State subpoenas 15 brokerages over sales of alternatives

Regulators in Massachusetts want info on products sold to seniors; 'accidents waiting to happen'

Jul 10, 2013 @ 3:58 pm

By Dan Jamieson

William Galvin
+ Zoom
Galvin: Untrained agents, unsophisticated investors

Massachusetts has begun a sweep investigation of 15 brokerage firms, looking at sales practices involving alternative investments sold to seniors.

The targeted firms are: Morgan Stanley, Merrill Lynch, UBS Securities LLC, Fidelity Brokerage Services LLC, Charles Schwab & Co. Inc., Wells Fargo Advisors, TD Ameritrade Inc., ING Financial Partners Inc., LPL Financial LLC, Commonwealth Financial Network, MML Investor Services LLC, Investors Capital Corp., Signator Investors Inc., Meyers Associates LP, and WFG Investments Inc.

The state's securities division today sent subpoenas to the firms, asking for information on sales of the products to state residents who are 65 or over. Nontraditional investments include oil and gas partnerships, private placements, structured products, hedge funds and tenant-in-common offerings.

Massachusetts demanded information on any such products that have been sold over the past year, the investors who purchased them, the commissions generated, how the sales were reviewed, and all relevant compliance, training and marketing materials.

The firms were told to respond by July 24.

Being on the list of targeted firms does not indicate wrongdoing, the state said in a news release.

Nontraded REITs are not part of the information request.

Massachusetts has already cracked down on a number of firms for alleged improper sales of nontraded REITs. In May, it settled REIT cases with Ameriprise Financial Services Inc., Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates Inc. and Securities America Inc. The five firms agreed to pay a total of $6.1 million in restitution to investors, and fines totaling $975,000.

Separately, in February, Massachusetts reached a settlement with LPL Financial to pay at least $2 million in restitution and $500,000 in fines related to the sale of nontraded REITs.

The REIT investigations “heightened my concern that the senior marketplace is being targeted for the sales of these high-risk, esoteric products,” Massachusetts Secretary of the Commonwealth William F. Galvin said in a statement today.

“While these products are not unsuitable in and of themselves, they are accidents waiting to happen when they are sold to inexperienced investors by untrained agents who push the products to score … large commissions.”

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