The Securities and Exchange Commission said Monday that Centaurus Financial Inc., one of its branch managers and a registered rep had reached a $1 million settlement in connection with unsuitable sales of complex structured products to dozens of clients.
Centaurus Financial is a large independent broker-dealer based in southern California with 375 branch offices and 615 brokers and financial advisors under its roof. Centaurus is known in the retail brokerage industry for selling alternative investments; it was one of the leading sellers of GWG life settlement bonds, the issuer of which last year declared bankruptcy. Alternative investments often pay brokers a higher commission than traditional investments like stock and bond mutual funds or exchange-traded funds.
From June 2016 to July 2019, a Centaurus broker, Atul Makharia, and seven other registered representatives from the Lexington, South Carolina, branch office "made recommendations of [variable interest rate structured products] to ninety-four retail customers for whom the recommendations were unsuitable in light of each of the specific customers’ financial situations and needs," according to the SEC.
"Makharia made fifty of these unsuitable recommendations to thirty customers," according to the SEC, and Centaurus failed to implement, and branch manager Ricky Mantei failed to follow, Centaurus' customer-specific suitability procedures. Centaurus also violated the broker-dealer books-and-records provisions of federal securities laws, the SEC said.
Centaurus Financial agreed to pay a civil penalty of $750,000 and disgorgement of almost $5,000. Mantei agreed to pay a civil penalty of $206,000 and disgorgement of $105,000, including interest, and to serve a six-month suspension as a supervisor. Makharia agreed to pay a civil penalty of $35,000 and serve a six-month suspension.
The general counsel for Centaurus Financial, Paul King, didn’t return a call Wednesday to comment. Centaurus Financial, Mantei and Makharia agreed to the settlement without admitting to or denying the SEC's findings.
The products in question were variable interest rate structured products, which are complex structured securities with maturity periods of 15 years or more issued by large well‑known financial institutions, according to the SEC. Investors may lose some or all of their principal at maturity if the variable interest rate structured products referenced securities indexes decline more than a specified percentage at maturity.
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