EDI Financial, Inc. in Irving, Texas has been censured and fined $100,000 by the Financial Industry Regulatory Authority, according to a recent report issued by FINRA. According to the report, EDI Financial entered into a Letter of Acceptance Waiver and Consent (“AWC”) with FINRA consenting to the fine and censure along with the entry of findings that it failed to “adopt and implement supervisory systems and procedures necessary to achieve compliance with the firm’s suitability obligations.” According to FINRA, the failures of the firm’s supervisory system related to the solicitation and sale of private placements, specifically customer suitability.
Firms and their registered representatives have an obligation to ensure that all investments recommended to their customers are suitable (in other words, appropriate) for the customer. Firms have an obligation to consider things such as the customer’s risk tolerance, age, income, and investment objective, among others.
Notwithstanding this obligation, it was alleged that “despite the risk and illiquidity of private placements” EDI failed to have appropriate supervisory procedures in place with respect to the proportion of a customer’s assets that could be put in the private placement. This is known in the industry as “concentration.”
Allocating too much of a customer’s assets in one security, type of security, industry, etc. is known as “over-concentration” and can be very dangerous and risky for the customer. That is why in most cases over-concentration is deemed unsuitable and a violation of FINRA rules.
Inappropriate sales of private placements and over-concentration can result in significant and devastating losses to investors. Many of these investors can recover all or some of their losses under the law.
Malecki Law has handled numerous cases relating to losses as a result of over-concentration and private placements. If you or a family member lost money as a result of a broker’s recommendation, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.