MASSACHUSETTS LAWSUIT AGAINST LPL FINANCIAL FOR REIT SALES PAVES THE WAY FOR SUCCESSFUL INVESTOR CLAIMS

A Massachusetts lawsuit against LPL Financial will surely strengthen investors' arbitration claims for losses resulting from illegal sales practices involving real estate investment trusts (REITs). Massachusetts Secretary of the Commonwealth William Galvin charged LPL with failure to supervise registered representatives who sold the non-traded REITs in violation of both state limitations and the company's guidelines. The Massachusetts securities division also charged LPL with dishonest and unethical business practices. Massachusetts charges stem from the sale of $28 million of non-traded REITs to almost 600 clients from 2006 to 2009. Of the REITs listed in the complaint, the highest sales were for Inland American Real Estate Trust, the largest non-traded REIT, with $11.2 billion in real estate assets. Robert Pearce, a 30-year securities and commodities attorney in Boca Raton, FL, believes that Massachusetts' action will certainly generate a flood of cases against LPL. Mr. Pearce added that the Massachusetts complaint will serve as a roadmap for investors and their attorneys to follow when asserting their claims.
REITs invest in a diversified set of income producing real estate properties and mortgages, and they must distribute 90 percent of net earnings to investors. REITs allow investors to partake in real estate investing without directly owning property, which may lock up large amounts of money for long periods of time. The most popular REITs are publicly traded on a stock exchange such as the New York Stock Exchange (NYSE) - they are relatively transparent in their finances and operations and are covered extensively by investment analysts. Non-traded REITs are not listed or registered with securities regulators and are supposed to be available only to accredited investors - $1 million or more in assets or $200,000.00 in annual income. Non-traded REITs disclose their finances publicly and offer shares to the public, but they do not list their shares on an exchange, which is one of many risk factors associated with them.
In LPL's case, Massachusetts' investigation showed significant and widespread issues with LPL's adherence to product prospectus and state requirements. As a result, Massachusetts is seeking full restitution to clients who were sold REITs allegedly in violation of state and prospectus requirements. The state is also seeking an unspecified administrative fine against LPL. Although LPL set forth stringent requirements for the sale for non-traded REITs, it failed to properly review sales of non-traded REITs. In addition, the securities division was able to uncover similar issues with many other REITs sold by LPL. To counter the possibility of future violations, the firm has changed its policies and procedures, creating a separate complex-products team to review all alternative investments. Regardless of the measures taken by LPL, investors are urged to conduct their own investigation prior to making an investment decision involving non-traded REITs. That way, investors will have a clearer understanding of non-traded REITs, which just might keep them from buying the product from the get-go.
Have you suffered losses in real estate investment trusts sold by LPL Financial? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INLAND AMERICAN REIT UNDER SEC INVESTIGATION

According to the Wall Street Journal, the Securities and Exchange Commission is investigating Inland American Real Estate Trust (Inland American REIT) for potential violations of federal securities laws. According to the report, the SEC is looking at activity of Inland American REIT to determine if the REIT committed violations related to management fees, the timing and amount of distributions paid to investors, and transactions with affiliates.

Inland American is the largest of the non-traded REITs currently available and the investigation casts a large shadow on the non-traded REIT market.

Brokerage firms have a fiduciary duty to perform adequate due diligence on any investment that they recommend and to ensure that the investments recommended are appropriate in light of the client's age, investment experience, net worth, and investment objectives.

The problems we see involving non-traded REITs generally relate to the financial advisor's failure to adequately disclose the risks and illiquidity of these investments (as well as the high commission he/she earned for selling the REIT). REITs typically pay a high commission-often as much as 15% (which often explains the stockbroker's motivation in recommending the REIT investment to the investor). Due to the relatively high interest or dividend offered by non-traded REITs, elderly and retirees are often victimized by those misrepresented and unsuitable investment recommendations.

One of the other main complaints we continually hear relates to the problems in the valuation of these investments. FINRA rules currently mandate that sponsors of non-traded REITs establish an estimated per-share valuation within 18 months after the REIT stops raising money from investors. The problem with this language is that fund raising often lasts for years which results in the per-share valuation potentially remaining unchanged for years.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

SEC INVESTIGATES INLAND AMERICAN REIT

The SEC recently announced that it is looking at activity of Inland American REIT to determine if the REIT committed violations related to management fees, the timing and amount of distributions paid to investors, and transactions with affiliates. It is unclear at this time what the investigation will mean for the value of Inland American REIT but obviously this is not good news.

FINRA has stepped up its regulation of the sale of REITs and, in particular, the ways in which broker/dealers marketed and sold the products to investors. In many cases, and notwithstanding the risk of REIT investments, broker-dealers marketed these investments as safe and secure.

REITs typically pay a high commission - often as much as 15% (which often explains the stockbroker's motivation in recommending the REIT investment to the investor). Due to the relatively high interest or dividend offered by non-traded REITs like Inland American REIT, retired investors are often attracted to these products. Unfortunately, in addition to be risky investments, non-traded REITs are also illiquid (limiting investors' ability to access their own money for unforeseen expenses). Another problem with non-traded REITs is that broker-dealers are not required to frequently update the current price of the investment. This often leads investors to believe that their REIT investment is doing well even though the widespread real estate market collapse would indicate otherwise.

Have you suffered investment losses in Inland American REIT? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.