The Financial Industry Regulatory Authority is fining VSR Financial Services Inc. $550,000 over claims that the firm did not set up, keep up, and enforce a supervisory system that was reasonable over its sale of non-conventional investments. The SRO says that the firm did not properly monitor concentrated client positions of alternative investments. Also fined was VSR owner Donald Joseph Beary, who also received a suspension from associating with other FINRA members for 45 days.
According to the SRO, the firm’s written supervisory procedures stipulated that just up to 40-50% of a client’s exclusive net worth could be cumulatively invested in alternative investments-that is, except for when there was a reason that justified going beyond the guidelines. VSR, through Beary, also set up procedures that gave a discount to certain instruments that were non-conventional, lowering the percentage of how much liquid net worth a customer had invested. It was Beary’s job to implement and oversee the discount program.
However, in a letter to the financial firm, the SEC said that it found that the SRO did not have proper written procedures for the program and that this same deficiency remained even two years after the regulator notified VSR about the problem. The Commission said that Beaury failed to take reasonable action to make sure the WSPs were implemented or to shut down the discount program if not.
FINRA says that when determining concentration at specific risk levels, VSR lowered the risk ratings on a lot of investments, making the ratings not consistent with the risks noted in offering documents about the investments. Also, the discount program “artificially” lowered the amount invested by a customer in a certain investment to figure out concentration.
VSR consented to the sanctions described by FINRA’s without denying or admitting to them.
In an interview with InvestmentNews, Beaury said changes have just been made to alternative investment sales policies. This includes cutting back on how many illiquid alternative investments that client accounts can hold and decreasing how much elderly investors over the age of 70 can own-35% of their accounts can be illiquid investments as opposed to 40-50%.
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