A firm settled FINRA charges for failing to reasonably supervise the representative's alternative investment recommendations for customers, including seniors.

In a Letter of Acceptance, Waiver, and Consent, FINRA found that the representative solicited dozens of retiring, or retired, customers and recommended to them that they concentrate their retirement assets in structured notes and non-traded real estate investment trusts. FINRA found that many of the customers had minimal or no investment experience, rendering the representative's recommendations unsuitable.

FINRA stated that firm's supervisors also did not reasonably address, among others, the following red flags indicating that the representative was making unsuitable recommendations:

  • discrepancies in customers' new account documents and suitability questionnaires, and questionable asset allocations;
  • numerous complaints and customer arbitrations filed against the representative;
  • the use of corrective tape and liquid paper on account documents;
  • the potential mismarking of trades as unsolicited;
  • mismatched customer signatures; and
  • questionable modifications to customers' risk tolerances and net worth.

Although the firm twice placed the representative under heightened supervision plans, FINRA determined that the firm did not reasonably implement the plans, allowing the representative to continue making the unsuitable recommendations. As a result of the firm's supervisory failures, FINRA found that the firm violated NASD Rule 3010 and FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure, (ii) a $200,000 fine and (iii) an undertaking to complete certification concerning the implementation of reasonably designed supervisory procedures with respect to FINRA's suitability requirements for alternative investments.

Primary Sources

  1. FINRA AWC: Independent Financial Group, LLC

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