According to FINRA, Hightower Securities, LLC was censured, fined $100,000, and ordered to pay $253,177.40 in restitution to customers for multiple supervisory failures related to GPB Capital Holdings offerings and an alternative mutual fund.
The firm negligently failed to inform investors that GPB Capital had not timely filed required SEC filings, including audited financial statements. While the firm received letters from the issuer about the delays and its intention to complete a forensic audit, Hightower continued selling GPB Capital limited partnership interests totaling $1,670,000 without disclosing this material information to customers. The firm received $133,600 in commissions from these sales, which it must now repay. In February 2021, the SEC filed a securities fraud complaint against GPB Capital, and the Department of Justice brought criminal charges against executives.
Separately, the firm failed to reasonably supervise representatives' recommendations of an alternative mutual fund. Hightower permitted the fund's sale without having written supervisory procedures requiring due diligence on alternative mutual funds. The firm lacked procedures to ensure it understood the product's unique risks, including that the fund pursued a risky strategy involving uncovered options. The firm also lacked a reasonable supervisory system to review representatives' recommendations of the fund. Representatives sold $190,000 of the fund to customers, and when the fund's value dropped 80 percent during an extreme volatility event and ultimately liquidated, customers suffered thousands of dollars in losses. The firm must pay $119,577.40 in restitution to these customers.
This case illustrates multiple failures in a firm's gatekeeper role. Firms must conduct adequate due diligence on products they offer and must disclose material information about issuers' financial condition and regulatory compliance. Investors should be wary of alternative investments and should ask detailed questions about due diligence conducted by their brokerage firms.
