FINRA Cases: Firms To Pay $1.2M Over UIT Sales, Broker Charged for Lying to a Native American Tribe, and Morgan Stanley Ordered to Pay Clients $825K

Brokerage Firms to Pay $1.2M for Not Applying UIT Discounts
The Financial Industry Regulatory Authority has charged Next Financial Group Inc., Stephens Inc., and Key Investment Services with failing to grant sales charge discounts when certain customers that were buying unit investment trusts were eligible for the reduced rates. The three broker-dealers are also face charges for inadequate supervision. The self-regulatory organization is ordering the three firms to pay $1.2M in restitution and fines. The FINRA settlements stated that Stephens did not give the discounts from 1/10 to 5/15 and the other two firms did not give them from 5/09 to 4/14.

Unit Investment Trusts
A UIT is a fund that combines a fixed portfolio of income-producing securities that are bought and held to maturity and an actively managed fund. These funds usually issue securities, also known as units that are redeemable-meaning that the UIT will repurchase the units from an investor at the approximate net asset value.

FINRA has been looking into whether firms are giving clients that are entitled to purchase discounts the reduced rates. Last year, the SRO ordered a number of firms to pay $6.7M in restitutions and fines for not giving discounts to clients when selling them UITs.

Broker Accused of Fraud, Targeting Native American Tribe
Broker Gopi Krishna Vungarala is facing FINRA charges for lying to a Native American Tribe about the $11M in commissions they paid him when he sold the tribe $190M of business development companies (BDCs) and nontraded REITS. The SRO said that from 6/11 to 1/15 Vungarala, who was the tribe’s treasury investment manager and registered representative, lied to the tribe about investments he recommended to them.

The broker fraud complaint notes the following causes of action: misrepresentations and omissions related to securities sales and failure to disclose that the client was eligible for volume discounts. Vungarala purportedly falsely represented to the tribe that neither he nor broker-dealer Purshe Kaplan Sterling Investments would receive any commissions on the sales. He denies the allegations against him.

FINRA is accusing Purshe Kaplan of failing to supervise not just Vungarala’s dual role with the tribe, but also the the sale of BDCs and nontraded REITs to ensure that volume discounts were applied when warranted.

The self-regulatory organization’s complaint also says that $11.4M in commissions went to Purshe Kaplan, of which Vungarala was paid $9.6M. FINRA says that the tribe was overcharged $3.4M in commissions.

FINRA Orders Morgan Stanley to Pay $825K Over Broker Misconduct
A FINRA arbitration panel said that Morgan Stanley (MS) must pay two clients $825K because its hiring process was not adequate enough to properly vet financial adviser Anna Khai, whom the claimants blame for their investment losses. Kai is accused of soliciting the firm’s customers to invest in investments were not approved. The $825K award includes $660K in compensatory damages and $165K in punitive damages plus interest.

Finra cracks down on firms for missing discounts on UIT sales, InvestmentNews, February 5, 2016

Broker Duped Tribe In Investment Scheme, FINRA Says, Law360, February 4, 2016

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