The Financial Industry Regulatory Authority (FINRA) sanctioned broker Thomas Sharp (Sharp) concerning allegations that Sharp violated NASD Rule 2210(d) by sending emails to potential investors in a non-exchange traded real estate investment trusts (Non-Traded REITs) that were not fair and balanced and failed to provide a sound basis for evaluating the facts. Sharp was associated with Ameriprise Financial Services, Inc. (Ameriprise) from 1987 through September 2013.
The Non-Traded REIT market has been a financial boon for the brokerage industry in recent years. A Non-Traded REIT is a security that invests mostly in real estate or property assets. While publicly traded REITs can be sold on an exchange, are liquid, and have lower commissions and fees, non-traded REITs are sold in the form of private placement offerings, are speculative, illiquid, and often charge fees of over 10%. Nonetheless, brokers have recommended these products to many investors, in part driven by the fat fees they can earn.
Brokers’ selling practices have come under scrutiny because sometimes brokers claim that Non-Traded REITs offer stable, safe returns compared to the volatile stock market. However, the stability is only a result of the fund setting its own price and illiquidity, not because the product is immune to market fluctuation.