The five firms that settled with Massachusetts are Ameriprise Financial Services Inc., Commonwealth Financial Network, Royal Alliance Associates Inc., Securities America Inc., and Lincoln Financial Advisors Corp.

“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,” Mr. Galvin said in a statement.

Reportedly, many seniors are being persuaded to invest in non-traded REITs but are not being made aware of the risks and illiquidity of these products. According to securities fraud attorneys, many brokers and advisers with full-service brokerage firms may be tempting senior investors with promises of better returns while failing to adequately disclose the risks. Many retirees have a low risk tolerance and want conservative, income-producing portfolios and are attracted by brokers’ promises of a steady stream of distribution income from non-traded REITs. What brokers and advisors often times do not disclose is that distributions may be suspended or stopped completely. Another problem retirees face with REITs is that they may need access to their funds, but many non-traded REITs have suspended redemptions, leaving investors with limited options in the event that they need to sell REIT shares to access their funds.]

“The enforcement section’s investigation revealed significant and widespread problems with the firms’ compliance with their own policies, practices and procedures rules and adherence with Massachusetts prospectus requirements leaving investors often trapped in illiquid and underperforming financial products,” according to a statement by the Massachusetts Securities Division.

If you or a loved one suffered significant losses as a result of the unsuitable recommendation by any advisor to invest in non-traded REIT, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a no-cost, confidential consultation.

Suitability claims arise when stockbrokers or investment advisors recommend investments that are not appropriate for an investor’s financial circumstances, risk tolerance, or investment goals. FINRA Conduct Rule 2310 requires that Members and their Representatives have a reasonable basis to recommend a transaction or investment strategy suitable for the customer, based on information obtained through reasonable diligence and the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, time horizon, liquidity needs, and risk tolerance.

Cases filed by the Gray Firm allege that in certain circumstances, LPL lacked a reasonable basis to recommend certain non-traded REITs, including Inland Western REIT (now known as Retail Properties of America. As a private unlisted investment, Inland Western was a Non-Conventional Investment (“NCI”). FINRA’s Notice to Members 03 71 states that “since NCIs often have complex terms and features that are not easily understood,” there exists the potential for customer harm or confusion since investors do not understand the risks involved. Members must conduct appropriate due diligence/reasonable basis suitability before offering these investments to the public. Specifically the Notice states that when offering NCI investments, FINRA Members are required to:

(1) conduct appropriate due diligence to understand the features of these products; (2) perform a reasonable basis suitability analysis; (3) perform customer specific suitability analysis for recommended transactions; (4) provide balanced disclosure of both the risks and rewards associated with the particular product ; (5) implement appropriate internal controls; and (6) train registered representatives regarding the features, risks and suitability of these products.

According to a recent New York Times article, state securities regulators have increased scrutiny on LPL’s sales practices. “LPL is on our radar screen more than any other firm,” said Lynne Egan, who oversees securities regulation in Montana. According to the New York Times article, as LPL has expanded to become the fourth largest brokerage firm in the country, state and federal authorities have censured the company and its brokers with unusual frequency, including for selling complex investments to unsophisticated investors, for speculative trading in customer accounts, and, in a few cases, for outright stealing from clients.

In the last year and a half, state regulators in Illinois, Massachusetts, Montana, Oregon and Pennsylvania have penalized LPL for failing to oversee its brokers properly. Brokers at the company have faced the most common industry reprimand more frequently than brokers at its large competitors since the beginning of 2012, according to a New York Times review of data from FINRA, the industry’s self-regulator.

Both Montana and Massachusetts have pursued LPL for allegedly selling complicated real estate investment trusts, or non-traded REITs, to unsophisticated investors. William F. Galvin, the Massachusetts secretary of the commonwealth, came to a $2.5 million settlement with LPL in February 2013 arising out of LPL’s sales of non-traded REITs to investors in his state. The Massachusetts complaint arose out of $28 million in non-traded REIT sales between 2006 and 2009, which were sold to nearly 600 clients in Massachusetts. According to the Massachusetts Securities Division, 569 of those transactions involved 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. Other REITs discussed in the Massachusetts complaint included Cole Credit Property Trust II, Inc., Cole Credit Property Trust III, Inc., Cole Credit Property 1031 Exchange, Wells Real Estate Investment Trust II, Inc., W.P. Carey Corporate Property Associates 17, and Dividend Capital Total Realty.

According to the Massachusetts complaint, the investigation has “revealed significant and widespread problems with LPL’s adherence with the product prospectus and (state) requirements.” The complaint went on to state that “on paper, LPL set forth stringent requirements for the sale of non-traded REITs. In practice, LPL failed to review properly sales of non-traded REITs. While purporting to conduct a thorough review of offering documents, LPL allegedly overlooked prospectus delivery requirements in numerous sales of non-traded REITs.”

Attorneys at Law Office of Christopher J. Gray, P.C. are available to review possible cases involving unsuitable sales of non-traded REITs. Investors who believe that a financial advisor or stockbroker may have violated their rights in connection with sales of non-traded REITs or other securities may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a confidential, no-obligation consultation.