← Broker database 2022-11-30
Four Firms Fined for Failing to Disclose Alternative Asset Manager Filing Delays
According to FINRA, FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial Services, Inc. were sanctioned for negligently failing to inform investors that an alternative asset management firm issuer had failed to timely file required SEC filings including audited financial statements.
FSC was fined $50,000 and ordered to pay $277,612.30 in partial restitution, Royal Alliance was fined $35,000 and ordered to pay $171,500, SagePoint was fined $60,000 and ordered to pay $325,475.66, and Woodbury was fined $55,000 and ordered to pay $300,224.98. The partial restitution amounts equal the commissions the firms received from these customers' investments.
While representatives at the firms received a letter from the alternative asset management firm notifying them of filing delays and its stated intention to complete a forensic audit, the firms continued to sell limited partnership interests. However, representatives did not inform customers that the issuer had not timely filed audited financial statements with the SEC or the reasons for delay. This was material information that should have been disclosed.
The SEC subsequently filed a complaint against the alternative asset management firm alleging securities fraud, and the Department of Justice brought criminal charges against the firm's founder, CEO, and two other executives for securities fraud, mail fraud, and wire fraud.
This case illustrates the critical importance of disclosure of material information to investors. Delays in filing audited financial statements are red flags that may indicate financial problems or misconduct. Investors have the right to know about such delays before making investment decisions, particularly in alternative investments that already carry heightened risks. Firms must ensure their representatives disclose all material information, not just information that favors the sale.