According to FINRA, American Trust Investment Services, Inc. was censured, fined $100,000, and ordered to pay $166,000 in restitution for multiple supervisory failures including inadequate oversight of speculative bond sales and selling unregistered securities.

The Whiting, Indiana firm failed to reasonably supervise sales of speculative, risky, and illiquid corporate bonds for compliance with Regulation Best Interest. After customers invested in these bonds, the issuing company defaulted on its obligations and subsequently filed for bankruptcy.

Three of the firm's representatives recommended these bonds to customers including seniors, retirees, and a non-profit entity. The firm lacked reasonable processes to assess whether representatives were making recommendations in compliance with Reg BI's Care Obligation or suitability requirements.

The firm also sold unregistered securities without applicable exemptions. It participated in Rule 506(b) private placement offerings—which prohibit general solicitation—without establishing pre-existing, substantive relationships with offerees. This resulted in approximately $6 million in sales that constituted unregistered distributions.

Additional deficiencies included inadequate procedures for background investigations of new registrants, failure to properly review outside business activities, and incomplete office inspections despite SEC warnings about inspection deficiencies in 2020.

The firm's written procedures generally discussed Reg BI only in general terms without prescribing actual compliance procedures or establishing controls to prevent violations.

For investors, this case highlights several important protections. Reg BI requires brokers to act in your best interest, particularly important when complex or risky products are recommended. Private placement exemptions have specific requirements that protect the investing public, and firms must verify eligibility before offering securities under these exemptions.