Non-Listed REIT Earns A $300,000 Fine For Exaggerating Its Liquidity And Diversification

Wednesday, November 23, 2011 08:10
Non-Listed REIT Earns A $300,000 Fine For Exaggerating Its Liquidity And Diversification

Tags: FINRA | portfolio construction

Timberland was hot in the last decade, but not exactly a liquid investment. FINRA is now taking a closer look at private REITs that sold themselves as a way to add trees to investor portfolios.

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University endowments like Yale made woodland famous as an "asset class" and launched quite a few woodland REITs.


But while ideal for institutional investors with theoretically infinite time to make money off their acreage -- or find a qualified buyer -- these vehicles are rarely liquid.


That makes them questionable for retail investors who may need the cash within a reasonable span of time.


FINRA just fined one such REIT from Wells Investment Securities $300,000 for "misleading, unwarranted, or exaggerated statements" about its liquidity and filing status.


The regulators warned that the Wells REIT misled investors about how "diversified" the portfolio -- trees -- really was and how easy it would be to redeem shares if investors wanted out.


FINRA is taking a tougher line on non-listed REITS lately, perhaps in an effort to clamp down on the next iteration of the mortgage-backed "private offering" boom that wrecked so many brokerage firms and retail portfolios over the last few years.


If so, it would be nice if they got ahead of the curve and looked for dangerous securities that are just now being created. Wells' REIT seems to have done most of its business between 2007 and 2009.


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