We have written many posts about REITs – Real Estate Investment Trusts. They can be great investments but many have liquidity problems. Stockbrokers often recommend them to the wrong customers as well. In May, Massachusetts Secretary of State William Gavin announced that five brokerage firms had agreed to pay restitution of $6.1 million to settle concerns over sales of nontraded REITs. Later in July we wrote about another REIT investigation from Galvin’s office. This week, Galvin announced the original five firms had agreed to cough up another $10.7 million to settle restitution claims.
Since January of this year, six firms have agreed to pay total restitution or fines in Massachusetts of over $22 million. The effected firms are Royal Alliance Associates, LPL Financial, Ameriprise, Securities America, Commonwealth Financial and Lincoln Financial Advisors.
So what is the big deal about REITs? Plenty!
REITs are a popular way for individuals to invest in real estate. Like physical real estate, however, they are often illiquid meaning they can be hard to sell if cash is quickly needed. Many are considered “nontraded” meaning there is no organized secondary market. Buy one of these investments and you could be forced to hold on to it for years.
Stockbrokers and financial advisers are required to follow industry KYC (“Know Your Customer”) and suitability rules. That means before recommending an investment they must completely understand your needs and financial experience and may only recommend investments suitable for those needs. For example, an aging widow who needs ready access to cash shouldn’t invest in nontraded REITs. Why? Because she might be dead before the investment could be liquidated.
Earlier this year the Financial Industry Regulatory Authority – FINRA – warned brokers after a review of REIT sales and promotional materials found many deficiencies. They told brokerage firms and investment firms to strictly supervise sales of REITs. Massachusetts went one step further, they opened investigations on over a dozen firms and order several to pay restitution.
Several months later and Massachusetts is back with Round 2. This time Massachusetts has ordered five firms to pay even more restitution claims.
The Massachusetts action only affects Massachusetts investors in selected brokerage firms. There are hundreds of firms nationwide and many sell REITs.
You may be a able to bring a stockbroker fraud claim if a stockbroker or investment adviser recommended unsuitable REITs or other investments or failed to understand your needs and risk tolerance (“Know Your Customer” rules). Most stockbroker fraud claims are now handled by arbitration before FINRA.
If you are stuck with a REIT that you can’t sell or were not told about the REITs distribution process, give us a call. Most stockbroker fraud cases can be handled on a contingent fee basis meaning no legal fees unless we recover money for you. We handle cases where the loss exceeds $100,000 or more. Our investment fraud lawyers have helped many victims of get back their hard earned money. We also take cases involving other frauds including legal and accounting malpractice and Ponzi schemes.
For more information, contact attorney Brian Mahany. Brian can be reached at or by telephone at (414) 704-6731 (direct). All calls are protected by the attorney – client privilege and kept confidential.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Fraud recovery available in many jurisdictions.
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Post by Brian Mahany, Esq.