Articles Posted in Massachusetts

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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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Securities fraud attorneys continue to investigate claims on behalf of investors who suffered losses in nontraded real estate investment trusts purchased from LPL Financial between 2006 and 2009. The recent announcement that LPL is being sued by the State of Massachusetts over sales practices related to nontraded REITs has helped inform investors about the issues concerning the sales of these risky, illiquid products.

Cole Credit Property Trust II and Dividend Capital Total Realty Named in Complaints Against LPL Financial

Cole Credit Property Trust II and Dividend Capital Total Realty were named in the list of complaints filed by investors, in addition to REIT giant Inland American Real Estate Trust. Shares of these nontraded REITs were purchased through LPL-affiliated financial advisors. Currently, there are 13,170 financial advisors who are LPL-affiliated advisors. Stock fraud lawyers say Wells Real Estate Investment Trust II, Cole Credit Property III, 1031 Exchange and W.P. Carey Corporate Property Associates 17 were also named.

LPL compliance documents state that the broker-dealer “cannot make exceptions to prospectus suitability requirements or the regulatory imposed limit of 10 percent of net worth in public managed futures.” However, the state regulator alleges that advisors affiliated with LPL “frequently made transactions in violation of product prospectus and Massachusetts requirements.” In addition, the complaint alleges that a LPL supervision employee was “completely unaware of Massachusetts’ requirements concerning the sale of non-traded REITs” for a minimum of two years.

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On December 12, 2012, Massachusetts securities regulators announced that they are suing LPL Financial in connection with sales of risky investments known as non-traded REITs. LPL Financial has been charged with improper sales practices and inadequate supervision of registered representatives who sold non-traded REITs.

The Fight Against LPL Financial Nontraded REIT Fraud Continues

These charges are in connection with the sales of $28 million in non-traded REITs between 2006 and 2009, which were sold to nearly 600 clients in Massachusetts. According to the Massachusetts Securities Division, 569 of those transactions had regulatory violations, including violations of prospectus requirements, violations of Massachusetts concentration limits and violations of LPL’s compliance practices.

Inland American Real Estate Trust Inc. accounted for the largest amount of sales of all the REITs listed in the complaint. With real estate assets amounting to $11.2 billion, this REIT was the largest non-traded REIT in the industry. 

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Investment fraud lawyers are currently investigating claims on behalf of individuals who invested with Stephen B. Blankenship and were, as a result of Blankenship’s actions, victims of securities fraud. A recent announcement by the Securities and Exchange Commission stated that it has charged Blankenship and his company with stealing from customers. These customers, who were persuaded by Blankenship to make withdrawals from their brokerage accounts to invest directly with him, lost at least $600,000 to his fraud. The accounts from which they withdrew these funds were managed by Blankenship but were held at other firms.

Victim of Stephen B. Blankenship Fraud Could Recover Losses

According to the SEC’s allegations, Blankenship lured customers in with assurances of greater rates of return if they would transfer their money to Deer Hill Financial Group, Blankenship’s firm. Furthermore, he claimed to be investing in publicly-traded mutual funds and other established securities but, instead, made no such investments and transferred his customer’s money to his personal bank account. The money was then allegedly used to pay various personal expenses, including travel, grocery bills and mortgage payments.

“Blankenship took advantage of fellow churchgoers and senior citizens who relied on their savings for retirement and placed their trust in him,” says David P. Bergers, director of the SEC’s Boston Regional Office. “He betrayed that trust by using their money to make personal credit card payments and home improvements.”

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Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses as a result of their investment in an Inofin promissory note or Inofin offering. A recent announcement by the Securities and Exchange Commission (SEC) stated that on July 23 and 24, final judgments were entered in a civil injunctive action against Michael J. Cuomo and Kevin Mann Sr. This action was filed in the United States District Court of Massachusetts.

Unregistered Securities: Inofin Investors Could Recover Losses

Allegations included in the SEC complaint were that Inofin and Inofin executives illegally raised money from investors in 25 states and the District of Columbia totaling at least $110 million. These funds were raised through unregistered note sales. Furthermore, Inofin allegedly materially misrepresented the company’s financial performance as well as how it was using investors’ money. Thomas K. Keough and David Affeldt, two sales agents, were also charged by the SEC. Allegations against Affeldt and Keough stated that they offered and sold the aforementioned unregistered securities.

Stock fraud lawyers say Keough’s FINRA Broker Report stated that he was registered with FINRA during a significant portion of the time that he sold these unregistered securities. As a result, investors who, in accordance with Keough’s recommendation, purchased an Inofin investmentvcould be able to recover losses through securities arbitration.

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