Distributor Ordered to Pay $12 Million in Restitution for Insufficient Due Diligence
The distributor of third party investment products agreed to pay $12 Million in restitution for failing to conduct proper due diligence on third party products and thereby making unsuitable recommendations. FINRA says that the firm acted as the sole underwriter of several non-traded REITs. FINRA charges that the firm ignored several valuation red flags, warning that a distributor “cannot merely accept the valuation and other material disclosures in the public filings” and “must conduct its own due diligence regarding the offerings.” FINRA also fined and suspended the firm’s CEO. Susan Axelrod, Executive Vice President of Member Regulation Sales Practice, said, “This case stands for the proposition that senior officers of firms, even at the CEO level, will be held accountable for systemic, detrimental harm to customers.” As part of its settlement, the firm must pre-file all marketing materials with FINRA at least 10 days prior to use.