Five IBDs in $7M settlement over nontraded-REIT sales

Galvin's tally for investors this year tops $11M, fines reach $1.4M

May 22, 2013 @ 10:41 am

By Bruce Kelly

Sales of nontraded real estate investment trusts have again come under the scrutiny of securities regulators as William Galvin, the secretary of the Commonwealth of Massachusetts, today announced settlements with five leading independent broker-dealers to make $6.1 million in restitution to investors and pay fines totaling $975,000.

The five firms are Ameriprise Financial Services Inc., with $2.6 million in restitution and a fine of $400,000; Commonwealth Financial Network, which will pay $2.1 million in restitution and a $300,000 fine; Royal Alliance Associates Inc., which will pay $59,000 in restitution and a $25,000; Securities America Inc., paying $778,000 in restitution and a $150,000 fine; and Lincoln Financial Advisors Corp., paying $504,000 in restitution and a $100,000 fine.

“Our investigation into the sales of REITs, triggered by investor complaints, showed a pattern of impropriety on the sales of these popular but risky investments on the part of independent brokerage firms where supervision has historically been difficult to monitor,” Mr. Galvin said in a statement.

“We're pleased to resolve this matter, which affected only a small number of transactions during the 2006-2008 time period," an Ameriprise spokesperson said in an emailed statement. "During this entire period, Ameriprise's compliance manuals and training materials included specific provisions about state-specific suitability requirements like those in Massachusetts."

It is the Massachusetts Securities Division's second settlement this year with a leading independent broker-dealer over the sale of nontraded REITs, a $10 billion-per-year industry. In February, Mr. Galvin reached a settlement with LPL Financial LLC to pay at least $2 million in restitution and $500,000 in fines over the sale of nontraded REITs.

In total this year, Mr. Galvin has garnered more than $11 million in restitution for Massachusetts investors and levied $1.4 million in fines from independent broker-dealers, practically the only securities firms that sell nontraded REITS.

“We have enhanced our procedures for monitoring these transactions and are pleased to have resolved this matter,” said Janine Wertheim, president of Securities America Advisors Inc. and chief marketing officer of Securities America Inc. Paul Tolley, chief compliance officer at Commonwealth Financial Network said the settlement involved 42 transactions over a six year period. He said the firm continually reviews and updates its policies and procedures to meet state, federal and other regulations. Lincoln Financial Advisors “has accepted the factual findings of the review, including the inadvertent approval of sales that exceeded the Massachusetts prospectus requirement,” said company spokesman Michael Arcaro. “ As part of the agreement, LFA will also offer to repurchase shares from the eight clients it currently knows are affected by the matter.

“The enforcement section's investigation revealed significant and widespread problems with the firms' compliance with their own policies, practices and procedures rules and adherence with Massachusetts prospectus requirements leaving investors often trapped in illiquid and underperforming financial products,” according to a statement by the Massachusetts Securities Division.


What do you think?

View comments

Recommended next


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print