The Financial Industry Regulatory Authority Inc. last year penalized 15 broker-dealers a total of $3.7 million for sales of GPB Capital Holdings private placements dating back to the spring of 2018. That's when the firms sold the private placement to customers, at a time when GPB had failed to file required audited financial statements for two of its biggest limited partnerships with the Securities and Exchange Commission.
The firms routinely did not inform customers of this shortcoming by GPB, which violated industry rules and was the main reason for the Finra penalties cited in the settlements.
Finra closed 2022 by penalizing two small firms that had sold the high-commission, high-risk private placements: Nashville-based Center Street Securities Inc. with 75 registered reps last Thursday, and Missouri-based Moloney Securities Co. Inc. with 130 reps last Wednesday. Finra pointed to the firms negligently failing to inform customers that GPB had not submitted audited financial statements, according to the Finra actions. Finra uses similar language throughout the actions it took against the other 13 firms.
In the settlements, which both firms agreed to without admitting or denying Finra's findings, Center Street agreed to a $70,000 fine and restitution to clients of almost $90,000. Moloney Securities agreed to $268,000 in restitution to clients.
Senior executives at both firms did not return phone calls Tuesday morning to comment.
The penalties, a combination of fines and restitution to clients or merely the latter, last year averaged $247,000 per firm, according to an InvestmentNews tally. But the costs per firm in such matters typically go deeper; attorneys' fees add up in such matters, which can also serve as road maps for plaintiff's lawyers to sue brokerage firms on behalf of clients who bought the product.
Case in point: Kalos Capital Inc., a midsize independent broker-dealer based in suburban Atlanta.
In October, Kalos Capital, a proponent of alternative investments for retail clients, said it was closing down, crushed by more than $9 million in legal fees and costs related to sales of GPB private placements.
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. GPB has been selling assets but it has not yet released clear plans for investors to get back money from those transactions.
The most notable and largest firms penalized last year by Finra in the GPB sales matter were four of the Advisor Group broker-dealers. The four Advisor Group firms — FSC Securities Corp., Royal Alliance Associates Inc., SagePoint Financial Inc. and Woodbury Financial Services Inc. — were penalized close to $1.3 million in fines and restitution to clients over shortcoming in GPB sales, according to the Finra settlement from the end of November.
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