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Purshe Kaplan Sterling to Pay $4.1Mn, Hire Consultant to Settle FINRA Charges
Purshe Kaplan Sterling Investments has agreed to pay over $4.1 million in restitution and fines to settle FINRA charges that the Albany, NY-based broker-dealer caused a Native American tribe to pay excessive sales charges on purchases of non-traded Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs). Charges against Gopi Vungarala, the PKS registered rep, remain unsettled.
The firm will also retain the services of an indie consultant to review and revise the firm’s inadequate internal controls and weaknesses.
ACCORDING TO FINRA, ….. from July 2011 through at least 1/15/15, Vungarala was the tribe’s PKS registered rep and its Treasury Investment Manager responsible for managing the tribe’s investment portfolio. PKS failed to adequately review the risks inherent in that relationship or establish procedures designed to mitigate the risks.
As a result of these supervisory failures:
- Vungarala was able to misrepresent to the tribe that neither PKS 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.
- In fact, Vungarala personally received at least $9 million in commissions on the tribe’s investments.
- PKS failed to identify that more than 200 of the tribe’s purchases were eligible for discounts based on the volume of the purchases – which also would have reduced Vungarala’s commissions to approximately $6 million.
- Vungarala misrepresented to PKS that the tribe did not want to receive the volume discounts.
- PKS failed to take reasonable steps to verify this statement even after it received inquiries about the missed discounts from a REIT issuer and FINRA staff.
FINRA FURTHER FOUND THAT ….. between April 2009 and 10/31/14, PKS failed to maintain and enforce an adequate supervisory system and WSPs pertaining to non-traded REITs and BDCs. PKS’s procedures were not reasonably designed to identify accounts that were eligible for volume discounts, and did not provide any guidance to its representatives or supervisors regarding how to ensure that the sales volume discounts were applied appropriately.
