The Financial Industry Regulatory Authority fined Coastal Equities Inc. earlier this month after the company allegedly failed to properly supervise a registered representative who engaged in “excessive and unsuitable trading” in four customer’s accounts related to investments in offerings issued by GPB Capital Holdings without notifying them that the issuer had failed to make timely required filings with the Securities and Exchange Commission, including filing audited financial statements.
FINRA reports that from August 2014 through July 2018, Coastal failed to supervise one of its representatives by not reasonably investigating red flags that the representative was falsifying documents regarding customers’ financial status.
For example, the representative recorded false increases in the net worth and liquid net worth of customers. FINRA reports that in many instances, there were indications on the face of the documents that information had been whited-out and written over. In other cases, the representative sent emails to customers attaching only the signature pages for documents related to the investment, including new account information forms, the disclosure forms, and subscription agreements. The representative then completed the remaining portion of the documents with financial information that was inflated and/or false.
According to FINRA, although Coastal received the email from GPB Capital notifying it of the delays and GPB Capital’s stated intention to complete a forensic audit, Coastal sold 11 limited partnership interests in Automotive Portfolio and one limited partnership interest in Holdings II after the date of the letter. The principal value of those 12 sales totaled $3.05 million and Coastal received a total of $244,000 in commissions from the sales.
In connection with these sales, however, Coastal’s representative did not inform the customers that Automotive Portfolio and Holdings II had not timely filed their audited financial statements with the SEC or the reasons for the delay. FINRA says the delay in filing audited financial statements was material information that should have been disclosed.
Coastal has consented to a $150,000 fine and partial restitution of $268,800, plus interest.
As The DI Wire reported, four broker-dealers were previously fined after they improperly sold limited partnership units in GPB Capital’s GPB Automotive Portfolio, LP.