The Financial Industry Regulatory Authority says a broker-dealer will pay $3.4 million to a tribe of Native Americans for excess sales charges on $190 million purchases of nontraded real estate investment trusts (REITs) and business development companies (BDCs).
FINRA also fined the broker-dealer, Albany, New York-based Purshe Kaplan Sterling (PKS) Investments, $750,000 for its failures to supervise sales of these securities.
While the settlement resolves charges brought in a February 2016 FINRA complaint against PKS, it does not resolve charges facing the tribe's former registered representative, Gopi Vungarala. Vungarala served as both the tribe's advisor and its treasury investment manager from 2011 to 2015 out of an office in Midland, Michigan.
"PKS failed to adequately review the risks inherent in that relationship or establish procedures designed to mitigate the risks," FINRA said in a statement.
Due to the supervisory failures, Vungarala misled the tribe by telling its members "that neither PKS nor he would receive commissions on its purchases," the regulatory group says. "In fact, Vungarala personally received at least $9 million in commissions from the tribe's investments."
Furthermore, PKS "failed to identify that more than 200 of the tribe's purchases were eligible for discounts based on the volume of the purchases," according to FINRA. Vungarala's commissions would have been about $6 million if the tribe had received such volume discounts.
In addition, from 2009 to 2014, PKS did not maintain and enforce "an adequate supervisory system and written supervisory procedures to ensure compliance with the securities laws and FINRA rules when it sold nontraded REITs and BDCs," it said.
For instance, PKS did not have procedures to identify accounts eligible for volume discounts and did not inform representatives or supervisors in order to ensure that discounts were applied appropriately.
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