KMS Financial Services, Inc. (CRD #3866, Seattle, Washington) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $50,000, which includes the disgorgement of financial benefits received of $7,727.13.
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it and two registered representatives sold $4,280,000 of interests in a hedge fund to customers and received $50,555.05 in incentive fees from the hedge fund’s general partner. From the fees, the firm paid the registered representatives $42,827.92, leaving the firm with $7,727.13 in net incentive fees. The findings stated that the firm failed to conduct adequate due diligence. It relied on the representatives’ opinions, failed to contact the hedge fund’s accounting firm to determine the nature of its services, and failed to confirm information the general partner provided.
The firm failed to review a New York Stock Exchange hearing panel decision sanctioning a founder of the hedge fund, who was also its portfolio manager. The firm requested financial statements for the hedge fund but the partner would not provide them. The firm later received an account reconciliation for the firm customers, which a different accounting firm prepared. The firm did not inquire whether or why the partner had changed accounting firms. The findings also stated that the firm became aware of “red flags” regarding the hedge fund and based on the red flags, and as a result of its failure to conduct adequate due diligence, it did not have reasonable grounds to believe the hedge fund was a suitable investment for any customer. The findings also included that the firm’s WSPs were not reasonably designed to ensure it conducted adequate due diligence of private placement offerings, and failed to implement its procedures in that it did not use the due diligence questionnaire incorporated in its procedures. In determining the appropriate sanctions, FINRA considered the fact that the firm paid $2,730,000 to settle claims by the customers who purchased the hedge fund.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
If you have questions about investments you made with KMS Financial Services, Inc., the securities attorneys of The White Law Group may be able to help. To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
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