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Articles Posted in Massachusetts

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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.

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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.”

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Money BagsInfinex Investments (“Infinex”, CRD No. 35371) of Meriden, Connecticut has entered into a Consent Order with Massachusetts securities regulators, agreeing to pay a fine of $125,000 and make restition to investors to resolve allegations that it failed to adequately supervise agents who were selling high-commission securities products.  Infinex registered representatives allegedly targeted customers at bank branches, primarily senior citizens, for unsuitable investment recommendations,  including real estate investment trusts REITs and variable annuities, primarily to senior customers at local banks who didn’t understand the products.

Infinex is majority-owned by a group of nearly 40 banks that offer securities on bank premises and has selling agreements with approximately 30 banks in Massachusetts.  Infinex also operates in other states and, according to the Financial Industry Regulatory Authority (“FINRA”), is licensed to operate in 53 U.S. states and territories.  Therefore, it is possible that sales of investments such as those that allegedly occurred in Massachusetts may have occurred in bank branches in other states.

The Massachusetts Securities Division reportedly began investigating sales practices by Infinex after senior citizens complained that they had been sold investments they did not ask for or did not understand.  The Consent Order is accessible below.

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Financial FraudAs recently reported by the Wall Street Journal (WSJ), investments in so-called private placements have experienced a substantial upswing in the wake of the 2008 financial crisis.  In fact, according to a May 7, 2018 WSJ article entitled, A Private-Market Deal Gone Bad: Sketchy Brokers, Bilked Seniors and a Cosmetologist, “In 2017 alone, private placements using brokers totaled at least $710 billion … a nearly threefold increase rise from 2009.”  Of considerable concern, the article indicates that that financial advisors recommending private placements are “six times as likely as the average broker to report at least one regulatory action against them…” and, moreover, that 1 in 8 brokers recommending private placement investments have “three or more red flags on their records, such as investor complaint, regulatory action, criminal charge or firing… .”

In response to growing concerns about the many risks and pitfalls associated with private placements, some securities regulators have stepped up their efforts to combat the problem.  For example, on July 2, 2018, the Massachusetts Securities Division (the “Division”) announced its investigation into sales practices linked to private placement investments.  Pursuant to the Division’s investigation – which will be spearheaded by Mr. William Galvin, the Secretary of the Commonwealth of Massachusetts – a total of 10 broker-dealers will be subjected to regulatory inquiry.  These brokerage firms, which have a demonstrated history of sales practice abuse surrounding private placement investments, include: LPL Financial, Arthur W. Wood Company, Santander Securities, U.S. Boston Capital, Bolton Global Capital, Advisory Group Equity Services, Moors & Cabot, Inc., Detwiler Fenton & Co., BTS Securities, and Winslow, Evans & Crocker.

In connection with its investigation, the Division is seeking to examine firms and advisors with disciplinary reports on file from 2 years ago, when the Division surveyed over 200 brokerage firms regarding their hiring and disciplinary practices.  According to Mr. Galvin: “Private placements are risky investments that reward the salesperson handsomely with high commissions.  Firms offering these to the public, especially seniors, have an obligation to see that they are sold to benefit the investor, not the broker.  Individuals with a history of disciplinary actions magnify the risk of unsuitable sales in connection with private placements.”

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Piggy Bank in a CageOn June 25, 2018, the Enforcement Section of the Commonwealth of Massachusetts Securities Division (“Division”) filed an Administrative Complaint (“Complaint”) against Respondent MetLife, Inc. (“MetLife”) in connection with alleged violations of the Massachusetts Uniform Securities Act (the “Act”).  Specifically, the Division has alleged that MetLife, through a line of business known as pension risk transfer, “negligently relied on inadequate procedures to contact certain retirees, many of whom may be completely unaware that their former employer has offloaded its pension responsibilities to MetLife.”  MetLife purportedly failed to make a good faith attempt to contact certain Massachusetts retirees due group annuity benefits, and as alleged in the Complaint, the insurance company did not take reasonable steps, such as through certified mail, e-mail, or telephone calls, to contact numerous pensioners, including over 400 Massachusetts retirees.

