A midsize wealth manager that’s under new ownership after a compliance overhaul agreed to its second major FINRA settlement this year relating to sales of affiliated alternative products.
As part of a June 23
National shed hundreds of advisors in
“The firm’s conduct was aimed at artificially stimulating demand and supporting the price of the offered securities, which tended to be thinly traded, in the immediate aftermarket,” according to FINRA’s letter of acceptance, waiver and consent. “The aftermarket performance of [National’s] underwritten offerings was important to the firm’s reputation and ability to generate future investment banking revenue.”
The fact that it took four years after the alleged conduct to resolve FINRA’s case should stand out to wealth managers who are watching enforcement cases closely after the SEC
“I could easily see the investment banking issue becoming a major focal point for the SEC's initial enforcement actions,” Edmiston said. “That's an easy prove to show it wasnt in the best interest of the customer.”
B. Riley — which
The firm also cooperated with FINRA’s allegation as part of taking “several measures to resolve the matters referenced as a continuation of its efforts to enhance its regulatory compliance posture,” spokeswoman Jo Anne McCusker said in an email.
National “has since exited its investment banking business and has taken active steps to de-risk the firm, including eliminating high-risk business lines and registered representatives,” she said. “In addition, [National] has systematically overhauled its compliance processes and supervisory procedures, implemented new reporting controls and electronic monitoring systems, hired new senior compliance professionals and implemented advanced training and education for advisors, brokers and supervisors.”
Besides the disgorgement of the profits from the aftermarket sales, FINRA ordered the firm to pay a fine of $3.6 million and restitution of $625,000, plus interest, to clients who purchased GPB Capital products. Another 17 clients won’t receive any restitution because they have already settled their claims against National relating to GPB’s limited partnerships. National violated Regulation M’s rules against market manipulation through the sales in the aftermarket by a security’s underwriter and by using “tie-in agreements” that linked the IPO share allocations of reps to their volume of the illegally timed transactions, according to FINRA.
“Investors are entitled to rely on a market that is free from artificial price movement created by underwriters,” FINRA Head of Enforcement Jessica Hopper said in a statement. “We will continue to vigilantly enforce rules designed to prevent underwriters from influencing the market for an offered security, including supporting the offering price by creating a perception of aftermarket demand.”