by Brian Mahany
We have written several times about the dangers of nontraded or thinly traded REITs. They are a popular way of investing in real estate but they can be difficult to sell or liquidate if an investor suddenly needs cash. There are other potential pitfalls as well. This week the Financial Industry Regulatory Authority – FINRA – issued a stern warning to stockbrokers who sell these products.
A REIT is a Real Estate Investment Trust. They are securities that invest directly in real estate or in mortgages. Some can be bought and sold on major exchanges and are thus considered “liquid.” Others, however, must often be held for a long period of time. These nontraded REITs have no ready secondary market. Many older investors purchased these thinking they could always sell if they later needed cash. Unfortunately, they later learned that there was no ready market and that many REITs limit redemptions to a very small number per year.
FINRA reviewed the marketing materials sent to potential customers and found significant deficiencies. In addition to the inability to sell nontraded REITs, FINRA found that some promotional materials failed to reveal that distributions received by investors were often nothing more than a return of principal.
In our stockbroker fraud practice, we have found that many broker dealers and investment advisers can’t even explain how REITs work nor can they recite the redemption rules for the products they are selling.
According to an article in InvestmentNews, Ameriprise and LPL Financial are two of the larger broker dealers selling nontraded REITs. Earlier this year, LPL paid $500,000 to settle administrative charges brought by Massachusetts over LPL’s selling practices.
You may be a able to bring a stockbroker fraud claim if a stockbroker or investment adviser recommends an unsuitable investment or fails 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 in a REIT that you can’t sell or were not told about the REIT’s 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.
Lost $100,000 or more because of a stockbroker, investment adviser or other financial professional? Give us a call. The investment fraud lawyers at Mahany & Ertl 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.
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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