The Financial Industry Regulatory Authority (FINRA) filed a complaint against VFG Securities, a small broker-dealer firm that allegedly garnered 95% of its revenue from the sale of nontraded real estate investment trusts (REITs) and other illiquid investments. REITs can be extremely risky investments, especially for those investors who are older, have less net worth and are less sophisticated. A broker must take into account these factors before recommending or selling investments, or else his brokerage firm may be held liable for investment losses. FIRNA alleged that VFG Securities generated nearly all of its revenue from the sale of nontraded REITs and direct participation programs from November 2010 until June 2012. FINRA also alleged that VFG’s president and owner, Jason Vanclef, used a book he had written titled “The Wealth Code,” as sales literature to promote investments in nontraded REITs and direct participation programs. They also accused him of telling investors that investing in the REITs would offer high returns and capital preservation. In actuality, they are speculative investments that contain a high degree of risk.
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