FINRA Provides a Detailed Analysis of a Broker-Dealer’s Failure to Adequately Supervise Alternative Investment Sales

In March 2014, the Financial Industry Regulatory Authority (FINRA) fined a broker-dealer $950,000 for supervisory deficiencies related to its failure to adequately supervise the sale of “alternative investments.” These investments include a laundry list of products that have been at the forefront of FINRA’s priorities in recent years: nontraded real estate investment trusts (REITs), oil and gas partnerships, business development companies (BDCs), hedge funds, managed futures, and other illiquid pass-through investments.

FINRA’s findings provide a useful “case study” as to the types of issues that a firm should consider in evaluating its own processes for sales of complex products.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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