SII Investments to Pay Back Clients Over Nontraded REITs
Massachusetts Secretary of the Commonwealth William Galvin is ordering SII Investments Inc. to repay clients who purchased non-traded real estate investment trusts through the independent brokerage firm. According to Galvin’s office, SII did not properly supervise these transactions.
It was last year that the Massachusetts regulator filed charges against SII, accusing the financial firm of failure to supervise and “dishonest or unethical conduct” related to non-traded REIT sales made to state residents. Galvin accused the broker-dealer of inflating the liquid net worth of clients by counting their annuities as liquid assets rather than non-liquid ones.
The firm’s policies note that annuities are illiquid financial products, yet the firm treated them, along with their potential surrender fees, as liquid for the net-worth calculations they made that are at issue.
Galvin believes that the SII let its agents incorrectly calculate customers’ liquid net worth so they could sell them the non-traded REITs, which charged a high commission.
LPL Financial (LPLA) purchased SII Investments last year when it bought National Planning Holding from insurer Jackson National. In addition to the restitution to customers, SII will pay a $50K fine.
FINRA Arbitration Panel Orders Trustmont Financial Group to Pay Client Over $1M
Like non-traded REITs, which are not found on any exchange and are not publicly traded, private REITs don’t trade on stock exchanges either. It’s over a private REIT that the Financial Industry Regulatory Authority arbitrators are ordering a Pennsylvania-based brokerage firm to pay one client over $1M in damages.
The clients, James E. Grimes, accused Trustmont Financial Group of fraud, negligence, and breach of fiduciary duty over a private real estate investment trust and two 1035 annuity exchanges.
The broker-dealer denies the allegations. The FINRA arbitration panel, however, ordered Trustmont to pay Grimes $848K in compensatory damages, $100K in punitive damages, as well as costs and legal fees of about $98K.
Vereit Inc. Could Owe Up to $730M in ARCP-Related Settlements
In other REIT news, net lease real estate investment firm Vereit Inc. (VER) may end up being responsible for up to $730M in settlements related to an accounting scandal involving its former incarnation, American Realty Capital Properties Inc. (ARCP). It was in 2014 that ARCP, controlled at the time by real estate tycoon Nicholas Schorsch, disclosed a $23M accounting mistake that had led to the company reporting financial results that were inflated.
ARCPs’ CFO at the time, Brian Block, was convicted of securities fraud. A number of investors sued over the alleges fraud.
InvestmentNews reports that this week, Vereit announced that it has settled with eight plaintiffs for $85M. In June, the REIT announced that it settled with Vanguard for $90M. A class action securities fraud lawsuit brought on behalf of investors by lead plaintiff and investment manager TIAA-CREF remains pending. However, despite these settlements, Vereit has not admitted wrongdoing or liability.
Read Galvin’s Complaint (PDF)
Finra arbitrators order Pennsylvania brokerage to pay client $1 million in damages, InvestmentNews, August 23, 2018
Settlements at old Schorsch REIT could cost shareholders $730 million, InvestmentNews, October 3, 2018
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