The Financial Industry Regulatory Authority has ordered two Retirement Securities Inc. and Sterling Enterprises Group Inc. to pay an individual and two trusts over $900,000 in a Non-traded real estate investment trust case. The individual is investor Kristopher Brownlow and the two trusts are the Martha H. Mason Trust and the Derek Mason Trust. Both Retirement Securities and Sterling Enterprises are no longer registered with FINRA.
The two trusts and Brownlow brought the case to the SRO, contending that they lost money because of the investments that Sterling Enterprises and Retirement Securities recommended to them. Per FINRA documents, the investments were made in REITS offered by Inland American Real Estate Trust Inc. and they were non-tradable. Inland Real Estate Trust Inc. is one of the biggest non-traded REITs with over $11 billion in assets.
At the dispute resolution hearing, the claimants argued that the investment advisors breached their fiduciary duty, were negligent, took part in common law fraud, violated the Florida Securities and Investor Protection Act, and breached contracts. Except for the allegation involving the Florida act, all allegations were thrown out.
The FINRA panel awarded $133,154 to the Martha Mason Trust and $719,971 to the Martha Mason Trust. Kristopher Brownlow was awarded $47,552.
Non-Traded Real Estate Investment Trusts
Non-traded REITs are very popular with investors in part because of high dividends. Unlike publicly traded REITs, nontraded REITs are sold and purchased by small investors by broker-dealers.
In just the last three months of 2012, investors infused about $3.3 billion into non-traded REITs. (Unfortunately, because a lot of these trusts suspended distributions, investors have found it tough to liquidate their holdings.) Last year, non-traded REITs raised $19.6 billion. Compare that to $10.3 billion in 2012.
Nontraded REITs Get Aggressive, The Wall Street Journal, January 14, 2014
FINRA’s $900K award in Tampa case raises issues about non-traded REITs, Tampa Bay Business Journal, December 26, 2013
More Blog Posts:
FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales, Stockbroker Fraud Blog, December 27, 2013
Broker-Dealer National Planning to Pay $6.2M FINRA Arbitration Award to Two Minnesota Investors Over REITs, Stockbroker Fraud Blog, December 3, 2013
US Hedge Fund Industry is Worried About Tax Implications Under EU Directive, Institutional Investor Securities Blog, November 27, 2013