FINRA barred former LPL Financial, Inc. broker Gary Chackman for recommending and effecting unsuitable non-traded real estate investment trust ("REIT") transactions in at least eight customer accounts. The allegations additionally state Chackman falsified LPL documents in order to evade firm supervision.
According to the investigation, between July 2009 and February 2012, Chackman recommended alternative investments including REITs and other illiquid securities to at least eight LPL customers, effecting multiple purchases of the REITs so that the customers' accounts became significantly concentrated in REITs.
For instance, FINRA found that after 12 months of such activity in one account, 35% of the assets that customer entrusted to Chackman and over 25% of the customer's liquid net worth were invested in REITs and other alternative investments. For another customer, the figure rose to 33% of liquid net worth after 22 months of similar investment activity.
The investigation points out that like many firms, LPL Financial limits concentration of alternative investments in customer accounts; however, Chackman allegedly and "regularly" misidentified his customers' liquid net worth on the firm's alternative investment purchase form, in one instance stating a customer's liquid net worth was triple its actual value.
Because Chackman allegedly engaged in this regular misrepresentation of liquid net worth, LPL was unable to detect any anomalies—from the firm's point of view, concentration in alternative investments remained below LPL limits.
In reality, however, Chackman allegedly over-concentrated customer assets in illiquid alternative investments, fooling not just LPL Financial, but causing the firm's books and records to be inaccurate and its customers to incur unnecessary risk.
In February 2013, the Massachusetts Security Division ordered LPL Financial to pay over $2 million in restitution in investors who purchased non-traded REITs. At the time, state regulators charged LPL and other firms with improper sales practices and alternative investment sales made in violation of both firm and state limits (including concentration limits), primarily related to non-traded REITs.
Meanwhile, InvestmentNews points out that while securities regulators have increased their attention to REIT sales, regulatory action has historically focused on broker-dealers, as opposed to the rarer practice of targeting individual representatives like Chackman.
If you have invested with Gary J. Chackman, LPL Financial or with any broker, adviser or firm whose unsuitable recommendations or over concentration in illiquid alternative investments has proven harmful to your financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.