More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
On Tuesday, FINRA announced that it had levied a $300,000 fine on Wells Investment Securities for what the regulator said were “misleading marketing materials” distributed by the firm from 2007 through 2009 related to the Wells Timberland REIT Inc. non-traded real estate investment trust.
In its finding, to which (as is usual in such cases) Wells neither admitted nor denied the charges, FINRA said that from May 2007 to September 2009 the firm reviewed, approved and distributed 116 advertising and sales pieces. Among the “misleading, unwarranted and exaggerated statements” in those pieces, said FINRA, was an initial offering prospectus for the REIT that misstated its tax year qualification date, which suggested that Wells Timberland was a REIT when in fact it had not qualified as a REIT, meaning it did not qualify for certain tax benefits offered by such vehicles.
In addition, the materials contained misleading statements, FINRA found, regarding Wells Timberland's “portfolio diversification and ability to make distributions and redemptions.”
In a statement released to the media, Wells wrote that "these proceedings were not related to any misuse of investor funds, nor were they a result of complaints received from Wells investors." Further, the statement notes that Wells "takes this and all regulatory matters seriously and has cooperated to its fullest extent to address the issues raised by FINRA," that the advertising materials in question "had been properly filed" with the SEC, and in addition that "certain of the materials were filed with FINRA."
In a statement accompanying the FINRA announcement, FINRA’s chief of enforcement, Brad Bennett, said that by releasing materials to
Finally, FINRA found that Wells failed to have supervisory procedures and adequate encryption techniques in place that would protect “sensitive customer and proprietary information stored on laptops.”
Wells Investment Securities is part of Wells Real Estate Funds Inc., which is led by its colorful founder and president, Leo Wells (left). According to Wells Timberland REIT Inc.’s latest 10K filing with the Securities and Exchange Commission, the company was incorporated in September 2005, began operations in July 2007 and as of Dec. 31, 2010 had $360 million in total assets, including $340 million in timber and timberland.
In its latest finding on the Timberland REIT, FINRA pointed out that in 2003, Wells Investment Securities and Leo Wells were censured and fined $150,000 for what one of FINRA’s predecessor organizations at the time, NASD, said was “rewarding broker/dealer representatives who sell their REITs with lavish entertainment and travel perquisites” at two conferences. NASD also suspended Leo Wells from acting in a principal capacity for one year.
Mary Schapiro, then vice chairman of NASD, said at the time that "Our non-cash compensation rules help ensure that members and their representatives make recommendations that are in the best interest of their customers. This case makes it clear that NASD will not tolerate any payment of non-cash compensation that runs afoul of those rules."
Last month, FINRA issued an Investor Alert called Public Non-Traded REITs–Perform a Careful Review Before Investing, designed to help investors understand the benefits, risks, features and fees of non-traded REITs.