Firm Fined for Allegations of Inadequate Supervision of Concentrated Client Positions in Alternative Investments

by InvestorLawyers on October 10, 2013

in Arbitration,FINRA,SEC,Securities Fraud,Suitability

Securities lawyers are currently investigating claims on behalf of investors whose portfolios held by VSR Financial Services or other brokerage firms contained an unsuitable concentration of alternative investments. Reportedly, VSR Financial Services Inc. is being fined $550,000 by the Financial Industry Regulatory Authority (FINRA) over claims that a reasonable supervisory system was not set up, maintained or enforced regarding non-conventional investment sales.

Firm Fined for Allegations of Inadequate Supervision of Concentrated Client Positions in Alternative Investments

Reportedly, stipulations in VSR’s written supervisory procedures allowed only up to 50 percent of the exclusive net worth of their clients could be invested in alternative investments, unless there was a justifiable reason for exceeding these guidelines. In addition, VSR’s owner allegedly set up procedures that provided a discount through certain non-conventional instruments that artificially lowered the amount of the customer’s liquid net worth that was invested in non-conventional instruments.

However, the Securities and Exchange Commission stated in a letter to VSR that it had found that adequate written procedures had not been established for the program and this deficiency had not been corrected two years after VSR was notified by the regulator of the problem. The SEC also stated that reasonable actions were not taken to ensure the written supervisory procedures were implemented or, if they were not implemented, to eliminate the discount program.

FINRA further alleges that VSR reduced the risk ratings on many investments when determining concentration at specific risk levels. According to securities arbitration lawyers, this means the ratings were inconsistent with the risks stated in the investments’ offering documents. Furthermore, the discount program resulted in an “artificially” reduced amount invested in certain investments used to determine concentration for individual customers.

According to investment lawyers, firms and their registered representatives have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. A high concentration of alternative investments is unsuitable for many investors and can result in significant losses.

If your portfolio with VSR, or another firm, contained an unsuitable concentration of alternative investments, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or by e-mail at newcases@investorlawyers.net  for a no-cost, confidential consultation.

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