As alleged in the Complaint, MetLife categorized numerous living retirees as “Presumed Dead.”  Consequently, the Division has alleged that MetLife stopped making pension payments to certain Massachusetts annuitants (in some cases, dating back 10 years), and further, caused negligent material misstatements to be made in certain MetLife public disclosures as filed with the SEC.  According to the Complaint: “MetLife’s negligent administration of its pension risk transfer business caused MetLife to make materially misleading misstatements in its public filings.  The Division brings this action pursuant to the antifraud provisions of the Act, to ensure that MetLife identifies and locates those retirees to whom it owes benefits, and immediately effects all retroactive and continuing payments, plus interest, to Massachusetts retirees.”

According to the Division, MetLife only sent “two bureaucratic, perfunctory letters” to Massachusetts retirees, one at age 65 and one at age 70 ½.  When retirees failed to respond to these letters, MetLife allegedly released the retiree’s benefit amount from its reserves (thus effectively transferring a liability to an asset on the company’s balance sheet), without confirming that the retiree was actually deceased.  As alleged in the Complaint: “After two unsuccessful attempts to contact its annuitants, MetLife released the full liability based on the unreasonable presumption that these annuitants would never respond and had not become entitled to benefits based on certain contractual provisions.”

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Apartment  BuildingAs recently reported, on September 20, 2017, the Enforcement Section of the Massachusetts Securities Division (the “Division”) filed an Administrative Complaint (“Complaint”) against SII Investments, Inc. (“SII”) (CRD# 2225) in connection with the brokerage firm’s marketing and sales of non-traded REITs to certain Massachusetts investors.  SII is an independent broker-dealer within National Planning Holdings, which was recently acquired by Boston-based LPL Financial.

The Complaint essentially alleges that for the past several years, SII has engaged in “[d]ishonest and unethical conduct and failed to supervise its agents by allowing systemic inflation of its clients’ liquid net worth while maintaining contradictory and unclear rules related to the purchase of non-traded real estate investment trusts… .”  Of significance, Massachusetts securities regulations mandate that “[n]o more than 10% of a client’s liquid net worth can be concentrated in one specific non-traded REIT and no more than 20% of a client’s liquid net worth can be concentrated in non-traded REITs in general.”

According to the Complaint, SII’s own internal policies and procedures also would also appear to have been violated by some of SII’s alleged conduct.  For example, on SII’s own suitability and disclosure forms used for the sales of non-traded REITs, the full value of variable annuity products was listed as part of a client’s liquid net worth.  However, as referenced in the Complaint, SII’s own “[C]ompliance Guide states ‘There must not be any representation or implication that variable annuities are short-term, liquid investments.  Presentations regarding liquidity or ease of access to investment values must be balanced by clear language describing the negative impact of early redemptions.’”

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Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses as a result of doing business with Merrill Lynch and Sentinel Securities Inc. Both firms have recently been fined by Massachusetts regulators for failing to adequately supervise employees who used customer funds for their own personal benefit.


In one case, registered representative Jane E. O’Brien reportedly borrowed client funds amounting to more than $2 million.  O’Brien allegedly used client funds that should have been invested in a software company for personal expenses. According to Massachusetts prosecutors and regulators, O’Brien has pleaded guilty to charges of fraud. She was sentenced to 33 months in prison and was barred from the securities industry.

In addition, regulators say that Merrill Lynch should have suspected that O’Brien was in financial trouble when she removed $380,750 from her retirement account prematurely, incurring tax penalties, but they didn’t inform regulators about a conduct review until almost a week after the Justice Department indicted her. Merrill was ordered to pay a fine of $500,000 for allegedly failing to adequately supervise O’Brien.

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Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses in U.S. mutual funds that contained Puerto Rico bonds. Massachusetts securities regulators are currently investigating these investments and claim that many investors may have been unaware of the exposure to the Puerto Rico fiscal crisis.


