Massachusetts securities regulators have charged SII Investments with dishonest, unethical conduct and failure to supervise advisors who sold some $4.7 million of nontraded real estate investment trusts by systematically inflating clients’ liquid net worth. The value of investors’ variable and fixed index annuities was included in their net worth calculations, violating SII’s internal policies and procedures.
The BD’s commissions tied to these sales were close to $27,200, while its advisors’ commissions were almost $278,200, the regulators state in their complaint.
The complaint, issued Wednesday, seeks a censure, cease-and-desist order and restitution for investors with losses tied to the alleged wrongdoing, which began in 2011; it also imposes an administrative fine at a level that has yet to be determined.
“SII allowed its agents to inflate a customer’s net worth to sell high-commission nontraded REITs in violation of Massachusetts guidelines and its own policies,” Commonwealth Secretary William Galvin said in a statement.
“A firm must have real and meaningful supervisory procedures to prevent inappropriate sales,” Galvin said. “This firm did not have those and Massachusetts investors suffered. My office will not allow this to happen.”
LPL Financial recently acquired the advisory business — advisors and client assets — of SII and three other IBDs within the National Planning Holdings group. It did not purchase the IBD brands and entire operations. ”Under the construct of our agreement, LPL would not be liable for this matter,” LPL explained in a statement.
(SII did not return a request for comment as of press time.)
Net Worth Issues
In Massachusetts, regulators have said that nontraded REITs “present investors with risks” that prompted them to impose a rule that a purchase of one of these products cannot exceed 10% of their liquid net worth.
In its complaint against SII, they maintain that the IBD’s registered reps sold nearly $4.7 million of 93 nontraded REITs above and beyond the state’s limit and SII’s own compliance requirements and prospectus mandates, “while the firm and its agents received high commissions.”
Galvin and his colleagues allege that the brokers improperly calculated clients’ liquid net worth and that SII’s compliance team failed to supervise those selling “the inappropriate investments.”
— Check out Blackstone Booming Ahead in Nontraded REIT Business on ThinkAdvisor.