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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