Cabot Lodge Securities LLC a securities broker dealer headquartered in New York has been censured and fined $270,000.00 by Financial Industry Regulatory Authority (FINRA) according to an Order Accepting Offer of Settlement which contains findings of Cabot Lodge failing to supervise REIT offerings and providing unsuitable recommendations to customers. Department of Enforcement v. Cabot Lodge Securities Disciplinary Proceeding No. 2014041541401 (Apr. 6, 2021).

According to the Order, between August of 2012 and February of 2016, Cabot Lodge had taken part in an initial public offering of a nontraded real estate investment trust. The organization and offering expenses that Cabot Lodge charged for this were excessive according to FINRA. And investors were not apprised of what Cabot Lodge representatives would receive for compensation. The securities broker dealer violated FINRA Rules 2010 and 2310.

This all happened because of the securities broker dealer’s failureCabot to supervise the sales and underwriting processes of the real estate investment trust offering. The regulator stated that Cabot Lodge neglected to create and implement an adequate supervision system in violation of FINRA Rules 2010, 3110, 2310 and 5110.

FINRA also confirmed that Cabot Lodge made unsuitable investment recommendations to an elderly investor. The regulator noted that since non-traded real estate investment trusts contain special risks relating to liquidity and distributions, the investments are not suitable for most investors especially those who are not able to appreciate or handle the risks.

The Order stated that a non-traded real estate investment trust had been recommended by Cabot Lodge to a 72-year-old investor who lived on a modest salary and maintained limited experience with investing. The customer conveyed that he was only willing to accept a moderate amount of risk and that generating income was his main objective for investing.

The customer had been advised to sell their existing municipal bond holdings and to place the proceeds into an illiquid real estate investment trust. That REIT contained substantial distribution risk and a limited operating record. The customer invested $75,100.00 in the product which constituted 57 percent of the customer’s net worth.

FINRA determined that the non-traded real estate investment trust was inappropriate for the customer given their investment objectives, risk tolerance, holdings and investment experience. Cabot Lodge violated FINRA Rules 2010 and 2111.

Tags:

Comments are closed.