Posted by Jason M. Kueser | September 21, 2017
Earlier today, the Massachusetts Securities Division filed an administrative complaint against SII Investments for violating securities laws with respect to its sale of Real Estate Investment Trusts (REITs) and its failure to supervise representatives engaged in the sale of REITs.
One of the core allegations is that SII “failed to supervise its agents by allowing systemic inflation of its clients’ liquid net worth while maintaining contradictory and unclear rules related to purchase of non-traded real estate investment trusts.” As noted in the complaint, “REITs are often entirely illiquid.” REITs are required to distribute taxable income to investors, but often do not have adequate capital to pay those distributions. As such, “REITs often resort to paying distributions out of borrowed money.” Non-traded REITs “have limited redemption programs and minimum reporting requirements . . . and typically pay high sales commission and offer fees that range from 15 to 18 percent.”
SII appears to have included all annuities, including annuities with surrender fees, as liquid investments in its suitability forms for REIT purchases despite the fact that this position contradicts language in the firm’s own compliance manuals, as well as FINRA guidance. By including annuities in clients’ “liquid” investments, the firm overstated their clients’ liquid net worth, which allowed “the firm and its agents to bypass both internal concentration limits prospectus limits for client investments in non-traded REITs.”
It is likely that this behavior extends beyond the state of Massachusetts – and perhaps to other firms. If your financial advisor sold you non-traded REITs, you may want to speak with an attorney to determine whether your advisor followed appropriate suitability guidelines. The Kueser Law Firm represents investors in cases involving REITs and other investments. If you have concerns about your investments, please e-mail or call (816) 374-5865.