The Financial Industry Regulatory Authority Inc. this week dinged two small broker-dealers, Dempsey Lord Smith of Rome, Georgia, and BD4RIA Inc. of Fort Worth, Texas, for negligent sales to clients of GPB Capital Holdings private placements in light of GPB's failure to issue audited financial statements for the high-risk, high-commission investments.
In the settlements, both broker-dealers accepted Finra's findings without admission or denial. The actions covered in the settlements date back to the spring of 2018; that's when financial advisers and clients who bought GPB private placements were waiting for the company to file financial statements with the Securities and Exchange Commission for two of its largest funds, even though both funds had crossed industry thresholds for making such information public a year earlier.
After missing its deadline to file the audited financial statements, GPB struggled, cutting dividends for some private placements. It was charged with fraud last year by the Justice Department and the SEC.
Brokers at the dozens of firms that sold GPB private placements routinely charged clients 7% to 10% commissions and fees for GPB products, the highest percentage allowed in the industry.
Dempsey Lord Smith, which has 100 brokers and financial advisers, violated industry rules in May and June of 2018 when it "negligently omitted" to tell four investors in GPB private placements that the company had failed to make required filings in a timely manner with the SEC, including audited financial statements, according to Finra. Also, from September 2015 through June 2018, certain brokers at the firm made unsuitable recommendations of GPB securities to four investors.
Dempsey Lord Smith was fined $70,000 Monday and ordered to pay restitution of close to $30,000, plus interest, according to Finra. An attorney for the firm, Joel Beck, did not comment.
BD4RIA, which has 13 brokers and advisers, "negligently omitted" In June 2018 to inform seven investors in a GPB private placement that the company had failed to timely make the required filings with the SEC, according to Finra. On Tuesday, the firm was fined $45,000 and ordered to pay restitution of $40,000. An attorney for BD4RIA, Matthew Henneman, did not return a call to comment.
It appears that Finra is gathering momentum in fining firms over sales of GPB securities in 2018. Last week, Geneos Wealth Management Inc. agreed to a $400,000 settlement with Finra related to sales of GPB private placements and another alternative investment, the LJM Preservation & Growth Fund.
GPB Capital, a New York-based alternative asset management firm founded in 2013, served as the general partner for limited partnerships formed to acquire income-producing companies such as auto dealerships and trash businesses. GPB eventually raised $1.8 billion from investors.
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