Securities America focus of second state nontraded-REIT inquiry

B-D that was part of Massachusetts settlement is now facing questions from Pennsylvania

Mar 19, 2014 @ 1:29 pm

By Bruce Kelly

+ Zoom

Another regulator is inquiring about sales of nontraded real estate investment trusts by Securities America reps and advisers.

The Pennsylvania Department of Banking and Securities requested that Securities America Inc. provide information concerning purchases of nontraded-REIT securities by Pennsylvania residents since 2007, according to the annual report of Ladenburg Thalmann & Co. Inc., which owns Securities America and two other independent broker-dealers.

Ladenburg Thalmann “is unable to determine whether and to what extent the [Pennsylvania Department of Banking and Securities] may seek to discipline Securities America or the scope of any potential liability,” according to the report, which was released last Thursday.

A spokeswoman for Securities America, Janine Wertheim, did not immediately respond to requests for comment.

It's unclear whether Pennsylvania securities regulators, which made the request in October, are looking at nontraded-REIT sales only at Securities America or whether the state's inquiry is broader. States have different rules for the amount of alternative investments such as nontraded-REITs that brokers can sell clients. Executives from broker-dealers and nontraded-REIT sponsors have recently complained about the lack of consistency in such rules, which often are limited by an investor's net worth.

“Due to confidentiality requirements, we do not comment on” whether there is a broader request for information from other broker-dealers, said Ed Novak, spokesman for the Pennsylvania Department of Banking and Securities.

This is the second time in as many years that Securities America has faced off with a state regulator over the sale of nontraded-REITs. Last year, Securities America was one of several independent broker-dealers to reach settlements with the Massachusetts Securities Division in which they agreed to pay millions of dollars of restitution to clients who bought nontraded REITs from 2005 to 2013.

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

Securities America was fined $150,000 by Massachusetts and agreed to pay close to $8.4 million in restitution to clients. The Massachusetts 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,” Secretary of the Commonwealth William Galvin said last September.

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