Broker-dealer sales of opaque and illiquid private investments are squarely in the sights of securities regulators at the Financial Industry Regulatory Authority Inc.
In fact, Regulation D private placements and “close cousin” non-traded real estate investment trusts are listed as the first and second areas of focus, respectively, for FINRA’s enforcement department, according to James Shorris, executive vice president and executive director of enforcement.
Watching the marketplace for Reg D deals, known as such for how they are filed with the Securities and Exchange Commission, is a “major, major initiative” at FINRA, Mr. Shorris said Tuesday. He was speaking on a panel at the annual meeting of broker-dealer members of the Financial Services Institute, an advocacy group for independent firms.
He said FINRA officials have monitored failures at some broker-dealers that sold private placements as suitable investments for their clients — but noted that there were some firms that failed to perform appropriate due diligence on certain private offerings.
During his comments, he specifically named the offerings of Medical Capital Holdings Inc. and Provident Royalties LLC. Both of those offerings raised hundreds of millions of dollars through sales by independent broker-dealers. In 2009, the SEC charged both with fraud.
Mr. Shorris then pointed to the sale of non-traded REITs as a big focus of FINRA staff. “Those may not have been sold properly by reps to customers,” he said, with the reps at times not telling clients about the lack of liquidity that came after buying the product (as well as the general lack of oversight of these investments compared with more scrutinized investments such as stocks, mutual funds, etc.)
FINRA is also zeroing in on exotic products such as reverse convertibles and leveraged exchange-traded funds, and anti-money-laundering issues at broker-dealers.
If you have suffered investment losses in private placement or non-traded REIT investments, the securities attorneys of The White Law Group may be able to help.
The firm is currently representing numerous investors in cases involving private placements and non-traded REITs, including cases involving Medical Capital, Provident Royalties, DBSI, Desert Capital REIT, Behringer Harvard (among others).
For a free consultation, please call the firm’s Chicago office at 312-238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida. With over 30 years of securities law experience, including experience working at FINRA (f/k/a the NASD) and the SEC, The White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions attempt to recover their investment losses.