Ameriprise Financial Services Inc. of Minneapolis has agreed to pay $17.3 million to settle charges that it received nearly $31 million in undisclosed compensation for selling its brokerage customers real estate investment trusts between 2000 and 2004, the Securities and Exchange Commission announced today.
“Ameriprise demanded and received so-called revenue sharing payments related to its sales of real estate investment trusts and failed to disclose the payments as required,” the SEC said in a release.
The REITs involved were issued by CNL Financial Group Inc. of Orlando, Fla. and W.P. Carey & Co. LLC of New York.
Ameriprise sold more than $3.5 billion worth of shares of the REITs to its brokerage customers without disclosing the payments, the SEC said in the administrative proceeding, filed today.
Under the revenue-sharing arrangements, Ameriprise received undisclosed payments of $21.1 million from the CNL REITs and $9.7 million from the Carey REITs, the SEC said. The payments were made in addition to standard sales commissions, dealer fees, expense reimbursements and other fees that Ameriprise disclosed that it had received for distributing the REITs, the SEC said.
A portion of the revenue-sharing payments made to Ameriprise, when added to other payments it received, caused some of the Carey REITs to exceed the 10% cap on broker-dealer compensation required under the rules of the
Financial Industry Regulatory Authority Inc. of Washington and New York.
In addition to failing to disclose to investors that additional payments were being made for selling
REIT shares, the SEC order found that Ameriprise issued invoices for the REITs that were mislabeled as “account maintenance” fees as a means of collecting the undisclosed revenue-sharing payments.
Ameriprise was responsible for selling more than 75% of the shares of the two companies' REITs and was the only major broker-dealer to offer the securities, the SEC said in the administrative proceeding.
Ameriprise also sold more than $100 million of one of the Carey REITs before it was registered, which was in violation of the registration provisions of federal securities laws, the SEC said.
“Few things are more important to investors than getting unbiased advice from their financial advisers,” Robert Khuzami, the SEC's director of enforcement, said in the release.
“Ameriprise customers were not informed about the incentives its brokers had to sell these investments.”
The SEC censured Ameriprise and ordered it to cease and desist from violating securities laws, and it ordered the company to pay $17.3 million in disgorgement and financial penalties.
Ameriprise consented to the order without admitting or denying the findings.
“This is a very old case that hinged on issues of revenue-sharing disclosure that ended in early 2004,” Ameriprise spokesman Paul Johnson said.
“We long ago expanded our disclosures to ensure that our clients received the information from us directly as well as through the prospectus of the product issuer, he said.
The SEC investigation continues.
