According to FINRA, Coastal Equities, Inc. was censured, fined $150,000, and ordered to pay $268,800, plus interest, in partial restitution to customers.

The firm negligently failed to tell customers it solicited to invest in offerings related to an alternative asset management firm that the issuers failed to timely make required filings with the SEC, including filing audited financial statements. The firm sold limited partnership interests in private sector companies after being notified that the delivery of the issuers' audited financial statements would be delayed pending the completion of a forensic audit. The principal value of those sales totaled $3.05 million, and the firm received a total of $244,000 in commissions from the sales. In connection with these sales, the firm's representatives did not inform the customers that the issuers had not timely filed their audited financial statements with the SEC or the reasons for the delay. The delay in filing audited financial statements was material information that should have been disclosed.

The firm also failed to reasonably supervise a registered representative who recommended that his customers purchase offerings related to the alternative asset management firm. These customers purchased approximately $15 million of the alternative asset management firm's offerings. During the firm's review of the representative's transactions, the firm failed to recognize multiple red flags that the representative was circumventing the firm's concentration limits by inflating customers' financial information on disclosure forms. The firm did not verify changes to customers' financial information or seek substantiating documentation, despite many customers having purported liquid net worth increases around the time of purchases. This resulted in several customers having unsuitably high concentrations of their liquid net worth in alternative investments.

Subsequently, the SEC filed a complaint against the alternative asset management firm alleging securities fraud, and the U.S. Department of Justice brought criminal charges against the firm's founder and CEO and two other executives.

This case illustrates the critical importance of disclosing material information about investments. Delays in filing audited financial statements, particularly when a forensic audit is being conducted, are significant red flags that investors need to know about to make informed decisions. Investors should always ask questions about the current status of required regulatory filings and be cautious about investments in private placements, especially when concentration limits seem to be circumvented.