Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) sanctioned and fined Hantz Financial Services, Inc. (Hantz Financial) $75,000 concerning allegations that between April 2004, until April 2011, Hantz Financial violated FINRA rules by failing to properly enforce its written supervisory procedures for conducting due diligence with respect to a non-exchange traded real estate investment trust (REIT) and by failing to establish and maintain a supervisory system reasonably designed for conducting ongoing due diligence of REITs.
Hantz Financial has been a member of FINRA since 1999 and is headquartered in Southfield, Michigan. The firm employees 276 registered representatives and conducts a general securities business.
A REIT is a corporation or trust that owns income-producing real estate. REITs pool the capital of numerous investors to purchase a portfolio of properties that may include office building, shopping centers, hotels, and apartment buildings that the average investor would not otherwise be able to purchase individually. Shares of non-traded REITs do not trade on a national securities exchange and are generally illiquid for periods of eight years or more. The risks of non-traded REITs are significant and FINRA has issued an Investor Alert warning investors of some of the potential risks.
FINRA alleged that from April 2004 through April 2006, the Hantz Financial’s supervisory procedures for conducting due diligence on REITs stated that supervising principals were responsible for determining that appropriate due diligence. FINRA alleged that the firm’s “appropriate due diligence” consisted of a review of the prospectus and its associated materials to determine if they contained sufficient information to fully evaluate the risk.
FINRA found that Hantz Financial entered into selling agreements to sell shares of a REIT made available through three offerings. FINRA alleged that although the firm’s written procedures required that a supervisory principal initial and date any prospectus or disclosure documents reviewed during that process, the firm failed to document such a review of the REIT. Instead, FINRA alleged that the firm merely maintained paper and electronic copies of the prospectus and the disclosure documents for the REIT without any supervisory initials or dates to evidence that a supervisor conducted a review of the materials. FINRA concluded that Hantz Financial failed to ensure that the supervisor conducting the due diligence review of the REIT initialed and dated the disclosure documents as required by the supervisory procedures.
FINRA also alleged that from 2006 to the present, Hantz Financial failed to establish reasonably designed supervisory system to conduct ongoing due diligence of REITs. FINRA found that the firm’s written procedures did not contain procedures for conducting ongoing due diligence of the REITs. FINRA found that the supervisory principal responsible for conducting ongoing due diligence utilized only an informal system to review the REITs’ public filings and conference calls with REIT sponsors. FINRA found that Hantz Financial’s due diligence supervisory procedures were not reasonably designed to ensure that it conducted adequate ongoing due diligence of REITs.
The attorneys at Gana Weinstein LLP are experienced in representing investors concerning claims of non-traded REITs. Our consultations are free of charge and the firm is only compensated if you recover.