Securities regulator says firm failed to supervise agents over suitability.
Massachusetts regulators have charged SII Investments with "dishonest or unethical conduct and failure to supervise" sales of non-traded real estate investment trusts (REITs) to investors by inflating clients' liquid net worth.
In doing so, William Galvin, the secretary of the commonwealth, said the firm violated its own internal policies and procedures.
SII, an independent broker-dealer within National Planning Holdings, was recently purchased by LPL Financial. Neither National Planning Holdings nor LPL were available for comment.
A Massachusetts securities regulation requires that an investor's purchase of a particular non-traded REIT issue can constitute no more than 10% of the investor's liquid net worth. The administrative complaint against SII charges that the brokerage firm sold more than $4 million of non-traded REITs, many of which would have been in violation of Massachusetts limitations as well as SII's own compliance requirements and prospectus mandates, while the firm and its agents received high commissions.
The complaint alleges that SII agents improperly calculated Massachusetts clients' liquid net worth on suitability and disclosure forms for non-traded REITs, while SII's compliance team failed to supervise the agents selling the inappropriate investments.
The state said that while SII's own internal policies make clear that annuities are illiquid products, "SII nevertheless included annuities with material pending surrender fees as liquid for non-traded REIT liquid net worth calculations." Had these products not been included, the state said, many of the sales of nontraded REITs could not have occurred.
The complaint seeks censure, a cease and desist order, and restitution for those investors whose losses were attributable to the alleged wrongdoing. Also sought is an administrative fine.
