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Articles Tagged with commissions

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Michigan-based Firm and Licensed Broker Pocket $11.4 Million in Commissions on silverlaw.com

Alleged misrepresentation of REITs and BDCs by Purshe Kaplan Sterling Investments and Gopi Vungarala to their client, a Native American Tribe, lead to exorbitant commissions to the detriment of the tribe

Purshe Kaplan Sterling Investments and their licensed broker Gopi Vungarala have been named respondents in an FINRA compliant that alleges numerous violations of the securities commission.

A registered and licensed broker for eleven years, Gopi Vungarala is under investigation for repeatedly lying about investments and commissions to his client, a Native American Tribe, for more than three years. According to his BrokerCheck report, Vungarala, as the tribes registered representative and treasury investment manager, convinced his client to invest hundreds of millions of dollars in non-traded REITs and business development companies without revealing that he and his firm received commissions on the sales or that these sales were eligible for volume discounts. Instead, it is alleged that Vungarala kept those discounts in the form of commissions for himself and the firm.

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Last week, the Financial Industry Regulatory Authority (FINRA) filed charges against Newport Coast Securities, Inc. (“Newport Coast”) and some of its current and former registered representatives, accusing them of using margin and risky securities to artificially generate huge commissions for themselves while wiping out most of their customers’ investment capital.

Newport Coast, a New York-based broker-dealer, by and through brokers Douglas Leone, Andre LaBarbera, David Levy, Antontio Costanzo, and Donald Bartlet, allegedly churned the accounts of twenty four customers — many of whom are retirees — causing more than $1,000,000 in losses to the investor-clients.  “Churning,” as it is known in the industry, is the act of a broker who excessively and needlessly engages in trading in a client’s account primarily to generate commissions for the broker on each trade without regard for the client’s financial well-being.  Churning is an illegal and unethical practice that violates SEC rules and securities laws.  The brokers are also purported to have created new account forms for their victimized clients that misstated the clients’ net worth, investment experience, and objectives; and two of the brokers (Levy and Costanzo) attempted to dissuade several customers from cooperating with FINRA’s investigation into the matter — all of which was done to cover up the illegality of the brokers’ excessive activity in the client accounts.

According to FINRA, former Newport Coast supervisors Marc Arena and Roman Luckey saw what was transpiring but took no meaningful steps to curtail the misconduct.  To the contrary, the firm’s managers, supervisors, and the former President of the company allegedly profited through overrides on the churned accounts.

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The Financial Industry Regulatory Authority (FINRA) has recently sponsored a new securities industry rule that makes the information included on customer account statements more transparent.  Transparent commissions will likely lower the total up-front commissions a broker can collect on certain popular securities as investors realize the steep fees they are paying.

Nontraded real estate investment trusts (REITs) are among the most popular investment products sold by registered representatives and their broker-dealers.  Typically sold for less than $10 per share, the commission to a rep and the firm in this $1.4 billion “alternative investment” sector of the retail investment market is 7%, though the amount that goes toward the total upfront commission is split amongst several different players involved in selling the REIT.  A problem for investors is that their account statements do not clearly show the breakdown of those commissions or the estimated per-share valuation of their investment — something that the current rules do not require be revealed to them until 18 months after the REIT sponsors stop raising funds.

Under FINRA’s proposed new rule, the time frame in which broker-dealers will have to show investors a true valuation of such purchases will be drastically sped up.  By accelerating that timetable, investors will be provided quicker and much greater transparency in seeing the commissions being charged to them; and industry experts anticipate that broker-dealers are likely to lower the fees they assess to investors on such alternative investments.  Both nontraded REITs and illiquid private placements known as “direct participation programs” (DPPs), which would also fall directly under this new rule, have frequently been criticized for high commissions.

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