PROVIDENCE – An investment firm owned by Boston-based LPL Financial LLC has agreed with Massachusetts securities regulators to pay a $50,000 fine for its alleged failure to supervise sales of nontraded real estate investment trusts, or REITs, harming at least one investor.
SII Investments Inc. also agreed to “cease and desist” conduct in violation of the Massachusetts Securities Act and to be censured, Mass. Secretary of the Commonwealth William F. Galvin’s office announced.
The Wisconsin-based firm is an independent securities dealer-broker within National Planning Holdings, which was recently bought by Boston-based LPL Financial, the nation’s largest independent securities dealer-broker.
The complaint stated a Massachusetts investor, unemployed and suffering from ongoing medical issues that she disclosed to SII, did business with the firm and essentially tied up her net worth in three annuities and a nontraded REIT. However, the firm’s suitability and disclosure form stated that no more than 10 percent of an investor’s liquid net worth may be invested in any REIT.
While the firm’s own internal policies made clear that annuities are “illiquid” products, it nevertheless included annuities with substantial pending surrender fees as liquid for REIT liquid net worth calculations. The firm’s policies and forms, however, excluded any investment subject to substantial penalties from the calculation of liquid net worth, the complaint alleged.
As a result, the investor suffered harm and was unable to access the majority of her funds without paying substantial penalties, according to Galvin’s office.
The firm “allowed its agents to miscalculate the customer’s liquid net worth … to sell them high-commission, nontraded REITs in violation of Massachusetts guidelines and its own policies,” Galvin said.
Because of the settlement, any other Massachusetts investor who is identified by Galvin’s office as having been improperly sold the REITs will be offered the opportunity to get back their money from SII.
“SII puts its own interests ahead of its customers – yet another example of the need for a strong fiduciary rule to be adopted,” Galvin said.
Scott Blake is a PBN staff writer. Email him at Blake@pbn.com.