LPL ordered to pay $2M in restitution

Massachusetts Securities Division seeks payment to investors who bought shares of nontraded real estate investment trusts

Feb 10, 2013 @ 12:01 am

By Bruce Kelly

LPL Financial LLC was hit with an order last week by the Massachusetts Securities Division to pay restitution of more than $2 million to investors who bought shares of nontraded real estate investment trusts.

Massachusetts regulators also hit LPL with a $500,000 administrative fine over the matter, which involved investors who bought shares of several different nontraded REITs in violation of state limitations, and the company's own rules and procedures.

LPL also has agreed to review all nontraded REITs sold in Massachusetts, and offered to make restitution to all other investors who bought the securities in violation of state limits or company rules.

“LPL worked cooperatively with the Commonwealth of Massachusetts to appropriately resolve all of the issues raised, and we are glad to put this matter behind us,” company spokeswoman Betsy Weinberger said. “Under the terms of the consent agreement, certain customers, at their discretion, will have an opportunity to sell their shares of nontraded REITs to LPL or its designee for the price they originally paid.”

LPL Financial and Ameriprise Financial Inc. are the two biggest sellers of nontraded REITs, accounting for almost 20% of the industry's annual sales of $10 billion. Regulators recently put the nontraded REITs on close watch, as a number of the largest REITs have suffered sharp devaluations.

When asked on a conference call with investors and analysts last Wednesday if the company expects that other states will examine the firm's REIT sales, LPL chief executive Mark Casady said: “We will work with any state that may raise an issue,” as well with the Financial Industry Regulatory Authority Inc.

TRAINING AND OVERSIGHT

In its consent order with Massachusetts regulators, LPL admitted to a series of statements of fact around sale of the REITs but neither admitted nor denied allegations of insufficient training and oversight of sales of nontraded REITs, as well as alleged violations of securities laws.

According to the statement-of-fact section of the order, between 2006 and 2009, LPL reps sold nontraded REITs in excess of Massachusetts' maximum-concentration limits imposed by the prospectuses of REITs for 33 residents.

Last summer, the firm began tightening its policies around such REIT sales after being contacted by Massachusetts regulators.

bkelly@investmentnews.com Twitter: @bdnewsguy

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