U.S. Boston Capital Corporation a securities broker dealer headquartered in Lincoln Massachusetts has been censured and fined $125,000.00 by Financial Industry Regulatory Authority (FINRA) based upon the firm’s consent that it failed to supervise its business practices concerning the dissemination of consolidated reports which resulted in the firm disseminating inaccurate investment information to investors. Letter of Acceptance Waiver and Consent No. 2017054478001 (June 10, 2019).
According to the AWC, the firm failed to supervise consolidated reports, which are documents containing information about nearly all of the customer’s assets held inside and outside the firm. The AWC stated that securities broker dealers have been warned by FINRA that if they do not adequately monitor the accuracy of consolidated reports, there is considerable risk that investors may receive misleading, confusing or inaccurate information in regard to their investments. FINRA also warned the firms about complying with consolidated report requirements given the concerns about unethical and fraudulent practices aimed at deceiving customers about their investments. Therefore, consolidated reports cannot be disseminated if the firm is not in a position to adequately monitor the stockbrokers’ use of the reports.
The AWC stated that between January of 2015 and December of 2017, the firm neglected to supervise consolidated reports. Specifically, during that time, a total of six private placements called Focus Funds had been sold to investors. The AWC stated that four of the firm’s stockbrokers sold these funds, and those stockbrokers were responsible for updating customers on the value of their Focus Fund positions. Evidently, one hundred ninety-seven customers had been provided consolidated reports referencing the values of their investments including Focus Funds. Supposedly; however, the firm did not have any process which governed the consolidated reports disseminated to those customers.
The AWC indicated that the consolidated reports were manually prepared through the firm’s administrative personnel. Then, they were only reviewed by the stockbrokers prior to being presented to the customers. No supervisory personnel at the firm looked over the consolidated reports to ensure that stockbrokers were providing accurate information to customers within the consolidated reports. FINRA stated that the firm’s failure to supervise in this regard was violative of FINRA Rules 2010 and 3110.
FINRA also revealed that a large percentage of the consolidated reports actually contained false information. In particular, the firm provided investors with documents containing misleading and false valuations of assets. Apparently, the Focus Fund valuations did not reflect the valuations provided within Forms ADV filed by the firm’s affiliate, Pear Tree Partners, LP, who created and controlled the Focus Funds.
Evidently, between 2015 and 2016, a total of eighty customers had been provided consolidated statements containing the wrong information about the values of their Focus Fund holdings. The documents were reportedly riddled with errors caused by individuals whom the firm did not supervise. Thereafter, in 2017, another sixteen customers received information from the brokers which contained false information about the Focus Funds.
FINRA revealed that most of the customers’ accounts were undervalued or overvalued in large amounts. Indeed, some of the investors’ accounts values were at least $100,000.00 overstated. FINRA found the firm’s conduct violative of FINRA Rules 2010 and 2210.
