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.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Massachusetts Securities Regulator William Galvin announced Wednesday that five independent brokerage firms that sold non-traded REITs improperly have agreed to offer investors an additional $10.7 million in restitution in the wake of a review of their procedures in the sales of other REITs to Massachusetts investors.
This second round of restitution brings the total returned to investors as the result of the Massachusetts Securities Division’s investigation of sales of these investment trusts that own or manage real estate or do real estate financing to $21.6 million, the division said.
In addition, six brokerage firms in all paid fines of close to $1.5 million.
The securities division said that after the five firms paid fines and agreed to make restitution in May, they reviewed the sales of all other REITs they offered, which resulted in the restitution announced Wednesday.
Securities America (LTS) agreed to pay a second round of restitution totaling $7.6 million; Ameriprise (AMP), $1.5 million; Lincoln Financial Advisors Corp., $840,873; Commonwealth Financial Network, $533,500; and Royal Alliance Associates, $125,000.
A sixth firm, LPL Financial (LPLA), had completed both rounds of reviewing REIT sales earlier with restitution in the amount of $4.8 million.
“These investments are popular, but risky,” Galvin (right) said in a statement. “Our investigation showed widespread problems with adherence to the firms’ own policies as well as the state rule that an investor’s purchase of REITs cannot be more than 10% of that person’s liquid net worth.”
“The matter involved 126 transactions over an eight-year period, and enhancements have already been made to our system,” said Janine Wertheim, Securities America senior vice president and chief marketing officer, in a statement shared with ThinkAdvisor. “Many of the products continue to perform as expected, and some have even gone full cycle. We are glad to resolve this matter.”
Lincoln Financial issued the following statement about the issue: “We cooperated fully with the examination conducted by the Massachusetts Securities Division, and we are pleased to put this matter behind us.”
Commonwealth and Royal Alliance declined to comment, while Ameriprise did not respond to an inquiry as of press time.
In July, in the wake of the investigation of sales practices involving REITs, the securities division launched a broader inquiry into the sales of all types of “alternative investments” to seniors.
Subpoenas went to 15 entities, large and small, asking for information about their sales of these products to Massachusetts seniors and their supervision, compliance and training policies associated with such sales.
The material returned as a result of those subpoenas is under active investigation by the Securities Division.
Check out 5 Indie BDs Ordered to Pay $9.6M for Nontraded REIT Violations on ThinkAdvisor.