According to securities arbitration lawyers, many state-specific municipal bond funds contained Puerto Rico debt and, as a result, other investigations may ensue. According to Massachusetts Secretary of the Commonwealth, William Galvin, the investigation includes three large fund managers: OppenheimerFunds (a unit of MassMutual Life Insurance Co.), UBS Financial Services and Fidelity Investments. The investigation is regarding how these managers sold and disclosed the risk of mutual funds containing heavy concentrations of the Puerto Rico bonds.

“Puerto Rico is currently on the verge of insolvency and many of its obligations are at or near junk rating, thus the risks associated with its municipal debt obligation are disproportionately high,” Galvin notes.

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Investment fraud lawyers continue to investigate claims on behalf of investors who suffered significant losses as a result of an unsuitable recommendation of non-traded REITs, or real estate investment trusts. Last month, securities regulators of Massachusetts ordered five independent broker-dealers (IBDs) to pay an additional $10.75 million in restitution over sales of non-traded REITs. The relevant sales occurred beginning in 2005.

The five firms involved in this order are Ameriprise Financial Services Inc., Commonwealth Financial Network, Securities America Inc., Royal Alliance Associates Inc. and Lincoln Financial Advisors Corp. This order follows one made in May, in which the five IBDs agreed to pay $975,000 in fines and restitution of $6.1 million. Prior to that decision, LPL Financial agreed to pay restitution of $4.8 million to Massachusetts clients.

Of the $10.75 million, Securities America must pay $7.5 million, Ameriprise Financial must pay $1.6 million, Lincoln Financial must pay $841,000, Commonwealth must pay $534,000 and Royal Alliance must pay $125,000. This order, combined with the previous orders, requires restitution of $21.6 million to Massachusetts clients over improper sales of non-traded REITs.  Non-Massachusetts investors will not benefit from this restitution.  However, securities arbitration lawyers say that investors in other states can still recover losses sustained in risky non-traded REITs sold by these firms in securities arbitration.

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  Reportedly, 15 brokerage firms have been subpoenaed by the Commonwealth of  Massachusetts as part of an  investigation into sales of alternative investments to senior citizens.

15 Brokerage Firms Subpoenaed Over Alternative Investment Sales

The following firms have reportedly been subpoenaed: Merrill Lynch, Morgan Stanley, UBS Securities LLC, Charles Schwab & Co. Inc., Fidelity Brokerage Services LLC, Wells Fargo Advisors, ING Financial Partners Inc., TD Ameritrade Inc., LPL Financial LLC, MML Investor Services LLC, Commonwealth Financial Network, Investors Capital Corp., WFG Investments Inc. and Signator Investors Inc.

According to securities arbitration lawyers, the state sent subpoenas to the firms on July 10, 2013, requesting information regarding the sale of certain products to Massachusetts residents 65 or older over the last year. Nontraditional investments include private placements, hedge funds, oil and gas partnerships, tenant-in-common offerings, and structured products.

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On May 22, 2013, secretary of the Commonwealth of Massachusetts William Galvin announced settlements with five major independent broker-dealers. According to the settlements, Ameriprise Financial Services Inc. will pay $2.6 million in restitution to investors and a $400,000 fine, Commonwealth Financial Network will pay restitution of $2.1 million and a fine of $300,000, Royal Alliance Associates Inc. will pay restitution of $59,000 and a fine of $25,000, Securities America Inc. will pay restitution of $778,000 and a fine of $150,000 and Lincoln Financial Advisors Corp. will pay restitution of $504,000 and a fine of $100,000. Securities fraud attorneys are currently investigating claims on behalf of investors who purchased Real Estate Investment Trusts (REITs) from these or any other independent broker-dealers.

Non-traded REITs: Five Firms to Pay $7 Million in Massachusetts Settlement

According to a statement made by Mr. Galvin, “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.”

According to stock fraud lawyers, this settlement follows the February decision in which LPL Financial LLC was required to pay restitution to investors of $2 million and fines totaling $500,000 regarding non-traded REIT sales. 

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