Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) recently sanctioned Ameriprise Financial Services (Ameriprise) broker Michael Hainsworth (Hainsworth) concerning allegations that the broker made certain misrepresentations and unbalanced statements in the sale of non-traded real estate investment trusts (REITs) by sending emails to potential investors that failed to provide a sound basis for evaluating the facts.
Hainsworth has been a broker in the securities industry since 1994. From 2007 through June 2009 Hainsworth was associated with Prime Capital Services, Inc. Thereafter, he was associated with brokerage firm Securities America, Inc. from July 2009 through September 2011. Finally, he was associated with Ameriprise from May 2009, through April 2012. Thereafter, Ameriprise filed a Form U5 Uniform Termination Notice stating that Hainsworth had been terminated from Ameriprise.
FINRA alleged that between May and October 2010, Hainsworth sent emails regarding a REIT to four potential investors. FINRA found that the emails were misleading and failed to provide a sound basis for evaluating the facts of the investment. In one email, Hainsworth stated that “My recommendation is to take $50,000 out of the market in your Trust account and $50,000 out of your IRA and allocate it to the…REIT…This pays 6.25 and matures Dec 3lst, 2015.”
FINRA found this email not to be fair and balanced and to be misleading because it implies that the REIT is comparable to a fixed income investment, such as a bond. FINRA stated that the phrase “this pays 6.25″ would imply to the investor that the distribution rate is a yield in reference to bonds and other fixed-interest securities but that REITs, in fact, pay distributions, not interest. In addition, FINRA determined that the use of the phrase ”matures Dec 31st, 2015″ is also misleading because REITs do not mature and any future liquidity event is not guaranteed. FINRA also alleged that Hainsworth failed to disclose that all or a portion of the distribution from the REIT could be a return of principle and not an investment return.
In another email, FINRA found that Hainsworth stated that “[Company] has a 2 year REIT that is paying 6.25% quarterly…The…REIT over the last two years has purchased several ski resorts, golf courses and marinas at bargain basement prices.” FINRA found Hainsworth’s email to be misleading because it implied that the REIT is comparable to a fixed income investment. In addition, FINRA found that the broker misrepresented the composition of the REIT’s real estate portfolio. Specifically, FINRA alleged that the statement “REIT over the last two years has purchased several ski resorts, golf courses and marinas at bargain basement prices” is misleading since the vast majority of the REIT’s properties were purchased prior to 2008. FINRA found that 85 of the 105 properties, or 80%, that were subject to an operating lease were purchased prior to 2008.
FINRA determined that these and other Hainsworth emails constituted communications with the public subject to NASD Rule 2210 and that Hainsworth violated NASD Rule 2210(d) and FINRA Rule 2010.
In addition, this is not the first time Ameriprise brokers have been sanctioned concerning the sale of REITs. In the Matter of Ameriprise Financial Services, Inc. – Non Traded REITs, Case No. E-2013-0045 Ameriprise, along with four other independent brokerage firms paid $6 million to settle claims brought by the state of Massachusetts concerning allegations that the firms improperly sold REITs. Ameriprise paid a $400,000 fine made $2.59 million in restitution to investors.
The attorneys at Gana Weinstein LLP are experienced in representing investors to recover their financial losses through the misrepresentation of non-traded REITs. Our consultations are free of charge and the firm is only compensated if you recover.