REISA Applauds FINRA’s Proposal to Extend Introduction of New Rules Affecting Non-Traded REIT and Private Placement Investor Statements

Jul 16, 2014

REISA applauds FINRA’s  recent letter to the SEC regarding its final proposed changes to rule 2340, which affect non-traded real estate investment trust and private placement customer account statements.

FINRA’s letter proposes to extend the effective date of the amendments to no earlier than 18 months following approval from the SEC, providing additional time for non-traded REIT sponsors, brokers and dealer managers to adjust to the new rules.

REISA’s Legislative & Regulatory Committee, co-chaired by Deborah Froling of Arent Fox and John H. Grady of National Fund Advisors, began work on the efforts in February. Their Drafting Task Force submitted letters in March and June to the U.S. Securities and Exchange Commission requesting changes to FINRA’s proposed amendments to NASD Rule 2340 – Customer Account Statements, and FINRA Rule 2310. In the opening statement of its letter to the SEC, FINRA makes mention of 18 comment letters, including REISA’s, in response to the first comment period of the proposal.

“REISA is very pleased our comments in response to the proposed amendments were well received and taken into account by FINRA and the SEC, and have the utmost confidence that the proposed 18-month extension will help the industry navigate through any changes that are approved,” said John Harrison, REISA Executive Director/CEO. “REISA believes in the importance of protecting the investing public with transparency, while balancing the need for businesses and sponsors of alternative investment products, including real estate, along with FINRA members who sell these products, to be able to operate effectively and protect the investors who take part in their products.”

The proposed amendments seek to modify how publicly registered direct participation programs and real estate investment trust securities report per-share values on customer account statements. FINRA also seeks to modify requirements applicable to FINRA members participating in public offerings of DPP and REIT securities.

The additional time is expected to limit the impact of the proposal on current offerings and provide firms with additional time to educate investors.

REISA’s comments covered a number of factors, such as the concern that the newly proposed changes included arbitrary methodology with great potential for variable changes within an investment period that could render the stated price per-share inaccurate, and therefore unintentionally harm investors. Additionally, REISA states that the comments were not consistent with Rule 15 A(b)(6) or Rule A(b)(9), as they did not meet requirements of preventing fraud of manipulative practices.

“Our organization is happy to have worked collectively as an industry to improve alternative investments from the standpoint of transparency and valuation,” said Harrison.