Investor Lawyers Blog
Brokerage firm SII Investments, Inc. has been ordered by Massachusetts Secretary of the Commonwealth William Galvin to refund money back to clients who were sold non-traded REITs by SII.
Galvin charges that SII failed to adequately supervise the sale of nontraded REITs to customers. As a result of the settlement, any Massachusetts investor who was identified by Mr. Galvin’s office as having been improperly sold the REITs by SII will be offered their money back. While this conduct may have occurred in other states, only Massachusetts investors are affected by the action by Galvin’s office (and other investors will not receive a refund as a result of this action).
Of note, the Massachusetts action focused on SII treating clients’ annuities as liquid assets rather than nonliquid assets for purposes of calculating the amount of the client’s assets that could be invested in non-traded REITs: “SII’s suitability and disclosure form for nontraded REITs stated that no more than 10% of an investor’s liquid net worth may be invested in any particular nontraded REIT… While SII’s own internal policies made clear that annuities are illiquid products, SII nevertheless included annuities with substantial pending surrender fees as liquid for nontraded REIT liquid net-worth calculations.”
Mr. Galvin reportedly stated as follows in announcing his office’s action: “SII allowed its agents to miscalculate the customer’s liquid net worth in order to sell them high-commission nontraded REITs in violation of Massachusetts guidelines and its own policies.” As part of the settlement, SII also agreed to pay a $50,000 fine. Last year, Massachusetts charged SII Investments with “dishonest or unethical conduct and failure to supervise” sales of nontraded real estate investment trusts (REITs) to investors by inflating clients’ liquid net worth. LPL Financial bought SII in 2017 from an insurance company as part of its acquisition of the assets of National Planning Holdings, a network of four broker-dealers.
Non-traded REITs are investments that are frequently not adequately explained by the financial advisors recommending them. To begin, non-traded REITs are typically characterized by very high fees and up-front commissions (as high as 15% in some instances). Aside from their high fee structure, non-traded REITs are illiquid in nature, and usually cannot readily be sold for a number of years after purchase. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a deep and liquid national securities exchange. Therefore, many investors in non-traded REITs come to learn too late that their ability to exit their investment position is limited. For instance, non-traded REIT investors typically can only redeem shares directly with the sponsor on a limited basis, and even then, often at a disadvantageous price. Economic research shows that non-traded REITs have consistently underperformed publicly-traded REITs, which feature much lower fees and commission and can be freely sold by investors on the open market.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with non-traded REITs and other investments. Investors may contact a securities arbitration attorney at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.