Galvin's tally for investors this year tops $11M, fines reach $1.4M
Sales of nontraded real estate investment trusts once again have come under the scrutiny of securities regulators as William Galvin, the secretary of the Commonwealth of Massachusetts, last week 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., Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates Inc. and Securities America Inc.
“Our investigation into the sales of REITs, triggered by investor complaints, showed a pattern of impropriety in 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 2006-08 time period,” Ameriprise spokesman Chris Reese wrote in an e-mailed statement. “During this entire period, Ameri-prise'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-a-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 related to the sale of nontraded REITs.
This year, he has garnered more than $11 million in restitution for Massachusetts investors and levied $1.4 million in fines on 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.
42 TRANSACTIONS
The settlement involved 42 transactions over a six-year period, said Paul Tolley, chief compliance officer at Commonwealth Financial Network.
The firm continually reviews and updates its policies and procedures to meet state, federal and other regulations, he said.
Lincoln Financial Advisors “has accepted the factual findings of the review, including the inadvertent approval of sales that exceeded the Massachusetts prospectus requirement,” company spokesman Michael Arcaro said.
“As part of the agreement, LFA will also offer to repurchase shares from the eight clients it currently knows are affected by the matter,” he said.
“The enforcement section's investigation revealed significant and widespread problems with the firms' compliance with their own policies, practices and procedures, and adherence with Massachusetts prospectus requirements, leaving in-vestors often trapped in illiquid and underperforming financial products,” according to a statement by the Massachusetts Securities Division.
