Whistleblower claims she was fired for raising red flags about broker-dealer's alternative investments

Ex-audit department employee says she brought concerns to Finra and then was let go days later

Aug 1, 2018 @ 2:19 pm

By Bruce Kelly

A former compliance executive for a broker-dealer has filed a whistleblower lawsuit against the firm, Purshe Kaplan Sterling Investments Inc., alleging she was fired days after she called securities regulators over concerns about the firm's sale of alternative investments.

In her lawsuit, Toni Caiazzo Neff names as defendants Purshe Kaplan, its holding company PKS Holdings, and senior management, along with the firm's new owner, Wentworth Management.

A former examiner with Finra predecessor NASD Regulation with more than 20 years' experience, Ms. Caiazzo Neff was hired by Purshe Kaplan in 2014 as a compliance officer, according to the complaint. During her time at the firm, she raised red flags about alternative investments, the complaint alleges, and she was reassigned from from compliance to the firm's audit department.

Filed in May in U.S. District Court for the Eastern District of Pennsylvania, the complaint alleges Ms. Caiazzo Neff was "harassed, threatened, discharged and retaliated against" this January after she conducted an audit and then contacted a senior attorney at the Financial Industry Regulatory Authority Inc. regarding numerous concerns she had about the firm.

"In conducting the internal audit," the complaint states, "she had uncovered numerous violations of various rules and regulations including but not limited to execution of selling agreements before conducting due diligence; a pattern of quid pro quo with regard to new product approvals; failure to follow internal procedures; self-dealing; suitability and best execution concerns; and failure to supervise."

She was fired a few days after her call to Finra, according to the complaint.

One alternative investment Ms. Caiazzo Neff had concerns about but which was approved for sale anyway was a private placement called Spring Hills Holdings, according to the complaint. Alex Markowits is the founder and CEO of Spring Hills Senior Communities, according to his LinkedIn profile, and is also the new majority owner of Purshe Kaplan through his stake in Wentworth Management, according to Purshe Kaplan's BrokerCheck profile. He is also named as a defendant in the complaint.

Ms. Caiazzo Neff filed her complaint as a whistleblower, with the firm's alleged retaliation in violation of protections under the Dodd-Frank financial reform act.

"There is absolutely no merit to Ms. Neff's whistleblower claim," said Purshe Kaplan's CEO, J. Peter Purcell, in an email. "Purshe Kaplan believes this lawsuit is purely retaliatory, and will ultimately be dismissed."

Mr. Purcell also said that Ms. Caiazzo Neff had not passed her Series 7 licensing exam during her four years at the firm, although she was required to do so under terms of her employment.

"The Series 7 wasn't required for her position," said J. Patrick Griffin, an attorney at the Derek Smith Law Group and Ms. Caiazzo Neff's attorney. "For four previous years her Series 7 wasn't an issue until she returned her audit findings. Then it was an issue. My guess is they were looking for a reason to fire her."

Purshe Kaplan Sterling has a niche in the brokerage industry, as the majority of its 1,200 advisers are so-called breakaway brokers from Wall Street banks like Morgan Stanley and Merrill Lynch. Those brokers move most of their business to a registered investment adviser and become licensed with a state or the Securities and Exchange Commission. Purshe Kaplan Sterling is the broker-dealer for the adviser's remaining transactional or commission business.

The firm has had problems in the past from sales of alternative investments. In a settlement last year with Finra, Purshe Kaplan Sterling agreed to pay nearly $3.4 million in restitution to a Native American tribe, after the tribe paid excessive sales charges on purchases of nontraded real estate investment trusts and business development companies, products which paid high commissions to brokers.

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