Galvin goes back for more

Mass. regulator hits IBDs with new sanctions over nontraded REITs

Sep 8, 2013 @ 12:01 am

By Bruce Kelly

Massachusetts' top securities cop William Galvin
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Massachusetts' top securities cop William Galvin (Bloomberg News)

Massachusetts securities regulators continue to bedevil independent broker-dealers over sales of nontraded real estate investment trusts.

Secretary of the Commonwealth William Galvin said last Wednesday that five broker-dealers have agreed to pay an additional $10.75 million in restitution to clients who bought nontraded REITs from 2005 to the present.

In May, the five broker-dealers agreed to pay $6.1 million in restitution and pay fines totaling $975,000 to settle complaints involving nontraded REITs. Earlier, LPL Financial LLC agreed to pay $4.8 million in restitution to clients.

IBDs on the hook

The five firms and the second round of restitution to clients include Securities America Inc., $7.6 million; Ameriprise Financial Services Inc., $1.6 million; Lincoln Financial Advisors Corp., $841,000; Commonwealth Financial Network, $534,000; and Royal Alliance Associates Inc., $125,000.

In total, the six broker-dealers have agreed to offer $21.6 million in restitution to clients over sales of nontraded REITs, and they have paid fines of close to $1.5 million.

“These investments are popular, but risky. Our investigation showed widespread problems with adherence to the firms' own policies, as well as the state rule that an investor's purchase of REITs cannot be more than 10% of that person's liquid net worth,” Mr. Galvin said in a statement.

“The matter involved 126 transactions over an eight-year period, and enhancements have already been made to our system,” Securities America spokeswoman Janine Wertheim said. “We are glad to resolve this matter.”

'Cooperated fully'

Lincoln Financial Advisors spokesman Michael Arcaro said: “We cooperated fully with the examination conducted by the Massachusetts Securities Division and we are pleased to put this matter behind us.”

Chris Reese, a spokes-man for Ameriprise, de-clined to comment.

Representatives for Commonwealth Financial and Royal Alliance weren't available.

In July, after the investigation of broker-dealer sales practices involving REITs, the Massachusetts Securities Division launched a broader inquiry into the sales of alternative investments to seniors.

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