Securities America is Under Investigation for Sales Practices of Non-Traded REITS
By: Courtney Werning
According to the recent annual report filed with the SEC by Ladenburg Thalmann Financial Services, Inc., which owns Securities America, the Pennsylvania Department of Banking and Securities requested that Securities America provide information concerning purchases of non-traded REIT securities by Pennsylvania residents since 2007.
Last year, Securities America was one of several independent broker-dealers to reach settlements with the Massachusetts Securities Division in which they agreed to pay millions of dollars of restitution to clients who bought non-traded REITS from 2005 to 2013. According to the Massachusetts Securities Division consent order, Securities America was selling non-traded REITS in excess of the Massachusetts concentration limits. Massachusetts has a rule that an investor's purchase of REITs cannot be more than 10% of that person's liquid net worth. Securities America agreed to pay $8.4 million in restitution to clients and was fined $150,000 by the Massachusetts Securities Division.
A real estate investment trust, or REIT, is a corporation, trust or association that owns and/or manages income-producing real estate. REITs pool the capital of numerous investors to purchase a portfolio of properties—from office buildings and shopping centers to hotels and apartments—which the typical investor might not otherwise be able to purchase individually.
FINRA has issued an investor alert for non-traded REITS, warning investors of the numerous complexities and risks these investments carry that are often not disclosed to them at the time of purchase, including:
- Distributions are not guaranteed and may exceed operating cash flow. Deciding whether to pay distributions and the amount of any distribution is within discretion of a REIT's Board of Directors.
- Distributions and REIT status carry tax consequences.
- Lack of a public trading market creates illiquidity and valuation complexities.
- Early redemption is often restrictive and may be expensive.
- Diversification is limited, and there are risks associated with both the real estate market as a whole and any specific subset of the real estate market on which a particular REIT concentrates.
Non-traded REITs are rarely, if ever, suitable for short-term investors, and even long-term investors must be willing to bear the risks of illiquidity. In most instances the only way for an investor who suffered losses in non-traded REITs to recover those losses is to file claims through FINRA arbitration.
At Meyer Wilson, we have successfully handled many REIT cases and recovered a substantial amount of money for our clients in these cases. If you believe you have suffered losses in a non-traded REIT due to a broker's misconduct, contact us to discuss your case or complete the online form on the top of this page and we will respond promptly.
Read more on our blog about REITs: