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Regulation and Compliance > Federal Regulation > FINRA

FINRA Sweeps Broker-Dealers for Info on Nontraded BDCs

By Janet Levaux

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As investors seek yield from nontraditional investments, regulators are looking for more information on such products.

On Thursday, the Financial Industry Regulatory Authority said it is investigating sales of nontraded business development companies, or BDCs.

FINRA posted an exam letter asking FINRA members for a list of the BDCs they offer, the names of advisors selling them and the firms’ procedures for selecting BDCs to sell.

BDCs typically invest in smaller companies and are more accessible than private equity or venture capital funds.

Specifically, FINRA is asking that BDC-related documents and information from January 2015 through June 2016 be sent to it by Sept. 9.

In February, FINRA charged a broker with lying to members of a Native American tribe about commissions he received related to more than $190 million in nontraded real estate investment trusts and BDCs the tribe invested in over the course of three years, generating $11.4 million in commissions for his firm.

According to the FINRA complaint, from at least June 2011 through January 2015, Gopi Vungarala, through his firm, Purshe Kaplan Sterling Investments, “regularly lied” to his customer, ST, a Native American tribe, regarding investments he recommended. 

Vungarala served as a registered rep for Purshe Kaplan Sterling and was also employed by the tribe as its treasury investment manager and participated in decisions regarding the tribe’s investments.

FINRA also charged PKS with supervisory failures for failing to detect and halt Vungarala’s fraudulent conduct. PKS, based in Albany, New York, has approximately 1,250 registered reps and approximately 460 branches.

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