Finra has censured and fined Concorde Investment Services $110,000 after an investigation revealed it failed to supervise advisors who recommended excessively risky alternative investments to half a dozen clients.
In an AWC letter dated November 4, Finra detailed how Concorde, a broker-dealer firm headquartered in Ann Arbor, Michigan, failed to ensure that recommendations involving limited partnership interests from GPB Capital Holdings were suitable for six of its clients.
The investigation revealed that from November 2015 to April 2018, Concorde’s representatives recommended those GPB Capital investments to clients with conservative or moderate risk profiles, which Finra determined to be inconsistent with the high-risk nature of the GPB products.
"The securities that GPB Capital sold were not registered. ... [O]nly accredited investors were permitted to purchase the GPB Capital limited partnership interests," Finra said, emphasizing how those investments were "illiquid securities" meant for "sophisticated investors [who were] “able to bear the economic and other risks of investment ... for an indefinite period of time."
According to the offering documents, the GPB limited partnerships were "highly speculative and involved a high degree of risk of loss." Those investments, which promised an 8 percent return annually, were later found to be propped up by an elaborate system of deceit, and in September, two of the highest-ranking executives of the company behind the scheme were ultimately found guilty on all counts of fraud leveled against them.
In its settlement with Concorde, Finra said the firm “failed to reasonably supervise recommendations to purchase alternative investments related to GPB Capital Holdings,” noting that five of the affected customers were seniors.
It found that Concorde’s advisors exceeded the firm’s concentration risk guidelines by recommending that these senior clients allocate more than 30 percent of their net worth to these alternative products. Those excessive weightings, Finra said, were "apparent on suitability paperwork that the representatives submitted to the firm."
Despite those red flags of unsuitable recommendations, Finra said Concorde failed to make further inquiries to ensure the recommendations were suitable for the investors' risk profiles.
In addition to the fine, Concorde has agreed to pay partial restitution of $20,382.39 plus interest to three clients affected by the unsuitable investment recommendations.
The firm has since amended its policies and supervisory controls concerning alternative investments, and discontinued allowing advisors to recommend GPB offerings as of April 2018.
Finra's action against Concorde is the latest in a long string of other penalties related to the case, including an Arizona investment advisor rep who ended up with his license stripped and a former Texas broker who paid a $435,000 settlement following legal action by the SEC.
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