Finra: Broker charged $11M in commissions for nontraded REITs and BDCs and lied about it

Regulator said he failed to tell Native American tribe about fees

Feb 5, 2016 @ 3:25 pm

By Bruce Kelly

A broker has been charged by Finra for lying to a Native American tribe about the $11 million in commissions he charged when he sold the tribe $190 million in nontraded real estate investment trusts and business development companies.

From June 2011 to January 2015, the broker, Gopi Krishna Vungarala, “regularly lied to his customer, a Native American tribe, regarding investments he recommended,” according to the Financial Industry Regulatory Authority Inc. complaint.

Mr. Vungarala served as the unnamed tribe's registered rep as well as its treasury investment manager, according to the complaint, which was filed on Thursday. He “fraudulently induced the tribe to invest hundreds of millions of dollars in nontraded REITs and BDCs, without revealing he and his firm received commissions for the sales (usually 7%) or the availability of certain volume discounts.”

According to the Finra complaint, the tribe bought $190.4 million of illiquid REITs and BDCs and were charged $11.4 million in commissions, which went to his broker-dealer Purshe Kaplan Sterling Investments. Mr. Vungarala was paid $9.6 million – or 84.3% - of those Purshe Kaplan commissions.

The client was overcharged $3.4 million in commissions, according to the Finra complaint, which was also filed against Purshe Kaplan. The firm's supervisory failures prevented it from detecting and halting Mr. Vungarala's fraudulent conduct, according to Finra.

When told of the charges on Friday afternoon, Mr. Vungarala said that he “had not received any notice of this yet and [I] vigorously deny any allegations."

David Purcell, a partner at Purshe Kaplan, did not return phone calls on Friday to comment.

Finra's complaint lists four causes of action, including the misrepresentation and omission of a material fact in connection with the sale of securities; the failure to disclose to the client that it was eligible to receive volume discounts; the failure to supervise Mr. Vungarala's dual relationship with the tribe; and the failure to supervise the sale of nontraded REITs and BDCs for the application of volume discounts.

“In order to induce the tribe to make these purchases, notwithstanding the tribe's prohibition against conflicts of interest, Vungarala falsely represented to (the tribe) that he would not receive any commissions on purchases of the nontraded REITs and BDCs made in the tribe's (Purshe Kaplan) account,” according to the complaint. Vungarala also allowed tribal leaders to believe Purshe Kaplan would not receive any commissions on these transactions, according to the complaint.

Mr. Vungarala sold REITs and BDCs from a number of leading sponsors, according to the complaint.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Cameras roll at Best Places to Work for Financial Advisers' awards

Advisory firm winners on the top 50 InvestmentNews list of Best Places to Work for Financial Advisers explain the significance of this recognition at the Chicago awards event.

Latest news & opinion

Supreme Court decision likely to prevent brokers from filing class-action lawsuits

However, it likely won't bar employees from filing 401(k) lawsuits against their employers.

5th Circuit denies states' second attempt to defend DOL fiduciary rule

The three-judge panel split again, 2-1, in deciding not to take another look at the motion to intervene by California, New York and Oregon.

Pass-through tax strategies for business-owner clients

Shifting business structure, changing filing status and spinning off equipment are examples of ways business owners can take advantage of the deduction.

Finra anticipates oversight role for SEC advice rule

CEO Robert Cook says one area for examination could be the proposed requirement that brokers act in the best interests of their clients.

IBDs with the most CFPs

Here are the 10 independent broker-dealers that employ the most certified financial planner professionals.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print