LPL Financial Faces Charges Over REIT Sales Abuses

Sales abuses tied to non-traded real estate investment trusts, or REITs, have become increasingly front and center for the Financial Industry Regulatory Authority (FINRA) and state securities regulators alike. Now, one state, Massachusetts, is taking action.

Earlier this month, Massachusetts Secretary of the Commonwealth William Galvin filed civil charges against LPL Financial LLC for failing to supervise LPL brokers who sold investments in seven non-traded REITs.

According to the complaint, LPL Financial, a unit of LPL Financial Holdings, sold $28 million worth of the REIT products to Massachusetts residents between 2006 and 2009.  Almost all of the transactions violated state securities regulations or LPL’s own compliance practices, Galvin said in a statement. Meanwhile, LPL received at least $1.8 million in commissions on the deals during the time in question.

The REITs at the center of the Massachusetts complaint include: Cole Credit Property Trust II; Cole Credit Property Trust III; Cole Credit Property 1031 Exchange; W.P. Carey Corporate Property Associates 17; Wells Real Estate Investment Trust II; Inland American REIT; and Dividend Capital Total Realty.

Non-traded REITs do not trade on exchanges, typically provide no liquidity for long periods of time and carry fees as high as 15%. Early redemption of non-traded REITs can trigger more and higher fees, as well.

The Massachusetts complaint also charges LPL with dishonest and unethical business practices. Galvin’s office is seeking a cease-and-desist order against LPL, censure and full restitution for investors.