Posted On: October 5, 2011

FINRA Issued Investor Alert on Public Non-Traded REITs

This week the Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called Public Non-Traded REITs-Perform a Careful Review Before Investing to help investors understand the benefits, risks, features and fees of these investments. While investors may find non-traded REITs appealing due to the potential opportunity for capital appreciation and the allure of a robust distribution, investors should also realize that the periodic distributions that help make non-traded REITs so appealing can, in some cases, be heavily subsidized by borrowed funds and include a return of investor principal. Additionally, early redemption of shares is often very limited, and fees associated with the sale of these products can be high and erode total return.

"Confronted with a volatile stock market and an extended period of low interest rates, many investors are looking for products that offer higher returns in turbulent times. However, investors should be wary of sales pitches that might play up non-traded REITs' high yields and stability, while glossing over the lack of liquidity, fees and other risks," said Gerri Walsh, FINRA's Vice President for Investor Education.

Real estate investment trusts (REITs) pool the capital of numerous investors to purchase a portfolio of properties—from office buildings to hotels and apartments, even timber-producing land—which the typical investor might not otherwise be able to purchase individually. There are two types of public REITs: those that trade on a national securities exchange and those that do not. FINRA's alert focuses on publicly registered non-exchange traded, or simply non-traded REITs.

Public Non-Traded REITs outlines the features, complexities, risks and costs associated with non-traded REITs.
• Distributions are not guaranteed and may exceed operating cash flow. In newer programs, distributions may be funded in part or entirely by cash from investor capital or borrowings. Distributions can also be suspended for a period of time or halted altogether.
• Lack of a public trading market creates illiquidity and valuation complexities. Most non-traded REITs are structured as a "finite life investment," meaning that at the end of a given timeframe, the REIT is required either to list on a national securities exchange or liquidate. Many factors affect the valuation of non-traded REITs, including the portfolio of real estate assets owned, strength of the trust's balance sheet, overhead expenses and cost of capital.
• Early redemption is often restrictive and may be expensive. Most non-traded REITs place limits on the amount of shares that can be redeemed prior to liquidation. These limits can be as restrictive as 5—or even 3—percent of the weighted average number of shares outstanding during the previous year. Additionally, the redemption price is generally lower than the purchase price, sometimes by as much as 10 percent.
• Non-traded REITs can be expensive. State and FINRA guidelines limit front-end fees to 15 percent, but a 15-percent front-end fee on a $10,000 investment means that only $8,500 is going to work for an investor.

Continue reading " FINRA Issued Investor Alert on Public Non-Traded REITs " »

Posted On: October 3, 2011

Blum Law Group Files Securities Class Action Against Regions Bank Alleging Regions Aided and Abetted the Sale of Securities by an Unregistered Dealer

Blum Law Group has filed a class action lawsuit against Regions Bank (“Regions”), a banking subsidiary of Regions Financial Corporation (NYSE: RF). The securities class action filed in the United States Southern District of Florida alleges claims for violation of the Florida Securities and Investor Protection Act. The basis for the lawsuit is that Regions personally participated or aided in the sale of securities by dealers that were not registered with the State of Florida.

Specifically, U.S. Pension Trust Corp. ("USPTC") and U.S. College Trust Corp. ("USCTC") (collectively, "USPT") sold securities from offices located in the State of Florida without registering as a broker-dealer with the Securities and Exchange Commission ("SEC"). The class is defined as all persons and entities who contributed money to the investment plans sold by USPT between September 21, 2006 and August 31, 2009, inclusive.

A U.S. District Judge in the Southern District of Florida already has ruled that USPT violated federal law by failing to register as a broker-dealer, and another federal court judge entered a final judgment against Regions for aiding and abetting USPT's violations of federal registration laws. Regions agreed to pay a $1 million penalty to settle those charges.

USPT also failed to register as a dealer with the State of Florida, which the class action lawsuit alleges USPT was required to do pursuant to the Florida Securities and Investor Protection Act. The class action lawsuit seeks to hold Regions liable under Florida law for personally participating or aiding in USPT's sales of securities when USPT was not registered as a dealer with the State of Florida.

Continue reading " Blum Law Group Files Securities Class Action Against Regions Bank Alleging Regions Aided and Abetted the Sale of Securities by an Unregistered Dealer " »

Posted On: October 1, 2011

FINRA Fined Raymond James for Charging Unfair Commissions and Ordered Restitution

The Financial Industry Regulatory Authority (FINRA) ordered Raymond James & Associates, Inc. (RJA) and Raymond James Financial Services, Inc. (RJFS) to pay restitution of $1.69 million to more than 15,500 investors who were charged unfair and unreasonable commissions on securities transactions. FINRA also fined RJA $225,000 and RJFS $200,000.

FINRA said it found that from Jan. 1, 2006 to Oct. 31, 2010, the investment and financial planning firm and its subsidiary used automated commission schedules for equity transactions that charged more than15,500 customers nearly $1.69 million in excessive commissions on over 27,000 transactions involving, in most instances, low-priced securities. FINRA found that the firms’ supervisory systems were inadequate because the firms established inflated schedules and rates without proper consideration of the factors necessary to determine the fairness of the commissions, including the type of security and the size of the transaction.

"Raymond James failed to adequately monitor its supervisory systems," said Brad Bennett, FINRA executive vice president. "Broker-dealers must ensure that their automated systems set commission charges that are fair to investors."

Continue reading " FINRA Fined Raymond James for Charging Unfair Commissions and Ordered Restitution " »

Bookmark and Share