BROKER SETTLES ACTION REGARDING UNDISCLOSED COMPENSATION
Ameriprise Financial Services, Inc. settled an action with the SEC regarding the payment of undisclosed compensation in connection with the offer and sale to its brokerage customers of real estate investment trust shares. In the Matter of Ameriprise Financial Services, Inc., Adm. Proc. File No. 3-13544 (July 10, 2009). According to the Order for Proceedings, Ameriprise Financial only offered and sold non-exchange traded REITS if it was paid what the firm called revenue sharing by the REIT. The practice involved two groups, the Carey REITs and the CNL REITs. The shares of both were registered with the SEC, but not traded on an exchange.
Between 2000 and 2004, Ameriprise received undisclosed cash payments in the form of checks and wire transfers from Carey REITs of $9.7 million and from CNL REITs totaling $21.1 million. These payments were made in addition to standard sales commissions, dealer fees, expense reimbursements and other fees that Ameriprise received under the distribution agreements. The payments were made pursuant to mislabeled invoices, which made it appear that they were legitimate reimbursements for services provided by Ameriprise. In fact none of the invoiced amounts corresponded to bona fide services. Ameriprise brokers received additional compensation for selling shares in these two groups.
The revenue sharing arrangements with the two groups were part of what the Commission called “a company-wide practice instituted and/or authorized by Ameriprise’s senior management, in which Ameriprise offered and/or promoted certain non-proprietary investment product, primarily mutual funds, but also including non-exchange traded REITs, in exchange for revenue sharing payments ….” During this time period NASD rules caped compensation paid to broker-dealers that sold non-exchange traded REITs and other related payments.
Ameriprise also sold unregistered shares in one of the Carrey REITs. Following the effective date for an initial public offering for the new Carrey REIT, the registered shares sold out. Later, a second registration statement became effective. Between the time the first offering sold out and the effective date of the second registration statement, Ameriprise sold at least $100 million worth of shares.
Based on these allegations, the Order claims that the Respondent violated Sections 17(a)(2) & (3) of the Securities Act and Exchange Act Rule 10b-10. The Order also alleges violations of Section 5(a) of the Securities Act.
To resolve the matter, Ameriprise consented to be censured and to the entry of a cease and desist order from committing or causing violations of the sections cited in the Order. The company also agreed to pay disgorgement of $8.65 million and a penalty in an equal amount. The penalty is to be distributed through a Fair Fund distribution.