Finra smacks Advisor Group with $1.3 million penalty over private placement sales

The four Advisor Group firms sold investors GPB private placements but failed to tell them that GPB hadn't made required filings, including audited financial statements.

The Financial Industry Regulatory Authority Inc. last week took aim at another group of broker-dealers — this time Advisor Group firms — that sold private placements issued by GPB Capital Holdings, which has undergone a wide-reaching makeover in the past two years.

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, according to the Finra settlement released Thursday.

The issue at hand, in line with other broker-dealers’ settlements and fines with Finra related to GPB sales, was that the firms negligently failed to tell investors that in the spring of 2018, GPB had failed to make timely required filings, including audited financial statements for its largest funds, with the Securities and Exchange Commission, according to Finra. That was in violation of Finra’s Rule 2010, the standards of commercial honor and principles of trade rule.

The GPB fund that didn’t file 2018 audited financial statements in this matter was the $600 million GPB Automotive Portfolio limited partnership, according to Finra.

The Advisor Group firms first approved its sale in the summer of 2017. But almost a year later, in the spring of 2018, even though the firms knew about its failure to file audited financial statements, financial advisers at the four broker-dealers sold $16.3 million of the private placements and generated close to $1.14 million in commissions, according to the tally released by Finra.

According to the Finra settlement, the four broker-dealers agreed to Finra’s findings without admitting or denying them.

A spokesperson for Advisor Group said the company had no additional comment on the matter.

The Finra settlement has two parts: $200,000 in fines for the four firms, and the remainder, close to $1.1 million, in restitution to clients.

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.

After GPB missed its spring 2018 deadline to file the audited financial statements, it struggled, cutting dividends for some private placements. Its founder David Gentile and other senior executives were charged with fraud in February 2021 by the Justice Department.

This year, Finra has reached other settlements and penalties with broker-dealers that sold the GPB private placements after GPB missed the 2018 deadline to file financial statements with the SEC.