Rex Harris Fined by State of Montana Over REIT Sales
Harris Financial broker/adviser Rex Harris (CRD# 1708799) was sanctioned in 2016 by the Montana Office of the Commissioner of Securities and Insurance. According to his Financial Industry Regulatory Authority (FINRA) BrokerCheck report, accessed on February 23, 2022, he was last based in Whitefish, Montana. He is currently not registered as a broker or an investment adviser.
Regulators: REIT Allegations Against Rex Harris
In 2016 securities regulators in the State of Montana sanctioned Mr. Harris in connection to potential violations of state securities regulations. According to a disclosure on his BrokerCheck report, the state’s Commissioner of Securities and Insurance alleged he potentially failed to adequately disclose a non-traded real estate investment trust’s illiquid nature; failed to disclose the difference between dividends and distributions; and failed to adequately disclose the risk associated with non-traded REIT products. The disclosure states further that he allegedly potentially recommended unsuitable transactions to his clients and failed to provide customers with REIT prospectuses “at least 5 days in advance of making the transactions.”
In connection with these allegations, the Commissioner of Securities and Insurance ordered Mr. Harris to pay a fine of $25,000.
Rex Harris Defends Against Allegations
In a “Broker Comment” on the disclosure about the above-described sanction, Mr. Harris described the allegations as arising from a 2008 transaction. In that transaction, he said, a customer invested in a non-traded REIT whose sponsor “restricted redemptions” when the financial crisis hit. Upon finding out that he was unable to sell his shares in the REIT, Mr. Harris wrote, the customer lodged a complaint with Montana securities regulators. In 2012, a contractor for the state’s Securities Commissioner “prepared an examination report for the November 2011 branch office exam” that “identified potential violations” of state securities regulation connected to non-traded REIT sales. It also described possible violations of the state’s investment advisor regulations, specifically those pertaining to “‘over-diversification’ of mutual funds in advisory accounts.” However, Mr. Harris continued, “diversification and resulting lost breakpoints cannot occur” in advisory accounts because advisory accounts have no sales charges.
Concluding his statement, Mr. Harris said he agreed with his legal counsel’s advice that would be more prudent to enter into a consent agreement with regulators than to undertake the “potential costs and the protracted time frame associated with continuing to dispute the faulty conclusions and allegations in the examination report.”
FINRA: Invest in Non-Traded REITs with Caution
In 2011, the Financial Industry Regulatory Authority—a private corporation governing its member broker-dealer firms—issued an Investor Alert about non-traded real estate investment trusts (REITS). Non-traded REITs are investment vehicles that pool funds from a group of investors to invest in the purchase and operation of real estate properties. As the name implies, they are distinct from traded REITs in that they are not traded on stock exchanges. This means they pose challenges normal REITs do not, like their generally illiquid nature. As the Investor Alert explains, investors may incur high costs when they redeem non-traded REITs early; the products also do not guarantee distributions. For these and other reasons, FINRA warned investors to exercise caution before investing in non-traded REITs.
Rex Harris Affiliated with Harris Financial
Rex Harris started working at Harris Financial in Whitefish, Montana in 1996. The firm offered securities through LPL Financial, with which Mr. Harris became affiliated in 1991. Before he registered with LPL, he was registered with Edward D. Jones & Company in Whitefish from 1987 until 1991. He left Harris Financial and LPL in December 2021, capping off a 34-year tenure in the securities industry. For more information on his history as a broker and an investment adviser, visit his FINRA-maintained BrokerCheck report. (The above-referenced information was accessed on February 23, 2022.)
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