FINRA Fines Purshe Kaplan for Overcharging Native American Tribe
The Financial Industry Regulatory Authority has ordered broker-dealer Purshe Kaplan Sterling Investments to pay nearly $3.4 million in restitution to the Saginaw Chippewa Indian Tribe of Michigan, after the tribe paid excessive sales charges on purchases of non-traded real estate investment trusts and business development companies. FINRA also fined the broker dealer $750,000 for its failures to supervise the sales of the securities.
As previously reported by The DI Wire, Purshe Kaplan broker Gopi Vungarala sold the tribe approximately $190 million in non-traded REIT and BDC investments that he recommended from at least June 2011 through January 2015.
Vungarala was also employed by the Saginaw Chippewa tribe as its treasury investment manager and participated in decisions regarding its investments. FINRA noted that neither the members of the tribe’s investment committee nor the tribal council were sophisticated investors, and they relied heavily upon Vungarala’s recommendations when approving proposed investments.
The tribe prohibits its employees from engaging in business activities that could constitute a conflict of interest. According to the complaint, Vungarala failed to disclose that he and Purshe received sales commissions, usually 7 percent.
The investments Vungarala recommended generated $11.4 million in commissions for the broker-dealer— of which $9.6 million was paid to Vungarala. According to the complaint, his commissions would have been reduced to approximately $6 million if the tribe received the volume discounts for which it was eligible.
FINRA found that Purshe failed to adequately review the risks inherent in Vungarala’s relationship with the tribe or establish procedures designed to mitigate those risks. FINRA also found that the broker-dealer failed to identify that more than 200 of the tribe’s purchases were eligible for volume discounts.
The settlement resolves charges brought against the firm last year, however the charges against Vungarala are ongoing.
Headquartered in Albany, New York, Purshe Kaplan Sterling Investments is a full-service broker-dealer and financial services firm with more than 440 offices and 1200 registered representatives.
