Purshe Kaplan Sterling Investments (PKS) knew it’s dually registered reps were working with an outside wealth management firm for years to pedal high-risk leveraged ETFs, but failed to supervise the reps, Massachusetts regulators said today in an administrative complaint.
Because of the Albany, N.Y.-based firm's failure to supervise their reps’ outside business activities with the Harvest Wealth Management Group, Massachusetts investors have lost more than $2.3 million, the state Securities Division charged. The complaint seeks recovery of that amount from the firm.
“PKS utterly failed in its supervisory responsibilities of its [dually registered agents]. Massachusetts investors should not suffer because of PKS’ failures,” the complaint said.
While these transactions were conducted outside of the reps’ employment with PKS, the employer had a duty to review these transactions as part of their supervisory responsibilities, the complaint said.
The complaint states that the $2.3 million in losses were incurred as a direct result of unsuitable investments in leveraged exchange-traded funds (ETFs), which are highly complex investments that should be monitored on a daily basis.
Despite warnings from Finra that leveraged ETFs are typically unsuitable for average investors who plan to hold them for more than a day, the Harvest Group invested more than 340 client accounts in leveraged ETFs for days, weeks, months, and even a year, the complaint said.
According to the complaint, for years the firm failed to review any of the private securities transactions effected by agents whom the broker-dealer has allowed to act as dually registered investment advisor representatives of the Harvest Group.
Even after PKS finally amended its policies in 2019 to conduct risk-based reviews of dually registered advisors’ outside transactions, “the company still failed to conduct any reviews that year, and conducted only one transaction review in 2020," the complaint said.
PKS Securities did not immediately respond to a request for comment.
Broker-dealer agents must first receive permission from their broker-dealer before providing investment advisory services, the state said in the complaint.