Newbridge Securities Corporation, a securities broker dealer headquartered in Boca Raton, Florida, has been censured and fined $50,000.00 by Financial industry Regulatory Authority (FINRA) because Newbridge Securities Corporation failed to supervise certain representatives in connection with the recommendation and sale of LJM Preservation and Growth Fund. Letter of Acceptance, Waiver, and Consent No. 2019061764901 (March 27, 2023).
According to the AWC, between October 25, 2016, and February 8, 2018, the securities broker dealer allowed sales of LJM without undergoing adequate due diligence and without realizing the features and risks of LJM.
FINRA states that Newbridge Securities Corporation unreasonably supervised representatives’ recommendations of alternative mutual funds. The regulator first points out that the securities broker dealer lacked procedures or a system to identify if a mutual fund was an alternative mutual fund or a complex product as compared to a typical mutual fund, and whether the alternative mutual fund or complex product warranted additional due diligence before sales could be effected. Newbridge Securities Corporation placed those atypical products in the same category as traditional mutual funds and it relied upon its clearing firm to approve funds for sale rather than undergoing its own due diligence of LJM.
FINRA also states that stockbrokers were not provided with reasonable training or guidance concerning the features and risks of alternative mutual funds. There were no supervisory procedures for principals to lean on in supervising stockbrokers’ recommendations of those alternative mutual funds.
The securities broker dealer also did not consider whether its electronic trading review system, which was its system used for determining suitability of mutual fund transactions, was equipped to vet alternative mutual funds. FINRA states that the trading review system automatically approved trades—no principal stepped in to review suitability.
FINRA states that Newbridge Securities Corporation additionally failed to review the investment and trading strategy of LJM during the time that the securities broker dealer underwent its new product approval procedure. There were no limitations implemented by Newbridge Securities Corporation on LJM sales.
FINRA states that investors who held LJM shares as of February 6, 2018 sustained approximately eighty percent losses on their investments following a massive increase in market volatility the day prior. Therefore, FINRA found that Newbridge Securities Corporation violated FINRA Rules 2010 and 3110.
