The Financial Industry Regulatory Authority fined Hightower Securities for negligently failing to tell 16 investors in an offering related to GPB Capital Holdings LLC that the issuer failed to timely make required filings with the Securities and Exchange Commission, including filing audited financial statements.
According to the report, Hightower Securities also failed to reasonably supervise certain representatives’ recommendations of an alternative mutual fund, the LJM Preservation & Growth Fund.
Hightower Securities permitted 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 the firm and its representatives had a sufficient understanding of the product’s unique risks and features, including the fact that the fund pursued a risky strategy that relied, in part, on purchasing uncovered options.
According to FINRA, Hightower Securities also lacked a reasonable supervisory system to review its representatives’ LJM recommendations. Specifically, Hightower Securities representatives sold $190,000 in LJM to three customers. LJM’s value dropped 80% during an extreme volatility event in February 2018 and the fund ultimately liquidated and closed, resulting in thousands of dollars in losses for those customers.
Hightower Securities consented to a censure, a $100,000 fine; partial restitution of $133,600, plus interest to certain customers who purchased GPB Capital, restitution of $119,577.40 plus interest to two customers who purchased LJM and an undertaking that, within 90 days of notice of acceptance of this AWC, a member of Hightower’s senior management who is a registered principal of the firm shall certify in writing that, as of the date of the certification, the firm has remediated the issues identified.
FINRA has fined at least seven broker-dealers in December 2022 for the improper selling of GPB Private Placements. As previously reported by The DI Wire, FINRA also fined Center Street Securities Inc. in January 2023.