Washington State Securities regulators have issued a Findings of Fact and Order to Cease and Desist against former LPL Financial broker Brian Brunhaver, his wife Stacey Brunhaver and his investment advisory firm Brunhaver Financial Services. Regulators have ordered Brunhaver to cease and desist violating various Washington State securities laws, have denied his personal and his company’s securities registrations and have imposed fines of $60,000.
The primary issue raised by the regulators relates to the sale of non-traded real estate investment trusts (REITs) and the fact that he misrepresented the risks associated with these investments and made unsuitable recommendations that clients invest in the REITs.
The order, which may be accessed here, makes many interesting and significant factual findings, including:
- Brunhaver sold non-traded REITs to over 200 clients during the last few years he worked for LPL (2007-May 2011) and collected more than $548,000 in commissions on those sales
- Non-traded REITs are illiquid investments which have no ready market, have less share value transparency than traded REITs, are difficult to value and often fund distributions by borrowing or from the capital raised from new investors.
- Non-traded REITs present conflicts of interest, have higher up-front fees than traded REITs and have on going management fees.
- Brunhaver was terminated by LPL in May 2011, ostensibly for communicating with clients through an unapproved email account
- Brunhaver represented to certain clients that the REITs were safe and/or conservative investments, that no risk was involved and that the investment would be safe and sound, comparing them to the safety of bonds. He told one client that there was no way should could lose money investing in REITs.
- Some clients were told that their principal investment was guaranteed by the REIT and others were told that the government would guarantee their principal investments in REITs. Some clients were told that the liquidity of the REITs was guaranteed.
- He told some clients he would waive his commision as an inducement for the clients to make the investment in the REITs, but in fact he did not actually waive his commission.
- Brunhaver made unsuitable recommendations of the REITs to clients. One client was told to invest 100% of his net worth in REITs. Another was sold an 80% concentration of REITs.
- Brunhaver submitted forms to LPL that misstated their net worth, income and investment objectives in order to gain approval of these unsuitable investment recommendations. In some cases clients were told to sign forms in blank and Brunhaver completed the forms with inaccurate information. In other cases, Brunhaver altered the account forms to accommodate his scheme.
- During the investigation Brunhaver and his wife interfered by contacting clients and offering to help them complete the investigatory questionaires from the securities division of Washington.
- When contacted by the regulators during the investigation, Brunhaver made false and misleading statements by denying that he had been communicating with his clients about the investigation.
According to FINRA records, he has several pending customer arbitrations, including one involving Inland American REIT.
See the sidebar of this blog “REITs” for the 60+ posts we have made on the topic of non-traded REITs, including:
- Behringer Harvard
- CNL Lifestyles
- Cole Credit
- Columbia Property Trust
- Cornerstone Core
- Corporate Property Associates
- Dividend Capital
- Healthcare Trust of America
- Inland American
- Inland Diversified
- Lightstone Value
- Retail Properties of America
- TNP Strategic
- United Development Fund
- Wells Timberland
We have represented a number of individuals seeking losses on non-traded REITs against LPL as well as several other broker dealers. If you have suffered losses on non traded REITs, call us for information on your legal rights to recover all or a part of your loss.
Rex Securities Law , located in Boca Raton, FL, provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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