Nov. 22 (Bloomberg) -- Wells Investment Securities Inc., a seller of nonlisted real estate investment trusts, was fined $300,000 by the Financial Industry Regulatory Authority over the marketing of one of its products.
Wells used improper sales materials for Wells Timberland REIT, an investor in timber-producing land, from May 2007 to September 2009, Finra said today in a statement. The advertising literature contained “misleading, unwarranted or exaggerated statements,” according to the regulator.
Finra has been investigating whether firms that market shares of nontraded REITs properly weigh and disclose the risks to clients. The regulator cautioned investors last month to perform a “careful review” before putting money into the companies, saying that fees can eat into returns and a lack of share trading makes the investments difficult to sell.
Wells “has cooperated to its fullest extent to address the issues raised by Finra” over the marketing materials, the Norcross, Georgia-based company said in an e-mailed statement. “These proceedings were not related to any misuse of investor funds, nor were they a result of complaints received from Wells investors.”
Wells didn’t admit or deny Finra’s claims as part of the settlement.
Finra said the marketing included statements that the timberland investor would qualify for REIT status by the end of 2006, which it didn’t do until 2009. There also were misleading communications about the diversification of the portfolio and ability to make distributions and redemptions, the regulator said.
Wells Investment Securities, operated by Wells Real Estate Funds Inc., doesn’t sell directly to investors. It markets the shares to financial advisers, who then offer them to clients.
While the amount of the settlement “seems small,” competitors may use the case to lure business to their own securities, said Michael Stubben, president of MTS Research Advisors LLC, a Gilbert, Arizona-based consulting firm for the nonlisted REIT industry.
“The nonlisted REIT space is competitive,” Stubben said. “Competitors out there will use this to differentiate themselves.”
--Editors: Kara Wetzel, Christine Maurus
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