CMKM Diamonds Inc. (fka CMKX)

[IQ1]

It appears the brokers may infact be liable.

As an example......
In addition, salespersons must engage in a suitability analysis prior to recommending TIC deals to their customers to ensure that these illiquid investments are suitable for the customer’s financial situation.

Federal and State Securities laws also prohibit the misrepresentation or omission of material facts in conjunction with the sale of a security. Many state Acts provide for the recovery of losses, attorneys fees, and interest.

The duties of a securities Broker-Dealer and its salesperson to perform due diligence on a TIC investment prior to its recommendation and sale is well-established by both NASD/FINRA guidance and federal caselaw. When performing this due diligence, the Broker-Dealer and representative may not rely upon documents from the issuer/sponsor, but instead must perform independent due diligence to follow up on red flags or irregularities.

NASD Notice to Members 03-71 was issued in November, 2003 and it set out members’ obligations when selling “non-conventional investments,” which included TIC private placements. The NASD stated that in the sale of such products, members were required to:

“(1) conduct appropriate due diligence with respect to these products; (2) perform a reasonable-basis suitability analysis; (3) perform customer-specific suitability analysis for recommended transactions; (4) ensure that promotional materials used by the member are fair, accurate, and balanced; (5) implement appropriate internal controls; and (6) provide appropriate training to registered representatives that sell these products.”

With regard to the required “due diligence,” Notice 03-71 further requires Broker-Dealers to “ensure that their written procedures for supervisory and compliance personnel require that (1) the appropriate due diligence/reasonable-basis suitability is completed before products are offered for sale.” Furthermore, “members also must document the steps they have taken to ensure adherence to these procedures.”




http://www.securities-lawyers.net/tenant_in_common_1031.html