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Massachusetts Regulators Settle With B-Ds Over Improper REIT Sales

Sales of non-traded real estate investment trusts (REITs) have once again come under the radar of securities regulators, with Massachusetts Secretary of the Commonwealth William Galvin announcing settlements with five leading independent broker/dealers that will pay at least $7 million in fines and restitution over improper sales of non-traded REITs.

The firms in the settlement 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.

“Our investigation into the sales of REITs, triggered by investor complaints, showed a pattern of impropriety on the sales of these popular but risky investments on the part of independent brokerage firms where supervision has historically been difficult to monitor,” Galvin said in a statement.

Ameriprise Financial Services will pay $2.6 million in restitution and a fine of $400,000; Commonwealth Financial Network will pay $2.1 million in restitution and a $300,000 fine; Royal Alliance Associates will pay $59,000 in restitution and a $25,000 fine; Securities America will pay $778,000 in restitution and a $150,000 fine; and Lincoln Financial Advisors will pay $504,000 in restitution and a $100,000 fine.

REITs are financial products that invest in commercial real estate, including hotels, malls and other commercial buildings. Non-traded REITs do not trade on securities exchanges and therefore can be illiquid and difficult to sell in secondary markets. They also typically carry higher fees.

Earlier this year, Massachusetts regulators settled a similar complaint involving non-traded REITs with LPL Financial Holdings, alleging it failed to properly supervise brokers who sold non-traded REIT products to investors.

In total, Galvin’s office has garnered more than $11 million in restitution for Massachusetts investors and levied $1.4 million in fines from independent broker/dealers so far this year.


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