UPDATE 1-Massachusetts reaches $9.6 mln REIT settlement with 5 broker-dealers

Wed May 22, 2013 4:50pm EDT

BOSTON May 22 (Reuters) - Five independent broker-dealers will pay at least $9.6 million in fines and restitution to settle what Massachusetts' top securities regulator has called their improper sales of non-traded real estate investment trusts, or REITs.

In a statement on Wednesday, Massachusetts Secretary of the Commonwealth William Galvin said the firms include Ameriprise Financial Services, the broker-dealer arm of Ameriprise Financial Inc ; Commonwealth Financial Network; Royal Alliance Associates; Securities America and Lincoln Financial Advisers Corp.

Galvin said investor complaints led to an investigation that uncovered "a pattern of impropriety in the sales of these popular, but risky investments on the part of independent brokerage firms where supervision has historically been difficult to maintain."

REITs invest in commercial real estate, such as hotels and strip malls, allowing investors to profit from rising property values. Nontraded REITs, which do not trade on securities exchanges, can be illiquid or difficult to sell in secondary markets and often carry higher fees.

In February, Galvin's office settled a similar matter with LPL Financial Holdings Inc, alleging it failed to properly supervise brokers who sold non-traded REITs.

Brian McNiff, a spokesman for Galvin, said on Wednesday LPL had paid an additional $2.6 million in restitution, bringing its total payments under the settlement to more than $5 million.

"We're pleased to resolve this matter, which affected only a small number of transactions during the 2006-2008 time period," Ameriprise said in a statement.

It has since implemented a centralized system to review transactions, the company said.

Massachusetts' Chief Compliance Officer Paul Tolley said in statement that the settlement related to 42 transactions over a six-year period.

"(W)e continue to take seriously our responsibility to protect investors' interests," he said.

Janine Wertheim, senior vice president for Securities America, said in a statement: "We have enhanced our procedures for monitoring these types of transactions and are pleased to have resolved this matter."

A spokesman for Lincoln Financial, Michael Arcaro, said via email that it accepted factual findings of Galvin's review, "including the inadvertent approval of sales that exceeded the Massachusetts prospectus requirement." It will offer to repurcahse shares from the eight clients it currently knows are affected by the matter, he said.

Representatives for Royal Alliance did not return messages.

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