Published On: February 22, 2017

Recently, the Financial Industry Regulatory Authority (FINRA) fined Purshe Kaplan Sterling Investments (PKS) almost $3.4 million to be paid in restitution to a Native American tribe, after the tribe allegedly paid excessive sales charges on purchases of non-traded real estate investment trusts (REITs) and Business Development Companies (BDCs). Allegedly, a PKS representative, Gopi Vungarala, was the tribe’s broker, as well as its Treasury Investment Manager responsible for its portfolio. FINRA found that Vungarala was able to misrepresent to the tribe that PKS would not receive commissions on its purchases, when, in reality, it would, and subsequently convinced the tribe to invest more than $190 million in non-traded REITs and BDCs. This was because PKS failed to reasonably supervise Mr. Vungarala and failed to establish procedures designed to mitigate risk and oversee the broker. Vungarala himself received more than $9 million in commissions from the tribe’s investments and FINRA fined PKS $750,000 for its failure to supervise the sale of these securities.

Vungarala and PSK also failed to identify that more than 200 of the tribe’s purchases were eligible for discounts because of the volume. If the tribe had received the commissions for which it was eligible, Vungarala would have only made $6 million in commissions. PKS still did not take reasonable steps to verify this after FINRA and the REIT issuer provided inquiries about the discount transgression. These transgressions occurred between April 2009 and October 2014. REITs and BDCs tend to be extremely high-risk and illiquid investments, not suitable for all investors. Because of this fact, the broker and brokerage firm must do due diligence on the investor to make sure that all investments are suitable. If he/she and/or the firm does not, the firm may be liable for losses. To find out how you can sue PSK for investment losses, please call 312-332-4200 today for a free consultation with one of our attorneys. There is no obligation. We sue firms such as PSK in the FINRA arbitration forum for investors on a contingency fee basis only.

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