According to FINRA, Purshe Kaplan Sterling Investments, Inc. was censured, fined $40,000, and ordered to pay $16,000 plus interest in partial restitution for negligently failing to disclose material information to investors about an alternative asset management firm. The firm sold limited partnership interests totaling $400,000 without informing customers that the issuers had failed to timely file audited financial statements with the SEC or the reasons for the delay.

The firm had received letters from the alternative asset management firm notifying it of the delays and the firm's intention to complete a forensic audit, but continued selling interests to customers without disclosing this critical information. Subsequently, the SEC filed a complaint alleging securities fraud, and the DOJ brought criminal charges against the firm's executives, including charges of securities fraud, mail fraud, and wire fraud. One executive has pled guilty to wire fraud.

Material information about delayed financial statements and forensic audits are significant red flags that investors deserve to know before making investment decisions. Such delays often indicate serious financial or accounting problems. When firms withhold this information, investors cannot make informed decisions and may invest in securities they would have avoided had they known the full picture.

The firm received $32,000 in commissions from these sales, creating a financial incentive to continue selling despite the warning signs. This case illustrates why disclosure obligations exist—to ensure that firms prioritize investor interests over their own profits. Investors should always ask probing questions about any investment, particularly regarding the timeliness and accuracy of financial reporting and whether any unusual circumstances exist.