Purshe Kaplan Sterling Investments will have to pay $9.5 million related to the sale of alternative investments to a Native American tribe in Michigan, according to a recent filing with the Securities and Exchange Commission.
The independent broker-dealer has been dealing with the fallout from the sale to the tribe of shares in nontraded REITs and business development companies since February 2016.
That's when the Financial Industry Regulatory Authority Inc. alleged
that a former broker at the firm, Gopi Krishna Vungarala, lied to the tribe about the $11 million in commissions he charged when he sold the tribe $190 million worth of shares in the alt products.
Purshe Kaplan last month paid $9.5 million to settle an arbitration claim brought by the tribe, the Saginaw Chippewa Indian Tribe of Michigan, according to the firm's
annual audited financial statement, known in the securities industry as a Focus report.
The tribe claimed that it was unaware that it was paying commissions on the products, and that the commissions were not disclosed by either Mr. Vungarala, the prospectuses or the trade confirmations, according to the firm's Focus report.
At the same time, the firm reported another $3 million charge to operations for additional costs associated with claims outstanding prior to its acquisition in December 2017 by Wentworth Management Services.
Purshe Kaplan is better known as a boutique broker-dealer specializing in helping brokers leaving Wall Street to set up their own registered investment advisory firms.
Mr. Vungarala was not available to comment, according to a person answering the phone at his business, Orion Financial Group.
J. Peter Purcell, the CEO of Purshe Kaplan, said that the company could not comment on the specifics of the settlement. But Ryan Morfin, CEO of Wentworth Management Services, said the firm was moving forward.
"We are blessed that we have the financial wherewithal to settle this out," Mr. Morfin said. "It was a distraction from our [mergers and acquisitions] strategy. We have put this behind us and we will focus on that for the rest of the year."
The matter has been expensive for the firm.
In 2017, Purshe Kaplan
reached a settlement with the Financial Industry Regulatory Authority Inc. in which it agreed to pay $3.4 million in restitution to the tribe as well as another $750,000 for failing to supervise Mr. Vungarala, who made the REIT and BDC sales between 2011 and 2015, the height of sales of such products.
Mr. Vungarala was the Michigan tribe's registered representative as well as being employed by the tribe as its investment manager, responsible for managing the tribe's investment portfolio. Finra moved to bar Mr. Vungarala last year but that matter is on appeal, according to his BrokerCheck profile.
