A Financial Industry Regulatory Authority (FINRA) arbitration panel recently ordered Ameriprise Financial Services Inc. (Ameriprise) to pay two elderly California investors $1.17 for recommending the investments in Tenants-in-Common (TIC), real estate related investments that eventually failed.
Brokerage firms, such as Ameriprise, having increasingly turned to alternative investment products such as TICs in recent years. The sales of TIC interests grew from approximately $150 million in 2001 to approximately $2 billion by 2004. FINRA has warned brokerage firms to put investors on notice of the risks of these illiquid investment for which no secondary market exists. In addition, subsequent sales of TIC property may occur at a discount to the value of the real property interest causing the investor substantial losses. FINRA has also warned that the fces and expenses charged by the TIC sponsor can outweigh the potential tax benefits associated with the IRS Section 1031 Exchange. FINRA requires that all member brokerage firms have an obligation to comply with all applicable conduct rules when selling TICs. These rules include the obligation to conduct proper due diligence and to ensure that promotional materials used are fair, accurate, and balanced.
In a recent InvestmentNews article, it was reported that in May, a FINRA arbitration panel in San Francisco ruled that Ameriprise had inappropriately advised two retired schoolteachers to invest a total of $1.03 million into three TICs in office complexes and hotels in early 2008. One of the TICs has subsequently failed and the two others have suffered declines in value. According to the investors, the couple lost most of their life savings. The couple invested in TICs known as ARI-Onyx Office Plaza Tenant In Common; Moody Springhill Suites Pittsburgh Tenant in Common; and Moody Marriott TownePlace Suites Portland Scarborough Tenant in Common.
The Pittsburgh and Portland Scarborough TICs were ordered by the Panel to be rescinded to Ameriprise as part of the decision. Ameriprise will then assume ownership of the investments after it has paid the arbitration award to the investors and will be responsible for paying all costs associated with ownership of the property.
According to the attorney for the couple, the evidence at the hearing showed that Ameriprise repeatedly failed to follow its supervisory procedures. However, according to InvestmentNews, Ameriprise maintains that its financial adviser gave appropriate guidance to the couple concerning the TIC investments. Ameriprise strongly disagreed with the decision and stands behind the recommendations as being suitable for the client.
The attorneys at Gana LLP are experienced in representing investors in disputes with their brokers, including losses caused by TICs. Our consultations are free of charge and the firm is only compensated if you recover.