According to reporting by a leading investment industry trade publication, Investment News, Securities America, Inc., a Le Vista, Nebraska based independent broker-dealer firm owned by Ladenburg Thalmann & Co., Inc. is again under investigation for its actions with regard to sales of nontraded real estate investment trusts (REITs). Last year, Securities America was one of several independent broker-dealer firms that reached a settlement with the Commonwealth of Massachusetts’ Securities Division in which the firms agreed to pay millions of dollars of restitution to clients who bought non-traded REITs from 2005-2013. The firms were also fined more than one million dollars for their actions. In the case of Securities America, it was fined $150,000 dollars and agreed to pay restitution of approximately $8.4 million dollars to Massachusetts domiciled clients of the firm. Massachusetts Secretary of the Commonwealth William Galvin in September 2013 said that his office’s investigation “showed widespread problems with adherence to the firms’ own policies as well as the state rule that an investor’s purchase of REITs cannot be more than 10% of that person’s liquid net worth.”
The current investigation into Securities America’s nontraded REIT sales is being conducted by the Pennsylvania Department of Banking and Securities who has requested that the brokerage firm provide it with information concerning purchases of nontraded REITs by Pennsylvania’s residents since 2007. According to Ladenburg Thalmann’s annual report, which was only recently released, the firm states that it “is unable to determine whether and to what extent the [Pennsylvania Department of Banking and Securities] may seek to discipline Securities America or the scope of any potential liability.”
The mere existence of another state’s securities regulator delving into the nontraded REIT sales practices of a broker-dealer is nothing new. What the Pennsylvania Department of Banking and Securities’ investigation shows is that the area of nontraded REITs is vast and there are many problematic issues with the products and their associated sales. And while the residents of the Commonwealth of Massachusetts who were victims of abusive nontraded REIT sales by broker-dealers have received what appears to be some modicum of restitution, and depending upon what happens in Pennsylvania some of its residents who are victims of unscrupulous nontraded REIT sales may also receive some relief, that begs the question about what happens to the rest of the investors in the United States who suffered losses in nontraded REITs.
Many times when regulators reach a settlement as a result of an investigation into a broker-dealer the settlement only results in a monetary fine. The proceeds of said fine go to the state or entity brining the investigation and not to the individual investors that may have suffered a tremendous loss. Indeed what happened in Massachusetts is rare in that the victims actually received restitution. In most instances the only way for an investor who suffered losses in nontraded REITs or a REIT fraud case to recover is to file claims through binding FINRA arbitration.