Brokers to repay more in settlement

Five independent brokerage firms have agreed to pay an additional $10.7 million in restitution over their sales of risky real estate investment trusts, or REITs, Massachusetts Secretary of State William F. Galvin said Wednesday.

Many of these same firms earlier agreed to return about $11 million to clients and paid fines during Galvin’s initial investigation into the sale of shares in REITs. With the additional payments announced Wednesday, six companies have paid $21.7 million in restitution and $1.5 million in fines related to investment trusts that own or manage real estate.

In particular, Galvin said, the investigation found the firms encouraged clients to put more than 10 percent of their liquid net worth — or assets that can be readily turned into cash — into these investments. Because REITs are risky and have long holding periods, Massachusetts state law limits their purchase to 10 percent of an investor’s liquid net worth.


Galvin, the state’s top securities regulator, began investigating REITs in 2011 after receiving complaints from investors, particularly from elderly residents. These investments promise high yields and may appeal to senior citizens who have built nest eggs, but are getting paltry returns on bank accounts due to low interest rates, Galvin said. But investors are sometimes unaware that they may not be able to sell REITS without significant losses.

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The firms that have settled as part of this second round of the probe are:

 Securities America, which will make restitution of $7.7 million.

 Ameriprise Financial Inc., which has set aside $1.6 million for clients who want their money back.

 Lincoln Financial Advisors Corp. will offer $840,873 back.


 Commonwealth Financial Network, $553,500.

 Royal Alliance Associates Inc., $125,000.

A sixth firm, LPL Financial, settled with Galvin earlier.

In a statement, Securities America said its problems related to 126 transactions over eight years.

“Enhancements have already been made to our system,” Janine Wertheim, a spokeswoman and senior vice president for Securities America, wrote in an e-mail. “We are glad to resolve this matter.”


Michael Arcaro, a spokesman for Lincoln Financial Group, said the company cooperated with Galvin’s examination. “We are pleased to put this matter behind us,” Arcaro said in an e-mail.

Ameriprise declined to comment, and the other companies could not be reached for comment.

Galvin’s REIT investigation has widened to other high-risk alternative investments pitched to the elderly, including partnerships that buy aging oil-and-gas fields, hedge funds, and equipment leasing programs.

Galvin’s office issued subpoenas in July to 15 banks and investment brokerage firms, demanding information about how alternative investments are sold to adults over the age of 65.

Many of these investments are complex, making it difficult for consumers to evaluate the risks, Galvin has said.

Deirdre Fernandes
can be reached at Follow her on Twitter @fernandesglobe.