The SEC Legislates Greater Transparency of Nontraded REITs; Now Expects Per-share Valuation of Unlisted REITs
The Securities and Exchange Commission (SEC) has authorized a new rule change which was proposed by FINRA that will allow investors broader insight into the actual costs of purchasing shares of unlisted REITs (real estate investment trusts). The SEC gave FINRA the go ahead on October 10. The new regulation would mandate broker-dealers to include a per-share estimated value for an unlisted direct participation program, or a REIT, on customer statements, in addition to requiring that other related disclosures be more visible as well. FINRA hopes that this new legislation will provide more transparency to the industry, and enable investors to have clearer information before investing in REITs. The exactitude of the price of an unlisted REIT is a departure from many firms whom had the practice of listing nontraded REITs at a per-share price of $10.
FINRA Drafted Two Methodologies to Calculate Per-share Estimated Value for a DPP or REIT
The net investment methodology would show the net investment in the issuer’s most recent periodic report, an SEC memo reports. The net investment would be based on the “amount available for investment” percentage shown in the offering prospectus. However, the memo continues, where “amount available for investment” is not provided, the proposal would demand that “net investment” be based on another equivalent disclosure that shows the estimated percentage deduction of commissions and other fees from the aggregate dollar amount of securities registered for sales.
With appraised value, the second method, FINRA requires that the share value be based on a valuation of the assets and liabilities of the Direct Participation Program (DPP) or REIT. Those valuations must be performed by a third-party valuation specialist annually, and come from a methodology that conforms to standard industry practice.
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Investors who believe they lost money as a result of investment fraud or misconduct may contact the securities lawyers at Peiffer Rosca Wolf, Alan Rosca or Joe Peiffer, for a free, no-obligation evaluation of their recovery options, at 888-998-0520.