Securities Arbitration Lawyer Blog
Iorio Altamirano LLP is investigating claims on behalf of Independent Financial Group, LLC customers after the firm was censured and fined $200,000 by FINRA.
The sanctions involve supervisory failures related to a registered representative’s unsuitable recommendations to customers, including seniors. In addition to the censure and fine, the firm also agreed to implement supervisory systems and written supervisory procedures reasonably designed to, among other things, achieve compliance with suitability requirements for alternative investments. The registered representative is no longer with the firm.
Alternative investments include non-traded real estate investment trusts (REITs) and structured notes.
If you have lost money with Independent Financial Group, LLC, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.
FINRA Letter of Acceptance, Waiver, and Consent (“AWC”)
Independent Financial Group, LLC has been a FINRA member since November 1978. The firm offers investment products to retail customers, and its main office is located in San Diego, California. The firm has approximately 660 registered representatives and 370 branch offices.
The firm and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on April 8, 2021, over the following findings:
- From January 2008 through March 2016, Independent Financial Group failed to reasonably supervise a registered representative who made unsuitable recommendations to customers to concentrate their retirement assets and liquid net worth in speculative and illiquid securities. The firm became aware of red flags indicating that the registered representative was making unsuitable recommendations to his customers, yet the firm failed to take reasonable actions to investigate and stop the misconduct.
- The registered representative solicited dozens of customers who were retiring or had retired to liquidate their 401(k) and pension plans and invest the proceeds with him at Independent Financial Group. He then recommended that many of these customers concentrate their retirement assets in non-traded REITs and structured notes. Many of the customers had little or no investment experience and had never purchased alternative investments. During this period, he recommended that his customers make hundreds of investments in non-traded REITs and structured products.
Examples of Broker’s Unsuitable Recommendations
The registered representative recommended that a 71-year-old retired customer invest 50% of their liquid net worth in non-traded REITs and structured notes. The customer had an investment objective of growth and conservative risk tolerance. Despite the fact that the customer’s new account documents did not allow for speculation, the registered representative falsely indicated on a suitability questionnaire that the customer wished to speculate.
In another instance, the registered representative recommended that a 72-year-old retired customer invest 75% of their liquid net worth in non-traded REITs and structured notes. Despite the fact that the registered representative recommended these purchases, he falsely marked the transactions as unsolicited. In other words, that the purchases were the customer’s idea. The broker was on heightened supervision when the purchases were made, and a supervisor did not pre-approve them, as required by his heightened supervision plan. The questionnaires for the non-traded REITs indicated that the account did not allow for speculation, but he unilaterally changed the form to indicate the account did allow for speculation and initialed the change himself.
Independent Financial Group, LLC’s Supervisory Violations
Financial institutions must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed supervisory system to ensure that products are suitable for particular customers. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
The AWC describes several supervisory failures by Independent Financial Group, LLC. The firm twice implemented a heightened supervision plan for the registered representative; however, neither plan was reasonably executed.
One of the registered representative’s supervisors documented issues relating to misconduct in his notes, which he shared with the firm’s Compliance Department. The supervisor’s notes highlighted concerns such as the use of corrective tape and liquid paper on account documents, trades being potentially mismarked as unsolicited, customer signatures that did not match, questionable changes to customer risk tolerances, and potentially unsubstantiated increases in a customer’s net worth. Despite these issues, the firm permitted the registered representative to continue to sell non-traded REITs and structured products to his customers.
In November 2013, another supervisor began supervising the registered representative. This supervisor was unaware of the registered representative’s prior pattern of paperwork irregularities and the registered representative’s growing number of customer complaints and arbitrations. He was also responsible for implementing the registered representative’s second plan of heightened supervision, effective April 2015, which the firm imposed due to the filing of two customer arbitrations against the registered representative.
This supervisor would sometimes raise questions related to incomplete or stale paperwork or the suitability of certain of the registered representative’s recommended transactions. The issues raised were typically resolved by gathering or amending transaction documentation and not by reasonably acting upon the red flags suggesting the recommended sales were potentially unsuitable.
NASD Notice to Members 03-71
NASD Notice to Members 03-71 (NTM 03-71) indicates that Non-Conventional Investments (“NCI”), such as non-traded REITs and notes, have particular risks and “may be suitable for recommendation to only a very narrow band of investors capable of evaluating and being financially able to bear those risks.” Due to their unique nature, “many investors, especially retail investors, may not understand the features of the product, and may not fully appreciate the associated risks of investing in them.”
How to Recover Financial Losses or Obtain a Free Consultation
If you have lost money with Independent Financial Group, LLC, contact FINRA arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.