More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Proxy Voting RIAs are not required to vote proxies on behalf of their clients. However, when an RIA does assume responsibility for voting proxies, the firm’s policies and procedures should help to ensure that votes are cast in the best interest of clients.
Massachusetts Securities Regulator William Galvin ordered five independent broker-dealers Wednesday to pay $8.6 million in restitution to investors and fined them a total of $975,000 for improper sales of nontraded REITs.
The firms involved in the settlement are Ameriprise Financial Services, which will pay $2,592,890 in restitution and a $400,000 fine; Commonwealth Financial Network which will pay $2,074,710 in restitution and a $300,000 fine; Royal Alliance Associates, which will pay $59,000 in restitution and a $25,000 fine; Securities America, which will pay $778,400 in restitution and a $150,000 fine; and Lincoln Financial Advisors Corp., which will pay $503,940 in restitution and a $100,000 fine.
“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 maintain,” Galvin (right) said in a statement.
In addition to these settlements, Galvin said that LPL Financial had completed the second round of its restitution in connection to similar violations settled with the securities division in December.
With the additional amount of $2,592,150.87 from LPL, total restitution retrieved for investors in Massachusetts this year from improper REIT sales now totals more than $11 million, and fines total more than $1.4 million.
“The independent firms must spend as much manpower and resources on compliance and supervision as they do on growth and revenue if regulators are to consider this model a truly viable option for investors,” Galvin said. “The willingness of the five settling firms to correct this problem today is a small step in the right direction.”
The REIT investigation, conducted by the securities division’s enforcement section, revealed “significant and widespread problems” with the firms’ compliance with their own policies, practices and procedures rules, as well as adherence with Massachusetts prospectus requirements, which left “investors often trapped in illiquid and underperforming financial products.”
The Massachusetts securities division noted that because REITs have become a popular investment, but present risks to investors, the state has imposed a rule that an investor’s purchase of these instruments can be no more than 10% of their liquid net worth.
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