REITs (Real Estate Investment Trusts) were for a long term the darling of the investment community. While we have nothing against REITs, dishonest and aggressive brokers pedaled them to many people who had no business investing in them. State and federal securities rules say that brokers must make recommendations that are suitable for each particular client.
For those not familiar with REIT investments, they are a simple way for individual investors to buy into big real estate deals.
When you purchase shares in a company, you are buying a fractional investment in the company. You are essentially an owner although unless you are on the company’s board or are the majority shareholder, you probably have no ability to make management decisions for the company.
REITs are like owning stock in a company except in a REIT, you are typically investing in large real estate projects.
The REIT typically allows investors to have regular income streams, diversification and long-term capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, the individual investors pay the income taxes on those dividends.
Sounds great! Unfortunately, REITs are not for everybody. Some are very illiquid meaning there is no ready secondary market for the shares. Purchase one and you may be holding on for years. Many of these investments are hard to value too. You may receive a statement saying your investment is worth $10,000 but what is it really worth if you can’t sell it!
Other problems include deceptive accounting and high volatility. Like any other investment, individual REITs should be judged on their merits.
Depending on the REIT, some have commissions well above average. That means they are great for the brokers but not always the clients who are paying those commissions.
Pennsylvania Fines REIT Broker Austin Dutton $200,000
Most fines against brokers come from FINRA (Financial Industry Regulatory Authority) or the SEC. State securities regulators also have oversight and have been very active with REIT sales.
On Monday, the Pennsylvania Department of Banking and Securities fined Pennsylvania resident Austin Dutton $200,000 for “dishonest or unethical practices in the securities business.” Considering Dutton’s client base is mostly Philadelphia cops and firefighters, he may not be very welcome in the City of Brotherly Love.
Pennsylvania has yet to release details of the fine. We know, however, that:
“Dutton recommended the purchase of a security to at least one customer without reasonable grounds to believe that the transaction was suitable for the customer. Dutton engaged in dishonest or unethical practices in the securities business by recommending to a customer the purchase, sale, or exchange of a security without reasonable grounds to believe that the transaction or recommendation was suitable for the customer based upon reasonable inquiry concerning the customer’s investment objectives, financial situation and needs and other relevant information known by the agent. This Order does not constitute a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative or deceptive conduct.”
FINRA says that Dutton’s employer previously settled a customer dispute involving him in 2015 for $15,000. The customer in that case had demanded $111,000.
In 1997, Austin Dutton appeared to have a minor issue after speaking to a potential client in a state where he was not registered. He resigned and was not subject to any disciplinary action.
Dutton’s Employer, Newbridge Securities, Fined Record $499,000
We also know the brokerage firm works for, Newbridge Securities, a record $499,000 fine for supervisory violations.
FINRA public records indicate that Dutton was the manager of Bridge Valley Financial Services, an affiliate of Newbridge.
Newbridge Securities is no stranger to tangling with regulators. Unfortunately for customers, They have been fined or censured over 2 dozen times in recent years. Every company makes mistakes but Newbridge has far too many fines and regulatory actions for a brokerage firm its size.
In the same week Austin Dutton was fined, the Pennsylvania Securities Commission also whacked Newbridge Securities. FINRA says of that fine:
Newbridge Securities Corporation (Newbridge) failed to reasonably supervise one agent in connection with the sales of structured products in Pennsylvania…” Since REITs are structured products and both Dutton and Newbridge were fined simultaneously, we suspect the agent not properly supervised was Dutton (the broker Pennsylvania claimed was acting dishonestly.)
Earlier this year in January FINRA fined Newbridge for regulatory violations.
Last year, the State of Kentucky caught Newbridge charging improper commissions disguised as “handling fees.”
In 2014, the brokerage firm paid $138,000 to settle FINRA charges that the company overcharged certain corporate bond customers.
Overall, the Newbridge Securities has been the subject of 28 separate regulatory events since 2003. One of those actions included a $600,000 FINRA fine for penny stock market manipulation.
Its not regulators who have had beefs with the company. FINRA reports several customer complaints.
Did Complaints Against Austin Dutton and Newbridge Involve REITs?
We think the answer is yes.
Dutton is a well known REIT broker in the Philadelphia area. His name came up during the prosecution of top national REIT promoter Nicholas Schorsch’s companies, American Realty Capital Partners. Schorsch has thus far avoided prosecution but he stepped down as CEO of the embattled REIT . Two of his former top lieutenants were prosecuted by the SEC for exaggerating profits. Those executives were also prosecuted by the Justice Department on related charges.
Coupled with the information we know from the Pennsylvania Securities Commission that the questioned investments involved “structured” products, we believe that the products at issue were REITs, probably REITs from American Realty Capital Partners.
Dutton and Newbridge were rumored to be big sellers of REIT shares, particularly those in American Capital. According to a press report in philly.com, Dutton once said,
“A hundred retired policemen have said to me, ‘You must be the smartest guy in the world. Or the dumbest guy in the world. Because you have all our money, and we know where you live, and we all carry guns.'”
Did You Invest with Austin Dutton or Newbridge Securities?
The fraud recovery lawyers at MahanyLaw understand REITs and other illiquid investments and how to recover our clients’ hard earned money. Most investment loss cases can be handled on a contingent fee basis meaning you don’t owe us anything unless we recover money for you.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). You can also visit our REIT and stockbroker fraud page for more information. Have a nontraded REIT? Visit our Nontraded REIT 2.0 page.