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Massachusetts reaches $ 9.6 million REIT settlement with bro

by kraju

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Sales of non traded real estate investment trusts (REIT’s) have again come under the scrutiny of security regulators as Massachusetts Secretary of the Commonwealth, William Galvin said complaints from investors lead to an investigation which revealed “a pattern of impropriety in the sales of these popular, but risky investments on the part of independent brokerage firms where supervision has been difficult to maintain”. The firms include Ameriprise Financial Services, the broker dealer arm of American Financial Inc., Commonwealth Financial Network, Royal Alliance Associates, Securities America and Lincoln Financial Advisors Corp. In February, Galvin’s office settled a similar matter with LPL Financial Holdings Inc, which allegedly failed to supervise its brokers who sold non traded REIT’s. LPL had paid a total of $ 5 million as penalty to the regulatory authority, which also included $ 2.6 million in restitution. Restitution payments are an attempt to restore a person to a previous financial condition that should have persisted to save for the improper actions of another person or entity. These payments are usually paid according to a schedule dictated by the court. Ameriprise, which is also involved in the discrepancy, admitted to the fault. A media release from Ameriprise Financial Services said “We’re pleased to solve this matter, which affected only a small number of transactions between 2006-2008”. It has now implemented the centralized system to review the transactions. Janine Wertheim, senior vice president for Securities America, said in a statement that “We have enhanced our procedures for monitoring these types of transactions and are please to resolve this matter” What are REIT’s?

Real Estate Investment Trusts sells like a stock on the major stock exchanges and invests in real estate directly, either through properties or mortgages. REIT’s receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Non Traded REITs are a form of real estate investment that is designed to reduce or eliminate tax while providing returns on real estate. A non traded REIT does not trade on a securities exchange, and because of this is quite illiquid for long period of time. REIT’s invest in commercial real estate, such as hotels and strip malls, allowing investors to profit from rising property values.

Ameriprise Financial Services were fined $ 2.6 million in restitution and a fine of $ 400,000. Commonwealth Financial Network will have to pay $ 2.1 million in restitution and a penalty of $ 300,000. Royal Alliance Associates will have to shell out $ 59,000 as restitution and a penalty of $ 25,000. Securities America Inc, will be paying a fine of $ 150,000 dollars and a restitution fee of $ 778,000 dollars. Lincoln Financial Advisors Firm shall pay a penalty of $ 100,000 dollars and a restitution of $ 504,000.

An Investigation conducted by Massachusetts Security Division revealed significant and widespread problems with firms compliance with their own policies, procedures and other rules adhering to the Massachusetts prospectus requirements which leaves investors trapped in illiquid and underperforming financial products. Chief Compliance Officer of Massachusetts, Paul Trolley said the settlement related to 42 transactions over a six year period. He also said that “The order has settled the associated claims and we continue to take seriously our responsibility to protect investor’s interests.” The commonwealth maintains a strong culture of compliance and continually reviews and updates its policies and procedures to ensure it aligns with state, federal and other regulations designed to protect the investors.

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