FINRA Fines Advisor Group’s Triad for “Risky” Alternative Mutual Fund Sales
The Financial Industry Regulatory Authority has censured and fined Triad Advisors, a broker-dealer within the Advisor Group network, for failing to reasonably supervise its representatives’ recommendations of an alternative mutual fund.
The Financial Industry Regulatory Authority has censured and fined Triad Advisors, a broker-dealer within the Advisor Group network, for failing to reasonably supervise its representatives’ recommendations of an alternative mutual fund — the LJM Preservation & Growth Fund.
Triad was fined $195,000 and ordered to pay restitution of $510,260, plus interest.
According to FINRA, Triad permitted the sale of LJM on its platform without conducting “reasonable due diligence” and without sufficiently understanding its risks and features, including the fact that the fund pursued a “risky strategy” that relied, in part, on purchasing uncovered options. The fund invested primarily in purchased (long) and sold (short) call and put options on the S&P 500 futures index and did not hold any underlying stock as a part of its strategy.
FINRA claims that Triad lacked a reasonable supervisory system to review representatives’ LJM recommendations. Triad representatives sold nearly $2.3 million in LJM to 58 customers.
Triad was also accused of failing to obtain required account information for customers who purchased the private offerings of LJM Partners Ltd. and LJM Preservation & Growth Fund LP.
On February 5, 2018, the S&P 500 fell 113 points, or roughly 4.1 percent, which contributed to an unprecedented increase in market volatility, causing the prices of the short option positions sold by LJM Preservation & Growth Fund to increase dramatically. The fund lost about 80 percent of its value in two days and closed to new investors on February 7, 2018. In late March 2018, the fund was liquidated and dissolved.
This matter originated from FINRA’s 2019 investigation of firms that sold the LJM mutual fund to retail customers. In March 2021, FINRA cited Cambridge Investment Research, Securities America, and J.W. Cole Financial for similar conduct and ordered the three broker-dealers to pay $550,000 in fines and $3.5 million in restitution.
According to a letter of acceptance, waiver and consent issued by FINRA, Triad agreed to establish and implement policies, procedures, and internal controls reasonably designed to address and remediate the issues identified by FINRA. The broker-dealer signed the letter without admitting or denying FINRA’s allegations.
Triad is headquartered in Atlanta, Georgia, and as of September 2021, had 1,051 registered representatives in 351 branch offices.
