Firm Settles Charges of Supervisory Failures

Purshe Kaplan Sterling Investments ("PKS") agreed to pay approximately $3.4 million in restitution to a Native American tribe, and a $750,000 penalty, to settle FINRA charges that the firm failed to supervise adequately a firm employee who made fraudulent sales. The charges stated that the employee "fraudulently induced the tribe to invest hundreds of millions of dollars in non-traded real estate investment trusts" ("REITs") "and business development companies" ("BDCs") by falsely representing that the employee would not pay commissions on the sales, and by allowing the tribe's leaders to falsely believe that PKS would not receive commissions on the sales. In addition, the FINRA Order specified that the employee failed to disclose that the tribe was eligible to receive more than $3.3 million in volume discounts on its non-traded REIT/BDC purchases.

According to the FINRA Order, PKS failed adequately to (i) review the salesperson's relationship with the customer, (ii) establish procedures to supervise the sale of non-traded REITs and BDCs, and (iii) confirm the salesperson's representations that the tribe did not want to take advantage of certain volume discounts for which it was eligible.

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