No. of Recommendations: 14
The Secretary of the Commonwealth of Massachusetts has targeted in-appropriate sales of non-traded REITS. This week William Galvin, announced ~ $7 million in fines/restitution from:

Ameriprise Financial Services
Commonwealth Financial Network
Royal Alliance Associates
Securities America
Lincoln Financial Advisors

“Our investigation into the sales of REITs, triggered by investor complaints, showed a pattern of impropriety on the sales of these popular but risky investments on the part of independent brokerage firms where supervision has historically been difficult to monitor,” Mr. Galvin said in a statement.

These fines are in addition to ~$2 million in fines earlier this year from LPL Financial.

Three points:

1) Each of these firms has a “compliance department” that is supposed to insure that investors only buy “appropriate” investments. Clearly, they did not have adequate procedures in place to police this.

2) Where is Ralph Nader when you need him? Non-traded REITS are the Corvairs of today. How about a new “Unsafe at Any Speed” [1] book about non-traded REITs? When a product is consistently sold to inappropriate investors, it indicates a systematic, NON-RANDOM problem. Think of it like a drug with a “BLACK BOX WARNING” label. The drug does offer some unique solutions to some patients, but can have serious side effects for other patients.

3) It is inconceivable that non-traded REITS were only inappropriately sold in Massachusetts. Where are the regulators from the other 49 states? Or where is the SEC on a national level? I guess if you were inappropriately sold a non-traded REIT in any other state, you are on your own to seek financial redress.

Investment News has the full story. [2]



[1] Unsafe at Any Speed book about the Corvair, aka 1965

[2] Five IBDs in $7M settlement over nontraded-REIT sales
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