Broker-Dealers Settle with Massachusetts Securities Division Over the Alleged Improper Sales of Non-traded REITs

The Massachusetts Securities Division reached a settlement of $9.6 million with five independent broker dealers concerning allegations that the firms improperly sold non-traded real estate investments trusts (REITs) to hundreds of investors within the state.  The firm’s fined include Ameriprise Financial Services Inc., Commonwealth Financial Network, Royal Alliance Associates, Inc. Securities America, Inc., and Lincoln Financial Advisors Corp.  The Secretary of the Commonwealth of Massachusetts William Galvin announced that a part of the settlement would be used to distribute $6.1 million to investors as restitution.

A REIT is a security that invests in real estate directly either through properties or mortgages. REITs can be publicly traded on a national exchange or privately held.  Private REITs are often referred to as non-traded REITs.  Non-traded REITs have become increasingly popular as increased volatility in the stock market has led many investors to look for investment products that offer more stable returns.  However, non-traded REITs may not be as safe and stable as advertised.  Because non-traded REITs do not trade publicly the REIT itself determines its own asset values and only publishes updated valuations sporadically.  Thus, a REITs volatility includes not only real estate market volatility but also management decisions and potentially leverage positions that investors may simply not be informed about.

Massachusetts alleged that the firms engaged in a “pattern of impropriety” selling these “popular but risky investments.”  Massachusetts alleged significant and widespread problems with the firms’ compliance policies, practices, and procedures in the sale of non-traded REITs.  In addition, Massachusetts alleged that the firms failed to only sell non-traded REITs to qualifying investors.  Massachusetts allegations concerning each firm are as follows:

Ameriprise Financial Services Inc., – Alleged to have sold over $54,220,290 in non-traded REITs to 1,794 customers in a three year period.  Over 50 customer sales were alleged to have violated the firm’s compliance policies.  Ameriprise primarily sold Inland Western Retail Real Estate Trust, Inc. and American Real Estate Trust, Inc non-traded REITs.

Commonwealth Financial Network – Alleged to have sold $50,935,172 in non-traded REITs to 1,499 customers over a six year period.  Massachusetts’ investigation focused on two non-traded REIT products, the Inland American Real Estate Trust, Inc. and the Inland Diversified Real Estate Trust, Inc.  In total, Massachusetts alleged that $2,074,710 of these non-traded REIT sales were not appropriate.

Securities America, Inc. – Alleged to have sold $6,487,500 in non-traded REITs to approximately 198 customers over a five year period.  The investigation focused on four non-traded REITs including Inland American Real Estate Trust, Inc., Inland Diversified Real Estate Trust, Inc., Inland Retail Real Estate Trust, Inc., and the Inland Western Retail Real Estate Trust, Inc.  In total, Massachusetts alleged that $778,400 of the REIT sales were inappropriate.

Lincoln Financial Advisors Corp. – Alleged to have sold over $3,000,000 in non-traded REITs to 71 customers.  Massachusetts’ investigation focused on the Inland American Real Estate Trust, Inc., Inland Diversified Real Estate Trust, Inc., Inland Retail Real Estate Trust, Inc., and the Inland Western Retail Real Estate Trust, Inc.  Massachusetts alleged that $503,940 of Lincoln’s non-traded REIT sales were inappropriate.

Royal Alliance Associates, Inc. – Alleged to have sold 10 non-traded REITs over a three year period including Inland American Real Estate Trust, Inc. and Inland Diversified Real Estate Trust, Inc.  Massachusetts found that at least two transactions of over $53,000 were inappropriate.

The attorneys at Gana LLP are experienced in investigating claims concerning the sale of non-traded REITs.  Our attorneys can help you detect and uncover inappropriate activity in your accounts.  Our consultations are free of charge and the firm is only compensated if you recover.