowledging “IRS scrutiny of conservation easements” while the broker orally represented the investment as low-risk or IRS-approved — the oral misrepresentation may still be actionable. Similarly, if the broker made affirmative representations that contradicted or superseded the written disclosures, those representations may ground a separate fraud claim. This is a fact-specific analysis that requires reviewing the PPM, the subscription agreement, and all communications between you and the broker.
My broker was not a FINRA member — do I have other options?
Yes. If the investment was recommended by a registered investment adviser (RIA) rather than a FINRA broker-dealer, FINRA arbitration is not available, but you may have claims through California state court, federal court, or FINRA-independent arbitration forums. You may also have claims directly against the promoter, syndicator, or appraiser under federal and state securities law regardless of whether any FINRA member was involved. Additionally, if the RIA’s recommendation breached a fiduciary duty under the Investment Advisers Act or California law, that is an independent basis for recovery.
What is the six-year FINRA Rule 12206 eligibility period and how does it affect my claim?
FINRA Rule 12206(a) provides that no claim is eligible for submission to FINRA arbitration where six years have elapsed from the occurrence or event giving rise to the claim. This eligibility window runs from the date of the transaction (typically the purchase), not the date of IRS notice or audit determination. If more than six years have elapsed since your purchase, your FINRA arbitration claim may be ineligible — though your claims in state or federal court under the applicable substantive statutes of limitations may still be viable. FINRA Rule 12206(c) expressly states that Rule 12206 does not extend any applicable statute of limitations, meaning dismissal from FINRA for untimeliness does not preclude a court filing if the statutory period remains open. This is why time is of the essence in consulting with counsel.
Does Varnavides Law take cases on contingency?
Fee arrangements depend on the facts, claims, and scope of representation. During your consultation, the firm can discuss whether contingency, flat-fee, hourly, or another arrangement may be available for your matter. You remain responsible for case costs; your attorney will discuss the specific cost structure during your free consultation. We focus on cases involving $100,000 or more in losses, as smaller cases can be economically difficult to pursue given the costs of FINRA arbitration or litigation.
What records should I gather before consulting with an attorney?
Gather as much of the following as you can: the private placement memorandum (PPM) or offering memorandum for the investment; subscription agreement and investor questionnaire; all emails, letters, and communications with the broker or advisor who recommended the investment; account statements showing the purchase and any subsequent transactions; the appraisal report for the easement (if provided to you); any K-1 forms or partnership tax returns you received; and any IRS notices, audit correspondence, or examination letters. You do not need to have all of these before calling — even a partial record gives us enough to evaluate the core merits.
Can Varnavides Law help if the broker-dealer firm is no longer in business?
Potentially, yes. FINRA maintains the Central Registration Depository (CRD) and requires broker-dealers to participate in a dispute resolution system even after dissolution in certain circumstances. Additionally, claims may be available against the registered representative individually, against successor firms that assumed the liabilities, or against the promoter or syndicator directly. FINRA has specific procedures for claims against defunct firms; whether those procedures are available in your case depends on the firm’s current registration status and the specific facts of your transaction. We can evaluate these options during a free consultation.
Speak With a Securities Fraud Attorney About Your Conservation Easement Investment
If you purchased a syndicated conservation easement investment on the recommendation of a broker, financial advisor, or wealth manager, and you believe material misrepresentations or omissions were made in connection with that sale, Varnavides Law, PC can evaluate your recovery options. We represent investors in FINRA arbitration, federal securities litigation, and California state court claims. Serving investors across California and representing clients nationwide in FINRA arbitration.