Citing a risk of over-concentration, a top broker/dealer, Securities America, has announced that it will no longer sell the non-traded real estate investment trust American Reality Capital Trust V.
Also known as ARC V, the REIT is a big seller. Brokers sold $406.6 million of ARC V between its launch in April through June 30.
As reported by Investment News, an important risk management tactic being implemented by many broker/dealers, including Securities America, is maintaining certain thresholds that limit a firm’s total investment in any one alternative product or sponsor.
In the past, Securities America has been burned by too many sales of certain illiquid, alternative investment deals. From 2003 to 2007, Securities America was the biggest seller of private placement notes issued by Medical Capital Holdings Inc., which was later revealed to be a $2 billion Ponzi scheme. Securities America brokers sold close to $700 million of the notes. The legal fallout from those sales ultimately resulted in Ameriprise Financial Inc. selling Securities America to Ladenburg Thalmann Financial Services in 2011.
In June, Securities America was one of five broker/dealers to announce settlements with Massachusetts Secretary of the Commonwealth William Galvin over improper sales of non-traded real estate investment trusts and agreed to pay at least $7 million in fines and restitution.
Earlier this week, Advisor Group, which is owned by American International Group, announced it was cutting its selling agreement with Cole Holdings Corp., another leading sponsor of net-lease non-traded REITs.