According to FINRA, Geneos Wealth Management, Inc. was censured and fined $150,000 on March 18, 2022, for failing to reasonably supervise registered representatives' recommendations of alternative mutual funds and for negligently omitting material information about limited partnership offerings.

The firm lacked a supervisory system to identify whether new mutual funds were complex products or alternative funds requiring heightened due diligence. Instead, the firm applied the same review standards to alternative mutual funds as traditional mutual funds, failing to evaluate the unique risks and rewards. The firm had no written procedures advising principals how to supervise alternative mutual fund recommendations, and its electronic trade review system was not configured to flag risk factors associated with these products that would warrant additional suitability review. As a result, some alternative mutual fund transactions may not have been identified for additional review, even for customers with low risk tolerances.

Additionally, the firm sold at least three limited partnership interests totaling $165,000 without informing customers that the issuer had failed to timely file required SEC filings, including audited financial statements. This was material information that should have been disclosed.

The firm was ordered to pay $250,710.41 plus interest in restitution to customers who purchased the alternative mutual fund and was required to establish policies and procedures to address alternative mutual fund supervision.

Alternative mutual funds employ complex strategies that can be inappropriate for conservative investors. This case demonstrates why enhanced supervision and due diligence are essential for complex products. Investors should carefully review whether alternative investments align with their risk tolerance and understand that missing financial statements from an issuer is a serious red flag indicating potential financial distress or accounting problems.