FINRA Fines Wells Investment Securities Over ‘Misleading’ REIT Materials

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 investors which included “ambiguous and equivocal statements, Wells misled investors into thinking Wells Timberland was a REIT at a time when it was not a REIT.”