Nontraded REITs’ broker-dealer faces another probe

Written on . Posted in News, Real Estate Investment Trust (REIT), Securities Information Resource, Uncategorized

For the second time in three years, Pacific Cornerstone Capital Inc. is being investigated by the Financial Industry Regulatory Authority. Pacific Cornerstone is the broker-dealer arm of Cornerstone Real Estate Funds.

In a Securities and Exchange Commission filing, Pacific Cornerstone Capital said it was “involved with an arbitration proceeding before Finra and one Finra investigation.” The details of the investigation were not included in the filing.

Finra fined the form $700,000 in 2009 for allegedly misstating material facts involved in the sale of private placements, according to Finra BrokerCheck.

“I can’t speak to the Finra investigation, and it could be a number of things,” said Tony Chereso, chief executive of FactRight LLC, a consulting and due-diligence firm for alternative investments such as nontraded REITs.

In an SEC filing, Pacific Cornerstone stated that it did not know what to expect in the future regarding the Finra matters.

“Outside counsel for the company has advised that at this stage of the proceedings, they could not offer an opinion to probable outcome of the matters,” the company filing said. “Accordingly, no provision for loss has been recorded in the accompanying financial statements for 2011.”

In an alleged effort to pull back its reach, Pacific Cornerstone filed to deregister with the Commonwealth of Massachusetts, according to Finra BrokerCheck.

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Regulators Fine Atlanta-Based Wells Investment Securities for Misleading Investors

Written on . Posted in Real Estate Investment Trust (REIT)

FINRA, the Financial Industry Regulatory Authority fined Wells Investment Securities, Inc. $300,000 for misleading investors about the non-traded Real Estate Investment Trust (REIT), Wells Timberberland REIT.  According to FINRA, Wells Investment Securities mislead investors with inaccurate marketing materials to effect sales of the Wells Timberland REIT.
Wells Timberland REIT invested in timber-producing land. Wells Investment Securities was the dealer-manager and wholesaler for its public offering. FINRA stated that for a two year period, Wells Investment Securities not only reviewed, but also approved and distributed misleading, exaggerated or unwarranted statements in sales and marketing materials.  Most of the materials led investors to believe that Wells Timberland was an REIT, which it was not.  Other materials failed to disclose the importance of Wells Timberland not having qualified as an REIT.  This information was important to disclose because certain tax benefits were not available while Wells Timberland was not a REIT. The marketing materials also contained misrepresentations about Wells Timberland’s portfolio diversification, as well as its ability to make distributions and redemptions. “By approving and distributing marketing materials with ambiguous and equivocal statements, Wells misled investors into thinking Wells Timberland was a REIT at a time when it was not a REIT,” said Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, adding: “Firms need to be mindful that investors rely on marketing materials to disclose truthful, accurate and up-to-date information to help inform their investment decisions.”

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