According to FINRA, Rande Scott Aaronson was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in any principal capacity for one month for failing to reasonably supervise sales of illiquid oil and gas limited partnerships.

As a principal, Aaronson was responsible for supervising sales to ensure they were suitable for customers given their investment profiles, as required by FINRA Rule 2111 and his member firm's policies and written supervisory procedures. Aaronson failed to conduct reasonable suitability analysis for sales of two illiquid limited partnerships, even when reviewing sales to senior customers and sales within 30 days of a customer's risk tolerance increase.

Aaronson was aware of but failed to reasonably investigate and respond to red flags of potentially unsuitable sales of limited partnerships to certain senior customers. He was also aware of changes to customer risk tolerances around the time of limited partnership sales. An increase in risk tolerance could be necessary for a customer to purchase limited partnerships under the firm's sales parameters or to purchase increased amounts. However, Aaronson did not reasonably investigate certain risk tolerance increases as red flags requiring additional scrutiny.

This case highlights the importance of principal supervision of complex, illiquid product sales, particularly to senior investors. Illiquid investments like oil and gas limited partnerships carry significant risks including lack of liquidity, concentration risk, and potential for total loss of investment. They are typically appropriate only for sophisticated investors with high risk tolerance and financial resources to withstand potential losses.

Red flags such as recent risk tolerance increases shortly before purchases of high-risk products warrant careful investigation by supervising principals. Such timing may indicate the risk tolerance change was made to facilitate a desired transaction rather than reflecting a genuine change in the customer's circumstances or investment objectives. Principals must conduct meaningful suitability reviews rather than merely rubber-stamping transactions, especially for senior investors and complex products.