SEC Examiniation Priorities 2014
(Jan 2014)
The Securities and Exchange Commission (SEC) senior staff recently announced their 2014 examination priorities . The national examination program will be focusing on fraud detection and prevention, corporate governance, and registrants that serve as both a broker-dealer and investment adviser.
SEC staff also plans to undertake initiatives that examine the rollover of retirement vehicles during employment transitions or near retirement. In particular, the staff is concerned about misleading...
Behringer Harvard / TIER REIT Illustrates How Non-Traded REIT Sponsors and Brokers Have Siphoned $10 Billion to $20 Billion (and Counting) From Investors
(Jan 2014)
Sponsors have issued, and brokers had sold, over $85 billion of non-traded real estate investment trusts (REITs) by the end of 2012. These investments are illiquid, high-commissioned, poorly diversified real estate investments. Despite their glaring defects another $20 billion of non-traded REITs were sold to investors in 2013.
Sponsors and brokers have siphoned off at least $20 billion from investors through their sales of non-traded REITs up through 2012. We illustrate the calculation of...
FINRA Regulatory Priorities 2014
(Jan 2014)
Early this month, the Financial Industry Regulatory Authority (FINRA) released their 2014 regulatory and examination proirities . FINRA is continuing to focus on the suitability of recommendations made to retail investors. FINRA specifically mentions complex structured products (including leveraged ETFs), non-traded REITs, frontier funds, and interest rate sensitive instruments such as mortgage-backed securities and municipal bonds. At a recent conference, a FINRA representative added that...
Study Finds that the Average PE Investor Just Breaks Even
(Nov 2013)
Brendan Conway over at Barron's pointed out an interesting new study from the National Bureau of Economic Research entitled: Valuing Private Equity. Private Equity (PE) investments -- typically called limited partnerships (LPs) -- are long-term, illiquid securities representing (perhaps not surprisingly) an equity interest in a private company. Investors are typically referred to as limited partners. The study notes that while private equity returns tend to be high, "it remains controversial...
FINRA Investor Alert: Closed-End Fund Distributions
(Nov 2013)
The Financial Industry Regulatory Authority (FINRA) recently released an Investor Alert to draw investors attention to the subtle difference between distributions and returns in the context ofclosed-end funds. Closed-end funds are pooled investments like mutual funds (which are also known as 'open-end funds'), but have only a fixed number of shares. This distinction has a big impact on how the fund is analyzed.
Distributions from closed-end funds are typically quoted as a rate (e.g. 6%). This...
The Consequences and Implications of TIC Investments
(Nov 2013)
The research we have outlined all this week strongly suggests that TIC interests are exceptionally poor investments. We have focused our posts on what a thorough due diligence on the TICs should have revealed at the time of issuance. But you may be wondering, what happened to these TICs? What sort of returns did investors receive?
To our knowledge, there is no retrospective study of TIC returns. But in our experience, the vast majority of TIC properties suffered significant impairments during...
Another Non-Traded REIT Lists Shares, Revealing Losses
(Oct 2013)
Shares of non-traded real estate investment trusts (REITs) were sold in large amounts during the real estate bubble of 2005-2007. Without an observable trading price, sponsors simply fixed the share price of non-traded REITs at $10 per share. As real estate markets have collapsed and now begun to recover, it has been difficult to ascertain just how much those $10 shares have changed in value. Non-traded REIT sponsors are now required to estimate per-share net asset values, which have...
SLCG Research: Priority Senior Secured Income Fund
(Oct 2013)
In our experience, retail investors are being sold increasingly obscure and non-conventional investments. An investment that raised our eyebrows recently is the Priority Senior Secured Income (PSSI) Fund. The PSSI Fund is the first regulated investment company that invests primarily in leveraged loans and collateralized loan obligation (CLO) tranches lower in their capital structures.
Unlike the mutual funds with which most retail investors are familiar, PSSI Fund investors are not able to...
Five Broker-Dealers Ordered to Pay over $10 Million in Restitution for Non-Traded REIT Sales
(Sep 2013)
Back in May, Massachusetts securities regulators ordered five independent broker-dealers to pay over $6 million in fines and restitution for improperly selling non-traded REITs. It also settled separately with another broker-dealer, LPL Financial, for an additional $2.5 million. Just yesterday, Secretary of the Commonwealth William Galvin announced an additional settlement with the same five broker-dealers for an additional $10.75 million in additional restitution for improper sales of...
