Chicago-based Hightower Securities has agreed to a settlement over allegations it violated industry rules in the sales of two alternative funds between 2016 and 2018, AdvisorHub reports.
The Financial Industry Regulatory Authority released a letter of acceptance, waiver and consent in which the firm was penalized $353,200 but did not admit or deny the findings.
According to FINRA, Hightower negligently failed to tell 16 investors in an offering related to GPB Capital Holdings, LLC (GPB Capital) that the issuer failed to timely make required filings with the Securities and Exchange Commission, including filing audited financial statements. This was found to be a violation of FINRA Rule 2010 requiring members to observe high standards of commercial honor and just and equitable principles of trade.
FINRA also determined that Hightower failed to reasonably supervise some representatives’ recommendations of an alternative mutual fund—the LJM Preservation & Growth Fund. (LJM) Hightower was found to have allowed the sale of LJM on its platform without having written supervisory procedures requiring the firm to conduct due diligence on alternative mutual funds to ensure that representatives sufficiently understood the product’s risks and features. FINRA said the company’s supervision of representatives recommending alternative mutual funds “was not reasonable in several respects.” This was a violation of FINRA Rule 3110, requiring members to maintain a supervisory system designed to achieve compliance with securities laws and regulations.
As part of the settlement, Hightower was fined $100,000, and will pay $133,600 in partial restitution to the GPB clients and $119,600 to two clients who bought the LJM fund, which plummeted in value in 2018.
A spokesperson for Hightower said the firm was pleased to have resolved the matters and would continue to follow fiduciary best practices and regulatory standards for their clients’ investments.
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