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Day: October 4, 2019

REIT Sponsor Tried to Circumvent Hiring a Broker-Dealer for Distribution


The SEC fined and censured a non-traded REIT sponsor for acting as an unregistered broker-dealer and using unlawful marketing tactics.  The fund sponsor, bypassing the use of a registered broker-dealer, marketed the REITS on its website, through social media, and on the radio and collected 3% of the offering proceeds.  The sponsor also used radio endorsement adds to market the REITs and subsidized an investor relations team to follow up with interested investors. The SEC asserts that the sponsor violated Section 15(a) of the Exchange Act by operating as a broker-dealer without registration.  The SEC also charges the firm with using marketing materials that did not comply with the Securities Act’s prospectus requirements.

Rule 3a4-1 provides a very limited safe harbor that allows issuers to offer their own products without the involvement of a broker-dealer.  To rely on the safe harbor, the issuer cannot receive commissions in connection with the sale of the investment product.  This issuer probably could have used some timely legal and compliance advice before it launched a broad-based marketing campaign.