UPDATE May 2013-In May 2013, Massachusetts regulators announced that the amount of reimbursement to investors was more than doubled to $4.8 million. Original post that follows was published on February 7th 2013.
The suit filed by Massachusetts securities regulators against LPL Financial in December 2012 was settled February 6, 2013. LPL Financial will pay a fine of $500,000 and is required to permit Massachusetts residents to return their nontraded REITs to LPL at the original purchase price, which was $10 a share for most of the REITs involved. There is a cap of $2 million( see above, actual amount was $4.8 million) on the amount of purchases LPL Financial is required to make.
The December 2012 complaint, which alleged that LPL failed to adequately supervise their brokers and sold the REITs in violation of state limits, as well as their own internal policies, named the following seven real estate investment trusts (REITs):
- Inland American
- Cole Credit Property Trust II
- Cole Credit Property Trust III
- Cole Credit Property 1031 Exchange
- Wells REIT II
- W.P. Carey Corporate Property Assoc. 17
- Dividend Capital Total Realty
LPL Financial and Ameriprise are the two biggest sellers of nontraded REITs. According to industry sources, of the $10 billion worth of these products sold, 20% of that total was sold by LPL and Ameriprise.
REITs invest in commercial real estate, such as hotels and strip malls. They are sold to investors with the pitch that property will increase in value, that investors will receive a steady flow of cash distributions and with little or no warning about the fact it may not be possible to sell them if cash is needed. Many nontraded REITs ceased distributions long ago leaving retirees wondering how they will pay their bills.
Nontraded REITs do not trade on securities exchanges making them illiquid or difficult to sell in secondary markets. Nontraded REITs have higher fees for investors than publicly traded REITs which may answer the question why so many of these illiquid investments were sold to retirees.
For more on nontraded REITs, including the other dozen or so problem ones, follow the link on the left , 3/4 of the way down this page to the link "REITs". There are over 50 posts on this topic discussing the other nontraded REITs , like KBS, Behringer Harvard, Inland, Wells, Hines, Dividend Capital, est. , as well as discussions about the secondary market where these products generally sell at a steep discount to the "estimated value" the company sends you from time to time.
For example, KBS I recently announced to investors that the estimated value had risen 2 cents to $5.18. In a recent survey made to the secondary market makers, I received price bids of $2.25-$2.50.
Time May Be Running Out
Most of these REITs were sold from 2006 forward. You should know that the FINRA arbitration rules make it difficult to pursue claims on purchases made more than six years ago, so if you have been considering taking action to recover your losses, you would be wise to take action now.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.