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Regulation and Compliance > Federal Regulation > FINRA

Broker Barred for Concealing Commissions From Native American Tribe: Enforcement

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The Financial Industry Regulatory Authority barred Gopi Krishna Vungarala, pending appeal, for making making materially false and misleading statements to conceal his commissions on investments made by a Native American tribe he was employed by to manage its investment portfolio.

In addition to the bar, FINRA also ordered Vungarala to disgorge $9,682,629, plus interest. Vungarala has appealed the decision to the SEC. However, the bar remains in effect while under review.

Vungarala worked at Purshe Kaplan Sterling Investments in Michigan until his voluntary resignation in February 2016, according to BrokerCheck.

In addition to serving as the tribe’s registered representative, Vungarala was employed by the tribe as its treasury investment manager and participated in decisions regarding the tribe’s investments.

According to FINRA’s findings, Vungarala persuaded the tribe to invest in real estate investment trusts and business development companies through a broker-dealer firm where he told the tribe he parked his registration.

As a result, Vungarala received more than $9 million in commissions.

“Through false and misleading statements, Vungarala repeatedly led the tribe to believe that he did not receive commissions on its transactions and that he had no conflict of interest,” FINRA said.

The findings also stated that Vungarala willfully failed to disclose to the tribe that it was eligible to receive more than $3.3 million in volume discounts. Such discounts would have reduced his commissions.

FINRA Orders Commonwealth to Pay Restitution for Overcharging Customers

Commonwealth Financial Network was censured and required to provide remediation to eligible customers who qualified for, but did not receive, the applicable mutual fund sales-charge waiver.

As part of this settlement, the firm has paid restitution to eligible customers, which is estimated to total $888,337 (the amount eligible customers were overcharged, inclusive of interest).

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge.

The findings stated that these eligible customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses.

FINRA also stated that the firm failed to reasonably supervise the application of sales-charge waivers to eligible mutual fund sales. The firm relied on its financial advisors to determine the applicability of sales charge waivers, but failed to maintain written supervisory procedures reasonably designed to assist financial advisors in making this determination.

In addition, the firm failed to train its financial advisors regarding the availability of mutual fund sales-charge waivers for eligible customers.

As a result of the firm’s failure to apply available sales charge waivers, the firm estimates that eligible customers were overcharged by $766,295 for mutual fund purchases made since July 1, 2009.

Adviser Barred for Falsely Claimed SEC Registration Eligibility

The SEC barred from the industry the principal of an RIA for falsely claiming SEC registration eligibility.

According to the SEC’s initial cease-and-desist order in August 2017 against Robert Wilson and his firm Black Diamond Asset Management, Wilson initially registered by claiming that Black Diamond had more than $583 million in assets under management and at least 26 discretionary accounts, but a year later changed the firm’s Form ADV to claim eligibility as a midsize advisor with $25 million to $100 million in AUM domiciled in New York and/or Wyoming.

In reality, the SEC says, Black Diamond managed no marketable assets at the time and has never met the minimum requirements for investment adviser registration with the commission.

In addition, while Black Diamond was formed by Wilson in 2013 as a Wyoming limited liability company, it has “at all relevant times” been located at Wilson’s address in New York, according to the SEC.

According to the SEC, the respondent electronically signed the Form ADV “under penalty of perjury.”

FINRA Bars Broker Who Hid Outside Business Activities From Firm

FINRA barred James Randall Clay because he engaged in outside business activities without providing prior written notice to his member firm.

According to BrokerCheck, Clay was a broker at CUSO Financial Services at the time. Prior to that, Clay worked at U.S. Bancorp Investments and Edward Jones.

According to FINRA’s findings, Clay used his relationship with an elderly customer to buy real estate from the customer under terms that benefited only himself.

Clay drafted and signed a handwritten agreement to purchase the customer’s rental property for $1 million, with the customer financing the entire amount. Under the agreement, Clay also borrowed $500,000 from the customer to fund Clay’s down payment on the property and improvements to it.

Clay established a limited liability company to manage the rental property and began collecting rent, according to FINRA. However, he never provided written notice of this outside business to his firm.

The findings also stated that after the customer’s family complained to the firm, Clay falsely told the firm his sister purchased the rental property, and he was not personally involved in the purchase or subsequent management of the property.

Clay also provided the same false information to FINRA in response to requests for information and documents and during on-the-record testimony. This information was pivotal to FINRA’s investigation, and Clay’s misrepresentations were designed to conceal his misconduct and divert the investigation away from him, according to FINRA.

The FINRA decision barring Clay became final on Nov. 1.

— Check out Maxine Waters to Keep ‘Watchful Eye’ on Regulators on ThinkAdvisor.


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