Gopi Krishna Vungarala, of Midland, Michigan, a stockbroker formerly registered with Purshe Kaplan Sterling Investments, and investment adviser formerly associated with Shutterfield Financial Group, has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity and ordered to disgorge commissions totaling $9,682,629.00 according to an Extended Hearing Panel Decision containing findings that Vungarala committed securities fraud. Department of Enforcement v. Gopi Krishna Vungarala, No. 2014042291901 (Oct. 25, 2017).
According to the Decision, during the time that Vungarala was associated with Purshe Kaplan Sterling Investments, a Native American Tribe hired him as the Tribe’s Investment Manager in November of 2008, where Vungarala worked with the Tribe’s Treasury Department to manage the Tribe’s investment portfolio. Apparently, Vungarala was relied upon by the Tribe as the investment professional, as the Tribe’s people lacked any substantial investment expertise and were not abreast of the way securities brokerage firms operated. The Order stated that Vungarala was the only person in the Tribe’s Treasury Department with expertise with investing outside of a retirement account.
The Order stated that Vungarala, as the Tribe’s fiduciary, initially traded stocks and investment-grade debt investments that the firm maintained at Charles Schwab. However, by the middle of 2011, recommendations were made by Vungarala to invest in business development companies and real estate investment trusts. Those investments apparently comprised nearly twenty-three percent of the Tribe’s investment portfolio by the time that Vungarala ceased his association with the Tribe.
Apparently, the Tribe’s lack of investment expertise was taken advantage of by Vungarala, where he made misleading and false representations, and omissions to the Tribe regarding his financial stake in business development companies and real estate investment trusts recommended by him to the Tribe.
Particularly, Vungarala continued to work as an investment advisor with Shuttefield and stockbroker with Purshe Kaplan Financial Group, utilizing his stockbroker role to obtained in excess of $9,000,000.00 in commissions for the business development group and real estate investment trust transactions he effected for the Trib. The compensation from those transactions produced a conflict of interest considering that the Tribe’s policies restricted him from becoming involved in transactions that could cause him not to be impartial with regard to the Tribe’s investment management decisions.
The Order revealed that the Tribe’s supervisor was convinced by Vungarala that Vungarala would not receive commissions from executing the transactions, serving the basis of the Tribe’s position of there being no conflict of interest. Evidently, Vungarala did nothing to report that he would be compensated or otherwise financially benefited by the Tribe’s decision to investment in the business development company and real estate investment trusts.
The Order mentioned that Vungarala concealed information regarding the investment expenses and fees that the Tribe would incur, only addressing those charges when questioned by the Tribe. Evidently, when the Tribe investigated the commissions it paid for investing, Vungarala failed to point out that he would receive most of the commissions rather than an independent sales team within Purshe Kaplan Sterling.
The Order also confirmed that the Tribe was misled by Vungarala with regard to volume discounts that the Tribe was eligible for but did not receive. Specifically, he falsely represented to the Tribe that it would only be able to receive a discount when physically comingled purchases were made as opposed to transactions having been effected in separate accounts. The Tribe was reportedly offered volume discounts by the real estate investment trusts but Vungarala elected not to inform the Tribe because of the possibility of his commissions having been reduced as a result. Evidently, $2,800,000.00 in additional commissions were paid to Vungarala because of his failure to pursue the volume discounts on the Tribe’s behalf. In sum, the Tribe lost out on volume discounts totaling $3,300,000.00.
FINRA found that Vungarala’s greed in this regard came at the Tribe’s direct expense, where he intentionally misled the Tribe about the commissions and volume discounts by way of his myriad of omissions and misrepresentations. FINRA’s Extended Hearing Panel concluded that Vungarala’s fraud was willful; his conduct violative of Securities and Exchange Act of 1934 Section10(b), Securities and Exchange Commission (SEC) Rule 10b-5, and FINRA Rules 2010 and 2020.
FINRA Public Disclosure reveals that Vungarala has been identified in a customer initiated investment related arbitration claim, based on allegations of breach of fiduciary duty, breach of contract, misrepresentation, omissions and unsuitable investment recommendations in reference to the customer’s investments in business development companies and real estate investment trusts. FINRA Arbitration No. 17-00885 (May 9, 2017).
Vungarala’s registration with Purshe Kaplan Sterling has been terminated as of February 10, 2016.
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