No-nonsense Massachusetts Secretary of the Commonwealth William Galvin said Friday that his office has entered into an order with SII Investments in connection with its failure to supervise the sales of non-traded real estate investment trusts (REIT).
SII is an independent broker-dealer within National Planning Holdings, which was recently purchased by LPL Financial from Jackson National Life.
As a result of the settlement, any Massachusetts investor who was identified by Galvin’s office as having been improperly sold non-traded REITs by SII will be offered the opportunity to get their money back from SII.
SII’s suitability and disclosure form for non-traded REITs stated that no more than 10 percent of an investor’s liquid net worth may be invested in any particular non-traded REIT.
While SII’s own internal policies made clear that annuities are illiquid products, SII nevertheless included annuities with substantial pending surrender fees as liquid for non-traded REIT liquid net worth calculations.
SII’s forms and policies, however, excluded any investment subject to substantial penalties from the calculation of liquid net worth, the complaint alleges.
“SII allowed its agents to miscalculate the customer’s liquid net worth in order to sell them high commission non-traded REITs in violation of Massachusetts guidelines and its own policies,” Galvin said. “SII puts its own interests ahead of the customers—yet another example of the need for a strong fiduciary rule to be adopted.”
The complaint stated that one Massachusetts investor who complained to Secretary Galvin’s office subsequently became unemployed. The investor suffered from ongoing medical issues, which she had disclosed to SII.
With essentially all her net worth tied up in three annuities and a non-traded REIT, she suffered significant harm and was unable to access the majority of her funds without paying substantial penalties.
In addition to offering rescission to investors, SII also agrees to cease and desist in conduct in violation of the Massachusetts Securities Act, be censured, and pay a $50,000 administrative fine.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
