The Financial Industry National Regulatory Authority, or FINRA, recently released a public notice putting investors and brokers in the securities industry on their guard when it comes to so-called complex products – that is, non-standard investment types including non-traded REITs, mortgage backed securities and real estate TICs. According to federal regulators at both FINRA and the SEC, these products are not only inappropriate for most investors, they are also beyond the comprehension of most brokers as well and thus unsuitable for promotion or sale. Regulatory Notice 12-03 is the fourth such warning to be issued by FINRA on the subject of these alternative investments, and it serves to reinforce the dangers associated with any products that suffer from limited liquidity and transparency as a result of their private trading context. Unfortunately, however, the opportunity for high commissions has led many firms to market and sell complex products in spite of these facts; and now FINRA is fighting to clarify and uphold regulations throughout the securities industry in order to discourage the oftentimes misleading sale or unsuspecting purchase of such products in the interests of investor protection.
Non-traded REITs have received a lot of bad press in the past year (including coverage in our own securities and investment law column last month). But despite the many risks associated with such investments, it would seem that they are here to stay. In a recent Wall Street Journal report, experts noted that non-traded REITs have generated more than $73 billion in the last decade, despite the effects of a crippling recession. And that kind of profit, coupled with the attractive selling points of many real estate offerings, has industry commentators predicting that even government regulation and heightened scrutiny won’t suffice to pull these tricky investments from the market for good. Therefore, it is important for investors to have a firm grasp on the fine print when it comes to private placement and non-traded real estate investments; and to understand the steps that government agencies are taking on investors’ behalf in order to minimize their chances of being victimized by real estate investment fraud.
Over the last few years, non-traded REITs – real estate investment trusts – have drawn increased interest from investors looking for a way to secure income amidst erratic market and low interest rate conditions. So popular were these investments that, according to figures from the Investment Program Association, they raised almost $10 billion in 2011 alone. However, as noted in a recent New York Times financial report, non-traded REITs are riddled with hidden risks and, in the hands of dishonest promoters, ripe for investment fraud – prompting FINRA regulators to warn investors and brokers alike against pursuing such investments in the future.
Kim Kardashian and NBA free-agent Kris Humphries were married this summer in one of the most expensive and extravagant ceremonies on record. However, after a few months of “wedded bliss”, Kardashian has already filed for divorce – leaving Humphries alone to pick up the pieces, not only of his brief marriage, but also of an unfortunate investment decision that cost him hundreds of thousands of dollars at the hands of a fraudulent financial advisor.
After years of perceived greed and power abuse among Wall Street tycoons and their political cohorts, many of the nation’s rank and file have finally had enough – and now, as reported in The Washington Post, the so-called “99%” are taking to the streets in a popular demonstration known as Occupy Wall Street to demand change in the face of sweeping financial losses, perceived fiscal irresponsibility and moral decay. Propelled by mass objection to corruption and avarice, and devoid of outright leadership or any official agenda, those participating in the Occupy Wall Street movement insist on being heard: and in the face of nationwide hardship rivaled only by that of the Great Depression, a response in the form of greater investor protection and fiscal accountability is undeniably in order.
TICs, or Tenant In Common investments, are arrangements in which two or more parties buy a stake in a particular piece of property; and since 2002, these investments have gained substantial popularity thanks to an IRS ruling qualifying TIC investors for tax deferral treatment under Section 1031 of the Internal Revenue Code. However, the growing number of individuals signing on to TIC investments has also elevated instances of real estate investment fraud – a dangerous financial liability that can leave victims with heavy economic burdens in an already troubled market. In order to prevent fraudulent investment practices, local and national advisors alike recommend that individuals review all documentation and perform frequent “legal housekeeping” to ensure appropriate disclosure and integrity in all real estate investment ventures.