The Financial Industry Regulatory Authority has fined Geneos Wealth Management $150,000 for failing to reasonably supervise its representatives’ recommendations of an alternative mutual fund — the LJM Preservation & Growth Fund. The broker-dealer was also cited over sales of GPB Capital private placements.
According to FINRA, Geneos permitted the sale of LJM on its platform without having procedures in place to ensure that the firm and its representatives had a sufficient understanding of its risks and features. Geneos representatives sold more than $2.5 million in LJM to customers between November 2016 and February 2018.
FINRA said that LJM 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.
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.
In addition to the $150,000 fine, Geneos was ordered to pay $250,710 in restitution plus interest to certain customers who purchased LJM interests.
FINRA also claims that between April 2018 and June 2018, Geneos “negligently omitted” to tell three investors in GPB Automotive Portfolio LP, a private placement sponsored by GPB Capital Holdings, that the firm failed to timely make its required filings with the Securities and Exchange Commission, including filing audited financial statements.
Geneos sold $165,000 in the GPB Automotive Portfolio and earned $11,550 in commissions.
GPB Capital is a New York-based alternative asset management firm founded in 2013 that sponsors a number of Regulation D private placement investment funds. Last year, the Justice Department and the Securities and Exchange Commission charged the firm and its executives with running a “Ponzi-like scheme” that raised approximately $1.8 billion from investors.
In related news, FINRA recently cited two small broker-dealers over GPB private placement sales, as reported by The DI Wire.
Geneos, a full-service broker-dealer with approximately 340 registered reps and 180 branch offices, accepted FINRA’s sanctions without admitting or denying the allegations.