FINRA continues to crack down on sales of alternative investments. Earlier this week, FINRA, the Financial Industry Regulatory Authority Inc. fined VSR Financial Services Inc., a midsize broker-dealer known for selling alternative investments, $550,000, and imposed a $10,000 fine and 45-day suspension of VSR's chairman, Don Beary.
FINRA alleged that from 2005 to 2010, VSR and Mr. Beary “failed to adequately implement the firm's supervisory system pertaining to its supervision of concentrated positions in alternative investments through the use of a 'discount program.'” That program “artificially reduced the amount a customer had invested in a particular investment for purposes of calculating concentration,” according to the FINRA letter.
“In addition, when calculating concentration at certain risk levels, VSR reduced the risk ratings on many investments, making the ratings inconsistent with the risks stated in the offering documents related to the investments,” according to FINRA.
According to FINRA, VSR Financial has 460 registered reps, and between January, 2006 and September, 2010, 20% to 45% of the firm's revenue was generated by the sale of nonconventional investments. That level of sales contributed to “increasing the seriousness of the violations.”
VSR generated $98.1 million in total revenue in 2012, according to InvestmentNews' most recent survey of independent broker-dealers.
Mr. Beary told InvestmentNews about changes VSR made this month to policies regarding the sale of alternative investments. The firm scaled back the amount of illiquid alternative investments that can be held in client accounts and lessened the amount that investors over 70 could own. It has been reduced to 35%, with new limits for older clients.
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