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Non-Traded REITs - Great for Brokers, Not for Clients

By Erwin J. Shustak, Esq.  of Shustak Reynolds & Partners, P.C. posted on Wednesday, March 30, 2016.

FINRA, the Financial Industry Regulatory Authority, filed a complaint against VFG Securities, Inc., a small broker-dealer that allegedly generated almost 95% of its annual revenue from selling non-publicly traded REITs and other illiquid investments to its clients.  In its complaint, FINRA alleged VFG failed to supervise its brokers to ensure client portfolios would not become overly concentrated in such illiquid investments.

According to FINRA, from November, 2010 through June, 2012, VFG generated almost 95% of its total revenues from selling non-traded REITs and direct participation programs (ie. private placements) to its clients, which sales generated almost $4 million in annual revenues through June, 2012.

FINRA alleged that the principal of VFG, Jason Vanclef, used a book he wrote, “The Wealth Code”, as sales literature to promote investments in non-traded REITs and direct participation programs “to lure” potential investors to VFG.  FINRA charged that in his book, Vanclef claimed non-traded REITs and direct participation programs offer both high returns and capital appreciation, a claim FINRA alleges was inaccurate, misleading and contrary to the warnings contained in the actual prospectuses for those investments.

Shustak Reynolds & Partners, P.C.  focuses its practice on the securities industry and matters affecting broker-dealers, registered representatives and the financial services sector. For more information, contact Erwin J. Shustak, managing partner, at [email protected], or call 800.496.5900 for a free consultation.

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