Stockbroker fraud cases are nothing new. We are presently helping victims of Nikolai Battoo and PIWM get back millions in lost monies. Like the PIWM cases, many cases today against stockbrokers involve nontraditional or alternative investments. These include REIT fraud cases. A decision by the Financial Industry Regulatory Authority (FINRA) last week is unusual in that it targeted a stockbroker selling non-traded REITS.
FINRA and state regulators have been very interested in REIT sales of late. A REIT is a Real Estate Investment Trust. These investments are a popular method of investing 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.
Nontraded REITs are not suitable for many investors. For example, those needing access to their money or those nearing retirement should generally look elsewhere.
Brokers like REITs because most pay above market commissions. Stockbrokers and investment advisers can triple or quadruple their commission revenue by placing clients in REITs. Unfortunately, REITs are often recommended to the wrong clients and for the wrong reasons (higher commission revenue).
Several brokerage firms including Royal Alliance Associates, LPL Financial, Ameriprise, Securities America, Commonwealth Financial and Lincoln Financial Advisors have paid millions of dollars in fines and restitution. Last week’s enforcement action against former LPL broker Gary Chackman was unique in that the agency pulled the license of an individual broker.
We say its about time.
FINRA says that Gary Chackman “recommended and effected unsuitable transactions in the accounts of at least eight LPL customers, by overconcentrating his customers’ assets in [REITs] and other illiquid securities. Additionally, Chackman falsified LPL documents to evade the firm’s supervision and caused the firm’s books and records to be inaccurate by submitting dozens of ‘alternative investment purchase’ forms that misrepresented his customers’ purported liquid net worth.”
Some states such as Massachusetts now limit what percentage of an investors portfolio can contain thinly traded or illiquid REITs.
Customers who find themselves saddled with illiquid REITs may be able to recover their money from the firms that sold these investments. The 6 firms listed above all have deep pockets and can pay a successful claim. We worry, however, about some smaller brokerage firms that put most of their clients in REITs. One example is David Lerner Associates.
If you feel like you are a victim of REIT fraud, call us. Brokers have a duty to fully explain the risks of investments they recommend to you and must insure that their recommendations are suitable for you. If they fail, they could be liable for your losses.Our stockbroker fraud and securities lawyers can help you get your money back, often with no upfront legal fees to you. Contact attorney Brian Mahany at (414)704-6731 (direct) or by email at Services are provided anywhere in the U.S.
Post by Brian Mahany, Esq.