Broker-Dealer Settles Charges for Suitability Violations on Non-Traded REIT Recommendations
A broker-dealer settled FINRA charges for failing to review the suitability of investment recommendations in non-traded Real Estate Investment Trusts ("REITs") and failing to timely respond to relevant customer complaints.
In a Letter of Acceptance, Waiver, and Consent, FINRA found that the broker-dealer did not maintain any guidelines governing the process for reviewing a non-traded REIT recommendation. While supervisors were required to review the recommendations for suitability, most only reviewed customers' non-traded REIT disclosure forms, which did not contain information critical to determining suitability such as age, experience, investment needs and risk tolerance.
FINRA found that one registered representative of the firm made unsuitable recommendations in non-traded REITs. FINRA said that the broker-dealer received numerous complaints in response to the recommendations but failed to respond. FINRA said that the lack of timely response impeded its ability to investigate the allegations given that it was unaware of the issue until approximately four years after the fact.
As a result, FINRA determined that the broker-dealer violated FINRA Rule 1122 ("Filing of Misleading Information as to Membership or Registration"), Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision"). Additionally, the broker-dealer violated Section 2(c) ("Application for Registration") and Section 3(b) ("Notification by Member to the Corporation and Associated Person of Termination; Amendments to Notification") of Article V of FINRA's by-laws.
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $400,000, (iii) restitution of $471,401 and (iv) undertakings to improve its supervisory controls relating to non-traded REIT recommendation review.
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