FINRA Fines Independent Financial Group $200,000 for Failure to Supervise Alternative Investment Recommendations

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Updated on: June 30, 2021

Recently, the Financial Industry Regulatory Authority (FINRA) sanctioned and fined Brokerage Firm, Independent Financial Group (IFG), for the failure to supervise recommended Alternative Investments in Non-traded Real Estate Investment Trusts (REITs) and Structured Notes.  According to FINRA, the Acceptance Waiver and Consent (AWC) agreed to by IFG resulted in a censure, $200,000 fine and required to implement supervisory systems reasonably designed to comply with sales practice rules and regulations related to suitability requirements for alternative investment recommendations.

Regulatory Findings

According to FINRA investigations, “the 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 the firm. The representative 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. The representative recommended that his customers make hundreds of investments in non-traded REITs and structured products. The representative’s supervisors observed and reported certain irregularities and concerns relating to his recommendations.  More than three dozen of RR l’s customers brought arbitration claims against IFG, and the vast majority of the arbitrations were settled.  Additionally, the investigation found that “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.  Notwithstanding the identification of these issues, the firm permitted the representative to continue to sell non-traded REITs and structured products to his customers.

KlaymanToskes Can Help Recover Investment Losses

According to KlaymanToskes, many investors who held concentrated positions in Alternative Investments with full-service brokerage firms were not educated about the risks related to Non-traded REITs, such as lack of liquidity, high operating expenses and higher levels of leverage than traditional fixed income investments.  Any recommendations which resulted in unsuitable investment advice and/or speculative concentration in Alternative Investments are causes of action that may be available for investor claims against their full-service brokerage firm in an individual securities arbitration claim filed with FINRA.

The sole purpose of this investigation is to determine whether recommended investments in Non-traded REITs and Structured Notes was suitable for investors.   For investors with investment losses in portfolios concentrated in Alternative Investments that exceed $250,000 in accounts with full-service brokerage firms, and have information relating to the manner in which the firm handled their accounts are encouraged to contact Lawrence L. Klayman, Esq., at (561) 542-5131, and download our Special Investor Report.


Lawrence L. Klayman, Esq., (561) 542-5131