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Five Independent Broker Dealers Reach $7M Settlement with Massachusetts

Five Independent Broker Dealers Reach $7M Settlement with Massachusetts

The Secretary of the Commonwealth of Massachusetts, William Gavin, recently announced settlements with five leading independent broker-dealers regarding sales of non-traded real estate investment trusts (REIT).

A recent edition of Investment News reports that the five firms were ordered to make $6.1 million in restitution to investors and pay fines totaling $975,000.

Ameriprise Financial Services Inc. faces $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 Inc. is charged with $59,000 in restitution and a $25,000 fine; Securities America Inc. will pay $778,000 in restitution and a $150,000 fine; and Lincoln Financial Advisors Corp. is leveled with $504,000 in restitution and a $100,000 fine.

According to Gavin, the restitutions and fines resulted from an investigation triggered by investor complaints. The securities regulators found that the independent brokerage firms engaged in a pattern of impropriety regarding the sales of the popular, but risky, REITs.

The Massachusetts Securities Division said its enforcement section’s investigation revealed significant and widespread problems with the way the firms complied with their own policies and procedures and in their adherence with Massachusetts prospectus requirements. This left some investors trapped in illiquid and underperforming financial products.

In an emailed statement, an Ameriprise spokesperson said the firm is pleased to resolve the matter, which affected only a small number of transactions during 2006-2007.

Janine Wertheim, president of Securities America Advisors Inc. and chief marketing officer of Securities America Inc., said the company is pleased to have resolved the issue and has enhance its procedures for monitoring REITs.

Chief compliance officer at Commonwealth Financial Network, Paul Tolley, said his firm is pleased to have resolved the matter, and continually reviews and updates its policies and procedures to meet state, federal and other regulations.

And Michael Arcaro, spokesman for Lincoln Financial Advisors, said the company accepts the factual findings of the review and will offer to repurchase shares from the eight clients it currently knows are affected by the matter.

For the Massachusetts Securities Division, the $7 million settlement is the second this year involving independent broker-dealers over the sale of non-traded REITs. Settlement was reached last February with LPL Financial LLC, which was ordered to pay in excess of $2 million in restitution and $500,000 in fines over the sale of non-traded REITs.

So far this year, the Commonwealth of Massachusetts has garnered more than $11 million in restitution for Massachusetts investors and imposed $1.4 million in fines from independent broker-dealers for selling non-traded REITS.