William Galvin, Massachusetts’ top securities regulator, said Friday that he’s reached a settlement with SII Investments Inc., an independent broker-dealer within National Planning Holdings that was recently purchased by LPL Financial, for failing to supervise the sales of nontraded real estate investment trusts.
“SII allowed its agents to miscalculate the customer’s liquid net worth in order to sell them high-commission nontraded REITs in violation of Massachusetts guidelines and its own policies,” said Galvin in a Friday statement.
“SII puts its own interests ahead of the customers — yet another example of the need for a strong fiduciary rule to be adopted.”
According to the complaint, SII’s suitability and disclosure form for nontraded REITs stated that no more than 10% of an investor’s liquid net worth may be invested in any particular vehicle.
“While SII’s own internal policies made clear that annuities are illiquid products, SII nevertheless included annuities with substantial pending surrender fees as liquid for nontraded REIT liquid net worth calculations,” Galvin’s office said.
“SII’s forms and policies, however, excluded any investment subject to substantial penalties from the calculation of liquid net worth,” the complaint alleges.
One Massachusetts investor who complained to Galvin’s office had essentially “all of her net worth tied up in three annuities and a nontraded REIT,” and “she suffered significant harm and was unable to access the majority of her funds without paying substantial penalties.”
The investor “subsequently became unemployed,” according to the complaint, and “suffered from ongoing medical issues, which she had disclosed to SII.”
Massachusetts investors identified by Galvin’s office as having been improperly sold nontraded REITs by SII will be offered the opportunity to get their money back from the broker-dealer, Galvin’s office said.
In addition to offering rescission to investors, SII also agreed to cease and desist its conduct in violation of the Massachusetts Securities Act, be censured and pay a $50,000 administrative fine.
— Check out Judge Remands Scottrade Fiduciary Case Back to State Agency on ThinkAdvisor.