Texas Brokerage Firm D.H. Hill Sanctioned by FINRA Over Reporting Issues with Non-traded REITs

Silver Law Group is investigating Kingwood, Texas-based brokerage firm D.H. Hill Securities, LLLP (CRD# 41528) (“D.H. Hill”) after FINRA sanctioned the firm for its conduct concerning the firm’s role as underwriter of a real estate investment trust (“REIT”).

D.H. Hill Securities Enters into a Settlement with FINRA

D.H. Hill entered into an Acceptance, Waiver & Consent (“AWC”), signed in November 2016, with FINRA. The AWC alleged that, between February 2012 through April 2013, D.H. Hill participated as a dealer manager of a REIT offering, replacing another firm in the process. When D.H. Hill replaced the previous brokerage firm, it failed to seek or obtain authorization from FINRA’s Corporate Financing Department to proceed with the offering, a requirement under FINRA Rule 5110.

Further, according to the AWC, D.H. Hill violated FINRA Rule 3010 by failing to timely file required materials in connection with a follow-up offering for the same issuer and failing to implement adequate supervisory procedures to enforce or implement the limits on underwriting compensation and other offering expenses for offerings it managed. This resulted in inaccurate reporting of the compensation D.H. Hill made on the transactions.

D.H. Hill, acting primarily through retail brokerage firms, raised over $25 million in offering proceeds and issued over 4 million in shares of the REIT’s common stock. D.H. Hill then proceeded to serve as underwriter for a follow-on offering to the initial offering for the same REIT without filing the proper documents with FINRA in the spring and summer of 2013.

Upon information and belief, Charles T. Stevens (CRD# 1698058), a St. Augustine, Florida-based D.H. Hill broker doing business under the moniker St Johns Financial Planning, marketed these REITs to his customers.

Hartman Income REIT Management and D.H. Hill Securities

Upon information and belief, the REIT was issued by Houston, Texas-based Hartman Income REIT Management, Inc. The Hartman REIT offering during the time period at issue was the Hartman Short Term Income Properties XX, Inc. REIT, also known as the Hartman XX REIT.

The Hartman XX REIT is a public non-traded REIT that has been closed to new investors. According to the offering documents for Hartman XX REIT, D.H. Hill served as underwriter.

D.H. Hill also served as underwriter for Hartman’s most recent REIT offering, the Hartman vREIT XXI, according to the REIT’s prospectus.

What is a Public Non-traded REIT?

Public non-traded REITs have typically been advertised and peddled as sound retirement vehicles due to the high dividend payout, but the product has notoriously been flawed. In recent years, both the SEC and FINRA have issued warnings and guidance on public non-traded REITs, noting the high fees (front-end fees can be as much 15 % of the per share price), distributions that come from the principal, lack of share transparency, and the extraordinary lack of liquidity.

Additionally, many public non-traded REITs often start out as “blind pools,” which means that the REIT takes in investor monies before disclosing exactly how those monies will be invested and simply states what types of properties the REIT plans to buy, rather than disclosing the exact properties that will be owned. Lastly, an external manager usually makes investments on behalf of the public non-traded REIT, creating potential for conflicts of interest.

Public nontraded REITs are often times wholly unsuitable for many investors but brokers and brokerage firms kept recommending them because of the high commissions on the products and low federal interest rates.

If you invested in with D.H. Hill Securities and/or any Hartman REITs, you may be entitled to recover some of your investment losses. Please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345 to speak to an attorney to find out how we may be able to help you recover some of your investment losses. Consultation is free, and you pay nothing unless we recover.