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Wells Investment Securities Fined for Misleading Marketing

On November 22, the Financial Industry Regulatory Authority (FINRA) announced its securities arbitration decision to fine Wells Investment Securities Inc. for using misleading marketing materials. The materials were used in the sale of Wells Timberland REIT Inc., for which Wells was the wholesaler and dealer-manager, and the fine imposed by FINRA was $300,000.

Wells Timberland REIT is a non-traded Real Estate Investment Trust that invested in timber-producing land. Because it was the wholesaler, Wells was responsible for the review, approval and distribution of the marketing materials. According to FINRA’s investigation, Wells distributed 116 sales materials and advertising that contained exaggerated, unwarranted and misleading statements concerning the REIT from May 2007 through September 2009.

One of the misleading statements contained in the offering prospectus was that Wells Timberland intended to qualify as a Real Estate Investment Trust for the Dec. 31, 2006 tax year when, in fact, it did not qualify until the Dec. 31, 2009 tax year. Furthermore, most of the sales literature and advertisements either did not adequately express the significance of the investment’s non-REIT status or suggested that the investment was a REIT when it had not yet qualified. In addition, the FINRA investigation found that the supervisory procedures of the firm did not adequately monitor whether sensitive customer information that was stored on laptops was adequately safeguarded through the use of encryption technology.

A recent Investor Alert, discussed in the earlier blog entry, “FINRA Investor Alert: Public Non-traded REITs,” is a useful tool for helping investors to understand these investments and the benefits and risks associated with them.

“By approving and distributing marketing materials with ambiguous and equivocal statements, Wells misled investors into thinking Wells Timberland was a REIT at a time when it was not a REIT,” says FINRA Executive Vice President and Chief of Enforcement Brad Bennett. “Firms need to be mindful that investors rely on marketing materials to disclose truthful, accurate and up-to-date information to help inform their investment decisions.”

If you made an investment based on marketing materials that were later discovered to be misleading, you may have a valid securities arbitration claim. Contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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