The Financial Industry Regulatory Authority (Finra) today fined Wells Investment Securities Inc. $300,000 for using misleading marketing materials in the sale of Wells Timberland REIT Inc., a non-traded real estate investment trust.

In concluding a settlement with Finra, Wells Investment Securities neither admitted nor denied the charges, but consented to the entry of Finra's findings.

Wells was the dealer-manager and wholesaler for the public offering of Wells Timberland REIT, which invested in timber-producing land. As the wholesaler, Wells reviewed, approved and distributed the marketing materials for Wells Timberland. Finra officials found that from May 2007 to September 2009, Wells reviewed, approved and distributed 116 advertising and sales materials containing misleading, unwarranted or exaggerated statements.

For example, Wells Timberland's initial offering prospectus stated that it intended to qualify as a REIT for the tax year that ended Dec. 31, 2006; however, it did not qualify for REIT election until the tax year that ended Dec. 31, 2009.

Finra, the non-governmental regulator for securities firms doing business in the U.S., claims that the majority of the advertisements and sales literature failed to disclose the significance of Wells Timberland's non-REIT status, or suggested that Wells Timberland was a REIT at a time when in fact it had not qualified as a REIT. The communications also contained misleading statements regarding Wells Timberland's portfolio diversification and ability to make distributions and redemptions.

Although non-traded REITs are generally illiquid, often for periods of eight years or more, they can avoid particular tax consequences if they qualify under certain Internal Revenue Service requirements.

Finra claims that Wells' advertisements did not make it clear to potential investors who might be seeking such favorable tax treatment that the investment at issue was not yet a REIT and therefore would not be able to offer the desired tax benefits at the time the ads were being used.

Finra on Oct. 4. issued an Investor Alert called Public Non-Traded REITs -- Perform a Careful Review Before Investing to help investors understand the benefits, risks, features and fees of these investments.

"By approving and distributing marketing materials with ambiguous and equivocal statements, Wells misled investors into thinking Wells Timberland was a REIT at a time when it was not a REIT,'' said Brad Bennett, FINRA Executive Vice President and Chief of Enforcement.

"Firms need to be mindful that investors rely on marketing materials to disclose truthful, accurate and up-to-date information to help inform their investment decisions," Bennett added.

Finra also found that Wells failed to have supervisory procedures in place to ensure that sensitive customer and proprietary information stored on laptops were being adequately safeguarded by appropriate encryption technology.