According to FINRA, Newbridge Securities Corporation was censured, fined $50,000, and ordered to pay $114,025.24 plus interest in restitution to customers for failing to reasonably supervise representatives' recommendations of an alternative mutual fund.

The firm permitted the sale of an alternative mutual fund on its platform without conducting reasonable due diligence and without sufficient understanding of its risks and features, including that the fund pursued a risky strategy relying in part on purchasing uncovered options. The firm lacked a reasonable supervisory system to review representatives' alternative mutual fund recommendations. It had no system or procedures to determine whether a new mutual fund constituted a complex product or alternative mutual fund requiring heightened due diligence.

The firm subjected alternative mutual funds to the same approval standards as traditional mutual funds, which did not evaluate the potential risks and rewards of the fund strategies. The firm relied solely on due diligence conducted by its clearing firm and conducted no independent due diligence. Additionally, the firm did not provide adequate guidance or training to representatives regarding alternative mutual fund risks and features. The firm's electronic trade review system auto-approved alternative mutual fund transactions without principal review for suitability.

Firm representatives sold approximately $323,000 in shares of the alternative mutual fund to customers. During an extreme volatility event, the fund lost about 80 percent of its value and ultimately liquidated, resulting in thousands of dollars in customer losses. Investors should recognize that alternative mutual funds employ complex strategies with risks that differ significantly from traditional mutual funds and require heightened due diligence before investment.