FINRA Fines Colorado Financial Over High-Risk Closed-End Fund Supervision | LeapRate
Colorado Financial Service Corporation has been censured and fined $45,000 by the Financial Industry Regulatory Authority over failures to supervise recommendations of high-risk closed-end funds, according to a Letter of Acceptance, Waiver, and Consent.
FINRA revealed that from March 2021 to at least February 2023, the firm failed to reasonably supervise and to maintain reasonably designed policies and procedures around recommendations to purchase closed-end funds investing in high-yield, below-investment-grade debt securities.
Some of the funds were leveraged, and all were found to be inconsistent with customers’ investment profiles, in breach of Regulation Best Interest and FINRA rules.
The regulator added that the the Centennial, Colorado-based firm’s written procedures did not reasonably describe when heightened supervision should apply to complex or high-risk products, and relied on a manual review of trading activity that did not reliably alert supervisors to unsuitable recommendations.
FINRA noted a former registered representative recommended that a moderate-risk, low-income senior customer invest 100% of her stated net worth across seven high-risk closed-end funds, resulting in losses of $29,049.
The representative is also said to have recommended that a low-risk trust for an educational entity invest all of its stated net worth in one such fund. The firm failed to detect the red flags in either case.
Colorado Financial consented to the findings without admitting or denying them. As well as the censure and fine, the firm was ordered to pay restitution of $29,049 plus interest.
