BD to Pay Over $400K for Failing to Supervise Reps

 Commentary  March 23, 2022 at 07:44 AM  Share & Print

 
 

What You Need to Know

  • FINRA has ordered Geneos Wealth Management to pay a $150,000 fine and restitution of $250,710.41 plus interest to clients.

  • The BD allegedly failed to properly supervise reps who recommended a risky alternative mutual fund.

  • The firm signed a FINRA AWC letter on March 11, consenting to FINRA’s sanctions.

The Financial Industry Regulatory Authority has ordered Geneos Wealth Management, a Centennial, Colorado-based broker-dealer, to pay more than $400,000 for allegedly failing to properly supervise its representatives’ recommendations of a risky alternative mutual fund to clients.

Without admitting or denying FINRA’s findings, Geneos signed a FINRA letter of acceptance, waiver and consent on March 11, consenting to the imposition of the industry self-regulator’s sanctions, which included a censure, a $150,000 fine, and restitution of $250,710.41 plus interest to certain clients who invested in the LJM Preservation & Growth Fund. FINRA signed the letter on Friday.

Geneos also agreed to provide a certification signed by an officer and registered principal of the firm stating that Geneos has established and implemented policies, procedures and internal controls reasonably designed to address and remediate the issues pertaining to alternative mutual funds identified in the AWC letter.

“Geneos takes its regulatory responsibilities very seriously and has always strived to meet and exceed any FINRA rules, regulations and guidance,” Geneos CEO Ryan W. Diachok told on Wednesday. “As a result, and to provide the best outcome for our customers, Geneos agreed to the AWC as set forth therein.  Geneos is happy to have this matter with FINRA behind us.”

He added: “The unfortunate events that triggered the downfall of LJM Preservation and Growth Fund (a registered ’40 Act mutual fund and formally highly rated by Morningstar) were not related to Geneos in any way.  However, like a number of other firms, Geneos agreed to the AWC to provide a benefit to its customers.”

Between Nov. 9, 2016, and Feb. 6, 2018, Geneos allegedly failed to reasonably supervise its representatives’ recommendations of the LJM mutual fund, according to FINRA.

“Geneos permitted the sale of LJM on its platform without having procedures reasonably designed to ensure that the firm and its representatives had a sufficient understanding of its risks and features, including the fact that the fund pursued a risky strategy that relied, in part, on purchasing uncovered options,” FINRA said in the AWC letter.

The BD also “lacked a reasonable supervisory system to review representatives’ LJM recommendations,” according to FINRA.

Geneos brokers allegedly sold more than $2.5 million in LJM to clients. LJM’s value dropped a whopping 80% during an “extreme volatility event” in February 2018, and the fund “ultimately liquidated and closed, resulting in losses” for the Geneos clients who invested in it, FINRA said.

Between April 27, 2018, and June 26, 2018, Geneos also “negligently omitted to tell three investors in an offering related to GPB Capital Holdings that the issuer failed to timely make required filings with the Securities and Exchange Commission, including filing audited financial statements,” FINRA alleged.

In addition, Geneos made at least three sales of limited partnership interests in Automotive Portfolio between April 27, 2018, and June 26, 2018, totaling $165,000, according to FINRA.

Geneos earned a total of $11,550 in commissions from those three sales, FINRA said. But, in connection with the three sales, Geneos reps didn’t inform the clients that Automotive Portfolio had not filed its audited financial statements with the SEC in a timely manner or give the reasons for the delay, according to FINRA.

“The delays in filing audited financial statements were material information that should have been disclosed,” FINRA said.

As a result of its actions, Geneos violated FINRA Rules 3110 (governing supervision requirements) and 2010 (governing standards of commercial honor and principles of trade), according to FINRA.


European Compliance Association

European Compliance Association

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