By Suzanne Barlyn
Feb 6 LPL Financial LLC will pay up to $2.5
million to settle allegations by Massachusetts' securities
regulator that it failed to supervise its brokers who sold
investments in nontraded real estate investment trusts,
according to a settlement announced on Wednesday.
Secretary of the Commonwealth William Galvin said the unit
of LPL Financial Holdings Inc would offer restitution
of $2 million to Massachusetts investors who bought seven
nontraded REITs that were the subject of an administrative
complaint filed against the company in December.
LPL also agreed to pay a $500,000 administrative fine.
"LPL worked cooperatively with the Commonwealth of
Massachusetts to promptly and appropriately resolve all of the
issues, and we are glad to put this matter behind us," the
company said in a statement. It neither admitted nor denied the
alleged violations, according to the consent order.
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. Nontraded REITs also often have higher fees for
investors than publicly traded REITs.
The Massachusetts probe focused on seven nontraded REITs
sold by LPL brokers. Officials alleged that some sales violated
state regulations barring more than 10 percent of an investor's
net worth from being held in certain securities. Other
transactions violated liquid net worth requirements for
investors set out in the REIT prospectuses, the state alleged.
Brokers and LPL employees responsible for reviewing the
transactions were "under-educated and under-supervised with
respect to nontraded REIT transactions," according to the
The settlement requires that certain LPL customers, at their
discretion, have an opportunity to sell their shares of
non-traded REITs to LPL for the price they originally paid, LPL
said in a statement.
LPL also agreed in the settlement to review all other
nontraded REITs it offers to Massachusetts residents and make
restitution to investors in the state whose transactions
violated Massachusetts or company rules.
It is unclear how that review process will work or how much
LPL will have to pay upon completion. The findings and figures,
however, will be subject to review by Secretary Galvin's office,
his spokesman said.