In a case that points up many of the problems that have been plaguing the securities industry for years, a FINRA panel of arbitrators awarded six investors more than $1M in relief after they alleged that a financial advisor and three executives for Berthel Fisher & Co sold them unsuitable complex products.
SEC Approves FINRA-Recommended Rule Change to REIT Reporting
The Securities and Exchange Commission (SEC) finally approved a rule change that would give investors far more clarity on the purchasing price of non-traded real estate investment trusts, or REITs. (If you don’t know what a REITs is, click here). This rule change, recommended by securities industry watchdog, the Financial Industry Regulatory Authority (FINRA), has been a long time coming. But now that it’s here, investors should welcome it with open arms.
The REITs Rule Change Adds a Much-Needed Layer of Investor Protection
Until now, it has been common practice among broker-dealers to list non-traded REITs at a per-share price of $10, regardless of what the actual valuation of the shares may be. The new rule however will force broker-dealers to include a per-share estimated value of the shares of any unlisted direct participation program (DPP) or REIT, along with other relevant disclosures, instead of the generic $10 per-share placeholder.
Digging a little deeper, we find that FINRA has proposed two methodologies by which firms may calculate the new per-share estimates: net investment or appraised value. The way these methodologies work would make the average investor’s headspin. But that’s granular information that shouldn’t really concern retail investors interested in REITs anyway. Rather, the key takeaway here is that the rule change offers greater protection to investors who were not historically receiving accurate representations of the value of their investments in REITs.
Broker-Dealers Now Required to Disclose Nature and Risks of REITs
As previously mentioned, the new rule explicitly requires that more information about DPPs and REITs be disclosed to investors, including a provision for specific disclosures stating that DPPs and non-traded REITs are not listed on national securities exchanges, and are generally illiquid investments whose sale value may be less (often far less) than the value of the shares reported on customer statements.
It is worth remarking here that our firm has represented numerous clients whose financial advisors have irresponsibly steered them into REITs without adequately disclosing the nature, risks, and valuation problems associated with these somewhat notorious investments.
If you or anyone you know has been the victim of broker misconduct or investment fraud, or has been unsuitably recommended DPPs or REITs by your financial advisor, please contact our securities attorneys for a free consultation by calling us toll-free at 1-855-462-3330 or via email by clicking here.