Massachusetts Launches Probe into Alternative Sales to Seniors

Subpoenas issued to 15 banks and brokerage firms
By MainStreet Team ,

By Hal M. Bundrick

NEW YORK (

MainStreet

)--Alternative investments can be complicated and laced with risk, and sales to seniors require special attention, according to Massachusetts Secretary of State William Galvin. His office issued subpoenas to 15 banks and brokerage firms Wednesday, launching an investigation to ensure that suitable sales of the sophisticated investments have been made in his state.

The probe concerns sales practices relating to real estate investment trusts, oil and gas partnerships, private placements and structured products. Subpoenas were issued to Charles Schwab, Fidelity, LPL Financial, Merrill Lynch, Morgan Stanley, TD Ameritrade, UBS Securities and Wells Fargo Advisors, among others.

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Galvin's office recently settled a similar investigation with five independent broker dealers for the improper sales of REITs to older investors, returning over $11 million to Massachusetts investors. The new round of inquiries is an out-growth of this original examination.

"While these products are not unsuitable in and of themselves, they are accidents waiting to happen," Galvin said in a statement.

In this latest inquiry, Galvin is requesting detailed information about how many alternative investments have been sold to adults over the age of 65, along with broker materials regarding supervision, as well as sales and marketing materials and complaints received regarding the products.

Because a company received a subpoena does not indicate it is suspected of wrongdoing, Galvin said.

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"Instead of waiting for something bad to happen," Galvin said, it's best to ask the firms about their sales practices regarding alternative investments. "This is the best way to proceed," he said.

Subpoenas were also issued to Commonwealth Financial, ING Financial, Investors Capital, Meyers Associates, MML Investor Services, Signator Investors, and WFG Investments.

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In a matter also related to the sale of alternative investments, yesterday the Securities and Exchange Commission adopted amendments to eliminate the prohibition against the general solicitation and advertising of hedge funds and private placement offerings.

In a reaction to the ruling, A. Heath Abshure, president of the North American Securities Administrators Association State said, "Securities regulators are disappointed that lifting the ban on general solicitation and advertising of highly speculative and sometimes fraudulent private placement offerings investments before approving safeguards needlessly puts investors in harm's way. The decision to lift the ban without simultaneous adoption of appropriate limits, guidance and investor protections for the most common product leading to enforcement actions by state securities regulators underscores the prospect that, investors and issuers alike will be exposed to an indeterminate gap in protection."

--Written by Hal M. Bundrick

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