Legal Question in Securities Law in Texas

Apparently there are concentration limits imposed on alternative investments, such as non-traded REITs. What happens with this scenario?

1) Customer has reached their limit with the initial investment.

2) At a later date wants to invest more.

3) But in order to surpass the previously maxed out concentration limit, the customer's liquid net worth would have needed to increase.

4) Wouldn't the broker be required to both verify and document this?

Is this process regulated? If so, by whom, and what happens if they either fail to do so, or misrepresent the figures which allow an increased investment?

Would a new agreement also have to be drawn up at that time?

Oh, almost forgot....who sets the concentration limits?

TIA


Asked on 12/05/14, 1:27 pm

1 Answer from Attorneys
Robert Rex Rex Securities Law

While a few states have specific limits on this, most do not and the issue is a matter of whether the concentration level is proper under general suitablility principles coupled with the stated investment objectives and risk tolerance of the investor. In addition, nearly all broker dealers have written supervisory procedures addressing this issue and often times brokers and their supervisors fail to follow the firm's stated policies.

Bob Rex

www.rexsecuritieslaw.com

561 391 1900

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Answered on 12/08/14, 7:22 am


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