REIT SPONSOR TO PAY $30 MILLION FOR HIDING REVENUE SHARING
In a recent settled action, the manager of several public REITs agreed to pay $30 Million in disgorgement and penalties in connection with failing to disclose revenue sharing payments to broker-dealers. The REIT sponsor used the REITs’ cash assets to pay phony invoices delivered by the broker-dealers in a scheme to avoid NASD’s limits on compensation and disclosure. The invoices were purportedly to pay for “account maintenance,” “field access,” “due diligence,” and “conference fees.” The SEC alleged that the invoices were created to conceal the revenue-sharing arrangement between the REIT and the broker-dealers. The SEC also charged the REIT with gun-jumping by selling interests in REITs that were in registration and for failing to make Section 16 filings.
OUR TAKE: Reminiscent of actions against mutual funds, the SEC is re-asserting that issuers must fully disclose revenue sharing commitments in offering documents, especially when using fund assets.