Purshe Kaplan Sterling Investments will pay nearly $3.4 million in restitution to a Native American tribe, after the tribe paid excessive sales charges on purchases of non-traded real estate investment trusts and business development companies, Finra said Wednesday
in a release.
In addition to ordering restitution, the Financial Industry Regulatory Authority Inc. fined the broker-dealer for its failures to supervise the sales of these securities.
The settlement resolved charges brought in a February 2016 Finra complaint. The charges alleged in the same complaint against Gopi Vungarala, the tribe's registered representative at the firm, are ongoing. The charges were reported in http://www.investmentnews.com/article/20160205/FREE/160209936/finra-broker-charged-11m-in-commissions-for-nontraded-reits-and-bdcs
InvestmentNews in February 2016.
Finra found that from July 2011 through at least January 15, 2015, Mr. Vungarala was the tribe's registered representative as well as being employed by the tribe as its investment manager, responsible for managing the tribe's investment portfolio. Finra said the firm failed to adequately review the risks inherent in that relationship or establish procedures designed to mitigate the risks. It fined the firm $750,000 for its failure to supervise.
Finra found that as a result of these supervisory failures, Mr. Vungarala was able to misrepresent to the tribe that neither the firm nor he would receive commissions on its purchases, "and he was therefore able to induce the tribe to invest more than $190 million in non-traded REITs and BDCs."
Mr. Vungarala received at least $9 million in commissions from the tribe's investments, Finra said.
Finra also found that Purshe Kaplan Sterling failed to identify that more than 200 of the tribe's purchases were eligible for volume discounts and that Mr. Vungarala's commissions would have been reduced to approximately $6 million if the tribe had received the discounts for which it was eligible. Mr. Vungarala misrepresented to the firm that the tribe did not want to receive the volume discounts, Finra said.
