Fund Wholesaler Fined $300,000 Because of Misleading Marketing Materials
A fund wholesaler agreed to pay a $300,000 fine to settle FINRA charges that marketing material used with other broker-dealers and institutional investors were misleading. FINRA charges that the marketing materials (which were prepared by a third party affiliate) were not fair and balanced because the materials (i) failed to disclose that the fund did not qualify as a REIT for tax purposes, (ii) made incorrect claims about the fundâ€™s diversification, (iii) made generalized and unsupported claims about the benefits, predictability, and consistency of investing in the targeted assets, (iv) referenced past investments by institutional investors in similar assets, and (v) utilized a comparison index that was not truly representative. FINRA cited violations of Rule 2210 because the marketing materials did not have fair and balanced disclosure.
OUR TAKE: FINRA is making clear that fund distributors and wholesalers have an affirmative obligation to review marketing materials and make judgment calls on the adequacy of the disclosure.