Within the past two weeks, two top FINRA officials have announced the focus of FINRA enforcement on private placements and non-traded REITs sold by broker/dealers to their customers. According to an Investment News article by Bruce Kelly on February 2, 2011, James Shoriss, Executive Vice President and Executive Director of Enforcement for FINRA, announced in a speech to the annual meeting of broker/dealer members of the Financial Services Institute that the sale of private placements and non-traded REITs to customers of broker/dealers were a primary focus of the FINRA Enforcement staff. Both private placements and non-traded REITs are high risk, illiquid securities, which are often sold as high yield investments to investors seeking income from their investments. However, in sales presentations to customers, brokers frequently do not sufficiently inform investors of the risk and illiquidity associated with these investments.
In a speech at the CCOutreach Broker/Dealer National Seminar, Richard Ketcham, Chairman and CEO of FINRA, stated that FINRA was looking into retail sales of private placement securities. Mr. Ketcham said that FINRA’s examinations and investigations had identified significant failures in broker/dealers’ compliance with suitability, supervision, and advertising rules. Mr. Ketcham also emphasized the obligations of broker/dealers to conduct reasonable investigations of private placement offerings before they are made available to customers of broker/dealers.
As a follow-up to his February 2, 2011, article, Bruce Kelly, of the Investment News, reported on February 15, 2011, that FINRA had issued a Wells notice to National Securities Corp. According to the article, the Wells notice placed National Securities on notice of potential violations of product suitability rules, email supervision rules, and standards of commercial honor and principles of the trade rules with respect to the sale of private placement securities.
Johnson, Pope, Bokor, Ruppel & Burns, LLP, the law firm with which Scott Ilgenfritz has been affiliated for 27 years, has offices in Tampa and Clearwater, Florida. The firm’s attorneys have in excess of 60 years experience in representing institutional and individual investors in securities-related litigation and arbitration claims across the country.