FINRA Fines Broker-Dealer for Exceeding REIT Concentration Limits
The Financial Industry Regulatory Authority fined Foothill Securities, an independent broker-dealer, $30,000 for allegedly exceeding concentration guidelines relating to non-traded REIT sales, according to a letter of acceptance, waiver and consent issued by FINRA.
Foothill Securities has been a FINRA registered broker-dealer since 1962 and is headquartered in Santa Clara, California. The firm currently has approximately 255 registered individuals operating from approximately 135 branch locations.
As required by FINRA, Foothill maintained written concentration guidelines for limiting customers’ investments in non-traded REITs and other non-liquid investments. The guidelines stated that no single order in one non-liquid product should equal more than 10 percent of a customer’s investable net worth at the time the order is placed. In addition, no order should cause a customer to have more than 20 percent of his or her investable net worth in non-liquid Investments.
During March 2008, at the request of one of its registered representatives, Foothill provided a written customer acknowledgement that requested a customer signature from a customer that was purchasing a non-traded REIT in an amount that exceeded the concentration guidelines.
The rep, along with another registered representative, recommended an investment in non-traded REITS for 21 additional customers outside the concentration guidelines and had those customers sign the acknowledgment to complete the transactions.
FINRA said Foothill approved those sales, even though they did not take reasonable steps to ensure that the reps had informed the firm that they were recommending a transaction beyond the concentration guidelines and were providing the acknowledgment to their customers.
In addition, FINRA said that Foothill did not provide these registered representatives or their supervisors with adequate guidance about how to assess whether an additional REIT transaction would result in the customer exceeding the concentration guidelines in the aggregate, and whether additional investments in non-traded REITs were suitable.
Foothill allegedly violated NASD Rules 3010(a) and (b) and FINRA Rule 2010, according to the AWC letter. The firm signed the letter without admitting or denying the findings and intends to pay the $30,000 fine.
