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Home > Blog > LPL In Hot Water With Regulator Over Non-Traded REIT Sales

LPL In Hot Water With Regulator Over Non-Traded REIT Sales

It’s more bad news for non-traded real estate investment trusts (REITs) and the broker/dealer firms that market and sell them to investors. Yesterday, Massachusetts securities regulators filed a complaint against LPL Financial, charging the B-D of failing to supervise registered reps who sold the non-traded REITs in violation of both state limitations and the company’s rules.

As reported Dec. 12 by Investment News, the charges stem from sales of $28 million of non-traded REITs to almost 600 Massachusetts clients from 2006 to 2009. Nearly all of the transactions in question violated state securities regulations or LPL’s own compliance practices, the Massachusetts Securities Division says.

Secretary of the Commonwealth William Galvin also charged LPL with dishonest and unethical business practices. He is seeking restitution to investors who bought the REITs, a fine and other sanctions, according to the complaint.

LPL reps sold $28 million in investments in non-traded REITs and collected about $1.8 million in fees as a result, Galvin’s office alleges.

“Non-traded REITs present risks to investors,” Galvin said in a statement. “Massachusetts recognizes those risks and requires limits on an investors’ exposure to the high fees, potential illiquidity, and risky nature of non-traded REIT products.”

REITs own and manage income-producing property or are involved in real estate financing.  Non-traded REITs are more difficult to get one’s money out of, and tend to carry high fees and commissions, Galvin said.

Of the REITs listed in the complaint, the largest amount of sales was for Inland American Real Estate Trust. Inland American is the biggest non-traded REIT in the industry, with more than $11 billion in real estate assets. Massachusetts investors put more than $20 million in Inland American, which currently is the focus of a probe by the Securities and Exchange Commission (SEC).

LPL calls Galvin’s claims “substantially overstated.”


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