NEWARK – Attorney General Gurbir S. Grewal and the Bureau of Securities within the Division of Consumer Affairs today announced that a Minneapolis financial firm with branch offices in New Jersey has agreed to pay $375,000 to resolve an investigation into its sale of alternative investments in New Jersey.
In a Consent Order signed today, Ameriprise Financial Services, Inc. (“Ameriprise”) agreed to pay a civil penalty and other costs to resolve the Bureau’s findings that Ameriprise sold unsuitable non-traded real estate investment trusts (REITs) and non-traded business development companies (BDCs) to customers, did not reasonably supervise the sale of these alternative investments, and did not keep required books and records.
“Here in New Jersey, we’re committed to protecting investors and consumers from unscrupulous actors, and today’s settlement is further proof of that commitment,” said Attorney General Grewal. “As the federal government pulls away from robust enforcement of our securities laws, it falls to states like New Jersey to ensure that we have a well-functioning financial marketplace.”
REITs are entities that generally own and often manage income-producing real estate. BDCs are entities that generally invest in small and mid-sized businesses.
Unlike publicly-traded REITs and publically-traded BDCs, non-traded REITs and non-traded BDCs have certain characteristics that make them riskier for investors. They may contain higher commissions and fees, are generally illiquid as they have no public trading market, and pay distributions from invested capital back to investors, or from debt, as opposed to providing distributions of earnings from real estate holdings.
Between 2010 and 2015 (“the relevant time period”), Ameriprise sold at least 23 alternative investment offerings, including 17 non-traded REITs and 6 non-traded BDCs in approximately 8,147 transactions in New Jersey.
At least 15 of the 23 alternative investment offerings sold by Ameriprise during the relevant time period were registered with the Bureau conditioned upon heightened suitability standards for sales to New Jersey residents (“New Jersey Prospectus Suitability Standards”).
These alternative investment transactions represented approximately $215,219,131 in sales to approximately 3,535 New Jersey customers, generating commissions of at least $21 million from the sales.
“Ameriprise agents profited from taking advantage of their New Jersey clients, selling them products that, in many cases, disregarded the duty of care they owed to their customers,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “As the Bureau’s enforcement action shows, we will not allow firms to increase their bottom line by violating securities laws in our state.”
The Bureau’s investigation identified at least 65 of the alternative investment transactions during the relevant time period were unsuitable for Ameriprise’s New Jersey customers because the transactions violated the New Jersey Prospectus Suitability Standards, and/or the firm’s written supervisory procedures regarding the sale of alternative investments.
Ameriprise self-identified at least 53 of these instances after the transactions were completed and voluntarily offered rescission based on a determination that the sale of the alternative investments was in excess of the New Jersey Prospectus Suitability Standards or the issuers’ prospectus standard. The Bureau identified 12 additional transactions not already identified by Ameriprise, for which Ameriprise also offered rescission.
In addition to finding that Ameriprise failed to reasonably supervise the sale of alternative investments, and failed to follow its own supervisory procedures regarding the offer and sale of alternative investments, the Bureau also found that Ameriprise failed to keep required books and records by, among other things:
- on at least 12 occasions in the customer accounts reviewed by the Bureau, Ameriprise agents modified the customer financial information on forms for alternative investment sales that contained customer financial information that did not comply with the firm’s written supervisory procedures for the sale of alternative investments. In these instances, after a transaction was rejected by an Ameriprise registered principal, the form would be resubmitted with changed information that complied with the firm’s written supervisory procedures. After resubmission with the changed information, the sales were then approved by an Ameriprise registered principal. Many of the changed forms were apparently initialed by the customer, but Ameriprise did not attempt to further verify the change.
- in 186 instances Ameriprise agents did not fully document certain aspects of the alternative investment transactions, including instances where information that could affect the determination of the suitability of the transaction was not completed, completed incorrectly or completed inconsistently; and
- in 298 instances Ameriprise agents failed to correctly calculate customers’ liquid net worth.
“Firms have a duty to reasonably supervise their sales agents when making recommendations to customers” said Bureau Chief Christopher W. Gerold. “Broker-dealers and agents must put the interests of their customers before their own.”
Under the terms of the settlement, Ameriprise is assessed a civil monetary penalty in the amount of $150,000 and $150,000 in costs. The firm is also assessed an additional $75,000, which shall be placed in a fund to be used for the Bureau’s investor education program.
The Bureau's action was handled by Deputy Chief Amy Kopleton, Director of Examinations Stephen Bouchard, Investigator Perry Traina and former Investigator Scott Haggmark of the Bureau of Securities within the Division of Consumer Affairs.
The Bureau thanks Assistant Attorney General Brian F. McDonough, Deputy Attorney General and Chief of the Securities Fraud Prosecution Section Victoria Manning, and Deputy Attorney General Isabella Stempler of the Securities Fraud Prosecution Section in the Division of Law for their assistance in this matter.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors "Check Before You Invest." Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau's website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance or to raise issues or complaints about New Jersey-based financial professionals or investments.
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