Small broker-dealer owner settles with Finra over allegations of concentrating clients in illiquid alts

A combative owner of a small broker-dealer has reached a settlement with the Financial Industry Regulatory Authority Inc. over claims that he and his firm had clients overly concentrated in illiquid investments and had used a book he had written to tout such alternative investments. In February, Finra filed a complaint against VFG Securities Inc. and its owner, Jason Vanclef, alleging that the firm failed to supervise its brokers to ensure that clients' portfolios would not become overly concentrated in illiquid investments. From November 2010 to June 2012, close to 95% of VFG's revenue was obtained by the sale of nontraded REITs and other so called direct participation programs, or DPPs, which are illiquid assets for retail investors, according to Finra. At that time, Mr. Vanclef told InvestmentNews that Finra had been “persecuting” him since an exam in 2012, when Finra began to focus on the firm selling illiquid alternative investments. He also said that Finra's investigation was an attempt at “character assassination.” Finra in February also alleged in its complaint that Mr. Vanclef used a book he had written, “The Wealth Code,” as sales literature to promote investments in nontraded REITs and DPPs “to lure” potential investors to VFG. Mr. Vanclef “repeatedly claimed in 'The Wealth Code' that nontraded DPPs and nontraded REITs offer both higher returns and capital preservation,” according to the settlement reached Monday. “This claim was inaccurate and misleading, and contradicted information provided in the prospectuses for the instruments that [Mr.] Vanclef and VFG sold. Nontraded DPPS and nontraded REITs are speculative investments that contain a high degree of risk, including the risk that an investor may lose a substantial portion or all of his or her initial investment.” As part of the settlement, VFG and Mr. Vanclef neither denied nor admitted the allegations of the complaint. Mr. Vanclef was suspended from the securities industry for 10 days, and VFG was fined $50,000 — $10,000 of which was jointly with its owner, Mr. Vanclef. “It's a settled matter, and oftentimes one settles because of cost and inconvenience,” said H. Thomas Fehn, Mr. Vanclef's attorney in the matter. “And this is one of those times.”